Economists, Bankers Look Beyond GM
YOUNGSTOWN, Ohio – Economists and bankers agree that although the anticipated loss in March of the General Motors Lordstown plant and the shutdowns of its suppliers would be devastating, it would not be a fatal blow, they say.
Most of Huntington National Bank area business clients “feel very good” about 2019, says Bill Shivers, regional president for Mahoning Valley and Canton regions of the bank. Many of them are looking for employees to fulfill orders.
The regional economy last year was “doing fairly well with … backward-facing indicators,” such as the unemployment rate, adds Bill Adams, the Ohio economist with PNC Financial Services.
The unemployment rate in December for the Youngstown-Warren-Boardman Metropolitan Statistical Area, which covers Mahoning and Trumbull counties and Mercer County, Pa., was 6%, up from November’s 5.3%. “[November was] close to the lowest it’s been since before the Great Recession,” Adams says.
Overall, private-sector employment has gone down between half and one percentage point and 1% on average every year for the past decade, says A.J. Sumell, economics professor at Youngstown State University. That hasn’t affected overall unemployment rates because of people exiting the local workforce from retirement or leaving the area for other opportunities.
“I wouldn’t necessarily expect that trend to change in 2019,” Sumell says. “We’ll hold relatively steady at 220,000 private-sector workers in the metropolitan area, which we’ve been fairly close to for the past five years.”
Locally, manufacturing employment saw a modest year-over-year increase, in part because the full effects of the loss of the second shift at GM Lordstown hadn’t been felt, Sumell says. Mining and construction also saw a 2.5% increase in employment, he says.
“You see Vallourec still continuing to hire and they still plan to hire more going into 2019. So they’ve been able to pick up some of the slack,” he says. “Some of the smaller manufacturers also increased the number of employees in 2018.”
The national economy is growing at a “healthy rate,” having added 304,000 jobs in January, says Abdi Shaeye, economics professor at Kent State University. In 2018, oil and gas, transportation, trades, health and education, as well as manufacturing, all contributed to the economic growth of the region, he says.
An unexpected shock to an economy that depends on as few sectors historically as the Mahoning Valley “could have huge consequences for the livelihoods of people,” a vulnerability that diversifying the economy and improving infrastructure “might partially remove,” Shaeye says.
The overall economy is “doing quite well,” and even areas that are “close” to the Mahoning Valley are getting new areas of economic growth, affirms George Mokrzan, director of economics for Huntington National Bank.
Interest rate hikes – and the rate at which those increases occurred – tempered expected economic growth in 2018, and stock-market behavior during the fourth quarter frightened many investors, observes Michael Schrock, Mahoning Valley regional president for Chemical Bank.
“People sat back and watched what was happening,” he says. “They’re still trying to see.”
Many discussions about growth occurred during the first quarter of 2018, when people were excited about the newly approved tax reform legislation, Schrock says. “You had that bubble of excitement from January to May,” he says. That excitement leveled off in the third and fourth quarters because of uncertainty over the outcome of the midterm elections and how the results would affect business.
“Paralysis in Washington” likely will continue this year and into 2020, which can affect businesses as much as it does individuals, YSU’s Sumell says.
“To the economy, uncertainty always is a negative because people might have plans, but then with this uncertainty they just don’t execute those plans,” he says. “They need more information before making those decisions.”
PNC’s Adams disagrees. Political gridlock should not be “a huge problem” for business decision-making or the economy more broadly, he says.
“The broader issue for us is the temporary stimulus we got from tax cuts and higher government spending in 2018 and the first half of 2019 are going to start wearing off by the end of this year. And interest rates are higher,” Adams explains. “That is holding back demand for autos and for housing nationally and that is going to contribute to a somewhat slower pace of economic growth in the second half of 2019 and going into 2020.”
