Economists Share Hopeful Forecast for Local Economy
YOUNGSTOWN, Ohio – This time a year ago, the forthcoming end of General Motors’ manufacturing presence in the Mahoning Valley cast a pall over the local economy. While economists pointed to positive indicators – a low rate of unemployment, low interest rates and increasing consumer confidence – the loss was at the forefront of many people’s minds.
But by the end of the year, Lordstown Motors Corp. had purchased the Lordstown plant and GM announced a partnership with LG Chem to build a $2.3 billion battery plant nearby. Their arrivals – Lordstown Motors intends to be in production by the end of the year – could herald the beginning of a new chapter.
“It’s completely possible, and other cities have experienced this, that the total number of employees from the initiatives are greater than the number of employees lost by the closure of the previous dominant industry,” says A.J. Sumell, an economics professor at Youngstown State University. “In some ways, the recovery can result in a stronger, more diverse and more resilient economy than we had prior to the closure of GM Lordstown.”
Sumell was among the economists and bankers interviewed by The Business Journal for their outlooks on 2020. Joining him were PNC senior economist Bill Adams, Huntington Bank Canton/Mahoning Valley Regional President Bill Shivers and Gary Small, president of Home Savings Bank/First Defiance Financial Corp.
Both Sumell and Shivers note that pay for the workers – Lordstown Motors expects to hire about 400 to start production, while the GM-LG Chem venture will have 1,100 when it opens in 2022 – will likely be on the lower end of what their predecessors at GM Lordstown earned.
“These new companies coming in, from my understanding, will have wage rates comparable to where [the newer UAW contracts] were. It won’t be the same for the grandfathered union members, but there will still be opportunity,” Shivers says.
For the new manufacturers, however, that could open new avenues for development should production demand it, Sumell adds.
“There can be more employees that wouldn’t otherwise exist. It could result in a more flexible company that’s able to produce different products more rapidly if they’re less concerned about contract negotiations,” he says. “It can result, in some sense, with additional companies that are willing to relocate here that wouldn’t otherwise if they knew they had to pay higher union wages.”
While the exact impact of the plants’ arrivals won’t be known for some time, it’s unlikely that they will offset the entire loss of GM Lordstown right off the bat.
“They’re not likely to fill the void. Startups coming to the area will provide employment and drive business activity, but it won’t totally offset the closure of the Lordstown plant,” Adams says, noting that the outlook is still rosy. “I’d draw a big contrast between where we stand with that closure and where Youngstown, and more broadly the Midwest, was at the start of the century when there were large losses in manufacturing jobs.”
Despite historically low unemployment nationwide, the local numbers can be somewhat deceiving. In December, the most recent month for which numbers are available, the Youngstown-Boardman-Warren metropolitan statistical area – covering Mahoning and Trumbull counties, as well as Mercer County, Pa. – posted an unemployment rate of 5.4%, higher than the state rate of 3.8% and the national rate of 3.5%.
“The reason for that decline [locally] is not the good reason,” Sumell says, referring to people re-entering the workforce. “The reason for the decline is that most of the unemployed have left the area or they’ve dropped out of the labor force. The more telling statistic isn’t unemployment, but the number of people working.”
For Mahoning County in December, the labor force was 101,400, while Trumbull County was at 86,000 and Columbiana County was at 47,100, according to the Ohio Department of Job and Family Services. The same month in 2018, the workforce for each county stood at 102,900, 87,200 and 46,800, respectively.
“There’s a relatively low unemployment but we’re not seeing job growth in the Youngstown economy. The unemployment rate understates the impact of the headwinds facing the Youngstown metro labor market,” says PNC’s Adams.
The economists and bankers agree that the need for workers continues to be one of the top concerns for businesses, even as other indicators point to a solid economic footing for the region.
Beyond the coming arrival of Lordstown Motors and the GM-LG battery plant, projects like The TJX Companies’ distribution center in Lordstown and the development of ethane cracker plants along the Ohio River should also boost the regional economy.
“Retail big-box stores are not as in favor and we feel that a bit at our malls the same way other communities around the country do,” Home Savings’ Small says. “But there’s TJX, which is about distribution, and Amazon. The jobs are converting from traditional retail to distribution. It may be a net push, but it’s jostling things around.”
Although the cracker plants are outside the Mahoning Valley, their effect will still be felt here. Royal Dutch Shell’s plant in Monaca, Pa., is expected to produce upward of one million tons of plastics annually once production begins. ExxonMobil is scouting sites for a cracker plant in Beaver County, Pa., and PTT Global Chemical America has spent $100 million on preparing a site in Belmont County, Ohio, although no final decision has been made. In early February, JobsOhio awarded the company $20 million for “critical” site engineering and preparation.
“There’s already one cracker plant. Fifteen years down the road, will there be three? I’d suspect at least that,” Small says. “Then there’s the second wave with the plastics that will come up from Texas because it’s where the source is. We’re positioned to feed those industries, but they’re long plays. It’s a 50-year bet. It moves slower than most industries, but it will continue to be favorable for the Valley.”
Entering 2019, many economic forecasts pointed to a recession by the end of the year. Those predictions waned as the year went on, thanks largely to three interest rate cuts by the Federal Reserve.
“The reason for the recession call in 2019 was largely due to the inversion of the yield curve,” Adams explains. “The Fed’s interest rate cuts in July, September and October of last year uninverted that curve. We think that cut is enough insurance for the U.S. economy that we’re unlikely to see a recession in 2020.”
Moreover, another downturn could be far off on the horizon.
“I do expect 2020, in many ways, to be a continuation of 2019. There’s nothing materially up or down. A steady upward current is what we’re likely to see,” Small says. “I think we, as an economy, have gotten used to the volatility out of Washington, out of The Fed or out of China or out of the Middle East.”
As the country continues its longest period of economic expansion, Huntington’s Shivers notes that while it’s uncharted territory for the United States, it’s not unprecedented. That could bode well for dealing with the psychological aspect of recessions; if people expect a recession, they change their habits and if enough people do that, it can trigger a slowdown.
“It’s going to be a matter of if we can be talked into it. … Australia has been going 28 years with an expansion,” he says. “We need to raise our sights and our goals a bit instead of saying that every 10 years there’s a slowdown. Maybe that’s not the case; maybe this is the new normal.”
Copyright 2024 The Business Journal, Youngstown, Ohio.