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2009-08-02 BACK
The Texarkana Economy: First Half Review and Future Speculation
The Texarkana Economy: First Half Review and Future Speculation This article originally appeared in the Texarkana Gazette on June 21, 2009 Dr. Ed Bashaw, Dean, Texas A&M-Texarkana, College of Business Economically speaking, most of us have had enough of 2009. But, we're only at the half-way mark. Think about what we've already been through this year. Nationally, we've lived through the government's response to the recession. We've had talk or action on bank and insurance bailouts, automobile takeovers followed by Chrysler and GM bankruptcies, cap and trade legislation, unemployment rate of 9.5, and health care reform, to name a few. The stock market's reaction to all this? A twelve year low Dow-Jones Industrial Average closing of $6547.05 on March 9, 2009. What about Texarkana? As I outlined in my last column, the poor national economy has impacted Texarkana and the companies in the Texarkana Industrial Index. Low national demand put our Cooper Tire plant at risk. It was saved, but the plant is not yet at full force. Alcoa announced an effective shut down for Texarkana in August. They employed nearly 350 just one year ago and will lose most of the 250 or so that remain. Recently, a court ruling has put the estimated $1.6 Billion (That's billion with a B!) SWEPCO project at risk. They currently employ 700 people at this stage of construction with a maximum of about 1,100 temporary jobs. At completion, SWEPCO estimates110 permanent jobs with an average salary of about $82,000. These are but three of the factors affecting the Texarkana economy. In today's column we'll review the mid-year performance of the Texarkana economy, identify the drivers of the current economy, and then speculate about the next 18 to 24 months. According to the Bureau of Labor Statistics, Texarkana has a total employable population of 63,872. That means, for May, Texarkana's economy provided 60,172 jobs with 3705 unemployed. In light of national unemployment, that's not good, it's great. What is the nature of Texarkana's employers? Our largest single employer is the Red River Army Depot and tenants with an estimated 6,000 to 7,000 jobs, around 10% of total Texarkana jobs. To put this in context, the seven companies in our Texarkana Industrial Index provided 3,775 jobs in May. Texarkana's large businesses (defined as roughly 500 or more employees) employ about 17,000 people in the Texarkana MSA – or 28% of Texarkana's jobs. That means 72% “officially” work for a small business. That is in the range of the typical U.S. average of over 70%. This segment is particularly important because small business accounts for 70 to 80% of all new jobs. Recent U.S. unemployment rates were 9.4% in May and 9.5% in June. Most predictions I see indicate that the rate will hit 10% or higher over the second half of 2009. By contrast the May unemployment rate for Texarkana was 5.8%. What gives? My take is that Texarkana has been very fortunate. Over the last two plus years Texarkana has seen an abundance of major, temporary economic activity. The conflicts in Iraq and Afghanistan have kept the Red River Army Depot community very busy. An estimated $153 million is to be spent to modernize Interstate 30. Texas A&M University-Texarkana opened a new $20 million building last summer and will complete $75 million in construction next summer. As previously mentioned, SWEPCO's project will pump $1.6 billion into the area's economy between now and 2012. Finally, TISD's $30 to $35 Million construction spending since 2008 is just now winding down. These major, temporary projects came at just the right time to save a major downturn for the Texarkana economy during this current recession. There are some indications that Texarkana could experience some pain in 18 to 24 months as current projects wind down. As the conflicts in Iraq and then in Afghanistan wind down, the levels of employment at the Depot will surely decline. Iraq is winding down as Afghanistan is building up. We hear that estimates are for around 24 months for Red River activities to decrease. There is some uncertainty about the future of the new SWEPCO plant. The I-30 project is expected to be completed in late 2010 or early 2011. The current phase of TAMUT construction will be completed in summer 2010. Nationally, there is still much uncertainty for businesses that will impact our local economy. The level of federal government involvement in areas such as health care and environmental regulation leave managers in a difficult situation regarding the costs associated with their business operations. The higher the level of uncertainty, the less likely business will be to make any major investments requiring capital spending. There is good news, I think. As I conjectured in my last column, I believe that, apart from Alcoa, I don't see any of Texarkana's large companies shutting down or making huge employee cuts in the next 12 to 18 months. Additionally, 90% of the federal stimulus dollars have yet to come into the system. Texarkana will benefit from the national expenditures expected over the next two years. As I've outlined in earlier columns and as the Texarkana Gazette has written, Texarkana has a sound real estate market and it is expected to improve in the short run. Interest rates are favorable. Improving consumer confidence spells good news for retailers in Texarkana and nationally. Generally, I believe business spending is poised to rebound. I see this because businesses drastically cut inventories so that now current demand is driving current output. Also, efficiencies have been realized as companies have streamlined operations and been able to cut their debt service level through debt restructuring. In short, the next 18 to 24 months look to be pretty positive for Texarkana. The stock market seems to be optimistic as well. The Dow Jones Industrial Average recently surpassed 9,000. The bad news? Unemployment rates look to remain around 10% for the next six to nine months. 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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The Texarkana Economy: First Half Review and Future Speculation
