By Raegan Hennemann, Senior Correspondent
Don’t let those long lines for tickets and snacks at the movie theater fool you. Forget about the 60-minute wait for a table at a sit-down restaurant on a Saturday night in Springfield. And what about the struggle to find an open space in the parking lot of your retail chain store of choice? For the non-economic minded person, it might be difficult to believe the economy has not made its official comeback.
Patty Byrnes, associate professor of economics for the Center for State Policy and Leadership at University of Illinois Springfield, looks to the Greater Springfield Enterprise Index (SEI) to interpret how the local economy is doing. The SEI is a leading indicator that helps predict the trend in the economy of Sangamon and Menard counties. Most recently, Byrnes received the November 2009 metropolitan statistical area indices for Springfield, which reported the area to be 7.02 points below the value that indicates being on a long-term growth trend. The indices also provide a 1-month, 3-month and 1-year forecast. Even though the two short-term forecasts have the Springfield area double-digits into its long-term growth trend, Byrnes, who bases a lot of her forecasting on employment numbers, thinks the index shows “pretty slow progression.”
“You can have an increase in retail sales, you can have an uptick in the economy, in stock prices for example, which we’ve had for at least a half a year now, but we haven’t seen as big of changes in employment, which is saying something about how confident businesses are,” she said.
Jim Britton agrees that “big” is not the word to use for what his business is experiencing in terms of employment placements. But, Britton, the franchise owner of Express Employment Professionals in Springfield and Bloomington and the regional developer of Illinois and Indiana for Express Inc., has seen an increase in requests for temporary employees since November.
“Traditionally January and February are the most difficult months of the year. We’ve kind of rolled across into January and February staying pretty even, so that’s positive. We are having some increases over January and February of last year in terms of the number of different clients that are using us and the number of people we have actually out working. There’s nothing robust about it, but there is a bit of a bubbling up that continues to be encouraging,” he said. “We’re seeing some increases. Again, not dramatic, but real. And not just in one location but across the board. So, we sense there is some increasing health in our economy. But again it still feels like we’re in a danger zone. We don’t know how thin the ice is. It seems somewhat solid but it’s hard to tell for sure. We’re hopeful, very hopeful.”
That should be good news as Britton considers the temporary employment industry to be a leading indicator of the economy. He estimates the industry to be a 4- to 7-month indicator for whether the economy is going to improve or decline. “As things slow down, we’re the first ones to feel it. As things pick back up, we’re the first ones to feel it,” he said.
While Jean Campbell, business manager for Alice Campbell Staffing, believes the employment industry is an economic indicator, business in 2009 did not reflect a poor economy as the company’s sales were up from 2008. As the economy continues to show improvement, Campbell foresees some more movement in placements sooner rather than later.
“Once the economy does start to recover, then employers might proceed cautiously about their hiring and turn to temporary staffing because it’s flexible and it’s not a long-term, permanent financial commitment,” she said.
Like Campbell and her business, Linda Nelson isn’t sure if existing home sales statistics are indicating a true economic picture. For the fourth quarter of 2009, the Capital Area Association of REALTORS (CAAR) reported a record 945 homes sold, a 36.6 percent increase in sales over the same period in 2008. The first-time homebuyer tax credit, which took effect Jan. 1, 2009 and ends April 30, has possibly been an “artificial stimulator to the market,” said Nelson, president of CAAR and a broker/partner with The Real Estate Group.
“I wouldn’t step out there and say the economy is coming back because of the [recent home sale] increases we’ve had. I think there are some artificial things there. Once (the tax credit) is removed we’ll see what happens,” she said. “We haven’t heard anything as far as the tax credit being extended or anything like that so we’ll see what a pure market is after the end of June and what that does.”
Just as the housing market, which includes existing and new home sales, depends on a strong economy, so does non-residential construction like schools, manufacturing plants, highways, stores, office buildings and hospitals, said Ken Simonson, chief economist for The Associated General Contractors of America, an association for the construction industry.
Because Simonson provides data and economic analysis about such diverse construction projects, he looks at a variety of indicators to inform the association’s members and chapters, including Central Illinois Builders of AGC located in Springfield.
“In the manufacturing sector, indicators that I look at are two things that come out together from the Federal Reserve Board. One is called industrial production, specifically manufacturing industrial production. I report each month on production…but I look specifically at the factory piece of that and also at what they call capacity utilization for factories. Currently, that figure is running a full 10 percentage points below the historical average,”
Simonson said. “Over the period from 1972 to 2008, factory utilization was running at about close to 80 percent of capacity, and recently it’s been below 70 percent. So that suggests to me that even if factories start to get busier, it will be quite a long time before most manufacturers decide to expand their plants or build new plants.”
When it comes to public construction projects, the largest two categories are for education purposes, and highways and streets. Simonson keeps an eye on property tax receipts to gauge future spending on education construction projects. Recently, “property tax receipts have been dropping as investors catch up with the drop in home values and also as more taxpayers fall behind on their property taxes as well as their mortgages. Some jurisdictions have been counting on new properties being added to their tax rolls and that hasn’t been happening nearly as much with the downturn in home building and other types of construction,” he said.
Simonson anticipates the amount of street and highway construction will slow in the near future due to what he’s seen happen with various tax receipts.
“About 45 percent of the money spent on highway construction comes from the federal government to the state through the federal highway aid program. And that money has been flat recently except for the federal stimulus legislation that passed a year ago,” Simonson said. “Meanwhile, state and local governments have been cutting back the spending of state funds because they are seeing a drop in gasoline and diesel tax receipts and vehicle registrations or vehicle sales tax receipts and so they’ve had to pull back on some projects that they normally would be doing. So far, the stimulus money is making up for that and the amount of spending on highways has actually gone up a little in the last year but I think that there is certainly a risk that we will see a drop in highway spending later this year unless Congress puts some more money into the highway program.”
A quarterly report from the Rockefeller Institute of Government also guides Simonson when it comes to state and local construction projects. The most recent report stated tax collections nationwide declined by 10.9 percent during the third quarter of 2009, making it the third consecutive quarter that tax revenues fell by double-digit percentages. Simonson said that is a “very ominous sign for how much construction states can afford to do.”
Overall, the indicators Simonson analyzes don’t paint a pretty picture for Illinois.
“It looks pretty grim to me. The state budget is often cited as being not the worst state of any state but certainly one of the 10 most precarious,” he said. “And population growth has certainly been slow in Illinois for a long time and the income growth is also pretty weak so there just doesn’t seem to be much prospect of getting either private or public non-residential construction going up any time soon.”
Ironically though, Simonson said now is the time for construction projects.
“Public agencies or private companies, I think, enjoy a leveling-off in materials cost, and also have their pick of skilled contractors who are offering their services at very low rates,” he said. “Time and again I hear of projects where the contractor has bid to do the work at a price where they don’t really have an expectation of profit. They are just hoping to bring in enough money to cover their labor cost. And that’s a condition that can’t last. We’re going to see more and more contractors going out of business, I’m afraid, and material costs could start shooting up again at any time.”
Unfortunately, the positive news about the economy doesn’t mean immediate business for the non-residential construction industry.
“The overall economy is picking up. Manufacturers are reporting some improvement in the orders and consumer spending is rising gradually. Exports, which are important to Illinois, have been going up pretty sharply, but it’s going to be quite a while I think before that translates into demand for construction. There’s still a lot of vacant stores and excess space in factories, and the budget is in a very weak condition,” Simonson said.
Raegan Hennemann is a freelance writer from Springfield.
To read more of the March issue of Springfield Business Journal, click here for subscription information and retail outlet locations.
