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2010-01-31 BACK
Is the Texarkana Industrial Index Working?
Is the Texarkana Industrial Index Working? This article originally appeared in the Texarkana Gazette on January 31, 2010 Dr. Ed Bashaw, Dean, Texas A&M-Texarkana, College of Business Readers of this column may recall that on April 6, 2008, the Texarkana Gazette published the initial Texarkana Industrial Index (TII). The TII, a proprietary index published weekly in the Gazette, was conceived and calculated by the Texarkana Market Analysis Project (a unit of the College of Business of Texas A&M University-Texarkana). In today's column I review the performance of the Index over the two years for which we have collected data and compare the TII with the Dow Jones Industrial Index over this same time period. The TII originally consisted of eight publicly traded industrial/manufacturing companies (Alcoa, American Electric Power/SWEPCO, Centerpoint Energy, Cooper Tire and Rubber, Domtar, Dow Chemical, Flowers Foods, and International Paper) with operations within the greater Texarkana area. We collected data on these firms for three months to see how the TII performed before we released it to the Texarkana public via the Gazette. Recall that this Index attempts to broadly capture the current and potential contribution of these firms to the Texarkana economy. The most important measure is the current contribution which we capture using quarterly Texarkana employment of the TII companies. Potential contribution is captured using the market capitalization of each TII company (current market value is calculated by multiplying the current stock price by the number of outstanding shares). The number our proprietary formula produces each week is compared to the number produced from the conditions existing at the end of business on December 31, 2007. We created the TII to give our readers a way to evaluate Texarkana's industrial environment at a glance. How well has it worked? You be the judge; but I would submit that it has worked well. I offer two of the original companies in the TII as examples – Alcoa and Cooper Tire. A year ago, the Texarkana business community was still celebrating Cooper Tire's announcement that the Texarkana, AR, plant would remain open and that a plant in Albany, GA, would close instead. That Cooper Tire would consider a plant closing shouldn't have been surprising. The announcement was made early in the 4th Quarter of 2008 that Cooper would launch an analysis that would lead to permanently closing one of its plants. The TII hit 81.23 on Oct. 9, 2008 (a new low at the time) and dipped down to 77.48 on Nov. 20, 2008. The companies in the Index lost just below 400 jobs over the first nine months of 2008. Cooper shed over 250 of these jobs. Cooper's stock price during this period ranged between $6 to $9 per share. On Oct. 1, 2008, the stock price was $8.00, down from $22.67 just one year earlier. On Dec. 1, 2008, the stock dropped to $3.87. Clearly Cooper needed to take dramatic action – which they did. Thankfully we were able to keep our Cooper plant. And, the market has rewarded Cooper for that decision (and the Obama tariff on Chinese tires) as their stock price on Oct. 1, 2009, was $22.67. A story with a not-so-happy ending is Alcoa. They were removed from the Index starting the 3rd Quarter of 2009 because their earlier announcement of a "permanent idling" has taken effect. What led to this and could we have predicted this "idling"? The short answer is yes. Alcoa began the 2nd Quarter in 2008 with 340 local employees. After the 1st Quarter layoffs of 2009, local employment levels hit 251. We had hoped that the bleeding would have stopped at Alcoa in Texarkana. We use Alcoa's stock price to determine their ability and need to invest locally. Our analysis was not positive (see my column dated 4/26/09). Alcoa began 2008 with a stock price of $36.55 and stayed neat that in a pretty narrow range for the first two quarters. Over the 3rd Quarter Alcoa's stock price started slipping. The first action we saw locally was the layoffs of about 60 that were announced late in the 4th Quarter and occurred during the 1st Quarter. Unfortunately these and the combined national layoffs did not return Alcoa to profitability and Alcoa ultimately put our plant on "permanent idle" status. A look at their stock price over the six months from Oct. 1, 2009 to April 1, 2009, tell the story. The stock went from $21.27 on Oct. 1, 2008 to $11.26 on Jan. 1, 2009, and finally to $7.60 on April 1, 2009. Since that time Alcoa's stock has fared a little better as the current price is $13.54. The accompanying chart shows the Texarkana Industrial Index numbers over the first two years (2008-2009). The National Bureau of Economic Research (the agency that "officially" calls the beginning and end of U.S. recessions) declared on Dec. 1, 2008, that the current recession began in December of 2007. (Note that our Index began the next month – interesting timing for an economic index!) Given the timing of the beginning date on the Index, it is not surprising that the Index has never been above 100. Most of the firms in the TII are at least national in scope, so it is also no surprise that our Index follows very closely with the Dow Jones Industrial Average. Let's look closer. As noted, our initial Texarkana Industrial Index that appeared in the Texarkana Gazette on April 6, 2008, (based on stock price closings of 