WisBusiness: Economist: High-tech Wisconsin industry grows despite slow economy

By Brian E. Clark

MADISON – Despite a lumbering economy, two Wisconsin industries are seeing significant job growth, and it’s job growth that likely won’t fall prey to outsourced labor or cheap imports.

Employment in the plastic and rubber sector has gained more than 7 percent this year, UW-Madison economist Don Nichols said, because this is “very high-tech area that can’t be outdone by China.”

Moreover, he said these factories need to be close to customers because much of the production is in small volumes and involves rapidly changing technologies.

Nichols said Wisconsin firms have a reputation for being “especially good” at material science. Nationally, there was little growth in the rubber and plastics.

Hiring in the professional and business services in Wisconsin is also up 7 percent from a year ago, he said.

Overall, according to Nichols, U.S. business investment should grow by roughly 8 percent in the next 15 months, fueled by companies that have “piles” of cash – amounting to hundreds of billions of dollars – to spend.

In spite of a strong recovery, those investments won’t necessarily mean there will be a corresponding rise in employment, he said. Instead, job growth will rise at a fraction of that rate across the board.

Nichols, director of the university’s La Follette School of Public Affairs, said employment gains would most likely be moderated because investments in capital equipment will make business more efficient. Similarly, much of that money may be spent on information technology rather than manufacturing equipment.

Nichols spoke at an Economic Outlook 2005 conference presented by the UW-Madison School of Business Executive Education program.

Not all the money will go into new equipment or computers, Nichols said. Corporations are using their fat bank accounts to “straighten out their funny money” accounting books from recent years.

But he said the drive to put that money into new equipment and plants is strong.

“If you don’t invest and a competitor does, you are in trouble,” he said.

Though manufacturers are hiring again, Nichols said no one expects all of those jobs to return.

Even when positions do open up, employers are finding that some workers have moved on to other jobs. And while they may pay less, those new poisitions might have more security.

Roger Naniot, chief operating officer at KLH Industries in Germantown, told Nichols he can’t find machinists to fill open jobs at his tool and machine shop. Former workers have taken jobs in other fields and are afraid to return because they worry they’ll be laid off again within six months or even less.

To partially fill one spot, he rehired a 76-year-old retiree who is working a three-day week. And the outlook isn’t bright for finding new employees because young people are not studying the trades in technical schools.

Nichols also said:

  • The U.S. economy will grow between 3 and 4 percent next year, though pockets of weakness will erode a strong, business-led expansion.
  • Wisconsin will perform above the national average for the next few quarters – – in the 3.75 percent range – and then grow at its historical rate of about one-half percent slower than the nation as a whole.
  • Wisconsin’s per capita income is lower than the national average because there aren’t as many people here in occupations that earn salaries in the top 10 percent. And those in those jobs make less than their counterparts elsewhere, including Minnesota and Illinois.
  • Wisconsin has more workers in production and transportation than Minnesota, but the North Star State has many more people employed in finance, management and sales.
  • Residential construction never slowed down during the recent recession, nor did household spending – thanks to low interest rates and refinanced mortgages. And while there is no panic over high oil prices, the high cost of gasoline means consumers can’t spend money on other products. Residential housing will continue to be solid, but non-residential building will remain down.
  • Used car sales are down, which shows that the recession hurt lower paid workers more and that the income gap in the country is widening.
  • The “appalling” $600 billion trade deficit means other countries have huge reserves of dollars. If they decide to switch to the Euro or the Yen, it could cause a run on the dollar and send interest rates up.
  • “Though neither candidate is stupid enough to about it, whoever is elected this fall will raise taxes.” Tax increases should be linked to tax reform, however, just as Ronald Reagan did in 1986.
  • In the second quarter of 2003, nearly 50 percent of investment ($450 billion) in capital equipment went into information processing equipment. The next highest category was industrial equipment ($150 billion), followed by light vehicles ($94 billion).