Dean Barber

A Tough Row to Hoe: Economic Growth in Rural America

In Corporate Site Selection and Economic Development on September 18, 2016 at 1:52 pm

A report released last week by the Census Bureau showing that Americans, rich, poor and middle class, saw their incomes rise last year was greeted gleefully by economists.

But in rural America, where I have spent much of my time of late doing economic development consulting work, the reaction will be more of a shrug. The government may say the economy is getting better, but many of the people in non-metropolitan counties aren’t feeling it.

Still, the report was eye opening. For the first time since 2007, the median U.S. household saw a healthy bump in income last year — up 5.2 percent to $56,500 from $53,700 in 2014. Much of that gain came from the drop in the unemployment rate that created more paychecks for American workers.

No doubt the economy has improved. Unemployment is at 4.9 percent, down from its October 2009 peak of 10 percent. Home foreclosures have eased dramatically, with 97 percent of major metropolitan areas logging rates below their Great Recession peaks in the first quarter of 2016, according to Realtytrac.com.

By the end of 2015, net private business investment had recovered to pre-recession levels, according to the St. Louis Federal Reserve Bank.

A crucial takeaway from the Census report last week was that economic gains were not isolated to the rich. Poor Americans, those at the bottom 10th percentile of the income scale, saw the strongest gains, with 7.9 percent growth over the last year.

Yielding Fruit

The latest Census data confirms that the recovery, now in its eighth year, is finally yielding fruit to people other than the very rich. A Gallup poll in August found that 68 percent of workers said they are making more money than they did five years ago.

Correspondingly, the number of people living in poverty dropped by 3.5 million, falling from just under 15 percent in 2014 to 13.5 percent in 2015, the largest drop since 1967. More than 8 million families were in poverty last year, down from 9.5 million in 2014. And the number of children under 18 dropped by 1 million.

On the face of it, this is all very positive news. It would appear that we as a nation have recovered from the Great Recession — albeit far slower than anyone would have liked.

Worth reiterating is the fact that the Census Bureau report showed that income gains were spread across nearly all age groups, household types, regions and racial or ethnic groups.

One Big Exception

But there was one exception. Incomes didn’t rise for households outside metropolitan areas.

And that is where I have seen varying degrees of pessimism firsthand in recent months in Appalachia and in farming communities on the Great Plains. I will not name specific rural communities because that would be unfair.

But the pain is out there, even with full employment.

“There a huge urban-rural divide today in wage growth,” Andrew Chamberlain, chief economist at Glassdoor, a job-listing site that collects salary data, told CNBC. “It’s becoming harder to earn a living wage and have a fulfilling career in rural areas.”

Options are Limited

Advising economic development organizations on making transformation change that would go far in the creation of fulfilling jobs does not come easy in rural communities. The options are often very limited by geography, infrastructure, and the fact that skill sets are limited by little or no vocational training.

What’s more, these are typically places with older populations of a more conservative bent that are more resistant to change. And they have a bleak view of the nation’s economic future prospects.

The American public as a whole is significantly more confident about current economic conditions than about the future. Earlier this month, 26 percent of people surveyed in Gallup’s poll of Americans’ confidence in the economy rated current economic conditions as excellent or good, while 30 percent labeled them poor. Thirty-seven percent of those surveyed said their economic outlook was “getting better” compared with 57 percent who said it was “getting worse.”

I live in Dallas, where the poverty rate has dropped to 5.1 percent from 5.9 percent a year ago. Here the economic gains have been particularly strong for those with college degrees.

But press these same educated urbanites a little bit over cocktails, as I tend to do, and while they may be doing better financially than they were five years ago, they still see the recovery as fragile and not long lasting.

If I talked to their counterparts in rural, non-metro area communities, they might very well look at me cockeyed and say, “What recovery?”

Rural versus Metro Areas

And this might sound cockeyed, but most rural Americans actually reside within metropolitan areas. Nearly 54 percent of people living in areas classified by the Census Bureau as rural also live in a county that is part of one of the nation’s 383 metropolitan areas.

A metro area, or “metropolitan statistical area,” to use the formal term, has a core urban area of 50,000 or more people, and “consists of one or more counties and includes the counties containing the core urban area, as well as any adjacent counties that have a high degree of social and economic integration (as measured by commuting to work) with the urban core.”

The U.S. Department of Agriculture defines rural America simply as counties that aren’t in metropolitan areas.

About 32 million residents of rural communities are part of wider labor markets that cluster around one or more cities, and most of them live within a reasonable commuting distance of those cities. Of those 32 million, about half live within the confines of one of the nation’s 100 largest metropolitan areas, many of which have sprawled into the surrounding countryside.

The Great Emptying Out

Per capita income of people living in non-metro counties has been about 75-80 percent of metro dwellers since the early 1990s. No significant difference there. But what does look significant is the loss of population. In short, we appear to be seeing an emptying out of rural America.

The population in U.S. non-metropolitan counties stood at 46.2 million in July 2015—14 percent of U.S. residents spread across 72 percent of the nation’s land area.

According to the USDA, 2010-2014 is the first period of overall population decline on record for rural America as a whole. While there were 230,000 more births than deaths in non-metro counties over that period, 346,000 more people moved out than moved in.

Those who choose to remain in rural counties are more likely to be 65 or older, and receiving Social Security disability checks, than people in metro areas.

The painful truth is that economic growth has been largely limited to metro areas, where successive generations gather to pursue work. There has and there will continue to be an exodus of young people leaving rural areas to chase jobs in the cities.

That does not mean that we give up on rural America as a lost cause. It does mean that we come up with strategies to prevent it from becoming an economic desert. There are target industries, particularly related to valued-added products associated with agriculture that makes sense. But it will be a harder row to hoe.

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.

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.