By David Sowerby
Crain’s Detroit Business
More evidence is supporting the case that Michigan business conditions are growing faster than the national averages. What is perhaps most encouraging is the argument that the faster growth is not simply a mediocre rebound from the depressed levels of the Great Recession, but rather stems from structural improvements that should help enhance the opportunity for Michigan to compete in the long run.
Three critical data measurements reinforce the improved business conditions. They are:
• Michigan vs. U.S. prosperity growth: I define prosperity as simply the combination of job growth plus personal income growth. After significantly trailing the U.S. from 2002 through 2009, Michigan’s combination of job and income has exceeded U.S. growth for the past eight quarters. The state has not witnessed that advantage versus the U.S. since the mid-1990s.
• The performance of Michigan’s corporate headquartered, high-yield bond market has exceeded the national indexes. The high-yield bond market is a gauge of economic sensitivity and often leads even the stock market as a barometer of future business conditions. Companies such as Lear, Pulte, Masco and CMS Energy, to name a few, are rated below investment grade or high yield by the credit rating agencies. A portfolio of 14 Michigan corporate high-yield bonds had a total return (yield and price appreciation) of 8.5 percent in the first half of 2012, compared to a 7 percent return for the Merrill Lynch U.S. High Yield Bond index.
The favorable performance for Michigan’s high yield corporate bonds in 2012 has prevailed now for the past three years. The same portfolio of Michigan’s high-yield corporate bonds has returned 69
percent, compared to a 56.4 percent return for the U.S. Merrill Lynch High Yield index, for the three-year period ending June 30, 2012.
• Michigan’s corporate ranking in the most recent Barron’s top 500 publicly traded companies — based on corporate cash flow return on investment and revenue growth — has meaningfully improved in the past three years. In the May 2012 Barron’s top 500 U.S. companies, 16 Michigan publicly traded companies made the list, a comparable number from their annual rankings in 2008 and 2009. However, the rank of Michigan companies has improved significantly, rising from an average of 382 in 2008 to 251 in 2012. Indeed, Borg Warner, one of the most profitable auto companies, was ranked 19th in 2012 — the first time a Michigan company has cracked the top 25 since the survey began.
These three diverse measures further confirm the more recent improvement in Michigan’s business conditions and, importantly, suggest the longer-term prospects for Michigan to compete have meaningfully increased.
David Sowerby is portfolio manager in the Bloomfield Hills office of Loomis Sayles & Co. LP.