Companies take countermeasures against downturn: Businesses gird for tough times with targeted marketing, delayed spending and improved operations

Local businesses are predicting the economy won't recover before mid-2009 or even 2010, and many are cutting costs, postponing investment and striving for greater efficiency.

Those are just some of the findings of the Traverse City Business News' 2008 Economic Forecast Survey, a poll of 190 local business decision-makers. It was undertaken in November just as worries about the financial and auto crises were peaking across the country.

The survey portrays a business community that is striving to stay financially responsible, yet alert to new opportunities and potential improvements in their day-to-day operations.

Compared to 2007, the survey's findings suggest the weaker-than-ever national and state economies are affecting northwest lower Michigan more than last year.

More employers say they have laid workers off, and fewer say they have added jobs. About 21 percent say they now employ fewer staff. In the 2007 survey, that percentage was just 14 percent. Still, in a heartening sign for the local economy, the majority say they are maintaining employment levels.

But fewer companies are planning new commercial construction or purchases of software or equipment.

On a brighter note, the respondents feel the regional and national economies may soon be on the way up. In the 2007 survey, they saw 2008 in somewhat bleaker terms than they are now seeing 2009.

About 47 percent expect the regional economy to be better over the next 12 months, compared to just 38 percent at this point a year ago. About 51 percent of those polled see better prospects for the national economy next year, while the equivalent figure last year was just 42 percent.

But a full 50 percent do not expect the state economy to improve over the next 12 months. Their view tallies with the University of Michigan forecast for the state released last month.

It predicts that Michigan employment will continue to fall through 2009 and 2010, although the decline will slow as the national economy gains strength. It also forecasts a weak but improving auto industry and some growth in home building as the national economy strengthens.

Whatever rescue plan for the Detroit Three emerges in Washington, "the hard times are here to stay for awhile," George Fulton, the U-M professor who led the study, said in a news release.

The Michigan construction industry is expected to lose about 36,000 jobs throughout the current recession before "improving" to net zero job growth in 2010, according to a U-M news release.

The construction industry leaders polled in the survey have similar expectations: None predicted job growth at their firms, and 62 percent predicted job losses in their companies.

The respondents had little trouble identifying the factors that could drive improvements in the local economy. In the poll, state efforts to promote tourism topped the list of factors affecting the region, with 83.5 percent of respondents rating them extremely or very important to the region (see chart).

Business leaders also cited gasoline prices and commercial lending rates as key factors for the Grand Traverse region, ranking them above annual snowfall and the performance of the agricultural and auto sectors.

About 61 percent ranked the condition of the commercial real estate industry as extremely important or very important to the region, just ahead of the region's agriculture with 60 percent.

Respondents also see their own business responses as part of the answer to economic challenges. Apparently recognizing the region's importance, a full two-thirds of respondents said the national economic crisis has made them more likely to buy local products and services.

More than eight percent of respondents plan to open new outlets or locations – about the same percentage as last year.

Retailers are maintaining smaller inventories and focusing on more popular products. In the current environment, however, malls are likely to have a tougher time than big boxes or downtown stores, the respondents said.

Companies aren't underestimating the power of new local events. They overwhelmingly believe that the Traverse City Film Festival will outgrow the National Cherry Festival, Epicurean Classic and Horse Shows By the Bay in the next 12 months.

But all of these events may be on the right track. According to the most recent edition of "Workforce and Economic Indicators," a state publication, the leisure and hospitality industry grew slightly in Michigan in the third quarter of 2008. It includes arts, entertainment, recreation, lodging and food services.

In their own businesses, entrepreneurs are pursuing strategies ranging from carefully expanding operations, to offering new products and asking managers to hold broader responsibilities. About one business in eight has cut marketing and advertising spending, while about one in 12 has increased such outlays. At the same time, some respondents said they are using more targeted marketing, and relying on their existing customer base to a greater extent.

A substantial 23 percent of respondents still expect to add employees in 2009 despite the darkening national outlook. That figure was more than 33 percent in the 2007 survey. While not especially bright, Grand Traverse County's employment picture has not worsened significantly over the year, at least. BN