Although that offers “a bit of a challenge,” low unemployment levels are creating opportunities for parts of the United States left behind by the national recovery – such as the Mahoning and Shenango valleys – to begin to participate in the stronger national economy, the PNC economist continues. According to data from national surveys and anecdotal information, many businesses are turning away work because they can’t keep up with demand, he adds.
Displaced workers have skills that are needed as the economy improves nationally and even in the region surrounding the Mahoning Valley, although sometimes in other industries, Huntington’s economist says. Businesses that supply the Lordstown plant may find opportunities with the growing U.S. economy, although those “might not be as local” as they’ve been in the past.
Kent State’s Shaeye points to near-term effects on the region beyond the direct ones caused by the closing at GM Lordstown. These include the announcement by Mercy Health-Youngstown that it would place on hold its plans for a new hospital at Enterprise Park of the Cafaro Co.
“Trade disputes between the United States and China could be another challenge,” although the effect they might have on the economy here remains unclear, Shaeye adds. “The good news is that the economy is not as fragile as it used to be, since it is more diversified now.”
Customers are paying much attention to the trade relationship between the United States and China, but some of the most important, most difficult and near-term critical trade issues involve the countries covered under the North American Free Trade Agreement and its proposed successor, the United States-Mexico-Canada Agreement, Mokrzan says. Ratification of the new pact would resolve a “huge area of trade conflict.”
“Tariffs are not viewed as a net employment-creator for the overall economy,” Sumell says. Should there be any kind of trade war that involves raising tariffs beyond current levels, several economic studies suggest a new overall reduction in employment would result.
Although most business customers are optimistic, Huntington’s Shivers acknowledges some hesitancy, “a lot of it around tariffs.”
Just from the standpoint of self-interest, China should want to reach a deal with the United States to help keep its economy growing at the pace it wants, Mokrzan says. “There’s a certain amount of mutual interest that could, as the year progresses, help to move to a more sustainable kind of solution,” he says.
Much of the optimism economists and bankers report surrounds developments such as the ethane cracker plant under construction in nearby Beaver County, Pa., the TJX Companies Inc. regional distribution center to be built in the village of Lordstown, and the manufacturing, distribution and research complex being built on the east side of Youngstown by the Joseph Co. International for its patented self-chilling cans.
“Putting ourselves in a position where we’re looking to the future is definitely the best thing you could be doing,” Chemical Bank’s Schrock says.
That future includes the redevelopment work in downtown Youngstown funded in part by a $10.8 million federal transportation grant, which is intended to help retain and attract not only business but people as well.
“It’s not going to be a deciding factor,” Bob Kempe, vice president of commercial banking for Mahoning Valley region of Chemical Bank, says. “But it’s certainly going to be something that works in our favor.”
The cracker plant, when it comes online, will attract businesses and create “real” opportunities in the plastics and chemical industries, Shivers says. The TJX warehouse and the Lordstown Energy Center encourage him as well.
Logistics and shipping also will drive growth, as exemplified by the TJX project, PNC’s Adams says.
“That is emblematic of a broader U.S. economic shift to an online economy. And that drives demand for logistics services and for trucking,” he says. “That’s really where the opportunity is for the Youngstown economy … to the extent that it’s possible to look beyond its borders for growth opportunities.”
Kempe doesn’t anticipate a “total collapse” of the local economy should GM Lordstown close, “but you certainly have to be prepared for taking a step back,” he cautions.
Although a major plant closing is “obviously a bad thing in the short term,” YSU’s Sumell points to Janesville, Wis., which lost a GM plant a decade ago, as an example of how a community can rebound.
Over the course of the decade, employment increased by about 1% annually, and today overall employment is higher than before the plant closed. The unemployment rate in Janesville is below 3%, he reports.
It’s an outcome Sumell concedes isn’t typical.
“It just shows that if you give enough time to the economy, if the right things happen at the right time, an economy can recover from a significant employment decrease over time,” he says.
Copyright 2021 The Business Journal, Youngstown, Ohio.