Local economy still on solid ground

Energy, health care costs most likely to create problems

Sunday, October 24, 2004

By BRIAN LAWSON

Times Business Writer brianl@htimes.com

Huntsville is an oasis in a still weakened U.S. economy, but uncertainty and rising costs are being felt even here.

The unemployment rate nationally is 5.4 percent and Alabama's is 5.7 percent. Huntsville's unemployment rate is 4.1 percent, down from 4.7 percent last month and September 2003.

The Conference Board, which gathers U.S. economic data, reported Thursday that the index of leading economic indicators has fallen for the fourth straight month.

Huntsville, on the other hand, has held steady, with sales tax collections and new-home construction running about even with last year, and help-wanted ads and local hotel stays are higher than a year ago.

But overall problems persist, said Dr. Niles Schoening, an economist with the University of Alabama in Huntsville. Schoening said the problems are led by high energy prices and expensive health care, which have a chilling effect on employment. He said companies are in such a competitive global climate that they have limited ability to pass higher operating costs on to customers, so the hits come in other ways.

"Most of the national forecasts have the economy growing slower in the second half of the year than the fist half," Schoening said. "The feeling is that those costs will be passed backwards, rather than forward, meaning lower corporate profits, lower stock prices and, possibly, layoffs."

Schoening said the Huntsville area continues to offer high-paying jobs, including the announcement of an additional 300 jobs at Toyota's engine plant. But he cautioned the national job outlook will continue to suffer, as long as health care and energy costs remain high and unaddressed by political leaders.

Indeed, a recent Business Roundtable survey of leading CEOs showed that, while 89 percent of companies expect sales to increase during the next six months, only 40 percent expect to do any hiring.

Don Groves, managing partner for Omni Team LLC in Huntsville, which provides employment services including layoff transition assistance, said his company hasn't been as busy this year assisting large layoffs. But people are finding it more difficult to find a job now than they have in the past couple of years.

"It is changing so quickly," Groves said. "If we go back a few months, we saw some activity moving into hiring. But in the past couple of months, companies actually appeared to have backed off. They're waiting to see what happens with the economy."

Groves said there are jobs available in the area, but the search is more complicated. More and more companies require job applications to be posted online, where the resumes are subject to an electronic key word scan. If the right word doesn't appear, Groves said, the person isn't selected for an interview. Groves said in a buyer's market companies can be more selective, but the result is a lot of "good people may be getting lost in the system."

Building steady

Scott McLain, a local developer, said the commercial real estate market in North Alabama is continuing to flourish, similar to 2003, but there's been a change as companies become more cautious.

"Timing and execution of a deal is taking much, much longer," McLain said. "Several of us have speculated on why decisions are taking longer and we suggested the general economy is not as wonderful as we sometimes say. Or, uncertainty about the war in Iraq and or election is causing delays."

McLain said deals that used to take six months to complete are now taking close to a year. The effect of the lag is delayed construction, delayed openings and deals falling through for a lack of activity.

"I think we'll see a pick-up if there's a break in the war or the election," McLain said. "Something is interfering with business, causing it not to stop, but move at a slower pace. We're not seeing the intensity or requirements that something be accomplished now.

"It's very interesting how the mood of the American public at the consumer level is manifest in decision-making in corporate America."

McLain said the current climate reminds him of post-Sept. 11 and during the Gulf War, when people were closely following daily events and paying less attention to consumer issues.

Buck Barnhill, whose company, Southern Exposure Information, collects building and related data, said the housing market is tied to the jobs market. The Huntsville area is continuing to see steady growth in new-home construction, reflecting a strong professional job market, with building starts comparable to 2003, he said.

Barnhill said low interest rates tend to drive building, and the recent hikes in rates hasn't slowed the market.

Prices are starting to climb, however, as demand for building materials increased after recent hurricanes, he said.

While the housing market moves forward and tourism in the area is strong - and expected to improve with new downtown hotel construction - other pressures on the economy remain. Energy prices are expected to shave off nearly a point off the U.S. gross domestic product, and the stock market remains sluggish.

One-third of the 96,000 jobs created in September were temporary jobs, according to the U.S. Department of Labor.

The tight job market is also likely to remain, as many of the former Goodyear-Dunlop tire employees, who earned on average more than $20 an hour, will see the end of their severance packages and move back into the market for jobs.

Schoening said the Huntsville area is awaiting the Base Realignment and Closure Commission process, hoping that will lead to job gains and more growth. Either way, he said, the current economy is likely to grow at 3.5 percent next year, a solid, but not great, clip.

McLain, whose business counts on growth and activity, said he's living like an optimist, investing in projects and expecting them all to come together.

"I'm more than cautiously optimistic," he said. "I'm solidly optimistic."




