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2009-10-11 BACK
What is the "New Normal" in Texarkana?
What is the "New Normal" in Texarkana? This article originally appeared in the Texarkana Gazette on October 11, 2009 Dr. Ed Bashaw, Dean, Texas A&M-Texarkana, College of Business The "New Normal" is a phrase that has recently received national attention. Basically, the phrase is used as a way of lowering expectations of how the economy will rebound in the post-recession period. In the "Old Normal" consumers collectively spent 100% (or more) of their income, benefitted from favorable borrowing conditions due to increasing home values, felt comfortable with high debt levels, and felt relatively secure in their job. In the "New Normal" consumers have collectively increased their saving rate to about 5% to 7% of income, face difficult borrowing conditions, suffer from lowered home values, are lowering their debt levels, are expecting to live with less income, and are less secure in their job. A look at the consumer behavior aspect of purchasing a product produced locally, new replacement tires, is instructive to understanding "New Normal" buying behavior. For an individual consumer, the purchase of replacement tires is a function of miles driven on current car and length of time between purchases of a car. The "Old Normal" was that consumers, on average, replaced tires after approximately 35,000 to 50,000 miles or when a tire was damaged (i.e., blowout). At the point the car owner determined a need to purchase replacement tires, they were likely to replace all four. The "New Normal" seems to be that consumers are putting more miles on their tires before replacing them and that they are making replacement purchases for one or two tires at a time, instead of replacing all four. Evidence also suggests Americans are postponing new car purchases. A July survey of over 32,000 consumers from AutoPacific revealed that 59% of these respondents were waiting four or more years before they purchase a new car. This is up from 46% who in 2005 said they would wait four or more years. Four years was the longest time interval option given. At every shorter time interval queried (6 months to a year, one to two years, two to three years, and three to four years), Americans in 2009 indicated they were less likely to purchase than the 2005 survey. Clearly, the "New Normal" is not good for automakers, notwithstanding the "Cash for Clunkers" program. But, what does this mean for our Texarkana Cooper Tire plant? Many conditions in the "New Normal" favor Cooper Tire. A consumer putting more miles on their car before trading it in for another is, on balance, good for Cooper. Cooper has seemed to have weathered the reduced number of tires purchased at replacement time. There seems to be some pent up demand that have caused industry sales of replacement tires to have increased. Combined with a three year tariff announcement on tires imported from China (35% in Year One, 30% in Year Two, and 25% in Year Three) then it is not surprising that Cooper Tire announced this week that they would increase capacity at the Texarkana plant beginning in January 2010. This is good news for the Texarkana economy as approximately 200 additional workers will be hired and the plant will shift to a 24/7 operation. This will likely result in overtime pay, also good for the Texarkana economy. Is this a shift at Cooper to the "New Normal"? At least in the mid-term, I believe so. Because Cooper Tire is highly unlikely to want to endure yet again the collective pain of layoffs and production decreases, my bet is that Cooper believes consumer demand for replacement tires to be strong over the next three to five years. So, what’s the "New Normal" in Texarkana? With the exception of the Alcoa plant closing, the "New Normal" in Texarkana is looking a lot like the "Old Normal" – at least in relative terms compared to the larger US economy. The best methods of comparison with local data readily available are housing sales, housing values, and employment levels. In Texarkana, the average monthly sales of new and existing homes are down just over 21% from the monthly average in the previous five years. The national new and existing home sales are worse – down nearly 30%. A more telling home statistic is value of the average home sold. In Texarkana, the average home sales price for the last 12 months was $119,795. This is an increase of 7.6% from the average home sales price in the prior five years (9/03-8/08) of $111,282. According to Case-Shiller’s housing index, the national numbers are dramatically worse than Texarkana’s. The national index average sales price for the past 12 months was $148,698. The national index average sales price for the five years prior to this period was $183,679 – down about 19%. The Bureau of Labor Statistics reports unemployment data. Texarkana fares better than the national numbers here as well. The current (Sept.) national unemployment rate was at 9.8%. The annual national monthly average was 8.5% and the five year prior monthly average was 5.1%. The five year Texarkana unemployment rate closely mirrors the national rate at 5.0%. Texarkana has the relative advantage over the last 12 months with an unemployment rate of 5.6% - nearly three points better than the national average. The most current Texarkana unemployment rate (Aug.) was 6.4%. Texarkana has largely been spared the much of the economic hardship that has driven our fellow US citizens to accepting a "New Normal". For that I am grateful. That said, if the collective national economic pain causes us to develop healthier spending habits and a greater appreciation for our health, family, and friends then let Texarkana experience the "New Normal"! READERS NOTE: The Texarkana Industrial Index starting this quarter reflects the removal of Alcoa from the Index. The TII compares these firm’s Texarkana employment numbers and stock prices to the level found on December 31, 2007. 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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What is the "New Normal" in Texarkana?
