Dollars, Debts & Decisions – A Quick Insight Update

If you weren’t on Dawn Patrol this morning, you missed one of the more substantive presentations we’ve had on big-picture public policy in some time.  Three experts from the non-partisan Concord Coalition with something like 50 years’ worth of budget and economic experience at the highest levels of the federal government rang the changes on the shape of the future.

As the (purportedly) ancient Chinese saying goes, “If we do not change course, we are in grave danger of ending up where we are heading” – and this sensibility was palpable in the room.  Of course, there are some sales pitches that are harder to make than others.  Concord’s Executive Director Bob Bixby noted, “Pain is a message that doesn’t necessarily work.  I know, because I’ve been presenting that message for 20 years.”

But setting aside what’s politically palatable, if the long-term future of America’s economy concerns you, it’s worth it to download these three presentations.

Bob Bixby

Bill Hoagland

Joe Miniarik

 

One. Nine. Zero.

Let me rephrase that – #190.  That’s the KC metro area’s rank among the 200 metros scoped out by Brookings in Global Metro Monitor 2011, their latest survey of job and economic growth.  For the record, we experienced year-over-year income growth of -0.6% and employment growth of -0.5% between 2010 and 2011.

Not that we were in undistinguished company by any means.  Among other American metros in the lowest eighth were Las Vegas and Indianapolis; even West Coast powerhouse San Francisco languished with Kansas City near the bottom of the stack.

But beyond city-by-city results, the overall picture is nothing short of startling.  Among the world’s 200 biggest metro economies, fully 90% of the fastest-growing metro areas were located outside North America and Western Europe.

Eight of the top 20, and eleven of the top 30 fastest-growing metros were in China.  This should surprise no one, given the economic history of the past 20 years.  But would you care to hazard a guess as to the nationality of the fourth-, sixth- and seventh-fastest growing metro economies?

You’re wrong.

They’re Turkish.

Now, where was I?

Oh, yes, the reasons why.  For starters, there’s Mother Nature, and she was in one bad mood during 2011.  Among the bottom 37 metro performers, seven were Japanese cities, and even those literally hundreds of miles from the worst of the March earthquake and tsunami took economic body blows, though  spared the very worst as experienced by the nation’s northeast coast.

Political turbulence showed that human beings weren’t in a particularly upbeat mood in 2011, either.  Cairo, Naples and Madrid were in the bottom 10%, with Athens dead last at income growth of -4.8% and job growth of -3.5%.

But Atlanta, the land of Coke, Delta and Home Depot,  was free from both damaging seismic activity and large-scale rioting (the Occupy movement notwithstanding).  How can we account for their position at #189, one step better than Kansas City?  Des Moines (#172) has enjoyed not just low unemployment rates during the recession and the long march out, but the benefits of high commodity and farmland prices.

There are, perhaps two reasons immediately to hand to make sense of these kinds of results, and our own poor ranking.  First, though there are plenty of bright entrepreneurial sparks in and around Kansas City, we’re not the town that first comes to mind when thinking of free-wheeling capitalism a la Hong Kong or New York.

I was talking with Harvey Siegelman some years back when he held the post of Iowa State Economist, and he wasn’t shy about what he felt was one of the biggest issues facing his state – dyed-in-the-wool conservatism.  “Give an Iowan a million dollars and what will he do?”, he asked.  “Why, he’ll turn around and put it into Treasury bonds.” I’d argue that we’re not quite as conservative as our northern neighbors, but there is something to his lament in terms of how many of us Midwesterners view the highest uses of capital.

The second reason, I think, is something more complex.  There is still a long way to go.  We’re not staring into the abyss as we were back in September and October of 2008.  The economy continues to grow, and job markets are improving, though sluggishly.  But the Great Recession’s psychological impact is not going to fade anytime soon.  Caution is the watchword, whether it’s an employer waiting to see if a new hire makes sense for her company, or an employee surveying his career prospects and waiting to see if this is the time for a change.

Until both of these traits begin to change – the secular caution we learned from the crash of 2008 and the cultural caution many of us learned from our parents – we’re likely not going to be the kind of entrepreneurial city that we could be – or need to be.

For full results from Brookings, click here.

Robert Kaplan, Leadership And Heavy Weather

Not to toot our own horn or anything, but . . .

On November 17^th, we were lucky to have a visit from one of the best business speakers I’ve seen in a while.  The Chamber marked the return of Insight Kansas City with a presentation by Harvard Business School professor Robert Kaplan here at Union Station.  Kaplan was touring in support of his new book, What To Ask The Person In The Mirror and was wearing two hats – speaking on business leadership from his position in the HBS department of Organizational Behavior, and speaking on overall economic conditions, given his experience in accounting, finance and investment banking.  Both parts of his presentation were outstanding and I’ll briefly summarize them in sequence.

