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Predictions for 2012: Economy moving in a positive direction

  • The Wichita Eagle
  • Published Thursday, Dec. 29, 2011, at 7:37 a.m.
  • Updated Thursday, Dec. 29, 2011, at 8:09 a.m.

WHAT DO YOU THINK?

How do you think your business or company will perform in 2012?


A year ago, forecasters called for slow economic improvement in the year to come. We got that, along with an incredibly bumpy ride.

Looking out over 2012, experts are again calling for slow improvement in the local, national and global economy, barring a major disaster.

What’s new and improved next year starts with housing.

Local economist Malcolm Harris, a professor at Friends University, sees a rebound in housing sales, prices and construction as key to every recovery.

“You can’t have robust growth without the housing sector growing, and that is about to change,” he said.

Other positive factors include the continued expansion of commercial aircraft production at Spirit AeroSystems and its suppliers.

The region will also start to feel a boost this year from the early stages of a boom in oil exploration, driven in part by several years of high oil prices. At the same time, natural gas prices will likely remain low, benefiting local consumers and industries.

Harris cited potential drags on the local economy as: falling military spending, new regulations from the Environmental Protection Agency, possible higher costs associated with the new health care law, and possible further government job losses.

For jobs, the recovery will continue, but slowly, said experts.

Wichita area employment and unemployment has steadily improved during 2011. In November, the unemployment rate was 7.1 percent, down from 8.4 percent a year ago, with about 7,000 more people working, according to the Kansas Department of Labor.

Wichita State University’s Center for Economic Development and Business Research in October forecast a gain of 3,800 jobs in 2012. But that was before Boeing, with its 2,100 employees, announced it might pull out of Wichita; Hawker Beechcraft announced 400 layoffs; KGB closed its call center and cut 150 jobs, and Coleman moved its senior executives out of state and cut 80 jobs.

“Those are things you can’t forecast from economic data,” said Jeremy Hill, the center’s director.

But, Hill said that the improving national economy would go a long way toward countering those job losses.

Nationally, three dozen private, corporate and academic economists surveyed earlier this month expect the national economy to grow 2.4 percent next year, an improvement over the less than 2 percent growth in 2011. The first quarter or two will be slower, with most of that growth in the second half.

Although 21 of the surveyed economists listed Europe as a threat to the U.S. economy next year, overall, they see only an 18 percent chance that Europe’s debt troubles will cause a recession in the United States.

They are calling for the country to create 177,000 jobs a month in 2012, up from an average of 132,000 jobs a month in 2011 But that’s still not enough to push the unemployment rate down much from its current 8.6 percent rate.

Harris said he’s more optimistic than he has been in years.

“I see the U.S. economy continuing to expand and the Wichita economy continuing to expand.”

Agriculture

What happened in 2011

A nasty year-long drought settled in across southern Kansas, as well as Oklahoma, Texas and other states, ruining for many farmers what should have been a fabulous year because prices remain high.

The drought cost the state heavily as some fields produced so little that farmers chose to plow under their crops. It has also affected livestock production because farmers couldn’t get enough feed. Livestock producers have reacted by selling down their herds.

Opportunities in 2012

Prices are likely to remain high for corn crops, which are expected to stay tight around the world, said Arlan Suderman, a locally based commodity market analyst with Farm Futures.

Worldwide supplies of soybeans aren’t quite as tight, he said, nor are supplies of high-quality wheat. Lower-quality wheat, he said, appears to be plentiful.

Local wheat is down about $1 or so a bushel from its height of a year ago. But, Suderman said, many of the world’s grain growing regions are suffering.

Ukraine, Argentina and Brazil are in a drought, while Russia doesn’t have as much snow cover as usual and Australia is seeing too much rain.

Challenges in 2012

The drought may last deep into 2012, or even beyond, say weather forecasters, although one forecast by the National Weather Service showed it easing up on southeast Kansas. Crop farmers in southern Kansas without irrigated fields will likely continue to struggle, while those in the northern half of the state will benefit from higher prices.

Livestock farmers are going to have trouble finding water and affordable feed for their cattle and will continue to thin their herds. At least the prices they can get for their cattle are as strong as they’ve gotten in years.

The bottom line

The drought is expected to continue to blister area crops and livestock farmers, although ease up a bit in southeast Kansas.

- Dan Voorhis

Banking

What happened in 2011

Rocky Waitt sold his third-generation, family-owned Rose Hill Bank to American State Bancshares of Great Bend, which named former Intrust Bank executive vice president Roger Kepley as Rose Hill’s new president and CEO.