Local economy still on solid ground Energy, health care costs most likely to create problems Sunday, October 24, 2004 By BRIAN LAWSON Times Business Writer brianl@htimes.com Huntsville is an oasis in a still weakened U.S. economy, but uncertainty and rising costs are being felt even here. The unemployment rate nationally is 5.4 percent and Alabama's is 5.7 percent. Huntsville's unemployment rate is 4.1 percent, down from 4.7 percent last month and September 2003. The Conference Board, which gathers U.S. economic data, reported Thursday that the index of leading economic indicators has fallen for the fourth straight month. Huntsville, on the other hand, has held steady, with sales tax collections and new-home construction running about even with last year, and help-wanted ads and local hotel stays are higher than a year ago. But overall problems persist, said Dr. Niles Schoening, an economist with the University of Alabama in Huntsville. Schoening said the problems are led by high energy prices and expensive health care, which have a chilling effect on employment. He said companies are in such a competitive global climate that they have limited ability to pass higher operating costs on to customers, so the hits come in other ways. "Most of the national forecasts have the economy growing slower in the second half of the year than the fist half," Schoening said. "The feeling is that those costs will be passed backwards, rather than forward, meaning lower corporate profits, lower stock prices and, possibly, layoffs." Schoening said the Huntsville area continues to offer high-paying jobs, including the announcement of an additional 300 jobs at Toyota's engine plant. But he cautioned the national job outlook will continue to suffer, as long as health care and energy costs remain high and unaddressed by political leaders. Indeed, a recent Business Roundtable survey of leading CEOs showed that, while 89 percent of companies expect sales to increase during the next six months, only 40 percent expect to do any hiring. Don Groves, managing partner for Omni Team LLC in Huntsville, which provides employment services including layoff transition assistance, said his company hasn't been as busy this year assisting large layoffs. But people are finding it more difficult to find a job now than they have in the past couple of years. "It is changing so quickly," Groves said. "If we go back a few months, we saw some activity moving into hiring. But in the past couple of months, companies actually appeared to have backed off. They're waiting to see what happens with the economy." Groves said there are jobs available in the area, but the search is more complicated. More and more companies require job applications to be posted online, where the resumes are subject to an electronic key word scan. If the right word doesn't appear, Groves said, the person isn't selected for an interview. Groves said in a buyer's market companies can be more selective, but the result is a lot of "good people may be getting lost in the system." Building steady Scott McLain, a local developer, said the commercial real estate market in North Alabama is continuing to flourish, similar to 2003, but there's been a change as companies become more cautious. "Timing and execution of a deal is taking much, much longer," McLain said. "Several of us have speculated on why decisions are taking longer and we suggested the general economy is not as wonderful as we sometimes say. Or, uncertainty about the war in Iraq and or election is causing delays." McLain said deals that used to take six months to complete are now taking close to a year. The effect of the lag is delayed construction, delayed openings and deals falling through for a lack of activity. "I think we'll see a pick-up if there's a break in the war or the election," McLain said. "Something is interfering with business, causing it not to stop, but move at a slower pace. We're not seeing the intensity or requirements that something be accomplished now. "It's very interesting how the mood of the American public at the consumer level is manifest in decision-making in corporate America." McLain said the current climate reminds him of post-Sept. 11 and during the Gulf War, when people were closely following daily events and paying less attention to consumer issues. Buck Barnhill, whose company, Southern Exposure Information, collects building and related data, said the housing market is tied to the jobs market. The Huntsville area is continuing to see steady growth in new-home construction, reflecting a strong professional job market, with building starts comparable to 2003, he said. Barnhill said low interest rates tend to drive building, and the recent hikes in rates hasn't slowed the market. Prices are starting to climb, however, as demand for building materials increased after recent hurricanes, he said. While the housing market moves forward and tourism in the area is strong - and expected to improve with new downtown hotel construction - other pressures on the economy remain. Energy prices are expected to shave off nearly a point off the U.S. gross domestic product, and the stock market remains sluggish. One-third of the 96,000 jobs created in September were temporary jobs, according to the U.S. Department of Labor. The tight job market is also likely to remain, as many of the former Goodyear-Dunlop tire employees, who earned on average more than $20 an hour, will see the end of their severance packages and move back into the market for jobs. Schoening said the Huntsville area is awaiting the Base Realignment and Closure Commission process, hoping that will lead to job gains and more growth. Either way, he said, the current economy is likely to grow at 3.5 percent next year, a solid, but not great, clip. McLain, whose business counts on growth and activity, said he's living like an optimist, investing in projects and expecting them all to come together. "I'm more than cautiously optimistic," he said. "I'm solidly optimistic." Copyright 2004 al.com. All Rights Reserved.