The guts of the leadership portion of his presentation came down to something  that doesn’t happen all that often – asking ourselves fundamental questions about what our business is for:

• Have you developed and communicated a vision for your business?
• How often do you articulate your strategy to your people?
• If asked, would your employees be able to repeat it?

“To make money” Kaplan emphasized, is not a vision for a business.  Heaven knows it’s a necessary part of operating one, but as a vision, it’s empty.  You could argue that “to make money” was Bernie Madoff’s vision for his particular “business”.  If a business owner doesn’t  – or can’t – tell colleagues what their company’s vision is, and can’t get that clear, understandable vision into every employee’s vocabulary, then it’s time to step back, think, adjust and articulate just why they are doing what they do.

A second salient point of Kaplan’s leadership presentation was all about feedback:

• Do you tell people things they do not want to hear?
• Do you wait for annual performance reviews to do so?
• Do you have 5 or 6 people who will tell you the truth (whether you like it or not)?

Kaplan administered a quick left hook to the idea of annual performance reviews as the place to address performance issues.  If you deal with problems by . . . waiting eight months to deal with problems, why bother?  Conversely, if you as an executive or employer are bluntly honest in how you deal with people in your organization, it only works if you’re prepared for blunt honesty pointed in your direction.  The most soothing and comfortable place in the world is that place where you’re surrounded by people telling you what they think you want to hear.  It’s also the most dangerous.

In the closing third of the presentation, Kaplan dug into an analysis of what he sees as an economy still capable of serving up substantial shocks in the years ahead.  As consumers continue to pay off debts, governments also must deleverage.  But this is a process that will take years.  And unlike consumers, governments face the task of trying to maintain economic growth while paying off their own debts.

Above all, the amount of complex derivatives sloshing through the economy – in effect insurance on securities – remains enormous, perhaps as much as $60 trillion worldwide.  The Fed does not closely regulate these securities, and as one-on-one agreements between individual corporations and financial firms they’re not traded openly on any exchange.  Given this, and in light of the EU debt crisis, the potential for volatility remains strong, and business must be prepared for turbulence.

How can business prepare for such turbulence?  It’s not just a case of adopting a more conservative mindset towards expenditures.  It’s about getting back to the basics – articulating a clear vision, focusing on core strengths and aligning your company’s strengths with where you need to go in unsettled times.  As Henry Kaiser said, “Challenges are just opportunities with their work clothes on” and unsettled times can be moments of outstanding opportunity – if you ask the right questions of the person in the mirror.

Regional Business Survey: KC Business Activity Growing – Along With Uncertainty

August 30, 2011

David Albrecht, Director, International Programs & Business Research

Well, another six months have come and gone, leaving the latest iteration of The Chamber’s Regional Business Survey bobbing in their wake. As always, the results make for interesting reading, assuming you’re someone willing to devote at least a small chunk of your free time to digging into the percentages.

Two trends stand out in the latest report. First is improvement in current business activity reported by survey participants. This growth hasn’t exactly been explosive over the grand total of five surveys since we kicked off the program back in the summer of 2009. It has, however, been quite encouraging. Two years ago, 40.3% of participating businesses characterized their business activity as “Strong” or “Very Strong.” In the most recent survey, over 57% chose one of these two categories, and these combined totals have increased survey over survey for two years now. Clearly, at least for some Kansas City companies, things are looking up.

At the same time, uncertainty hangs over the survey like fog over the Golden Gate Bridge. When asked whether economic growth in the region was heading in the right or wrong direction, a narrow plurality this time around chose Option Three – “Not Sure” – to the tune of 46.1%. The most popular choice among six alternatives for those asked to name the “Most Immediate Problem for Business” was “Unpredictability of Business Conditions.” And nowhere did business uncertainty show up more clearly than in hiring expectations. Just over 25% of those surveyed expect to have more employees in six months than they have now. This is a meaty drop from the 42% expecting more crowded assembly lines or cube farms just one year ago.

What can we make of this contradiction? That’s a tough call. Kansas City businesses haven’t exactly been standing still since things got weird back in 2008. 28.5% percent have indeed cut staff, and nearly 66% have cut spending. At the same time, 41% have expanded products or services, nearly 55% have increased their marketing efforts and nearly three-quarters have spent more time than ever building up relationships and beefing up their networking.

