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WisBusiness: Fed economist sees lots of 'slack' in economy, but Midwest doing better
8/25/2010

MILWAUKEE -- A senior economist at the Federal Reserve Bank of Chicago says that despite lots of "slack" in the economy, the Midwest is doing better in the slow recovery.

William Strauss assured Wisconsin business professionals that the economy is improving -- and to a relatively quick degree in the manufacturing component that is the Badger state's bread and butter. In particular, he said, the auto and steel industries are leading the rebound, suggesting they had over-reacted to the downturn by slashing jobs and production too much.

But although he says the Great Recession appears over and a "double-dip recession" is unlikely, this recovery is occurring more slowly than other post-recession periods in America's history. Consumers appear to have radically altered their investing and spending strategies, he said, citing recent surveys that found 97 percent of Americans believe their home will not increase much in value over the next five years and only 10 percent believe the stock market will make substantial gains by 2015.

Despite his belief that times are improving, global competition and lean-manufacturing trends mean Wisconsin must resign itself to a permanent reduction in manufacturing jobs, he said.

Strauss, speaking to a Wisconsin Business Council manufacturing symposium on Tuesday, said manufacturing production plummeted nationwide by 17 percent from its peak in December 2007, but has risen by an average of 9.3 percent in the past 13 months and has recovered 48 percent of losses during the recession. In the Midwest, manufacturing has risen even faster, around 13 percent.

The auto industry responded to a 21 percent plunge in sales by overly cutting production by 34 percent, he said, creating an encouraging rebound, expected to continue through 2011.

Job losses remain severe, Strauss said. Due to population growth, “We need to employ 100,000 people a month just to keep the employment rate stable,” he said.

"Unemployment is not the only measure of how an industry is doing," he said, however. Industries can recoup and even surpass their former production rates without replenishing former workforce numbers, as efficiency in production and technological advances continue to eliminate traditional jobs. For example, he said, the United States produces more farming than ever before – enough to feed Americans and provide ample exports, yet only 2 percent of today’s population works in agriculture. The same thing is occurring in manufacturing, where improved methods and equipment have boosted production with fewer workers.

Afterward, Strauss said he’d advise Wisconsin’s policy-makers “to do a better job of educating our workforce to succeed in knowledge-based jobs.”

Strauss told WisBusiness that every state hopes to be the next industry magnet, but that future job growth is likely to be in technical and service fields. He cautioned against being too eager to offer businesses financial incentives that are so generous they offset the benefits of gaining the business. “Don’t give away the farm,” he advised.

America’s efficient productivity and focus on research and development has an upside – it’s actually drawing companies from other nations to locate here, he said. Citing a new Volkswagen plant launched in 2008 in Tennessee, he said “anything is possible” for Janesville’s abandoned GM plant site, especially if labor unions become more flexible.

Strauss' views contrasted with earlier panel discussions by two former state commerce secretaries, three state legislators and five business leaders who lauded an ambitious plan to attract key industries to Wisconsin and who blamed sluggish hiring in part on a lack of skilled trades workers.

Cory Nettles, former commerce secretary under Democratic Gov. Jim Doyle, Bill McCoshen, former state commerce secretary under GOP Gov. Tommy Thompson, Rep. Peter Barca. D-Kenosha, Rep. Rich Zipperer, R-Pewaukee; and Sen. Randy Hopper, R-Fond du Lac, all pledged support for "Be Bold Wisconsin," a study released earlier this month. The study said an aggressive marketing campaign and financial incentives for certain targeted businesses could put Wisconsin among the top 10 states for business development by 2016.

"It may seem unbelievable, but it's achievable," said McCoshen. Nettles said the plan proposes diverting $510 million in unused bonding toward the effort, although he acknowledged such a move could be politically charged and would need public support.

Nettles and the others supported “alignment” of financial incentives toward targeted industries. “We can’t be all things to all people, going forward,” he said. “That’s a very politically divisive concept that you’re going to tell someone that their project in Wobegon, Wisconsin can’t get funded, but that’s certainly what we need to do, and we a lot more discipline in that regard.”

"This is something that is long overdue," said Barca, who is confident of bipartisan support among lawmakers. "I think both sides have really reached out to the private sector. There's an appetite for economic development."

In a separate panel discussion, however, manufacturing leaders Mark Sellers of MGS Manufacturing Group in Germantown, Vince Ruffalo of Superior Industrial Coating, Racine, and Irwin Shur of Milwaukee-based Snap-on Inc. said Wisconsin needs fewer "programs" and more young workers with mechanical training, along with thinking skills and basic math. They gave Wisconsin's business climate grades ranging from "C" to D-minus" -- in part because of problems ranging from poor worker training to tight lending conditions.

“We have enough academia here; this is a manufacturing state,” said Sellers. “(Workers) need to know Credit Card Bill 101, Gas Bill 101, Telephone Bill 101, Cable Bill 101, and House Payment 102. Give me the kids who understand and can explain and figure out those bills and what it costs them.”

The Be Bold Wisconsin study, compiled by consultants Deloitte Consulting and Newmark Knight Frank, was commissioned by the Wisconsin Economic Development Association, Competitive Wisconsin, Inc., and the Wisconsin Counties Association, and was administered by the Wisconsin Economic Development Institute.

Read the full report at http://www.wispolitics.com/1006/100801CompetitivenessReport.pdf

-- By Kay Nolan
For WisBusiness.com

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