Dean Barber

A Small Town with a Company on the Hill

In Corporate Site Selection and Economic Development on August 28, 2016 at 1:11 pm

What happens when a small, isolated, rural town faces the prospect of losing its single largest, dominant employer, the Company on the Hill?

You don’t have to be an expert in much of anything to know that things can turn ugly fast if that happens.

Actually they already had in a community that I visited with colleagues last week. The Big Scare had gripped the place. Was the Company leaving or staying? Nobody knew for sure, but to hedge their bets, people were not in a buying mood. Everyone was sitting tight, waiting for things to play out.

About this time last year, prior to the announced exploratory merger talks between the Company on the Hill and a major competitor, about 35 houses were on the market in this small town of 7,000. Today, the number is approaching 250.

A Town Held Hostage

Before the Big Scare, the town wasn’t exactly fat and happy, but like many places, it was probably too complacent. Whenever a single company or a single industry dominates a local economy, and this particularly holds true in a small town, the community becomes dependent on the financial health of that company or industry.

The town is held hostage, whether it realizes it or not.

The whole idea of economic diversification is about spreading the risk, not having all your eggs in one basket. Again, you don’t have to be an economist or an expert in economic development to figure that one out. That’s common sense.

The Possibility Seers

Still, we were called in, hired by the town, to be the experts. We were not expected to bring immediate relief or quell the Big Scare. The Company on the Hill will stay or go regardless of our findings.

Our job is to look forward and see what the community can do and can become. We will make recommendations on how to achieve that sustainable future via a SWOT and target industry analysis. In that sense, we are the possibility seers.

We spent 2 ½ days in our client community last week, interviewing lots of people, looking at the data, and trying to get a feel for the place. We’ll be going back in a few weeks to continue our probe.

I will not reveal the identify of the town at this stage, even if our hiring was announced in the local newspaper. But I can you that it sits in a sparsely populated area west of the Mississippi, where there are nearby family farms of 10,000 acres or more.

Tough Times for Farmers

We arrived during a perfect storm of sorts. It just so happens that the Big Scare had paralyzed the town, surrounded by a sea of farmland, at a time when commodity prices are at their lowest in years. Not many farmers are buying right now. Like the townsfolk, they are biding their time.

Recent projections from the U.S. Department of Agriculture show that farmers will harvest record corn and soybean crops. Some experts worry that corn prices, already below $3 a bushel, could plummet to $2.30 to $2.50 a bushel, levels that farmers haven’t seen in a decade.

Low commodity prices have rippled through the U.S. economy, helping drive massive corporate mergers such as Dow-DuPont, layoffs at farm equipment manufacturers and lower farmland prices. The deepening downturn is also weakening farm credit conditions, as farmers struggle to pay loans.

Sales of two-wheel drive 100-horsepower tractors in the United States declined 24 percent for July, with year-to-date sales down 24 percent, while four-wheel drive tractors dropped 48 percent year-over-year and were down 33 percent year-to-date, according to the Association of Equipment Manufacturers.

There are “large amounts of late model inventory on dealers’ lots,” said Charlie O’Brien, senior vice president for AEM.

What We Learned

It was a daunting 2 ½ hour drive back to a major airport to catch our flight home to Dallas, where Tim Feemster and I are based. We agreed that this one was going to be a tough nut to crack for a variety of reasons. We were partnered on the project, along with John Hoover of Atlanta-based Modalgistics, a rail-centric consulting group of Norfolk-Southern Corporation.

The day before, we listened to a gentleman who had invested his life savings in the community, buying and starting retail stores and building and operating apartments. A year ago, he had an occupancy rate of 95 percent. Today, because of the Big Scare, it’s hovering around 60 percent.

All his store sales were down double digit, and he was having to dip into his retirement savings to make ends meet. It was gut-wrenching for us to hear his story, as he was nearly in tears.

But Wait, There’s More

To make matters worse, the town’s largest manufacturer recently shut down, with a loss of 150 jobs. The numbers pale in comparison to the Company on the Hill, but it was a substantial hit nonetheless. It would appear that many of the blue-collar production workers have simply moved on, left to find work elsewhere.

And if that were not enough, preliminary indications are there is no vocational training being offered at a community college in our small town. The nearest such courses being offered are on the main campus, 80 miles away.

Behind the Eight Ball

Now here is the rub: If Tim and I were representing a corporate client, a manufacturer, on a site search project, we would almost certainly scratch this community off our list by virtue of the fact that it is not offering vocational training.

Most manufacturers want and expect to have access to training for workers, typically in a community college setting. That’s almost a given these days.

By not offering that, our client community is putting itself behind the eight ball in being able to compete for a manufacturing project.

