Abstract
The market performance of the West Michigan Stock Index is heavily dependent on the performance of two industries: banking and auto. Economic pressures were not kind to either of these two industries in 2006. The Federal Reserve continued to raise short-term interest rates even as Michigan’s economy remained in the doldrums. The higher rates eroded bank interest rate margins, reducing bank profitability. A reduction in mortgage lending fees — partly the result of the housing bubble bursting — also cut into bank profitability. The result has been intense competition among area banks, price cutting, slower growth, investor skepticism about the shortterm outlook for the banking sector, and the first bad year for local bank stocks in several years.