But with jitterbugging stock markets, political food fights filling the cable channels, and plenty of businesses in a tight fight with a short stick for that next customer, it may be that that inherent Midwestern conservatism for which we’re not too-unjustly famed is inspiring companies to wait and see just a little bit longer.

If you’d like to dig into the whole shebang, just click here and have at it!

Structured By Cows

August 17, 2011

David Albrecht, Director, International Programs & Business Research

So, what if a ratings agency pulled the fire alarm and the engine company never arrived? What if the only result was a tinkling of broken glass and a momentarily alarming chorus of honking klaxons? And what if the reaction of the world at large was a rush to purchase the very debt that agency had warned was no longer worthy of its highest standards?

Well, now we know. Following Standard & Poor’s downgrade announcement on August 5, the working week of August 8-12 saw the kind of high g-force Coney Island market action that comes along only once in a great while. However, that was the week that was. Ten days post-pronouncement, by the morning of August 15, the market stood slightly above where it was when the downgrade announcement came out.

Whatever the short-term reactions to Standard & Poor’s downgrade, the longer-term backlash is only now getting under way. For starters, who could imagine that Lawrence O’Donnell and Donald Trump would ever agree on anything? The downgrade made it possible, with O’Donnell referring to S&P as a “confederacy of dunces” and Trump calling the firm “losers” and “disgraceful.” A more civilized take on the decision came from Faith Consolo, chairman of the retail leasing and sales division at Prudential Douglas Elliman in New York: “To put it mildly, S&P’s track record hasn’t been the best in recent years, and most sophisticated investors know this.”

Beyond the immediate market shockwave, complications continue to radiate from S&P’s decision – or rather, radiate back to S&P. On August 17 the Wall Street Journal reported that the city of Los Angeles announced that it will no longer use S&P to rate its investment portfolio, citing the U.S. debt downgrade as “irresponsible and just excessive.” And the Securities and Exchange Commission is working on two fronts.  One part of an ongoing investigation is concentrating on just what methodology S&P used to arrive at its conclusion that U.S. debt was now only AA+. A separate probe seeks to discover “whether certain market participants learned of the downgrade before its announcement.”

In the end, what it comes down to is this: after the stock market jello stops jiggling, and after all of the political puffing and blowing dies down, S&P has no credibility left when it comes to rating whether a company or a bond or a nation are a safe bet. Along with its compatriots in the ratings industry, S&P greased the skids for the housing bubble and subsequent financial collapse, handing out AAA ratings right and left for bundled high-risk mortgages as if they were just as credit-worthy as Treasury Bills.

In words that will live in financial infamy, two unnamed S&P executives spelled out exactly how things worked at their rating agency in an instant-message conversation on April 5, 2007.  The topic of discussion was yet another “AAA” bundled-mortgage instrument.

Official #1: Btw (by the way) that deal is ridiculous.

Official #2: I know right…model def (definitely) does not capture half the risk.

Official #1: We should not be rating it.

Official #2: We rate every deal. It could be structured by cows and we would rate it.

So, here we are. We can worry about the credit ratings assigned by the Lords of Bovine Structured Finance and in doing so ignore their record of professional achievement over the last decade. We can stand horrified and immobilized by admittedly nasty short-term market conniptions. Or we can get on with what we do as a business community – digging up information, finding new customers, thinking of new ways to improve a service we provide or a product we create. Given the collective resilience, optimism, and inventiveness of the 300 million+ inhabitants of this amazing country, I know which of the three courses I’d choose.

Early Census Numbers Show Interesting Wrinkles In Aging America

David Albrecht, Director, International Programs & Business Research

June 29, 2011

As Boomers move toward retirement (three years ago I would have written “retire”, but that was then), change moves with them. Now, with early 2010 Census numbers in, Brookings has taken a look at what those numbers are beginning to show.

• Between 2000 and 2010, the number of Americans 45 years of age and older grew 18 times faster than the number of Americans under 45.
• The numbers of seniors – those 65 and older – rose most rapidly in Sun Belt states, but the number of “pre-seniors” (aged 55-64) is rising rapidly in all regions.  Ironically, this growth is particularly strong in hip young university towns like Austin, Madison & Raleigh.
• “Aging in place” (remember this phrase, it’s going to be important) – the number of older Americans not moving south for sun and surf is substantial. Certain regions – northeastern states, the upper Midwest – are also seeing relative growth in the numbers of seniors and pre-seniors as younger residents up stakes and leave.