It’s early in our investigation. We’re going to learn more. The data will reveal things as will our interviews. Our views will sharpen with time.

You Can Go Home Again

Throughout rural America, there are countless parents who only wish there were more opportunities for their children and grandchildren to remain in their hometowns with meaningful jobs. Too often the case, young people must leave to find their own paths of life.

Some, if they are lucky and are of the mind to, do come back home, typically when they have more job-related experience and have something to offer.

In my travels throughout rural America, I have met many young professionals who wanted to come home and were able to pull it off, because they had the needed job experience to fill a particular need in their hometown.

From so many adult sons and daughters of small towns, who are now parents themselves, I have heard them say that they wanted to come back home because it was a good place to raise a family. They remember their own upbringings.

Tim and I heard the very same thing from a young executive who worked for the Company on the Hill. He had made his bones elsewhere. He wanted to come home with his new family. He knew that life could be good there.

But life is only good for those who have the jobs to support themselves and their families. Accountants, teachers and doctors have the skill sets that often allow them to return to that small town in rural America if that is what they want.

But they are likely a minority. Most cannot or will not come back, unless to visit family. That’s just the way it is.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. He can be reached at dbarber@barberadvisors.com or at 972-890-3733.  Mr. Barber is available as a keynote speaker.

Appalachia, Trump and the Coming Automation Bomb

In Corporate Site Selection and Economic Development on August 14, 2016 at 1:39 pm

I am back home in Texas, after an extended road trip that had me spending much time in Appalachia, a part of the country that I have long been drawn to.

For eight days, I camped near Clifftop, W.V., attending the Appalachian String Band Festival. Several thousand people, most of them musicians, gathered to play old-time music, mostly traditional American fiddle tunes.

Think old, not bluegrass, but the parent music to bluegrass. I brought a banjo and guitar with me.

The camping musicians came from all over the country, from Canada and Europe as well. As a group, the music makers were highly educated and liberal in their politics, unlike most of Appalachia.

In the “New Texas Camp,” where I stayed, there was a mixture of friends from New England and Texas, with “Camp Canada” nearby. We all got along just fine.

A Statement that Stuck

When we weren’t playing tunes, we were laughing and joking and talking about everything. There was an understanding to avoid talking about politics, knowing that could put a damper on the fun.

Despite that, the conversation occasionally did drift into the presidential campaign, if ever briefly, before someone, seeing what was happening, steered it back.

Still, a banjo player from North Carolina, a new friend, said something that stuck with me. And I thought about it on my long drive back to Texas.

“They’re scared,” he said, referring to white, rural, working-class people who were supporting Trump.

My People

On my way back home, I drove through “Trump country,” historically dominated by white rural people of limited means.

“My people” (family) are from East Tennessee and western Pennsylvania, mountain folk, and while I cannot claim to have lived in Appalachian poverty, I’ve seen it up close and in personal, having lived in Tennessee, Alabama and Georgia. And I am the first in my family to go to college.

Even with the advent of interstate highways and the internet, many, particularly those who did not pursue an education beyond high school, have an isolated, local view of the world. I think the terrain and the history of poverty leaves its mark on people.

The white rural working poor, probably not unsimilar to black working poor in urban environments, strain to imagine a future for themselves, particularly one with a good paying job.

One of Us

For these blue-collar mountain folk, Silicon Valley or Manhattan might as well be on another planet. And in this void, where there is distinct notion that nobody, particularly in Washington, is listening, Donald Trump is viewed in almost tribal terms.

“He’s one of us,” a waitress in Southwest Virginia told me.

“Really?” I responded, almost spilling my coffee.

Of course, Trump has never worked with his hands, has never experienced want, but they do not care. Nor do they care how outlandish his rhetoric might be. What they care about, what they believe, is that Trump is with them.

And that is what matters in Appalachia. That’s all that matters.

A Different Lens

I’m not sure many of my musician friends, who gathered in West Virginia to emulate the traditional music of the mountains, get that. In their vitriolic contempt for Trump, they lack an understanding of the local people who view him as a protector.

That’s not a big shock. I think most people living in urban and suburban metro surroundings have little understanding of the pain and chaos of the working poor in much of rural America. They are not exposed to it. They see the world through a different lens.

Suburbanites, most of whom could not fathom a Trump candidacy possible, exacerbate the gulf by labeling his tens of millions of supporters as angry, racist rednecks. Uneducated hillbillies.

I know different.  I know most are good people, and they resent how they are portrayed. And for that very reason, maybe it’s their Scots-Irish heritage, they will dig in their heels. It becomes a matter of honor, clan loyalty.

