Economic innovation in Michigan fell in the third quarter of 2008, according to UM-Dearborn study

March 12, 2009

DEARBORN / March 12, 2009---In a reflection of the acceleration of the national economic recession last year, innovative economic activity in Michigan declined by 1.8 percent during the third quarter of 2008, according to the “innovation index” compiled by scholars at the University of Michigan-Dearborn School of Management.

The index fell to 93.3 in the third quarter, down from 95.0 in the second quarter of the year. The third quarter of 2008 also was down significantly from the third quarter of 2007, when the index stood at 95.8.

Despite the decline, innovative activity in the state is still significantly higher than it was at the end of 2007, when the index tallied 89.9.

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. Of the six indicators, two rose and four fell in the third quarter of 2008, with gross job creation the most significant upward factor.

“At a time when many jobs are being lost, it is even more important that new jobs are created,” according to Lee Redding, associate professor of business economics and director of the Innovation Index at the UM-Dearborn School of Management. “The reported number of new jobs created by new companies or companies adding jobs was approximately 228,000 during the second quarter of 2008, adding 2.6 points to the Index.”

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

The other positive indicator was continuing improvement in venture capital activity in the state. “Data showed a fourth straight quarter of improvement, recording the highest total for a quarter since 2000,” Redding said. The improvement in the third quarter added 1.5 points to the Index.

On the negative side, employment of “innovation workers,” the number of trademarks applied for in the state, the number of loans arranged through the Detroit office of the Small Business Administration and the number of new incorporations all declined during the third quarter of 2008.

The fraction of Michigan workers employed in science and engineering fields declined very slightly during the quarter and the number of new incorporations “fell somewhat,” Redding said.

A much larger decline was seen in the number of small business loans “which continued its decline in the third quarter and is now less than half the level it was in 2006,” according to Redding. “Trademark applications filed by Michigan businesses also fell in the third quarter, lowering the Innovation Index by 2.8 points.”

The Innovation Index for the fourth quarter of 2008 will be released in June.

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

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