Economic innovation in Michigan slowed in third quarter of 2007, according to UM-Dearborn study

March 10, 2008

DEARBORN / March 10, 2008---Innovative economic activity in Michigan fell from 99.7 in the second quarter of 2007 to 95.8 in the third quarter of 2007, according to an “innovation index” developed by scholars at the University of Michigan-Dearborn School of Management.

“The decline was likely related both to the national economic problems and to the state business tax uncertainty at that time,” according to Lee Redding, associate professor of business economics and director of the Innovation Index. “In particular, it looks as if investors were reluctant to put money on the table in the third quarter.”

The reading for the third quarter of 2007 was also lower than the 97.7 recorded in the same quarter of 2006.

The quarterly “Innovation Index” is a project of the school’s Center for Innovation Research, or iLabs. 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 registrations, incorporation activity, small business loans and gross job creation.

For the most recent quarter, declines in four components of the index outweighed improvements in two components, according to Redding.

The negative factors included “a partial reversal of the strong growth in science and engineering employment that occurred in the year leading up to the second quarter of 2007,” Redding noted. The third-quarter drop, drawn from Bureau of Labor Statistics data, subtracted 2.5 points from the Index.

In addition, after a very strong second quarter, venture capital experienced a sharp drop in the third quarter of 2007 in Michigan, and the number of loans arranged by the Detroit office of the Small Business Administration continued to decline.

“Since peaking in the second quarter of 2006, that number has dropped in four of five quarters,” Redding said.

Incorporation activity also slowed from the second quarter of 2007 to the third quarter.

On the positive side, “trademark applications by Michigan entities continued a recent string of winning quarters,” Redding said. And state employers added approximately 239,000 new jobs in the second quarter of 2007. (Due to data availability, this item enters the Innovation Index one quarter delayed.) “This number, the highest since the second quarter of 2006, added 2.9 points to the Innovation Index,” Redding said.

“Innovation is key to economic growth, and the University of Michigan-Dearborn Innovation Index was developed to evaluate innovative activity in the state in a timely way,” Redding said. “Many innovation studies rely on data from IRS or the census, with 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 fourth-quarter 2007 University of Michigan-Dearborn Innovation Index will be released in early June. Redding collaborates on the project with Anne-Louise Statt, a lecturer in business economics at UM–Dearborn, and undergraduate student Gary Hein.

 
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