'Innovation Index' dips in fourth quarter

June 23, 2010

A drop in trademark applications caused a dip in innovative economic activity in Michigan during the fourth quarter of 2009, according to the “innovation index” compiled by scholars at the College of Business.

The index gave up part of its seven point previous quarter gain and declined to 83.3 from 86.9 in the fourth quarter.

“The decline was largely due to an unusual drop in trademark applications partially offset by an improvement in gross job creation,” according to Lee Redding, associate professor of business economics and director of the Innovation Index at the College of Business.

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. Two components of the index rose during the quarter while four declined.

“Looking ahead, it appears that innovative activity showed a distinct improvement in the first quarter of the year, including a rebound in the trademark activity that led to the fourth quarter decline,” Redding said.

The reported number of new jobs created by new companies or companies adding jobs rebounded to approximately 234,000 during the third quarter of 2009, continuing a first quarter increase and adding 3.5 points to the index. “The latest number was the highest since the second quarter of 2007, and marks a 42 percent increase from the low point two quarters ago,” Redding said. (Due to data availability, this item enters the index calculation one quarter late.)

Employment of “innovation workers” showed a rebound in the fraction of Michigan workers employed in science and engineering, adding 1.0 points to the index in the quarter.

The number of trademarks applied for in the state showed a relatively sharp drop in the fourth quarter following several quarters of increase, bringing the number of applications slightly below its year-earlier level.  “The quarterly drop lowered the index by 5.7 points,” Redding said.

Venture capital activity in the state reversed some of the gains from mid-2009, costing the index 0.6 points, according to Redding.

The number of small business loans dropped somewhat in the fourth quarter.  The drop comes after two quarters of strong growth aided by the stimulus plan, reducing the index by 1.3 points for the quarter.

The number of incorporation filings in the state declined slightly in the fourth quarter, lowering the index by 0.5 points for the quarter.  “The number of incorporations is, however, still higher than its year-ago level,” Redding said.

The Innovation Index for the first quarter of 2010, with a preliminary estimate for the second quarter of 2010, will be released in September.

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

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