News From Terre Haute, Indiana

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February 6, 2013

Unemployment issues keep economy in shadows, Groundhog speakers say

TERRE HAUTE — Unemployment remains stubbornly high in the Wabash Valley, and a “slow slog” turned into a “grinding halt” for economic growth in the last quarter of 2012.

Indiana State University economics professor Robert Guell recapped last year’s rough economy during his presentation at the 2013 Groundhog Day Economic Forecast on Tuesday at ISU. He was joined by three other expert panelists — Mike Sims, GE Aviation; Gerry Dick, Inside Indiana Business; and Brian Conley, Conley Real Estate Appraisals — as business leaders from Terre Haute gathered for the 17th annual Chamber of Commerce event.

Inside Indiana’s Dick said a big concern statewide is the skills gap that industries find in Indiana. It is difficult for employers to find qualified workers around the state, he said, and about two-thirds of all jobs in the coming years will require education beyond a high school diploma.

Dick said he recently spoke to a human resources director from Fort Wayne, who cited an example that out of 150 applicants who looked qualified according to their resumes, only one person was employable after testing and drug screens.

In addition to getting Indiana workers on track educationally, Dick said, workers must be reliable, have healthy habits and be team players who communicate and cooperate in the workplace.

Leading

unemployment

figures

Guell said the national unemployment rate came in at 7.9 percent at the end of 2012, the Indiana rate was at 8.2 percent after the third quarter of the year, and Terre Haute’s unemployment hovered just above 10 percent at the end of September 2012.

Slowed consumption and private investment continued the economic standstill that Guell predicted last year. Contributing factors, he said, were curtailed government purchases in the final quarter of the year, and reduced inventories as manufacturers noted the weaker-than-expected Christmas sales and cut production. Hurricane Sandy also negatively affected the economy, as did a longshoreman strike that cut off supplies to warehouses.

On the positive side, Guell noted that much of the national uncertainty about the economy is slowly being assuaged after last fall’s presidential election, which he said provided some resolution on such issues as the fiscal cliff, debt ceiling and healthcare law.

He predicted that economic growth should return to 2.5 percent or better, which he characterized as “a modest jog” rather than a “slow slog.”

On a local level, Guell noted that manufacturing has fared much better than the sectors of health, education and retail during the past three years.

Retail has gone “into the toilet” and could likely stay there for a while, he said, while manufacturing has rebounded locally. That could continue if/when NantWorks has its key drugs federally approved, meaning a significant rebound to the south side of Terre Haute.

It was announced in January last year that California-based NantWorks LLC planned to locate a new pharmaceutical manufacturing plant here, creating up to 234 new jobs by 2016.

Ivy-covered towers costing too much

Guell pointed to another local trend that mirrors national activity.

“Higher education is undergoing a debt-financed construction boom all across the country,” he said.

Just as America experienced a housing boom, where everyone wanted a bigger/better house no matter the cost, colleges and universities are trying to provide their students modern housing that’s different from the traditional “prison cell” housing of the past.

And yet, the rates of success for graduates has fallen. He characterized success as graduates who find jobs in their field of study, and no longer have to live with their parents. Educational failure, he said, looks like dropouts, or graduates who are making tips on serving lattes rather than earning commissions on sales, and those still living with their parents after graduation.

Guell warned of a “higher education bubble” that presents a college degree as “a ticket to the middle class.” College students are borrowing way too much student loan debt to get those degrees, he said, and colleges are borrowing way too much money for buildings.

Just 10 years ago, ISU owed $75 million in debt. Now, the university carries $108 million in debt, with a big chunk of that increase coming from the new student recreation center and housing improvements, Guell said. It is an 84-percent increase in debt, he said, and a nine-fold increase in debt associated with non-academic buildings.

While that may sound out of kilter, he said, the national debt rate for public institutions of higher education tripled during the same time frame.

Guell likened the increasing debt in higher education to a stampeding herd of wildebeest heading toward a cliff. If an animal at the front of the herd stops to avoid the cliff, the animal dies. If the animal continues to go with the heard and goes over the cliff, the animal dies.

Taking a nose dive

Guell has some sober predictions for higher education in the Wabash Valley — home to not only ISU but also Rose-Hulman Institute of Technology, Saint Mary-of-the-Woods College, Ivy Tech Community College and Harrison College — should an economic cliff loom on their horizon.

ISU and Ivy Tech will “nose dive,” he said, and may have to rely on taxpayer bailouts to overcome their debt loads. He predicted that enrollment at SMWC will take a huge hit, even though that college has not been on a building spree.

In October of last year, The Woods did launch an $11 million fundraising campaign to build its own sports and recreation center, after having raised $6.5 million for the project during the “quiet phase” of the campaign.

RHIT is unlikely to see an enrollment drop, but should that occur, the school’s endowment fund is too small to ride out a big drop in student population, Guell said.

“Such a cliff will have a devastating impact on the economy of Terre Haute,” he said, “like the loss of two or three departed Pfizers.”

Pfizer ceased production of Exubera here in 2007, and the next year announced it would cease production entirely at the Terre Haute plant, resulting in the loss of hundreds of good-paying jobs.

Guell said he hopes his dire predictions do not come to pass.

“I hope I’m wrong, but this scares me,” he said.

Guell’s cautious outlook turned to cautious optimism when Sims, executive and general manager at GE Aviation, took to the podium. He provided a global economic forecast of moderate growth in the coming year.

While U.S. consumption will be up, Sims said, and Europe will remain weak, the growth will be driven in the developing countries of the world. Brazil, Russia, India and China will have significant growth, he predicted, with China moving toward more of a consumer-driven economy rather than one propelled by the government.

Sims warned his audience, however, not to look for stability in the economies of the future.

“My belief in the next five to seven years is that volatile is the new norm, so we must be ready for it,” Sims said. “We have to have our foot on the brake and the gas at the same time to make adjustments.”

He connected the U.S. economy to freight traffic, which indicates how the world is doing when foreign countries are ordering U.S. and European products.

“If freight traffic doesn’t grow four to five percent, the U.S. economy won’t grow four to five percent,” Sims said.

Looking outside

the bubble

Economic prognosticator Conley, president of Conley Real Estate Appraisals Inc., sounded a positive note when pointing out that Vigo County’s housing market is improving in the Multiple Service Listing.

“It’s really nice to say things are getting better,” Conley said as he shared data on the local housing market. Those numbers not only reflected increased homes sales during the past year but also showed good sales of high-end homes.

The Vigo County Residential Market Study — which includes Vigo, Clay and Sullivan counties and parts of Vermillion and Parke counties —- shows that 969 houses sold in 2012, compared to 948 in 2011. The average sale price also rose, to $103,456 last year from $98,662 in 2011, for about a 4.8-percent increase.

Conley noted that the 13-year average supply of homes on the market is around 7.1 months; however, the market supply of homes is now at a 20-year low of 6.35 months. The home inventory in some price ranges is low or non-existent, he said.

“If any of you have considered selling your houses, now is the time to do it,” he told the audience.

The housing market is still being affected by the number of mortgage foreclosures, he said, but fortunately, the foreclosures have decreased substantially since last year.

Conley accurately predicated at last year’s economic forecast that housing prices would stay level or increase slightly in 2012. As for this year, he’s still concerned by high unemployment locally, but he is encouraged that mortgage rates remain near record lows, which should continue to bolster the housing market.

Reporter Lisa Trigg can be reached at 812-231-4254 or lisa.trigg@tribstar.com. Follow her on Twitter:

 @TribStarLisa.

 

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