'Innovation Index' roughly unchanged in the first quarter of 2009, according to UM-Dearborn study

August 28, 2009

DEARBORN / Aug. 31, 2009---After a fall of more than 12 points in the previous quarter as the credit crunch made economic innovation very difficult to finance, innovative economic activity in Michigan was roughly unchanged in the first quarter of 2009, according to the “innovation index” compiled by scholars at the University of Michigan-Dearborn College of Business.

The index fell to 80.0 in the fourth quarter, down from 80.7 in the fourth quarter of 2008. Both numbers are dramatically lower than those from early 2008.

The quarterly index, a project of UM-Dearborn’s Center for Innovation Research, or iLabs, provides a summary measure of economic innovation activity in the state of Michigan. The index tracks economic innovation in Michigan based on calculations of employment of “innovation workers,” trends in venture capital, trademark applications, incorporation activity, small business loans and gross job creation. Two components of the Index rose during the quarter while four declined.

“Looking ahead, preliminary indications are that innovative activity began to recover in the second quarter of 2009,” according to Lee Redding, associate professor of business economics and director of the Innovation Index at the UM-Dearborn College of Business.  “Based on partial data, iLabs estimates that the Index will show a modest second quarter recovery to 83.5.  This recovery is based on strong reports from Small Business Administration loans (encouraged by the stimulus plans) and trademark applications.  Other components of the Index are not currently expected to show sharp moves in either direction.”

The number of incorporation filings in the state, which are often relatively strong at the start of the calendar year, showed a substantial increase in the first quarter.  “The first quarter numbers, which were similar to the first quarter numbers from 2008, contributed an improvement of 2.4 points to the Index for the quarter,” Redding said.

The number of trademarks applied for in the state rose moderately in the first quarter.  “Although still down from year-ago levels, the quarterly improvement added 1.0 points to the Index,” said Redding.

The reported number of new jobs created by new companies or companies adding jobs fell to approximately 200,000 during the fourth quarter of 2008.  “This number is down slightly from the previous quarter, which reduced the Index by 0.6 points,” Redding said.

(Due to data availability, this item enters the index calculation one quarter late.)

Venture capital activity in the state continued to fall in the first quarter, reducing the Index by 1.5 points, according to Redding.

Employment of “innovation workers” and the number of loans arranged through the Detroit office of the Small Business Administration also declined during the first quarter of 2009.  

“A substantial drop in the fraction of Michigan workers employed in science and engineering cost the Index 2.0 points,” Redding said.

The number of small business loans was relatively unchanged from the low numbers of the fourth quarter.  A small drop cost the Index 0.2 points.

The Innovation Index for the second quarter of 2009, with a preliminary estimate for the third quarter, will be released in December.

Redding collaborates on the project with economist Anne-Louise Statt.

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