Trump, promising to wage no war on coal and to bring back factory jobs, but stick it to Wall Street, and stick it to China, and stick it to Mexico, is their man. At least this time around.

My banjo-picking friend from North Carolina was right. They are scared. Hell, I’m scared, even if I can’t bring myself to vote for Trump.

A recommended read: Hillbilly Elegy: A Memoir of a Family and Culture in Crisis by J.D. Vance.

More Losses to Come

Job insecurity remains a central theme of the 2016 campaign, but it will likely fuel political debate for decades to come, as advancing technology will spur bigger job losses in the future.

“The deeper problem facing the United States is how to provide meaningful work and good wages for the tens of millions of truck drivers, accountants, factory workers and office clerks whose jobs will disappear in coming years because of robots, driverless vehicles and “machine learning” systems,” wrote David Ignatious of The Washington Post.

“The political debate needs to engage the taboo topic of guaranteeing economic security to families — through a universal basic income, or a greatly expanded earned-income tax credit, or a 1930s-style plan for public-works employment. Ranting about bad trade deals won’t begin to address the problem.”

An Inescapable Reality

Last month, the White House hosted a Facebook Live roundtable called “Automation: How Robots Will Change the Ways We Work and Live.”

Speaking at the event, technology entrepreneur and Zipcar founder Robin Chase and author Martin Ford (Rise of the Robots) said automation will eventually make universal basic income an inescapable reality.

“For the last 100 years we’ve been chasing productivity,” Chase said. “Suddenly, these productivity improvements come without labor. So it’s not clear at all these productivity gains will result in the everyday person having a better life. If they don’t have a job, they don’t have a better life.”

Automation Bomb

According to a study last year by the consulting firm McKinsey & Co., the “automation bomb” could destroy 45 percent of the work activities currently performed in the United States, representing about $2 trillion in annual wages.

The McKinsey analysts draw a frightening picture of the future. In manufacturing, 59 percent of activities could be automated, and that includes “90 percent of what welders, cutters, solderers and brazers do.”

In food service and accommodations, 73 percent of the work could be performed by machines. In retailing, 53 percent of current jobs could go by the wayside.

If white-collar workers think they’re safe, they are mistaken. When computers understand speech as well as humans do, and that day is coming, 66 percent of jobs in finance and insurance could be replaced.

A Nagging Thought

Technology has always been a great force in overturning the status quo. It has long created and destroyed jobs. But with the sheer pervasiveness of technology and the rate of unprecedented change, people are confused.

There is this nagging thought that many of our assumptions about how the world works are just wrong. Yep, like our brethren in Appalachia, we have every right to be a little scared, no matter what our backgrounds are.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. He can be reached at dbarber@barberadvisors.com or at 972-890-3733.  Mr. Barber is available as a keynote speaker.

U.S. Oil is Poised for a Comeback

In Corporate Site Selection and Economic Development on July 17, 2016 at 9:59 am

She seemed upbeat despite her circumstances. We met her back in the spring at an eatery in a small town in West Texas on our way back to Dallas.

She was a waitress there, the victim of an industry slowdown that has dissolved a third of the Texas petroleum workforce in the past two years. Friend and colleague consultant Tim Feemster and I couldn’t help but ask her questions and she didn’t mind answering.

She said that she and her family had moved from Pennsylvania to Texas about five years ago to work in the oil fields. Times were good then and so was the money. While working as a safety officer for a drilling company, she was making a six figure salary, about five times more than what she was making in the restaurant.

“But just you wait,” she said with a smile and nodding with certainty. “The industry will come back, and I will be back at it, too.”

Her optimism appears to be warranted, according to a recent report by Goldman Sachs, which states that U.S. oil industry is about to stage a big comeback from the painful downturn and big job losses caused by oversupply.

More Production, More People

Goldman is forecasting American oil production to resume growing next year after the recent drop to two-year lows. About 700 oil rigs will be added to production — and each one supports an average of 120 to 150 employees.

As more oil fields come back on line, there will not be enough people to do the required drilling, well completion and other related work. To keep up with the expected ramp-up in drilling activity, the oil and gas industry would need to add 80,000 to 100,000 jobs between now and the end of 2018, according to the Goldman report.

In a blog entry/podcast last week, famed oilman T. Boone Pickens, sat down with John Hofmeister, a former president of Shell Oil, who predicted the price of oil will reach $80 a barrel this year and possibly go as high as $100 a barrel in 2017.

Those gentlemen know a lot more about oil than I ever will. Still, I tend to believe that nobody really knows what oil prices will be in the future. It would not be shocking to me for oil to hover around $50 per barrel for the foreseeable future.

Indeed, cheap oil, which wiped out nearly 170,000 oil and gas jobs nationwide since late 2014 and bankrupted more than 80 energy producers and oil-equipment suppliers in Texas, might be the new normal.

