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

June 16, 2009

DEARBORN / June 16, 2009---In a reflection of the dramatic effects of the global credit crunch, innovative economic activity in Michigan declined by 13.5 percent during the fourth quarter of 2008, according to the “innovation index” compiled by scholars at the University of Michigan-Dearborn School of Management.

The index fell to 80.7 in the fourth quarter, down from 93.3 in the third quarter of the year. The fourth quarter of 2008 also was down significantly from the third quarter of 2007, when the index stood at 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. All six indicators fell in the fourth quarter of 2008.

“Looking forward, while the continuing credit crunch is likely to hamper factors such as gross job creation in the first half of 2009, hopes for early ‘green shoots’ signs of economic recovery will focus on measures such as incorporations and trademark activity, which can reflect expansion plans of existing and new businesses,” 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 fell to approximately 206,000 during the third quarter of 2008.  ‘This number is about 10 percent lower than the corresponding numbers both the previous quarter and the year-ago quarter, costing the Index 2.9 points,” Redding said.

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

Venture capital activity in the state fell in the fourth quarter, ending a series of increases going back to the third quarter of 2007. “The number was higher than year-ago levels but reduced the Index by 2.5 points from the previous quarter,” Redding said.

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 fourth quarter of 2008.

The fraction of Michigan workers employed in science and engineering fields declined very slightly during the quarter, reducing the Index by 0.2 points, Redding said.

A decline was seen in the number of small business loans “which continued its decline from a peak reached in 2006,” according to Redding. “Trademark applications filed by Michigan businesses also fell in the fourth quarter, lowering the Innovation Index by 3.1 points.”

The Innovation Index for the first quarter of 2009 will be released in September.

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

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