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Midwest, Ohio Economy Stronger than Nation’s
YOUNGSTOWN, Ohio -- Economists might disagree about why the economy isn’t growing faster but they agree that the economy is growing nowhere near its potential.
“Sluggish” is the term economists at the Federal Reserve Bank of Cleveland used to describe activity in Ohio, western Pennsylvania, the West Virginia panhandle and parts of northern Kentucky in late 2012 except for shale gas activity in eastern Ohio, which they described as “robust.”
Economists, including those at the Fed, don’t see growth picking up until the second half of this year and that pickup continuing into 2014.
Closer to home, Kenneth Mayland, George Mokrzan and A.J. Sumell point to growth in northeastern Ohio and the Midwest exceeding the national average and likely to continue to do so. Not only is growth well above the national average, in large measure because of exploring and drilling in the Utica shale, unemployment is well below the national average.
Mayland is president of ClearView Economics LLC, a consulting firm in Pepper Pike. Mokrzan is senior vice president and director of economics at Huntington Banc Shares Inc., Columbus. And Sumell is a professor of economics at Youngstown State University who focuses on the Mahoning Valley economy.
At the Youngstown/Warren Regional Chamber, Sarah Boyarko, vice president for economic development, retention and expansion, cites impressive statistics about the health of the economy in Trumbull and Mahoning counties. Companies invested $376 million in 2012, she says, resulting in 1,339 jobs created (and $15 million in payrolls), 4,741 jobs retained (and $177 million in payrolls retained) and 738,188 square feet of building space constructed or remodeled.
Sixty-four serious inquires about locating in the Mahoning Valley from out-of-area firms of whom 37 came to visit and inspect potential sites. “Forty-five percent are oil-and-gas related,” she says. “We’re also strong in manufacturing and plastics.”
These figures compare favorably with 2011 when $207 million was invested resulting in 833 jobs created (with a payroll of $35 million) 1,048 jobs retained (with a payroll of $42 million) and 2.9 million square feet of newly built or remodeled space. “Our prospects for growth are better than before,” she says.
When all the measurable data for last year are tallied and reported, says ClearView’s Mayland, “You’ll see that 2002 was a soft year for growth, 2.2% or 2.3%.”
To make a meaningful dent in the unemployment rate, he says, the economy needs to grow at least 3.5% and sustain that level.
The U.S. Bureau of Labor Statistics reported Jan. 15 that unemployment in the Youngstown-Warren-Boardman metropolitan area was 7.4%, in November, up 0.1% from October but down from 8.7% last July.
“There was a lot continuation of what we had [in 2011],” says Huntington’s Mokrzan. “Overall, just under 2% growth [for 2012],” is what the economics advisory committee of the American Bankers Association is projecting for 2012. Mokrzan, a member of the committee, had just returned from its quarterly meeting.
Not helping the economy is Congress allowing the return of the payroll taxes – FICA – to their old rate of 6.4% as part of the flurry of activity to avoid the “fiscal cliff.” “It’s a fiscal drag imposed on the economy,” Mayland notes. ”It takes $115 billion out of consumers’ pockets.”
“It [the 2% restoration] will have a bigger impact on low- to middle-income consumers,” Mokrzan says. “But consumers may offset this by taking on more debt.” Consumers have been taking on more debt of late, a reversal to paying down and paying off debt, especially credit-card debt.
Even so, the Huntington economist notes, “Household obligations [debt] are the lowest it’s been since 1984.”
Economists at the Cleveland Fed described consumers’ holiday season spending as “solid” although some retailers reported disappointment, an indicator that consumer confidence remains in check.
The good news is that households are managing their budgets better as indicated by consumers paying $18.7 billion in penalty fees to their credit-card issuers, reports Bill Hardekopf, editor of LowCards.com. That’s 8% lower than 2011, which was 14% lower than 2010. Consumers paid $23.9 billion in penalty and late fees during 2009, the onset of the Great Recession.
