Dean Barber

A Recovery at Half Speed

In Uncategorized on February 9, 2014 at 6:05 am

Ever since I was a boy, I have been drawn to reading history. Now I realize that my knowledge of the Old West gunfighter Doc Holliday having briefly practiced dentistry in Dallas will likely never be of much use to me on a practical level. Still, I do not believe my reading of history has been an altogether useless endeavor.

You see, history can provide telltale markers and clues as to the workings of what is happening today. When we look at things from a historical perspective, we can sometimes detect and recognize certain trends and timelines, which thereby gives us a deeper understanding of how things are and how they may play out.

And in the business of corporate site selection – one of my core functions as a consultant – ascertaining historical knowledge can be of huge significance in determining where and how to risk capital resources.

This whole notion of business climate is largely derived from how state and local governments interact with businesses, particularly on regulatory and tax matters. In that regard, some places have a better history than others.

Intertwined Histories

So I was pleased and impressed when I heard Dr. Al Niemi, dean of the Edwin L. Cox School of Business at Southern Methodist University, give his annual economic forecast to an audience of business people at the school’s branch campus near my home in Plano.

That’s because he based much of his analysis on history. You may recall that I did some of that in my blog last week, in which I cited the long-term trend of history as the reason why manufacturing, which is becoming ever more efficient in a new digital machine age, will not produce a significant jobs revival in this country despite all the hoopla to the contrary.

Dr. Niemi and I also have our own personal histories that have intertwined. He was briefly the dean of the business school of the University of Alabama at Birmingham, and I was the business editor of The Birmingham News, then the dominant daily newspaper in the state.

I visited with him at UAB, either in late 1996 or early 1997, having learned that the powers that be within the University of Alabama system were thwarting his efforts to build up the Birmingham program, as it was viewed as a threat to the main campus in Tuscaloosa. It’s the age-old story of politics and fiefdoms.

Dr. Niemi, who had earlier served as a dean to the business school at the University of Georgia, promptly left UAB in 1997 for a much better job at SMU, where he has been ever since. He now leads what has become one of the top-ranked business schools in the nation, and the students there are lucky to have him. I know I could learn a thing or two by sitting in on the “Evolution of American Capitalism,” a history class that he teaches.

But for purposes of this blog, it’s what he said about our current economy, which is of most interest. It was why he attracted a crowd of business people for his luncheon address, which he warned from the outset, “Folks, I don’t have a lot of good news today.”

The good doctor is no spin doctor. He calls it like he sees it. So here is a smattering of what he said.

The Slowest Recover in Our Lifetime

We will know more soon, but our nation’s economic growth in 2013 will probably clock in at the 1.7-1.8 percent range, certainly nothing stellar and par for the course of late. And therein lies the problem.

“There have been 10 economic expansions since World War II, and we are in the 11th expansion right now,” said Dr. Niemi. “If you look at the previous 10 expansions going back to the 40s, the average rate of real growth was 4.7 percent. 

“So far in the expansion that started in July 2009 the real rate of growth over those 18 quarters is 2.4 percent. So to put our current recovery in perspective, it is a recovery at half speed. … We are living through the slowest recovery in our lifetime.”

Unprecedented

I was born in 1954, during a recession that began the year before. It took 21 months after the end of that recession before we got back to the same number of people who were at work before the recession began. That was pretty much true with our other recessions. Typically, the number of people who eventually got back to work after a recession equaled the pre-recessionary levels after 15 to 25 months. In short, it takes some time to recover.

But we are now in our 73rd month since the recession ended in July 2009. And yet we still have about 2 million fewer people working today than we did in December of 2007 at our peak employment. “That is unprecedented in American history,” Dr. Niemi said.

The Illusion of Good News

The headlines are not telling the whole story. The real story behind the story of dropping unemployment rates is due to the fact that more Americans are simply leaving the labor force, usually discouraged, rather than gaining actual employment.

This takes the unemployment rate down, as unemployment only counts those individuals “looking for work.” In fact the number of working age Americans over the age of 16 no longer in the labor force just hit an all time high of 91.8 million.

Taking into account the discouraged workers who have taken themselves out of the workforce and the underemployed, those people working in jobs that are below their skill levels, the real unemployment rate in America is probably more like 16 or 17 percent, Dr. Niemi said.

