Doug Smith: Facing Challenges Together

Michigan and Oakland County face very difficult challenges,  beginning with protecting high levels of home ownership as we face job losses, foreclosures and the sub-prime mortgage problems. Our financial institutions are absorbing huge losses in the mortgage markets. The results of the housing crisis will hit all units of local government with declining property tax revenues over the next few years. So I do not want my comments to reflect a lack of reality of unprecedented value loss in homes in Oakland County. However, this like all other issues needs to be put in context to realistically find our way out of the crisis.

I want to draw your attention to a few of those factors that provide the base for some hope that we can handle the challenge. Housing comprises only 4.5 percent of the gross national product.  Brian S. Wesbury, chief economist for the Illinois-based First Trust Advisors, wrote in the Jan. 28 edition of The Wall Street Journal that exports are 12 percent of the economy and they are growing at a 13.6 percent rate. This export boom is helping offset housing losses.

But what does that mean for Michigan? These strong exports are providing a balance in the economy. In a recent article in the Detroit Free Press, business writer John Gallagher noted that Detroit is a major exporter in the United States. In fact Detroit ranks fifth in the nation in the value of its manufactured goods shipped elsewhere, totaling $43.3 billion.

Need more convincing? Wall Street Journal reporter Tom Lauricella wrote in the Feb. 4 edition that more than half of the companies in the S&P 500 stock index have reported their fourth quarter earnings and the numbers show a bleak 19.3 percent drop. He noted that this largely reflects the huge write offs by banks and brokerage houses suffering losses tied to mortgages. However, earnings outside the financial sector are up 11 percent. So while the financial institutions will continue to absorb losses, earnings in important sectors such as technology and health care have shown double-digit increases, providing a strong base for a recovery.

Innovation in this region was highlighted by John Kayo, a San Francisco-based consultant who was the keynote speaker at the "D" Brand Summit a few weeks ago.

"Detroit is the place that things can get figured out in a way that can show how things will work everywhere else," Kayo said.

He further noted that innovation is a historical strong point for the Detroit region. Crain's Detroit Business reported on the University of Michigan-Dearborn Center of Innovation Research developing a new index. The index shows the second quarter of 2007 increased 2.6 percent and was well ahead of activity levels of most of 2006.