News From Terre Haute, Indiana

February 9, 2011

Groundhog Day Economic Forecast 2011: Optimistic outlook

But foreclosures are still hampering Terre Haute housing market

Howard Greninger
The Tribune-Star

TERRE HAUTE — The groundhog definitely didn’t see its shadow during a 2011 economic forecast Tuesday at Indiana State University.

“The GDP [gross domestic product] report from the fourth quarter [of last year] of 3.2 percent growth was slower than anticipated, but the interesting thing to me about it was… consumption being a significant positive contributor to the GDP growth for the first time in the course of the [economic] recovery,” said Robert Guell, professor of economics at ISU.

Inventories declined, not in an attempt to reduce a possible backlog of products, but because more consumers apparently bought items, Guell said during the 2011 Groundhog Day Economic Forecast, sponsored by the Terre Haute Chamber of Commerce, Indiana State University’s Scott College of Business and Terre Haute Savings Bank. It was the 15th annual forecast, an event staged annually on ISU’s campus.

“I believe that GDP growth is now sustainable. The false works of … the stimulus package are no longer necessary,” Guell said, adding that false works are similar to structures put under a bridge to sustain it until completed.

The nation’s GDP growth is fast enough to bring about slow decreases in unemployment, Guell said.

However, one problem is still hitting Terre Haute hard — home foreclosures, said Brian Conley, president of Conley Real Estate Appraisals and president of the Terre Haute Area Association of REALTORS Multiple Listing Service (MLS).

 Conley said 18 months ago he predicted that Terre Haute would drop to 900 sales by early this year, down from “good sales years” that brought 1,200 to 1,400 residential home sales.

“Unfortunately I was correct as we are now at 898 [home] sales,” Conley said.

In addition, the number of home listings is dropping. However, the average price paid for homes in Vigo County is increasing. It was $102,424 in 2010, the highest ever, Conley said, topping a 2006 high of $100,475.

The median price in Vigo County was $80,000 in 2010, down from a high of $83,250 in 2006. The median home sale in Indiana in 2010 was $112,000.

Conley said such data in Vigo County seems to go against supply-and-demand economics; however, Conley said Vigo County still has a “high number of foreclosures. One real estate agency told me they have over 90 listings of foreclosed houses,” Conley said.

Many of those homes are being sold on the Internet by an Indianapolis firm, Conley said. Because of that, those sales are not “going though our MLS any longer. I think that is part of the reason the median price and the average price is going up,” Conley said.

Compared to Indiana as a whole, the number of new listings in Vigo County decreased 3.57 percent over the last year, while sales statewide dropped 0.5 percent. However, the number of pending sales in Vigo County this month is up 15.48 percent over February 2010. In the state, pending sales this month were down 6.6 percent, Conley said.

“The number of closed sales [so far this year] is down 6.35 percent in Vigo County and statewide it is down 6.6 percent. The median sales price is up 0.13 percent in Vigo County, while statewide it is up 1.8 percent. We are kind of following what is going on in the state of Indiana. If things are correct and are more optimistic, sales should be up,” this year, Conley said.

Optimism for business growth

Gerry Dick, president of Grow INdiana Media Ventures LLC and creator and host of Inside INdiana Business, said that statewide, he is seeing optimism in business growth; however, a survey released earlier this month shows just 40 percent of employers said they would add workers this year.

That survey, done by Inside INdiana Business with Indianapolis-based Walker Information Inc., surveyed 2,000 members of the Indiana Business Council.

“Bottom line, we are beginning to see improvement. Happy days here again — not by a long shot. There is still concern out there,” Dick said.

Heading into 2011, 88 percent of the surveyed said they think their company is headed in the right direction and 65 percent have a positive outlook on the Indiana economy, Dick said. Also, 73 percent believe sales will increase in 2011 and 72 percent think there will be an increase in demand for products and services.

“But, with all that optimism, only about 40 percent think their companies will increase hiring in the year ahead,” Dick said. “That perhaps underscores the fact that companies have gotten a lot more efficient during the recession and frankly, a number of jobs that left the economy over the course of the past two years probably won’t be coming back.”

This recession, the longest in the post-World War II era, did not allow for “the fun part” of a normal economic recovery, Guell said. In 1983, economic growth was 10 percent in the first quarter and averaged 7.5 percent in all of 1983, while 1984 averaged 6 percent growth.

“That is the fun part of an economy and its business cycle. What we have essentially done is fast-forwarded to the stable part,” Guell said.

Guell pointed to the U.S. work force labor participation rate in the past 11⁄2 years that has dropped significantly. “Over the last two-and-a-half to three months, 1 million people have left the work force,” he said.

“We need them back in [the work force] because we need their productivity to sustain, in the long run, the deficit reduction that we have got to go through and the economic activity that will be necessary to pay off all those Social Security checks. …,” Guell said.

Guest speaker Thomas M. Mohr, president of AET Films, said he sees lower growth in North America, with the company’s highest growth potential in markets in Mexico, China and India.

AET Films today plans to make offers to purchase two companies in Mexico, Mohr said. If offers are not expected, AET expects to move up plans for $60 million in investments to its Terre Haute plant.

Currently, the company plans to make improvements in Terre Haute in 2013-14, but that timetable would move up if the Mexican acquisitions are not made, Mohr said.

“The critical part is we continue, even during the economic downtown, to spend about 2 percent of our sales in technology innovation,” Mohr said. “We never scaled back there because that is really our lifeline for the future,” he said, adding that Terre Haute will continue as the company’s center of technology.

Mohr said AET made big changes to emerge from bankruptcy in 2004/05. Changes include reducing seven vice presidents down to three, plus eliminating 250 positions, which represented $33 million in fixed costs.

The company reduced its debt, buying back $17 million of its own debt at a price of 70 to 75 cents per $1 of debt, Mohr said. The company also renegotiated customer contracts, as well as supplier contracts.

Mohr said buying raw material from domestic sources is getting harder. Exxon, Mobil and Dow Chemical are consolidating operations, which worries Mohr, and is forcing AET to seek other suppliers for raw materials so as not to depend on one or two companies.

 Also, online Internet auctions are becoming more common for sales.

“It is very difficult in the auction process to get your technology advantage across when it is just on the Internet, so that is again an indication that we have to be very, very cost-competitive in order not to lose a large chuck of our business,” Mohr said.

Howard Greninger can be reached at (812) 231-4204 or howard.greninger@