4/3/08) was 93.48. The lowest point our Index reached in 2008 was 77.48 on November 20, 2008. The low point in 2009, and the lowest TII number we've had to report to date (and hopefully ever), was on March 5, 2009, at 74.04. Thankfully, the Index rose steadily over the second half of 2009 when the 52 week high was 89.55. This performance is amazingly consistent with the Dow Jones Industrial Average over this same time period. Our opening Index would have been 100 on the opening of business of January 1, 2008. The Dow was 13,264.82 and we'll use this as a baseline when comparing Dow averages to our own TII. The low point for the Dow in 2008 was November 20, when the Dow closed at 7,552.29. It was the exact same low point for our TII. The low point in 2009 for both the Dow and the TII occurred on March 5. The Dow was 6,594.44. Again, these indices proved to be highly correlated when the 2009 high point was reached for both. That was December 24, 2009 when the Dow reached 10,520.10. The difference between the two indices, thankfully, was a matter of degree. The TII was 77.48 on November 20, 2008. This means 77.48% of the comparison Index baseline from January 1, 2008. At the same time, the Dow was 56.93% of the comparison baseline Dow average (13,264.82 on January 1, 2008). The low point of the TII was 74.07 on March 5, 2009, and the Dow was 49.71% of what it was on January 1, 2008. Finally, the high point for both the Index and the Dow came on December 24, 2009 with the TII of 89.55 and the Dow was 79.31% of the January 1, 2008 opening number. This is good news for Texarkana. Our industrial sector suffered; no question about that. However, the degree of suffering for those companies in our TII suffered much less. At its lowest level, our industrial companies were about 25% better off than the companies represented in the Dow Jones Industrial Average (see 3/5/09 data). Additionally, our industrial sector has made better progress towards getting back to January 2008 levels. Here again we see the adage proved again whereby the Texarkana economy does not normally hit the high levels as other regional (or national) economies do nor does it hit the low levels that other regional economies experience. My strong desire is to see the Texarkana Industrial Index reach 100 or better during 2010. Stay tuned and keep watching. Dr. Bashaw is the Dean of the College of Business at Texas A&M University-Texarkana and welcomes your comments at www.edbashaw.com. Our annual Economic Forecast Luncheon will be February 25, 2010 with St. Louis Federal Reserve President/CEO James Bullard the featured speaker. We have a limited number of tickets available so call Sue Hughes at 903.223.3020 to order your tickets.
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Is the Texarkana Industrial Index Working?
Is the Texarkana Industrial Index Working? This article originally appeared in the Texarkana Gazette on January 31, 2010 Dr. Ed Bashaw, Dean, Texas A&M-Texarkana, College of Business Readers of this column may recall that on April 6, 2008, the Texarkana Gazette published the initial Texarkana Industrial Index (TII). The TII, a proprietary index published weekly in the Gazette, was conceived and calculated by the Texarkana Market Analysis Project (a unit of the College of Business of Texas A&M University-Texarkana). In today's column I review the performance of the Index over the two years for which we have collected data and compare the TII with the Dow Jones Industrial Index over this same time period. The TII originally consisted of eight publicly traded industrial/manufacturing companies (Alcoa, American Electric Power/SWEPCO, Centerpoint Energy, Cooper Tire and Rubber, Domtar, Dow Chemical, Flowers Foods, and International Paper) with operations within the greater Texarkana area. We collected data on these firms for three months to see how the TII performed before we released it to the Texarkana public via the Gazette. Recall that this Index attempts to broadly capture the current and potential contribution of these firms to the Texarkana economy. The most important measure is the current contribution which we capture using quarterly Texarkana employment of the TII companies. Potential contribution is captured using the market capitalization of each TII company (current market value is calculated by multiplying the current stock price by the number of outstanding shares). The number our proprietary formula produces each week is compared to the number produced from the conditions existing at the end of business on December 31, 2007. We created the TII to give our readers a way to evaluate Texarkana's industrial environment at a glance. How well has it worked? You be the judge; but I would submit that it has worked well. I offer two of the original companies in the TII as examples – Alcoa and Cooper Tire. A year ago, the Texarkana business community was still celebrating Cooper Tire's announcement that the Texarkana, AR, plant would remain open and that a plant in Albany, GA, would close instead. That Cooper Tire would consider a plant closing shouldn't have been surprising. The announcement was made early in the 4th Quarter of 2008 that Cooper would launch an analysis that would lead to permanently closing one of its plants. The TII hit 81.23 on Oct. 9, 2008 (a new low at the time) and dipped down to 77.48 on Nov. 20, 2008. The companies in the Index lost just below 400 jobs over the first nine months of 2008. Cooper shed