And even if we were to add 200,000 jobs a month, this country would not reach full employment (now a rate of 5 percent unemployment) until 2029. If the economy picks up more steam and we averaged 250,000 jobs a month, we would only reach full employment by 2021, Dr. Niemi said.

“We got back to full employment 11 years after the Great Depression. If we go to 2029, that is 20 years and there is nothing like it in American history. And that is a very likely scenario,” Dr. Niemi said.

 Friday’s Anemic Report

Certainly the latest jobs report, released Friday, doesn’t provide much in the way of hope. The economy added a paltry 113,000 jobs in January. That anemic report was only marginally better than the 74,000 jobs created in December, which was the worst month of job creation in three years.

Space does not permit me to tell you more of what Dr. Niemi said about the current state of our economy. But he did say this, which I take true to heart and is good advice:

If you are right of center in your politics, force yourself for a week to read the editorial page of The New York Times and watch MSNBC to see what the “other side” is saying. Conversely, if you are left of center in your political leanings, force yourself for a week to read the editorial page of the Wall Street Journal and watch Fox News.

Both sides have their spins, and it may seem as if we are living in two different worlds, but the truth is usually somewhere in between.

The Good and Not So Good in Tennessee

Two big developments in Tennessee this past week have caught my eye and could be of huge significance in terms of site selection. On the face of it, one is good and one is not so good. First the good.

In his State of the State Address, Gov. Bill Haslam offered the “Tennessee Promise.” It’s something that other governors may want to steal a page from.

“The Tennessee Promise is an ongoing commitment to every student – from every kindergartner to every high school senior. We will promise that he or she can attend two years of community college or a college of applied technology absolutely free.

“If students then choose to go on to a four-year school, our transfer pathways program makes it possible for those students to start as a junior. By getting their first two years free, the cost of a four-year degree is cut in half.”

The governor has promised putting $300 million in surplus lottery reserves into an endowment to cover the $34 million-a-year cost of Tennessee Promise. This is music to my ears if it happens.

And now the not so good. In a move that it bound to have ramifications throughout the Southern auto industry, hourly workers at the Volkswagen assembly plant in Chattanooga will vote Feb. 12-14 on whether they want to be represented by the United Auto Workers.

The National Labor Relations Board set the election after Volkswagen Group of America and the UAW reached an agreement. The UAW has other ongoing organizing drives to attempt to represent workers at Nissan plants in Mississippi and Tennessee and at a Mercedes-Benz plant in Alabama.

UAW membership has fallen steadily since reaching a peak of nearly 1.5 million in 1979 to almost 400,000 in 2012, attributable to automation at assembly plants and a declining share of the U.S. auto market for General Motors, Ford and Chrysler Group. Outside of union membership at a Mitsubishi Motors plant in the Midwest, nearly all UAW members at automakers are from GM, Ford and Chrysler.

VW has emphasized its neutrality in the vote by secret ballot. And I actually believe that because VW’s supervisory board, the equivalent of a U.S. company’s board of directors, is evenly split between labor and management members.

Whatever happens, this vote is a shot across the bow for all the foreign-owned, non-union automotive plants throughout the Southeast. In short, this could only help Mexico. Stay tuned.

Nice Job

Finally, kudos to Michigan-based Consultant Connect for putting together this past week the Summit Dallas, where I got to meet economic developers from Big  Sky Economic Development, Montana; the Roanoke Regional Parntership, Virginia; AEP/Indiana Michigan Power; Northwest Arkansas Council; Amarillo EDC, Texas; Pennsylvania Community and Economic Development; Indy Partnership, Indiana; and the Southwest Development Coalition of Southwest Indiana.

The economic developers were a topnotch group as were the site selection consultants who provided them counsel. Good event.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm based in Plano, Texas. If your company needs an optimal location for future operations anywhere in North America, we can help. If your community needs to improve its competitive standing, we can help. All requests for information are considered confidential.

© Unauthorized use of this blog is strictly prohibited. Excerpts and links may be used, but only if expressed permission has been granted.

 

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  1. A good post today Dean. I hope all is well with you. We are embarking on a build of a 40,000sf Spec Building… Come see me when you can.
    Charlie

  2. Reblogged this on Indyurban and commented:
    I recently got to spend time with Dean Barber. A long time reader of his thoughtful blogs, I thought I would share his ideas and reporting of our so-called recovery with you. AS I read it I wondered wat this slow recovery means for economic development professionals and the work they do?

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