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2009-07-19 BACK
Texarkana Industrial Index: Mid-Year Review
Texarkana Industrial Index: Mid-Year Review This article originally appeared in the Texarkana Gazette on July 19, 2009 Dr. Ed Bashaw, Dean, Texas A&M-Texarkana, College of Business In visiting with people around Texarkana about the activities of the College of Business, an item that comes up frequently is the Texarkana Industrial Index (TII). You'll recall that we create and maintain the TII and that it is published weekly in the Texarkana Gazette. A typical response might be, "I read that number in the paper. What does it measure and what does it mean?" In today's column, I'll attempt to answer those questions and give examples using what has happened to TII companies. I'll conclude with a brief look at the first half performance of the TII and speculate what might be on the horizon for TII companies in the immediate future. What does the TII measure? The TII is a weighted average of two important data points updated each quarter - the number of employees employed by TII companies in the Texarkana area and the market capitalization for each company (market cap is the stock price times the number of outstanding company shares). The number of employees is weighted more heavily and represents the most important aspect of the TII because employment numbers are the major economic generator for Texarkana. Simply put, they provide the Texarkana MSA with spending power that allows all of us to enjoy our favorite retailers, have access to health care, and support and/or attend our local educational institutions. The market capitalization is a way of getting to how the market values an individual firm. The larger the company's value, the more likely the company would be to invest some of its increased resources in Texarkana to grow its business. Growth in a company's market capitalization also means it is more likely to hire additional employees. What does the TII number mean? As any ratio-based index, the number should be seen in relative terms, not as an absolute or precise number. Our first TII was published Jan. 3, 2008. That initial index number, and each subsequent TII number, is compared to where we were on 12/31/07. At that time, the Dow Jones Industrial Average was $13,264.82 and the TII firms employed 4226 people in the Texarkana area. Compare that with the Dow's second quarter closing at $8472.40 (down 36.1% from the 12/31/07 Dow) and 3775 people employed by TII firms (down 10.7% from 12/31/07 numbers). We combine these basic numbers to get a TII number of 79.45 for 6/25/09. OK, but what does the index number really mean? Obviously low numbers are not good. They mean a higher likelihood of the TII companies in Texarkana making resource allocation reductions. This number has been a good predictor in the cases of Cooper Tire and Alcoa. Recall the Cooper Tire situation of the fourth quarter 2008 where they moved from four U.S. plants to three. This was a cut of roughly 25% of Cooper's capacity and reflected the poor conditions in both the tire industry and the U.S. market. At that time, the TII (of which Cooper Tire has the most influence) was in the high 70's. The relatively low TII number made it not surprising that Cooper Tire, or any TII company, would make cuts in employees and/or plant capacity. Our Texarkana plant was not the plant closed, but the TII correctly indicated we were at risk. Recently in this column I wondered about Alcoa's future in Texarkana (4/26/09). I speculated that Alcoa might be forced to make changes due to tough operating and market conditions. Unfortunately, we were right to focus on Alcoa. They announced that they would be “idling” the Texarkana plant indefinitely. My understanding is that the vast majority of the employees of the plant will complete their employment with Alcoa by the end of August or the first of September. Only a very small maintenance organization will remain. We will eventually remove Alcoa from the TII list – probably at the beginning of the fourth quarter (October). This will better reflect the performance of the remaining firms in the TII. Remarkably, for the first half of the year the Index is virtually unchanged. We started the year at 79.47 and ended the first half of the year at 79.45. The TII companies started the year employing 3,888 people and ended the first half of 2009 at 3775 employed. A good question would be why would the Index remain the same if the highest weighted category, number of employees, dropped by 113 or 2.9%? Fortunately for our Texarkana economy, the market capitalization of these TII companies increased collectively by 22.5%. Six of the seven TII companies increased their market cap over the first six months of 2009. Perhaps more importantly, our top three publicly traded industrial employers (in terms of numbers employed in Texarkana) Cooper Tire, Domtar, and International Paper grew their collective market caps by 70.8%. That significant growth mitigated the impact of the lost employees. What does this mean for Texarkana? The market capitalization reflects the most current thinking of stock market buyers and sellers on these companies' underlying business fundamentals and their future ability to perform in competitive markets. Based on the market cap numbers, I'm optimistic about the parent companies short term future. This doesn't mean they won't leave Texarkana or significantly reduce operations. It does mean they have more resources to invest in Texarkana, if they choose. At the risk of “jinxing” a TII company, my guess is that for the non-Alcoa companies in the TII, I wouldn't expect much radical change (i.e., major downsizing) in the third and fourth quarters of 2009. Of course, all bets are off if some major, unforeseen economic disruption occurs. In my next column, I'll review the larger Texarkana MSA economy's first half performance. As always, please email me at Edward.Bashaw@tamut.edu with your thoughts and comments. (Dr. Bashaw is the Dean of the College of Business at Texas A&M University-Texarkana