The Texarkana Economy: First Half Review and Future Speculation This article originally appeared in the Texarkana Gazette on June 21, 2009 Dr. Ed Bashaw, Dean, Texas A&M-Texarkana, College of Business Economically speaking, most of us have had enough of 2009. But, we're only at the half-way mark. Think about what we've already been through this year. Nationally, we've lived through the government's response to the recession. We've had talk or action on bank and insurance bailouts, automobile takeovers followed by Chrysler and GM bankruptcies, cap and trade legislation, unemployment rate of 9.5, and health care reform, to name a few. The stock market's reaction to all this? A twelve year low Dow-Jones Industrial Average closing of $6547.05 on March 9, 2009. What about Texarkana? As I outlined in my last column, the poor national economy has impacted Texarkana and the companies in the Texarkana Industrial Index. Low national demand put our Cooper Tire plant at risk. It was saved, but the plant is not yet at full force. Alcoa announced an effective shut down for Texarkana in August. They employed nearly 350 just one year ago and will lose most of the 250 or so that remain. Recently, a court ruling has put the estimated $1.6 Billion (That's billion with a B!) SWEPCO project at risk. They currently employ 700 people at this stage of construction with a maximum of about 1,100 temporary jobs. At completion, SWEPCO estimates110 permanent jobs with an average salary of about $82,000. These are but three of the factors affecting the Texarkana economy. In today's column we'll review the mid-year performance of the Texarkana economy, identify the drivers of the current economy, and then speculate about the next 18 to 24 months. According to the Bureau of Labor Statistics, Texarkana has a total employable population of 63,872. That means, for May, Texarkana's economy provided 60,172 jobs with 3705 unemployed. In light of national unemployment, that's not good, it's great. What is the nature of Texarkana's employers? Our largest single employer is the Red River Army Depot and tenants with an estimated 6,000 to 7,000 jobs, around 10% of total Texarkana jobs. To put this in context, the seven companies in our Texarkana Industrial Index provided 3,775 jobs in May. Texarkana's large businesses (defined as roughly 500 or more employees) employ about 17,000 people in the Texarkana MSA – or 28% of Texarkana's jobs. That means 72% “officially” work for a small business. That is in the range of the typical U.S. average of over 70%. This segment is particularly important because small business accounts for 70 to 80% of all new jobs. Recent U.S. unemployment rates were 9.4% in May and 9.5% in June. Most predictions I see indicate that the rate will hit 10% or higher over the second half of 2009. By contrast the May unemployment rate for Texarkana was 5.8%. What gives? My take is that Texarkana has been very fortunate. Over the last two plus years Texarkana has seen an abundance of major, temporary economic activity. The conflicts in Iraq and Afghanistan have kept the Red River Army Depot community very busy. An estimated $153 million is to be spent to modernize Interstate 30. Texas A&M University-Texarkana opened a new $20 million building last summer and will complete $75 million in construction next summer. As previously mentioned, SWEPCO's project will pump $1.6 billion into the area's economy between now and 2012. Finally, TISD's $30 to $35 Million construction spending since 2008 is just now winding down. These major, temporary projects came at just the right time to save a major downturn for the Texarkana economy during this current recession. There are some indications that Texarkana could experience some pain in 18 to 24 months as current projects wind down. As the conflicts in Iraq and then in Afghanistan wind down, the levels of employment at the Depot will surely decline. Iraq is winding down as Afghanistan is building up. We hear that estimates are for around 24 months for Red River activities to decrease. There is some uncertainty about the future of the new SWEPCO plant. The I-30 project is expected to be completed in late 2010 or early 2011. The current phase of TAMUT construction will be completed in summer 2010. Nationally, there is still much uncertainty for businesses that will impact our local economy. The level of federal government involvement in areas such as health care and environmental regulation leave managers in a difficult situation regarding the costs associated with their business operations. The higher the level of uncertainty, the less likely business will be to make any major investments requiring capital spending. There is good news, I think. As I conjectured in my last column, I believe that, apart from Alcoa, I don't see any of Texarkana's large companies shutting down or making huge employee cuts in the next 12 to 18 months. Additionally, 90% of the federal stimulus dollars have yet to come into the system. Texarkana will benefit from the national expenditures expected over the next two years. As I've outlined in earlier columns and as the Texarkana Gazette has written, Texarkana has a sound real estate market and it is expected to improve in the short run. Interest rates are favorable. Improving consumer confidence spells good news for retailers in Texarkana and nationally. Generally, I believe business spending is poised to rebound. I see this because businesses drastically cut inventories so that now current demand is driving current output. Also, efficiencies have been realized as companies have streamlined operations and been able to cut their debt service level through debt restructuring. In short, the next 18 to 24 months look to be pretty positive for Texarkana. The stock market seems to be optimistic as well. The Dow Jones Industrial Average recently surpassed 9,000. The bad news? Unemployment rates look to remain around 10% for the next six to nine months. 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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