The repercussions of this shift are going to be complex and will be fully understood only in retrospect. But possible outcomes include:

• Increasing financial strain in northeastern and inter-mountain western states – with more seniors aging in place, and relatively fewer younger workers to support social service systems, even enhanced voluntary and government measures may not be enough to meet an aging public’s needs.
• Increasing division by age along geographic lines – every single one of the top ten primary cities showing strongest population growth under 45 from 2000 to 2010 is a Sunbelt city.  All but two of the primary cities showing the biggest loss of residents under 45 for the same period were Rust Belt locations; of the two exceptions, one was New Orleans.
• Increasing potential political division along geographic lines – states and cities top-heavy with retired or soon-to-retire residents are likely to end up voting very differently than younger areas when topics like Social Security, spending and Medicare get tossed into the blender of electoral politics.

For access to summaries as well as the full report, just click here.

Gifts, Grants & Expansions – Good News For Metro Health Care & Research

June 17, 2011

David Albrecht, Director, International Programs & Business Research

Call me crazy, but I think I may have uncovered some sort of theme in regional health care news over the past week:

• On June 13, North Kansas City Hospital unveiled a $16 million expansion plan for its emergency medicine department. Its emergency facilities would nearly double from 18,000 to 31,000 square feet and would expand emergency capacity from 65,000 to 80,000 patients annually.
• On June 14th, the University of Kansas Medical Center announced that it had been awarded a $20 million grant from the National Institutes of Health. It will fund efforts to translate therapies from promising laboratory processes to treatment methods over the next five years. KU  was one of only five medical centers nationwide to receive the NIH Clinical and Translational Science Award in 2011.
• On June 15, Truman Medical Center announced that Grandma’s Alzheimer Fund had donated $120,000 to its Foundation; annual distributions from the grant will go to support Truman’s Lakewood Hospital’s Alzheimer Unit
• On June 16, the University of Kansas received an anonymous $4 million gift to fund spinal cord injury research. The money will pay for the efforts of two groups of researchers at the Medical Center’s Institute for Neurological Disorders.

Strategic thinking, world-class medical and competitive skill, outstanding generosity, whether public or very private – all combined for a memorable week in regional health care. May there be many more such weeks as summer wears on!

Friday Miscellany – Ad Age White Paper Redefines “Rich”

June 3, 2011

David Albrecht, Director, International Programs & Business Research

If you’re looking for a new set of eyes with which to view consumer demographics, strap on a pair from Ad Age’s blog entry “On The Road To Riches”.

Based on research by Digitas, the post is intriguing, if only a brief summary of the full report.  Touching on the growing gap between the truly well-off and everyone else, the report packs a great deal into just one sentence:  “The study found that one’s job is both a predictor and a determinant of whether his or her household income will reach $200,000 — the minimum threshold of affluence.”

That career choices are critical to one’s lot in life is self-evident.  And a new dollar-amount threshold of what begins to approach “rich” is something that needs tweaking from time to time, as business cycles rise and fall.  But one key element in the article missing in the sentence above is the question of time – when Americans breach that threshold is even more critical, the report argues.

Key finding – families and couples with household incomes of $200,000 before the age of 35 are far and away those most likely to become truly wealthy later in life.

Twasn’t always thus.  Those over 35, with household incomes ranging from $100,000 to $199,000, were once part of a group advertisers targeted beneath the overarching concept of “mass affluence”, a phenomenon made possible by high home prices, burgeoning consumer confidence and easy credit.  With those days over, the study notes, the “aspiring” affluent consumer, about 10% of U.S. total population, now firmly self-identifies as middle class instead, and many have changed spending habits accordingly.

Click through the link above and one thing becomes very clear in the accompanying graphic, though not explicated in the text.  The number of households earning between $100,000 and $200,000 annually in  the “Emerging < 35” category  is a touch more than 18% of the “Aspiring 35+” category.

With numbers like these, if this study’s conclusions are valid – if the Age of the Snuggie®  has indeed succeeded the Age of the Plasma Television – then the future of the kind of big-ticket consumer culture that emerged in the past decade appears cloudy indeed in the decade ahead.

The Export Imperative And Where We Stand

May 27, 2011

David Albrecht, Director, International Programs & Business Research

The Chamber’s 2011 Economic Update was highlighted by Emilia Istrate’s keynote, based on a Brookings Institution report entitled “Export Nation”.  For lack of a better name, I’ve named her her call to arms the “export imperative”.

The United States still exports more goods and services than any other country in the world, despite ferocious competition from developing giants like China and established rivals like the EU.  But to retain our economic strength and substantially increase the speed of recovery, we need to be doing much more as a nation to sell what we make and know to the rest of the planet.