CrossFirst Bank, a Leawood-based bank run by former Intrust Bank president Ron Baldwin, announced plans to open a Wichita branch.

Long-time Kansas City Federal Reserve Bank president Tom Hoenig retired in October. He was replaced by Esther George, the first woman to run the bank.

Emprise Bank closed on its acquisition of First State Bank & Trust of Tonganoxie’s Clearwater branch in March. Equity Bank acquired the four Topeka branches of Citizens Bank & Trust in Chillicothe, Mo.

Tulsa-based Bank of Oklahoma opened a mortgage lending office on the city’s northeast side, at 8110 E. 32nd St. North.

Only one Kansas bank failed during the year, First National Bank of Olathe, which was closed by regulators in August. Nationwide, as of Wednesday, there were 91 bank failures in 2011. That was down from 157 failures in 2007.

Opportunities in 2012

Local bankers generally anticipate slowly improving economic conditions in the Wichita area next year. Some bankers also expect merger and acquisition opportunities to increase next year as smaller community banks wrestle with the costs of increasing regulation and tighter margins.

Challenges in 2012

Additional regulation will continue to roll out from the Dodd-Frank banking law. Historically low interest rates will continue to challenge banks’ profit margins as the Fed holds borrowing rates in check.

The bottom line

Banks will have opportunities to expand their market share through acquisitions, and could see more revenue as local economic conditions gradually improve. But their growth will be challenged by more regulation and low interest rates.

- Jerry Siebenmark

Commercial aviation

What happened in 2011

The commercial aviation market is booming. That’s important to Wichita because of Spirit AeroSystems, the world’s largest aerostructures manufacturer. It builds parts for all Boeing and Airbus commercial jets.

It also is important to the scores of Wichita suppliers that do work for Spirit.

Boeing raised production of its 737 single-aisle jet to 35 per month, on its way to 42 a month by the first half of 2014. Boeing also announced a revamped 737, the 737 Max, in answer to Airbus’ upgraded A320, the A320 neo. In response, Spirit has been preparing for the rate increases and the upgraded products.

Opportunities in 2012

Unprecedented commercial demand is good for Wichita. Passenger air traffic rose 8 percent in 2010, after declining about 2 percent in 2009. Air travel is expected to finish at 6 percent growth in 2011 and keep the growth rate at or above the historical trend through the middle of the decade, Boeing’s forecast says.

Challenges in 2012

Rising production rates will put pressure on raw materials and finished parts. The global economy continues to recover, although the pace of growth has moderated compared with the strong rebound in late 2010, Boeing said. High oil prices and price volatility resulting from the political unrest in the Middle East pose the main threats to continued recovery.

Bottom line

Commercial aviation should prove to be a bright spot for Wichita’s economy.

- Molly McMillin

Commercial real estate

What happened in 2011

There were several significant commercial deals in 2011, the year of yogurt, grocery stores and mattresses, despite the continued tightness of credit: the Cabela’s complex at 21st and Greenwich, Menards on both sides of Wichita, Walmart Neighborhood Markets across town, 56,000 new square feet at New Market Square, the Cargill Innovation Center and the new Ambassador Hotel project downtown, Jay Maxwell’s multi-use retail and office complex in south Wichita. Still, the market remains under a cloud of financial uncertainty, with credit tight and many notes for recent investments coming due with uncertain refinancing prospects.

Opportunities in 2012

A big one to watch is 21st and Greenwich, home of Cabela’s, which is poised to be the city’s next new major intersection.

“Cabela’s opening is already attracting the attention of national retailers not in the market yet,” said April Reed, a leasing agent for Slawson Cos.

Downtown remains a target for development, with several retail projects expected in 2012. The area also needs more Class A office space.

“Kind of all of the above,” said Jerry Gray, Weigand’s commercial general manager. “Downtown obviously has some momentum. There was some exciting news in 2011 we’ll see activity on in 2012. Cabela’s will draw a lot of traffic that creates more interest. I think we’ll see the national and regional retailers learn to add more sites.”

Challenges in 2012

Repositioning should continue due to the competitive pressures, Reed said, if prime space continues to open up. Deals may be slow until retailers and investors see who the next president is.

The bottom line

“A good analogy for development is seed, time and harvest,” Reed said. “I think this year we’re in between a seed and time period. ... This year, with some additional watering and the fact there has been so much absorption of space in the market, we could be in a harvest mode in 2013.”