Cost Cutting Creates Opportunities

The oil market collapse (it bottomed out at $26 a barrel this past February) did fix one of the industry’s biggest problems: high cost inflation. In a low cost environment, companies have had to cut costs to avoid bankruptcy.

“Costs had gotten pretty astronomical,” said R.T. Dukes, an analyst at the energy research group Wood Mackenzie in an interview with theSan Antonio Express-News. “In a high-price world, you really seek out production at all costs. When prices are low, you focus on costs.”

Cost-cutting measures and layoffs have brought the cost of pumping shale oil in Texas down to $41 a barrel. The recent surge in oil prices back to around $50 a barrel is already encouraging more U.S. production.

Wood Mackenzie says oil companies in West Texas can make money in the Bone Spring and Wolfcamp oil plays with $37 a barrel oil, while their rivals in the Eagle Ford Shale in South Texas could turn a profit at $48 a barrel. The average break-even price in North Dakota’s Bakken Shale is $58 a barrel, while in Oklahoma’s Scoop region, it is $35 a barrel.

A Failed Strategy

U.S. oil production recently dropped below the 9 million barrel mark for the first time in nearly two years, caused in large part by a supply glut created in large part by a relentless pumping strategy employed by OPEC nations designed to deliver a deathblow to American producers. But the attempt has failed, as production in the U.S. is still twice of what it was in 2008.

Goldman Sachs predicts rig counts will double to 909 by the end of 2017, and that the supply from the Lower 48 U.S. states could increase by 600,000 to 700,000 barrels per day between the fourth quarter of 2016 and the end of 2017.

As more oil and shale companies in Texas and North Dakota start pumping again, that could keep a lid on gasoline prices, always welcomed news for consumers.

The U.S. Has the Most

What’s more, the U.S. holds more recoverable oil reserves than Saudi Arabia and Russia thanks in large part to its shale oil, according to a recent report by Norwegian consultancy Rystad Energy.

The U.S. currently holds an estimated 264 billion of barrels of reserves in existing fields, discoveries and yet to be discovered fields, according to Rystad.

That compares with 256 billion barrels for Russia and 212 billion barrels for Saudi Arabia.

More than 50 percent of remaining oil reserves in the U.S. are unconventional shale oil with Texas alone holding more than 60 billion barrels of shale oil.

But A Finite Supply

Still, it remains critical for the U.S. to focus on developing other, renewable forms of energy.

Rystad Energy estimates total global oil reserves at 2092 billion barrels, or 70 times the current production rate of about 30 billion barrels of crude oil per year.

“This data confirms that there is a relatively limited amount of recoverable oil left on the planet. With the global car-park possibly doubling from 1 billion to 2 billion cars over the next 30 years, it becomes very clear that oil alone cannot satisfy the growing need for individual transport.”

The Great Crew Change

In addition to having to cut costs to remain viable in a low-price environment, U.S. drillers are also having to deal with the looming retirement of thousands of older workers.

A demographic hangover is plaguing the industry, stemming from the last great downturn in the 1980s when scores of drillers went out of business, driving a generation away from the business. That has left a shortage of workers in their late 30s to 50s at a time today when companies try are trying to replace the Baby Boomers who make up much of senior management.

This problem is being referred to in the industry as “the Great Crew Change,” with companies trying to plug the gap by training younger employees, recruiting outside the industry and enticing veterans to hang on longer. It’s forcing drillers to hold on to hard-to-replace scientists and engineers amid the current downturn.

John Christmann, the CEO of Houston-based Apache Corp., told Bloomberg that his company runs a three-year professional development program for new hires designed to cement their ties to the business. About half the company’s technical staff are 36 or younger; another third are over 50.

“There’s a big gap from 1985 to 2000 when not very many people entered this business,” said Christmann. While Apache is prepared for the transition, the industry as a whole is “reeling a little bit because we don’t have a lot of those managers,” he said.

The wave of retirements is taking place at a time when the industry is bleeding talent. Oil and natural gas companies have cut more than 350,000 jobs worldwide since crude prices started to fall in 2014, according to a May report by Houston-based consultant Graves & Co.

The American Petroleum Institute says the oil, natural gas and petrochemical industries employed 1.4 million people last year. Companies will need to hire almost 30,000 workers annually over the next two decades to replace departing and retiring employees, according to the trade group.

Postscript: I will be on a long road trip east of the Mississippi in late July and early August and will be available to visit certain communities. See “Clifftop or Bust!” for more details.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. He can be reached at dbarber@barberadvisors.com or at 972-890-3733.  Mr. Barber is available as a keynote speaker.

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