Economic innovation in Michigan slowed significantly at the end of 2007, according to UM-Dearborn study

June 2, 2008

DEARBORN / June 2, 2008---Innovative economic activity in Michigan slowed significantly in the fourth quarter of 2007, falling from 95.8 in the third quarter of the year to 89.9 in the fourth quarter, according to an “innovation index” developed by scholars at the University of Michigan-Dearborn School of Management.

The reading for the fourth 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 applications, incorporation activity, small business loans and gross job creation.

“Five of the six components showed declines the last quarter of the year,” according to Lee Redding, associate professor of business economics and director of the Innovation Index. The only factor to buck the trend was investment in venture capital, “which bounced back somewhat from low levels in the third quarter of the year,” Redding said.

On the negative side, Bureau of Labor Statistics data for the fourth quarter showed a modest drop in employment in science and technology in the state. While still in the negative column, the employment losses were slower in the fourth quarter than in the third quarter of 2007.

In addition, “the number of loans arranged by the Detroit office of the Small Business Administration continued to decline,” Redding said. “Since peaking in the second quarter of 2006, SBA loan activity has dropped in five of the six subsequent quarters.”

And after increasing for four quarters in a row, trademark applications by Michigan enterprises declined in the fourth quarter.

Incorporation activity and formation of limited-liability companies were down 14 percent in the last quarter of 2007 compared with the last quarter of 2006.

State employers added approximately 225,000 gross new jobs in the third quarter of 2007, a decline of approximately 14,000 from the previous quarter. (Due to data availability, this item is added to the Innovation Index one quarter later than the other data.) “While this number is roughly the same as the year-earlier figure, the decline from the second quarter had a dampening effect on our index,” 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 first quarter of 2008 will be released in September. 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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