- Bill Wilson

Energy

What happened in 2011

It’s been a great year in the Kansas oil industry, with prices averaging $85 a barrel for Kansas Common crude. But the big story for Kansas was the arrival of large oil companies, including Shell Oil, Chesapeake Energy and SandRidge Energy, which bought hundreds of thousand of acres of mineral rights in south-central Kansas. Those companies say production will rise rapidly, followed by job creation.

For gas drillers, the story is different. The success nationwide in producing gas from the shale formations has produced abundant supplies, driving down prices.

Ethanol producers dealt with high corn prices, the federal cap of 10 percent ethanol per gallon of vehicle fuel and, at the end of the year, the expiration of the tax incentive for distributors to mix ethanol into their gasoline.

Wind power continued to grow in Kansas with an announcement by BP of the state’s largest wind farm, an $800million, 419-megawatt facility across four counties.

Opportunities in 2012

Oil prices are expected to rise slightly in 2012, according to the U.S. Department of Energy. Drilling activity in south-central Kansas will accelerate during 2012, and oil executives seem confident the investment of hundreds of millions of dollars will pay off. More pipeline capacity between the hub at Cushing, Okla., and the Gulf Coast refineries will raise the local oil price about $20 a barrel, although such a pipeline could take longer to happen.

Ethanol producers say they expect to get federal approval for E15, increasing their market by 50 percent.

Challenges in 2012

Gas producers are expected to have another tough year with rising production pushing prices down. The Energy Department foresees average spot prices down from $4.14 to $3.81 per thousand cubic feet at the Henry Hub. Wind producers face the phasing out of the producer tax credit at the end of 2012.

The bottom line

Kansas could be on the verge of a surge in oil production, hiring and wealth. Other sources face challenges.

- Dan Voorhis

General aviation

What happened in 2011

The market remained sluggish for the general aviation industry, especially for small and mid-size jets, which Wichita planemakers build. Deliveries and billings worldwide dropped 10 percent in the first nine months of the year. Still, Cessna Aircraft increased deliveries by 16 percent in the first nine months compared with a year ago, and Bombardier deliveries were up 7.5 percent overall. Hawker Beechcraft business jet deliveries fell 19 percent year over year. Bombardier Learjet focused on making way for the new Learjet 85 and asked the state for an incentives package that could run between $15million and $18million on a proposed $52.7 million, 450-job expansion. The deal awaits state agreement. Cessna Aircraft meanwhile introduced the Citation M2 light jet and the Citation Latitude midsize jet in October.

Hawker Beechcraft continued to move work outside the company to cut costs and reduce its footprint. The company issued layoff notices to 1,354 people in Wichita and Salina during the year. It also announced upgrade packages for its existing Beechcraft and King Air 200GT turboprop aircraft. CEO Bill Boisture announced plans to focus on its military and special mission aircraft and their support. The company was notified in November that it had been excluded from a light air support contract from the Air Force and filed suit this week asking for the reasons for the exclusion.

Opportunities in 2012

Market forecasters think deliveries for general aviation aircraft hit bottom in 2011 and will begin modest growth in 2012. While the order books are smaller, orders are of higher quality because speculators and poor credit risks have already canceled their orders. Wichita planemakers are investing in product development and upgrades, and cutting costs to compete. Wichita and Sedgwick County officials say they are optimistic they can finalize the Bombardier Learjet expansion at Mid-Continent Airport, a deal that awaits state approval. Hawker Beechcraft is modestly raising production rates of its three best-selling models.

Challenges in 2012

The market continues to struggle, especially small and mid-size business jets, which are built in Wichita. While U.S. corporate profits are above pre-recession levels, buyer confidence must return. Used aircraft inventory as a percentage of the fleet is down but still a high number. The used business jet market is an indicator of new sales. Hawker Beechcraft’s Boisture summed it up by saying he thinks 2012 will look a lot like 2011, which looked a lot like 2010.

Bottom line

The market should slightly begin to improve, but it will take time before it reaches pre-recession highs.

- Molly McMillin

Health care

What happened in 2011

After two years of planning, officials from Wesley Medical Center, Surgicare of Wichita and HCA broke ground in the fall for a new 29,000-square-foot Surgicare building at 2818 N. Greenwich Road, just north of K-96.

Jeffrey Korsmo began his duties in September as CEO of Via Christi Health, the state’s largest Catholic health system. Health insurer United Healthcare expanded its local access by entering into an expanded agreement with Via Christi Health, giving access for those with United to all Via Christi hospitals in Wichita.

The Wichita Clinic name officially went away in June and became Via Christi Clinic after the health system acquired the city’s largest physician group in late 2010.

The Wichita Health Information Exchange began signing agreements with providers to share patient information.

