The calendar flips, and a new year—a presidential election year, at that—is upon us. What’s the lay of the land for the regional economy in 2012? Well, that depends on whom you ask. Ingram’s queried several economists familiar with conditions around the two-state area to see what the tea leaves are telling them about the year ahead. Their answers are laced with hopeful indicators of improvement and suggests business owners and executives should still employ caution setting short- and mid-term strategies.
On the positive side, national employment figures continue to inch up, producing a decrease in the jobless rate. Assuming that trend holds, both Missouri and Kansas are well-positioned for recovery; each starts the year with unemployment numbers lower than national figures. An energy-sector recovery is already driving job growth, and more will follow as production drives prices back down. And of course, interest rates are as low as most of us will see in our lifetimes.
But there are issues, as well. The recent announcement that the Boeing Co. will phase out 2,100 jobs in Wichita, combined with losses in related industries, threatens to wipe out more than half the hard-earned job growth posted statewide in Kansas over the previous year. In Missouri, the General Assembly looks to a new fiscal year with a hole $500 million deep—or more—in its general fund budget, potentially threatening higher education and K-12 spending, health care and social services and infrastructure maintenance. And unsettling events overseas, of which we seem to have no shortage, still loom in Europe and throughout the Middle East.
This much is certain: Come Dec. 31, we’ll be able to tell which member of this august assembly had his finger closest to the true economic pulse of the region.
Gordon Sellon, Oklahoma City University
Forecast: Rapid clearing, then a petroleum downpour
A high-energy front is approaching Kansas and Missouri, and if it doesn’t arrive in 2012, it will before long. Gordon Sellon, a former economist for the Federal Reserve Bank in Kansas City and now on the faculty at Oklahoma City University, says portions of the heartland are already leading an energy-production charge destined to turn the United States into a net exporter of petroleum products.
“At both the regional and national levels, energy is going to be tremendously important, and probably the biggest job generator, with all the new drilling from the Dakotas into Ohio, Pennsylvania and West Virginia.” Driving that, he says, are new technologies for recovering oil and natural gas, but particularly the latter.
“Horizontal drilling—it’s just stunning what this is going to do” to alter the nation’s energy calculus, Sellon said. And cheap energy, as the world has seen over and over, translates into roaring economies.
The short-term dichotomy, he acknowledges, is that higher energy prices have driven the exploration boom. “But the production is actually going to drive prices down” when those fuels come on-line, he said. “We’re already seeing that in natural gas; prices there are unbelievably low.”
Energy strikes already are spurring manufacturing rebounds in Rust Belt states like Ohio—in the former steeltown of Youngstown, the first steel plant in decades is now under construction. But will this change occur in time to elevate the economies of other states, particularly Missouri or Kansas?
“It’s already having an impact,” Sellon says. “Job creation is pretty unbelievable now in places where drilling is going on. The interesting thing is, drilling is going on in places that haven’t seen energy production in 50 to 60 years. That’s going to generate all kinds of jobs.” As soon as this year, Sellon says, “the U.S. may flip—it already has in some products—to being a net exporter of petroleum products for the rest of the world, instead of a net importer.”
Bottom line: “The overall economy is starting to get some traction, and this is just going to help. Already, in terms of exports and manufacturing, we’re seeing some real improvements in the last few months. This looks much more sustainable. This energy stuff is going to provide a basis that makes me confident that the improvement is going to continue.”
Tom Kruckemeyer, Missouri Budget Project
Forecast: Mixed cloudiness, rays of revenue possible
Tom Kruckemeyer’s good news/bad news scenario is grounded in the numbers: The good news is that Missouri’s unemployment rate has declined by 1.5 percentage points over the past year. “No one is happy at 8.2 percent unemployment,” he said, “but the situation is getting better” and he cites 12-month statewide job growth of 93,000 through November, up 3.4 percent.
But there is that nagging bad-news piece. For Kruckemeyer, chief economist for the Missouri Budget Project, it’s the state’s fiscal picture, which could be out-of-focus to the tune of $500 million for the coming 2013 budget year. “Starting next July, the last of the federal stimulus-bill money will be gone and the state will be facing some pretty tough situations,” he said. His biggest concern? “The leadership—the governor and the legislative leadership—seem uninterested in entertaining anything on the revenue side to close that gap.”
Kruckemeyer said Missouri could ease its spending challenges by focusing on two key tax opportunities. “We’re pushing now for states to collect sales tax on Internet sales, which are becoming a more prominent part of the Internet scene,” he said. “We need the revenue, and it’s unfair to the brick and mortar retailers” that have to collect that tax, he said.
“Another area of tax policy we think needs to be addressed is the cigarette tax in Missouri, easily the lowest in the nation.” Missouri, he said, could increase that substantially and still be well below the national average and tax levels in bordering states. The revenue could go into health care and education funding, he said, two areas likely to suffer without added revenues, and could provide vital infrastructural improvements for coming years with better highways.
Still, the current climate presents some important opportunities for business owners, Kruckemeyer said: “Obviously, if you need to borrow, there’s never been a better time. It’s hard to imagine interest rates getting lower—well, really, they can’t go lower; they’re practically at zero now if adjusted for inflation,” he said.
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