What is the "New Normal" in Texarkana? This article originally appeared in the Texarkana Gazette on October 11, 2009 Dr. Ed Bashaw, Dean, Texas A&M-Texarkana, College of Business The "New Normal" is a phrase that has recently received national attention. Basically, the phrase is used as a way of lowering expectations of how the economy will rebound in the post-recession period. In the "Old Normal" consumers collectively spent 100% (or more) of their income, benefitted from favorable borrowing conditions due to increasing home values, felt comfortable with high debt levels, and felt relatively secure in their job. In the "New Normal" consumers have collectively increased their saving rate to about 5% to 7% of income, face difficult borrowing conditions, suffer from lowered home values, are lowering their debt levels, are expecting to live with less income, and are less secure in their job. A look at the consumer behavior aspect of purchasing a product produced locally, new replacement tires, is instructive to understanding "New Normal" buying behavior. For an individual consumer, the purchase of replacement tires is a function of miles driven on current car and length of time between purchases of a car. The "Old Normal" was that consumers, on average, replaced tires after approximately 35,000 to 50,000 miles or when a tire was damaged (i.e., blowout). At the point the car owner determined a need to purchase replacement tires, they were likely to replace all four. The "New Normal" seems to be that consumers are putting more miles on their tires before replacing them and that they are making replacement purchases for one or two tires at a time, instead of replacing all four. Evidence also suggests Americans are postponing new car purchases. A July survey of over 32,000 consumers from AutoPacific revealed that 59% of these respondents were waiting four or more years before they purchase a new car. This is up from 46% who in 2005 said they would wait four or more years. Four years was the longest time interval option given. At every shorter time interval queried (6 months to a year, one to two years, two to three years, and three to four years), Americans in 2009 indicated they were less likely to purchase than the 2005 survey. Clearly, the "New Normal" is not good for automakers, notwithstanding the "Cash for Clunkers" program. But, what does this mean for our Texarkana Cooper Tire plant? Many conditions in the "New Normal" favor Cooper Tire. A consumer putting more miles on their car before trading it in for another is, on balance, good for Cooper. Cooper has seemed to have weathered the reduced number of tires purchased at replacement time. There seems to be some pent up demand that have caused industry sales of replacement tires to have increased. Combined with a three year tariff announcement on tires imported from China (35% in Year One, 30% in Year Two, and 25% in Year Three) then it is not surprising that Cooper Tire announced this week that they would increase capacity at the Texarkana plant beginning in January 2010. This is good news for the Texarkana economy as approximately 200 additional workers will be hired and the plant will shift to a 24/7 operation. This will likely result in overtime pay, also good for the Texarkana economy. Is this a shift at Cooper to the "New Normal"? At least in the mid-term, I believe so. Because Cooper Tire is highly unlikely to want to endure yet again the collective pain of layoffs and production decreases, my bet is that Cooper believes consumer demand for replacement tires to be strong over the next three to five years. So, what’s the "New Normal" in Texarkana? With the exception of the Alcoa plant closing, the "New Normal" in Texarkana is looking a lot like the "Old Normal" – at least in relative terms compared to the larger US economy. The best methods of comparison with local data readily available are housing sales, housing values, and employment levels. In Texarkana, the average monthly sales of new and existing homes are down just over 21% from the monthly average in the previous five years. The national new and existing home sales are worse – down nearly 30%. A more telling home statistic is value of the average home sold. In Texarkana, the average home sales price for the last 12 months was $119,795. This is an increase of 7.6% from the average home sales price in the prior five years (9/03-8/08) of $111,282. According to Case-Shiller’s housing index, the national numbers are dramatically worse than Texarkana’s. The national index average sales price for the past 12 months was $148,698. The national index average sales price for the five years prior to this period was $183,679 – down about 19%. The Bureau of Labor Statistics reports unemployment data. Texarkana fares better than the national numbers here as well. The current (Sept.) national unemployment rate was at 9.8%. The annual national monthly average was 8.5% and the five year prior monthly average was 5.1%. The five year Texarkana unemployment rate closely mirrors the national rate at 5.0%. Texarkana has the relative advantage over the last 12 months with an unemployment rate of 5.6% - nearly three points better than the national average. The most current Texarkana unemployment rate (Aug.) was 6.4%. Texarkana has largely been spared the much of the economic hardship that has driven our fellow US citizens to accepting a "New Normal". For that I am grateful. That said, if the collective national economic pain causes us to develop healthier spending habits and a greater appreciation for our health, family, and friends then let Texarkana experience the "New Normal"! READERS NOTE: The Texarkana Industrial Index starting this quarter reflects the removal of Alcoa from the Index. The TII compares these firm’s Texarkana employment numbers and stock prices to the level found on December 31, 2007. 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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