The University of Kansas School of Pharmacy-Wichita began training its first 20 students, and the University of Kansas School of Medicine-Wichita accepted its first group of students to attend their entire four years of medical school in Wichita.

And Wichita State University opened its $6.6 million Advanced Education in General Dentistry building at the Hughes Metropolitan Complex at 29th North and Oliver.

Opportunities in 2012

New rules and regulations stemming from the continued implementation of the federal health care law passed nearly two years ago are expected to bring further changes to the business of health care.

Challenges in 2012

Those changes could bring both opportunities and challenges to health care providers and facilities. One effect is expected to be additional acquisitions and mergers, as providers respond and adjust their business to the new rules.

The bottom line

Changes driven largely by the federal health law will continue to reshape the local health care industry in 2012.

- Jerry Siebenmark

Residential real estate

What happened in 2011

Most local real estate analysts say 2011 was the year that Wichita’s residential real estate market finally hit the bottom of the three-year recession. Home sales, new housing starts and home price appreciation all hit three-year lows.

But, buoyed by some expansion news at Bombardier, Hawker Beechcraft’s decision to remain in Wichita and the growing diversity of the Wichita economy, brokers and analysts think the worst is over and 2012 will be better.

“Like most industries, aircraft needs to retool itself to accommodate the ebb and flow of demands in the private sector,” said John McKenzie, president of Wichita’s Coldwell Banker Plaza Real Estate.

“As evident with Boeing’s evaluation of their Wichita facility, (Hawker Beechcraft’s) … posturing for the future in trying to decide what it wants to be when it grows up, and Bombardier and Airbus taking advantage of their own market niches, the aircraft industry will have a new face that no one can predict.”

Opportunities in 2012

Some aviation expansion should help bolster consumer confidence in Wichita, as should anticipated growth downtown and continued growth in some of Wichita’s other industries, like Cargill and the medical industry.

The Wichita State Center for Real Estate is optimistic for 2012, predicting an upturn in total home sales of almost 10 percent, along with steady building permit levels and home appreciation.

Challenges in 2012

None bigger than the fragile psyche of the Wichita home buyer and seller. Will the national economy continue its slow, late-year upswing? Will Wichita’s aviation companies add jobs in 2012? What will the impact be if Boeing follows through on its threat to take the tanker production it promised to Wichita elsewhere?

Housing starts will remain light, said Wess Galyon, who heads the Wichita Area Builders Association. Credit is tough, making speculative home building difficult. And although the custom homes market is picking up, many builders should remain cautious through 2012, he said.

The bottom line

There’s little change in the volatility of Wichita’s residential market, but some better economic news at the local and national level – along with a surprising upturn in fourth-quarter sales – make analysts optimistic about 2012.

Bill Wilson

Retail

What happened in 2011

At first glance, 2011 looks like a pretty good year for Wichita’s retail market. Sales were generally up, and it was the year of high-profile projects from Cabela’s on K-96 and Best Buy in New Market Square to Five Guys downtown and Chick-fil-A on the east side.

Not bad for a year that began with muted expectations, thanks to the continued struggles of the aviation sector. But with Hawker Beechcraft’s decision to stay in Wichita and Bombardier’s expansion plans trumping Boeing’s threatened exit, 2011 turned out to be a decent sales year for most retailers.

“My sense is that it definitely was a better year than 2010, and I think better than expected, closer to what people hoped for going in,” said Cindy Claycomb, a marketing professor at Wichita State University.

Opportunities in 2012

Downtown revitalization officials hope to run out several new retailers in 2012, targeting some regional retailers who’ve succeeded in places like Lawrence and Kansas City, said Jeff Fluhr, president of the Wichita Downtown Development Corp.

Consultant Mike Berne has been recruiting those expanding niche retailers, and Fluhr said he’s shooting for some announcements this year. Some of the city’s major suburban retail hubs, including New Market Square, Bradley Fair and the Waterfront, continue to evolve.

Challenges in 2012

Simply put, selling at full price, Claycomb said.

“People are used to buying things at a discount, and they don’t want to pay full price. Retailers can’t sell everything in their store,” Claycomb said. “How do you convince consumers to purchase things at full price with sales swirling around them?

Bottom line

2012 will revolve around consumer confidence, which slowly recovered in 2011. Can the Wichita area avoid the kind of bad economic news - layoffs, business departures - that rattles the confidence of the buying public?

Bill Wilson

Contributing: Associated Press

Reach Dan Voorhis at 316-268-6577 or dvoorhis@wichitaeagle.com.

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