Level of tourism difficult to gauge amid state troubles

REGION – Michigan's major economic engines have sputtered over the last year, cutting disposable incomes and increasing financial uncertainty.

But no one has yet been able to figure out their effect on northern Michigan's economy. Will people lack the money to spend on vacations and weekends in the region? Or will affordable vacations in northern Michigan prove to be an even bigger draw than in the past?

"There has always been this ongoing debate as to whether Michigan tourism is negatively or positively affected by a sluggish economy," said George Erickcek, senior regional analyst with the W.E. Upjohn Institute for Employment Research in Kalamazoo.

The answer may have to do with both consumer psychology and the close relationship of the local economy with its massive regional neighbors to the south.

In lower Michigan, wages are down and economic uncertainty is up. Both the Grand Rapids and Detroit areas have suffered manufacturing job losses over the past year, slashing incomes for thousands of families.

According to an Upjohn Institute report on West Michigan, "overall conditions have been on a prolonged downward trend after peaking last summer." In its assessment of southeastern Michigan, it notes that the Big Three's market share fell from 56.4 to 53.5 percent during the first four months of 2007. That has translated into layoffs for tens of thousands of workers, although usually with generous separation packages and possibly early retirement.

"We know that the state economy is still horribly sluggish and personal income growth is not expanding as much as we would like," Erickcek said. "The state is not expected to recover during the remainder of the year."

Conditions in both regions have been especially tough on the state's retail sector.

"I would say that the last couple months of data are better than they have been in quite a while," said William Strauss, a senior economist with the Federal Reserve Bank of Chicago who produces a monthly report on retail activity for the Michigan Retailers Association.

For example, retailers lately have been more optimistic than they were earlier in the year, he said. Since shoppers are mostly the same people who take vacations, that may bode well for the tourism industry.

One problem with forecasting is that the Great Lakes State is extremely difficult to read right now. Gas prices, admitted at or near all-time highs, still fluctuate considerably. Home values are down somewhat, but the stock market is at record levels.

"In the last year and certainly the last quarter, we have some great corporate earnings performance," said Erik Falconer, principal of the Traverse City-based Falconer Group, which specializes in investments for high-net worth family clients. "Profit margins are flying through the roof."

The U.S. economy was slowing down earlier in the year, but now is doing better, Strauss said. In Michigan, consumers have had the opportunity to absorb all the news about the automotive restructuring and make their own fresh appraisals about their financial security.

Those appraisals will affect northern Michigan's level of activity.

"The more I learn about this part of the state, the more I realize it is not as insulated as one might think," said Falconer. "There is an influence, from the summer homes, if nothing else."

One potential plus for the northern Michigan economy is the new state law prohibiting public school year starts before Labor Day. This is the first year that millions of Michigan families knew in advance that the last week or so of August would be available for their vacations.

"If this is going to extend the season to 11 or 12 weeks, that should make a difference for the tourism industry," said David Lorenz, manager of public and industry relations for Travel Michigan. It could use the extra boost even if it is already seeing more business in the "shoulder" seasons of spring and fall, he said.

Although the Michigan Tourism Bureau hasn't collected any data yet, Lorenz sees signs that consumers have embraced northern Michigan this summer.

"It sounds like people have partially thrown off the idea that gas prices are going to slow them down," he said. "They are setting the money aside, and they are going to offset the expense in some other way or just spend more."