Economic innovation in Michigan grew in the first quarter of 2008, according to UM-Dearborn study

August 25, 2008

DEARBORN / Aug. 25, 2008---Innovative economic activity in Michigan grew at the beginning of this year, rising from 89.9 in the fourth quarter of 2007 to 96.0 in the first quarter of 2008, according to an “innovation index” developed by scholars at the University of Michigan-Dearborn School of Management.

Despite being lower than the reading for the first quarter of 2007, which was 100.0, the increase follows three successive declining quarters.

“The late 2007 numbers might have been depressed by the great uncertainty as to our state business tax, and with that uncertainty resolved, innovative activity rebounded even with a depressed national economy,” according to Lee Redding, associate professor of business economics and director of the Innovation Index at the UM-Dearborn School of Management.

The quarterly index, a project of the school’s Center for Innovation Research, or iLabs, provides a summary measure of economic innovation activity in the state of Michigan.

The index was developed to track accelerations and decelerations in 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.

“Five of those six components showed increases during the first quarter of the year,” Redding said.

Among the positive indicators, incorporation activity boomed at the beginning of this year, up almost 25 percent from the previous quarter, and after falling for three straight quarters.

Trademark applications also reversed a fourth quarter decline and rose 6 percent in the first quarter of 2008, recording the highest level since the first quarter of 2006.

“Venture capital also continued its recovery from low levels in the third quarter of 2007,” Redding said.

In addition, the state experienced an increase of “innovation workers” in the state, Redding said, as federal data indicated an increase in the fraction of Michigan workers employed in science and engineering in the first quarter.

Overall, the reported number of new jobs created by new companies or companies adding jobs was approximately 226,000 in the fourth quarter of 2007, a very slight increase over the previous third quarter. (Due to data availability, this item enters the index calculation one quarter late.)

The only negative factor on the first quarter index was in the number of loans arranged by the Detroit office of the Small Business Administration. “Since peaking in the second quarter of 2006, this activity has dropped in six of the seven subsequent quarters,” Redding said.

“We developed the UM-Dearborn Innovation Index to evaluate innovative activity in the state in a timely way,” Redding said.

“Many innovation studies have delays of two years or more. We’ve identified a number of economic innovation variables that are available with relatively short delays, making it possible for us to calculate an innovation index for a given quarter five months after the end of the quarter.”

The Innovation Index for the second quarter of 2008 will be released in early December.

Redding collaborates on the project with Anne-Louise Statt, a lecturer in business economics at UM–Dearborn, and Gary Hein, who graduated from the School of Management earlier this spring.

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