Mayland foresees growth of only 0.5% the first quarter, 1.2% the second, 2.6% the third and 2.6% in the last quarter. Uncertainty over sequestration (the across-the-board spending caps Congress imposed in late 2011), employers’ uncertainty over health insurance premiums and the impact of raising corporate taxes to a maximum of 39.6% from 35% leave employers wondering about steering their companies’ courses.
Manufacturing, which has fared best of all sectors, is concerned about the effect of the higher taxes. Two-thirds of the manufacturers are S corporations, Mokrzan points out, whose owners make more than $250,000 a year. While the Bush-era tax rates were retained for everyone except individuals with $400,000 and couples with $450,000, many will pay more and “higher taxes will have a slowing effect [on the economy],” he says.
The relative vibrancy of the Valley economy is such that the layoff of 1,000 workers at RG Steel in Warren was just a bump in the road, YSU’s Sumell says. “Many have found work elsewhere,” he noted.
“If we look at the last our years,” he says, “and use a health metaphor, in 2009, the Valley was in critical care. In 2010, we came out of critical care. In 2011, we were released from the hospital. In 2012, we were no longer ill. And in 2013, the patient is restored to health.”
A major story of 2012, he says, was the “continued growth of downtown Youngstown, the arts and entertainment district.” In addition, the National Advanced Manufacturing and Innovation Institute opened, Anderson-DuBose is building has begun supplying 500 McDonald’s restaurants from its warehouse in Lordstown and Wheatland Tube continue to expand.
The Hollywood Slots racino in Austintown will “have a short-term impact” by providing hundreds of skilled members of the building trades unions employment for two years or so. After that, “I’m doubtful it will draw money from out of town” because “[gambling] markets are so saturated that it will have a limited impact.
“You don’t have to go to Las Vegas or Atlantic City,” Sumell points out. One can travel to Cleveland, Pittsburgh, Erie, Pa., or Chester, W.Va., to bet on horseracing or play slot machines.
On a more positive note, Mayland and Mokrzan point to the health of the auto and housing industries and the still unrealized effects of the shale industry.
The General Motors complex at Lordstown is working three shifts.
“Total light vehicle sales are coming up to 15-plus million units at the end of 2012, Mayland says, “from a low of 9.5 million” at the worst of the Great Recession. “I ultimately see a 16- to 16.5-million annual rate,” Mayland says, although the restored FICA rates “may temporarily stymie sales.”
Americans will buy more new cars for three reasons, Mayland and Mokrzan point out. The older cars many Americans have been holding on are wearing out – it makes more financial sense to buy a new car than try to repair the 8- to 10-year old model. Second, demographics favor the automakers as the population increases, especially the number of younger Americans who need transportation. And third, the newest models are the most fuel-efficient.
Mokrzan and Mayland do not think an energy-independent United States is that far-fetched as natural gas is allowing U.S. industry to convert from petroleum and coal.
Mokrzan wants to see the United States build an infrastructure that would allow this country become a major exporter of liquid natural gas. “There are still some hurdles,” he says, “but the potential for LNG exports is there.”
Greater use of natural gas would translate into less reliance on the nations from whom the United States imports petroleum and either don’t share our values “or don’t like us very much,” Mayland says. Wider use of natural gas would reduce the price of gasoline and encourage the drilling of more natural gas wells. He notes that with the price of natural gas at $2 or less, many energy companies have either abandoned well sites or suspended production.
Housing continues its rebound, Mayland and Mokrzan relate, as the inventory of houses, duplexes and condominiums decreases and prices are increasing.
In the Mahoning Valley, prices are rising and construction firms are seeing levels of activity they haven’t seen since 2008.
That said, neither the national or local economy has regained its full health. Incomes have yet to recover and while jobs exported to China, Vietnam and Mexico are being “reshored,” robots are doing the work of the foreign workers who find themselves no longer filling the jobs Americans did.
EDITOR'S NOTE: This story first appeared in Growth Report 2013. To order your copy of this 116-page special edition of The Business Journal, call 330 744 5023.
Copyright 2013 The Business Journal, Youngstown, Ohio.
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