If you take only one simple stat away from this post – or Ms. Istrate’s presentation – let it be this:  doubling American exports would create two million jobs – about a quarter of all those lost since the onset of the Great Recession.

So, where do we start?  What rests at the center of our collective export sector?  The answer is simple – cities; major metropolitan areas like ours with the people, knowledge, institutions and infrastructure needed to make things happen globally.

American cities are the export engines of their states:  Detroit – 48% of all Michigan exports; Baltimore – 51% of all Maryland exports; Denver – 55% of all Colorado exports;  Seattle – 72% of all Washington exports.  What about us?  The Missouri side of the metro cranked out 17% of all Missouri exports, the Kansas metro area rang up 28% of Kansas exports and collectively, we were responsible for 29% of the total of both states’ exports (all percentages 2009).

Fine and dandy as far as lists of figures go.  But where do we stand now in exports, and how do we rank compared with other metros as a welcome but still sluggish recovery continues?  First things first.  2008’s numbers rank Kansas City as 29th in population but only 33rd among major cities for exports as a percentage of the regional economy – not outstanding, but not downright terrible either.

The other portion of our Update, though, was somewhat less encouraging.  Frank Lenk’s report drew on more recent data to compare Kansas City to peer metros.  Though Frank used only one statistical measure – employment growth – it was an eye-opening citation.  City after city, from Denver to  Salt Lake City and from Omaha to Austin, have outdistanced Kansas City in job creation from the beginning of the recession through the beginning of this year.  Kansas City also lags behind US job creation for the same period.

To pull an unusually blunt bullet from Frank’s slideshow, “Whatever economic strategy we’ve been following isn’t working well enough to keep up.”

But a concerted, metro-wide effort to promote and encourage regional exports could be  a very big part of a long-term, sustainable solution.  Just such an effort is already under way in Los Angeles, a sprawling metro area with a political and economic landscape far more complex and fractured than we could imagine.  And if LA can pull together to expand its exports, there’s absolutely no reason the Kansas City civic and business communities can’t do the same.

The 2011 Economic Update: A Dark Surprise, A Robust 2012

May 13, 2011

David Albrecht, Director, International Programs & Business Research

The Chamber’s 2011 Economic Update is out as of this morning, and as in all economic forecasts, there’s plenty to chew on, applaud or disagree with.

A key finding is that the region’s unemployment hole was far deeper than first thought.  MARC had estimated metro job losses at 61,000 from peak to trough – that is, from the fourth quarter of 2007 to the first quarter of 2010.  The estimate now, after revisions in federal workforce data, is half again as bad – 93,000 total jobs lost metro-wide.  Significantly, these are not only hourly and salaried employees, but proprietors as well, as the Great Recession and its aftershocks took down small businesses while decimating workforces in larger firms.

In addition, while 2008 may have been the first stomach-levitating drop at the top of the roller coaster, and 2009 the screaming descent, what stands out was the unpleasantness of the bottom of the slope.  2010 was a flat-out lousy year for the area’s economy.  While GMP (Gross Metropolitan Product) rose by 1.7% between Q4 2009 and Q4 2010, the U.S. economy as a whole grew 1.1% faster, with local job creation lagging even our sluggish GMP growth.  Between Q4 2009 and Q4 2010, the forecast estimates that 700 net jobs were created metro-wide.  In fairness, I should mention that from the actual bottom of the recession early in 2010 to the same Q4, the Kansas City MSA did add about 3,400 new jobs in all – better than the stat above might lead you to believe, but only about 10% of projected new jobs for 2012.

As in years past, the forecast splits the next two years into two possible outcomes – baseline and slow-growth.  The latter rests on an assumption you’ll know all too well if you’ve had occasion to buy groceries or fill up the car recently – continuing political turmoil in the Middle and resulting high energy prices through the end of 2011.  The Producer Price Index out on May 12th did show prices for finished goods up 0.8% during April, as fuel prices accounted for much of the month’s substantial increase in retail spending – not what America’s retail sector had in mind.

The good news, though is out there, and it’s substantial.  Labor force totals from BLS show an additional 10,000 jobs added during February and March metrowide, and these totals are consistent with recovery trends seen in the past ten years.  Better yet, the forecast calls for expansion in the metro economy at a 3.8% rate by the end of 2011, with regional expansion outstripping even national GDP growth during 2012.  Job projections are positive as well, with 22,000 jobs created in 2011 and 32,000 in 2012.  Energy costs will remain the biggest of several wild cards.

If’ you’d like to download your own free copy of the Economic Update (if you’re a Chamber Member, that is), then head on over to the Chamber Store on our website.