over 250 of these jobs. Cooper's stock price during this period ranged between $6 to $9 per share. On Oct. 1, 2008, the stock price was $8.00, down from $22.67 just one year earlier. On Dec. 1, 2008, the stock dropped to $3.87. Clearly Cooper needed to take dramatic action – which they did. Thankfully we were able to keep our Cooper plant. And, the market has rewarded Cooper for that decision (and the Obama tariff on Chinese tires) as their stock price on Oct. 1, 2009, was $22.67. A story with a not-so-happy ending is Alcoa. They were removed from the Index starting the 3rd Quarter of 2009 because their earlier announcement of a "permanent idling" has taken effect. What led to this and could we have predicted this "idling"? The short answer is yes. Alcoa began the 2nd Quarter in 2008 with 340 local employees. After the 1st Quarter layoffs of 2009, local employment levels hit 251. We had hoped that the bleeding would have stopped at Alcoa in Texarkana. We use Alcoa's stock price to determine their ability and need to invest locally. Our analysis was not positive (see my column dated 4/26/09). Alcoa began 2008 with a stock price of $36.55 and stayed neat that in a pretty narrow range for the first two quarters. Over the 3rd Quarter Alcoa's stock price started slipping. The first action we saw locally was the layoffs of about 60 that were announced late in the 4th Quarter and occurred during the 1st Quarter. Unfortunately these and the combined national layoffs did not return Alcoa to profitability and Alcoa ultimately put our plant on "permanent idle" status. A look at their stock price over the six months from Oct. 1, 2009 to April 1, 2009, tell the story. The stock went from $21.27 on Oct. 1, 2008 to $11.26 on Jan. 1, 2009, and finally to $7.60 on April 1, 2009. Since that time Alcoa's stock has fared a little better as the current price is $13.54. The accompanying chart shows the Texarkana Industrial Index numbers over the first two years (2008-2009). The National Bureau of Economic Research (the agency that "officially" calls the beginning and end of U.S. recessions) declared on Dec. 1, 2008, that the current recession began in December of 2007. (Note that our Index began the next month – interesting timing for an economic index!) Given the timing of the beginning date on the Index, it is not surprising that the Index has never been above 100. Most of the firms in the TII are at least national in scope, so it is also no surprise that our Index follows very closely with the Dow Jones Industrial Average. Let's look closer. As noted, our initial Texarkana Industrial Index that appeared in the Texarkana Gazette on April 6, 2008, (based on stock price closings of 4/3/08) was 93.48. The lowest point our Index reached in 2008 was 77.48 on November 20, 2008. The low point in 2009, and the lowest TII number we've had to report to date (and hopefully ever), was on March 5, 2009, at 74.04. Thankfully, the Index rose steadily over the second half of 2009 when the 52 week high was 89.55. This performance is amazingly consistent with the Dow Jones Industrial Average over this same time period. Our opening Index would have been 100 on the opening of business of January 1, 2008. The Dow was 13,264.82 and we'll use this as a baseline when comparing Dow averages to our own TII. The low point for the Dow in 2008 was November 20, when the Dow closed at 7,552.29. It was the exact same low point for our TII. The low point in 2009 for both the Dow and the TII occurred on March 5. The Dow was 6,594.44. Again, these indices proved to be highly correlated when the 2009 high point was reached for both. That was December 24, 2009 when the Dow reached 10,520.10. The difference between the two indices, thankfully, was a matter of degree. The TII was 77.48 on November 20, 2008. This means 77.48% of the comparison Index baseline from January 1, 2008. At the same time, the Dow was 56.93% of the comparison baseline Dow average (13,264.82 on January 1, 2008). The low point of the TII was 74.07 on March 5, 2009, and the Dow was 49.71% of what it was on January 1, 2008. Finally, the high point for both the Index and the Dow came on December 24, 2009 with the TII of 89.55 and the Dow was 79.31% of the January 1, 2008 opening number. This is good news for Texarkana. Our industrial sector suffered; no question about that. However, the degree of suffering for those companies in our TII suffered much less. At its lowest level, our industrial companies were about 25% better off than the companies represented in the Dow Jones Industrial Average (see 3/5/09 data). Additionally, our industrial sector has made better progress towards getting back to January 2008 levels. Here again we see the adage proved again whereby the Texarkana economy does not normally hit the high levels as other regional (or national) economies do nor does it hit the low levels that other regional economies experience. My strong desire is to see the Texarkana Industrial Index reach 100 or better during 2010. Stay tuned and keep watching. Dr. Bashaw is the Dean of the College of Business at Texas A&M University-Texarkana and welcomes your comments at www.edbashaw.com. Our annual Economic Forecast Luncheon will be February 25, 2010 with St. Louis Federal Reserve President/CEO James Bullard the featured speaker. We have a limited number of tickets available so call Sue Hughes at 903.223.3020 to order your tickets.
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