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Texarkana Industrial Index: Mid-Year Review
Texarkana Industrial Index: Mid-Year Review This article originally appeared in the Texarkana Gazette on July 19, 2009 Dr. Ed Bashaw, Dean, Texas A&M-Texarkana, College of Business In visiting with people around Texarkana about the activities of the College of Business, an item that comes up frequently is the Texarkana Industrial Index (TII). You'll recall that we create and maintain the TII and that it is published weekly in the Texarkana Gazette. A typical response might be, "I read that number in the paper. What does it measure and what does it mean?" In today's column, I'll attempt to answer those questions and give examples using what has happened to TII companies. I'll conclude with a brief look at the first half performance of the TII and speculate what might be on the horizon for TII companies in the immediate future. What does the TII measure? The TII is a weighted average of two important data points updated each quarter - the number of employees employed by TII companies in the Texarkana area and the market capitalization for each company (market cap is the stock price times the number of outstanding company shares). The number of employees is weighted more heavily and represents the most important aspect of the TII because employment numbers are the major economic generator for Texarkana. Simply put, they provide the Texarkana MSA with spending power that allows all of us to enjoy our favorite retailers, have access to health care, and support and/or attend our local educational institutions. The market capitalization is a way of getting to how the market values an individual firm. The larger the company's value, the more likely the company would be to invest some of its increased resources in Texarkana to grow its business. Growth in a company's market capitalization also means it is more likely to hire additional employees. What does the TII number mean? As any ratio-based index, the number should be seen in relative terms, not as an absolute or precise number. Our first TII was published Jan. 3, 2008. That initial index number, and each subsequent TII number, is compared to where we were on 12/31/07. At that time, the Dow Jones Industrial Average was $13,264.82 and the TII firms employed 4226 people in the Texarkana area. Compare that with the Dow's second quarter closing at $8472.40 (down 36.1% from the 12/31/07 Dow) and 3775 people employed by TII firms (down 10.7% from 12/31/07 numbers). We combine these basic numbers to get a TII number of 79.45 for 6/25/09. OK, but what does the index number really mean? Obviously low numbers are not good. They mean a higher likelihood of the TII companies in Texarkana making resource allocation reductions. This number has been a good predictor in the cases of Cooper Tire and Alcoa. Recall the Cooper Tire situation of the fourth quarter 2008 where they moved from four U.S. plants to three. This was a cut of roughly 25% of Cooper's capacity and reflected the poor conditions in both the tire industry and the U.S. market. At that time, the TII (of which Cooper Tire has the most influence) was in the high 70's. The relatively low TII number made it not surprising that Cooper Tire, or any TII company, would make cuts in employees and/or plant capacity. Our Texarkana plant was not the plant closed, but the TII correctly indicated we were at risk. Recently in this column I wondered about Alcoa's future in Texarkana (4/26/09). I speculated that Alcoa might be forced to make changes due to tough operating and market conditions. Unfortunately, we were right to focus on Alcoa. They announced that they would be “idling” the Texarkana plant indefinitely. My understanding is that the vast majority of the employees of the plant will complete their employment with Alcoa by the end of August or the first of September. Only a very small maintenance organization will remain. We will eventually remove Alcoa from the TII list – probably at the beginning of the fourth quarter (October). This will better reflect the performance of the remaining firms in the TII. Remarkably, for the first half of the year the Index is virtually unchanged. We started the year at 79.47 and ended the first half of the year at 79.45. The TII companies started the year employing 3,888 people and ended the first half of 2009 at 3775 employed. A good question would be why would the Index remain the same if the highest weighted category, number of employees, dropped by 113 or 2.9%? Fortunately for our Texarkana economy, the market capitalization of these TII companies increased collectively by 22.5%. Six of the seven TII companies increased their market cap over the first six months of 2009. Perhaps more importantly, our top three publicly traded industrial employers (in terms of numbers employed in Texarkana) Cooper Tire, Domtar, and International Paper grew their collective market caps by 70.8%. That significant growth mitigated the impact of the lost employees. What does this mean for Texarkana? The market capitalization reflects the most current thinking of stock market buyers and sellers on these companies' underlying business fundamentals and their future ability to perform in competitive markets. Based on the market cap numbers, I'm optimistic about the parent companies short term future. This doesn't mean they won't leave Texarkana or significantly reduce operations. It does mean they have more resources to invest in Texarkana, if they choose. At the risk of “jinxing” a TII company, my guess is that for the non-Alcoa companies in the TII, I wouldn't expect much radical change (i.e., major downsizing) in the third and fourth quarters of 2009. Of course, all bets are off if some major, unforeseen economic disruption occurs. In my next column, I'll review the larger Texarkana MSA economy's first half performance. As always, please email me at Edward.Bashaw@tamut.edu with your thoughts and comments. (Dr. Bashaw is the Dean of the College of Business at Texas A&M University-Texarkana
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