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Improvements in Wichita-area economy to come slowly

Two days after Christmas, an oversized forklift lifted and swung — very carefully — a 10-ton yellow girder onto the overhead rails at Central Plains Steel in northeast Wichita.

The girder is part of a new overhead crane designed to hold 50,000-pound rolls of steel. The crane, which cost about $320,000 and was built locally, will enable the company to handle larger, thicker rolls of steel.

"We're investing for the future," said Gary O'Neal, division manager for the company, which expects to carry 5 to 8 percent more steel in 2011.

While some sectors in Wichita will see growth and start hiring in the coming year, others will have to wait another year, at least.

Overall, experts say Wichita appears to be following its usual pattern of lagging the national economy by 12 to 18 months. Since the national recovery is officially a year and a half old, that might mean Wichita has hit bottom and is beginning to recover. Wichita hit its lowest employment number of the recession in August.

But just as the national recovery has been so weak it doesn't really feel like a recovery, 2011 in Wichita might not feel much better than 2010.

In the last recession, it took about two years to hit bottom and four years after that before employment reached its previous peak.

So, the recovery likely will feel more like a crawl than a walk.

In fact, Jeremy Hill, director of the Center for Economic Development and Business Research at Wichita State University, this week reaffirmed the center's October prediction for less than 1 percent job growth in 2011 in the metro area.

"We will slowly build the other sectors of the economy in 2011," Hill said.

National view

The national and international economies are crucial to Wichita because of the dependence on selling to the nation and world.

Nationally, predictions for how strong the recovery will be seem wider apart than usual, with growth forecasts for the gross domestic product ranging from a low of 2 percent to a high of 4 percent.

However, many economists in the past few weeks have raised their original 2011 GDP growth estimates into the 3-4 percent range because of the federal stimulus/tax deal and enthusiastic spending at Christmas.

What makes those forecasts especially significant is that it takes a growth rate of more than 3 percent to start lowering the unemployment rate.

Some economists say that companies will have to start hiring soon, because they have worked their current employees and equipment as hard as possible.

The recent Duke/CFO Business Outlook survey suggests that business leaders expect to increase hiring by 2 percent in 2011, which could push the unemployment rate down to 9 percent.

Nationally the latest unemployment rate is 9.8 percent. In the Wichita area, it is 8.4 percent.

Factors that are expected to drag on the economy in 2011 include: additional foreclosures and a further fall in housing prices in some markets, large job cuts in state and municipal governments, an increase in long-term borrowing costs and the impact of the federal debt.

However, many economists say that inflation is not expected to be one of the problems in 2011.

Internationally, while the U.S., Europe and Japan will remain weak in 2011, the developing world will continue to grow strongly, experts say.

Doing well

It is the continued strength of those emerging economies that has buoyed Kansas during the recession.

Because China, India, Brazil and others are growing so strongly, they demand raw materials. Sometimes, they buy directly from Kansas companies, while other times their demand drives up world prices.

In Kansas, that translates into a boom in the agriculture and oil producing sectors.

The state's agriculture economy is expected to remain strong through at least the first half of 2011, with high crop and feeder cattle prices, said Tom Leffler, owner of Leffler Commodities of Augusta. Kansas was recently ranked fifth for income growth in the U.S., based largely on the surge in farm incomes.

Kansas has also seen economic overflow from oil. The price of oil has risen much of the year and now is over $80 for Kansas common crude. The state's oil industry was on track to equal or surpass the 39 million barrels of oil it produced in 2008 and 2009.

But, warns Jim Williams of WTRG Economics of London, Ark., what goes up can go down: the commodities boom is partly a function of speculators seeking higher returns in a low-return world.

Williams estimates that roughly $20 of the $90 a barrel of oil is caused by speculation. If commodities are seen as overpriced or better alternatives develop, those prices will come down.

Beyond that

Wichita's manufacturing base is doing OK. Central Plains' O'Neal said that all of his major clients say their sales have improved over 2009. Nondurable goods manufacturers, such as food processing, have added about 800 jobs locally in the past year, according to state statistics.

Health care, which is largely disconnected from the rest of the economy, will continue to grow by 800 jobs as more people need services in 2011, Hill said. The first baby boomers are now in their mid-60s.

But the engine of the Wichita economy, aircraft manufacturing, isn't ready to fly just yet, say experts. Spirit AeroSystems is looking at a decent year, as Boeing will raise production of 737s from 31.5 a month to 35 by early 2012.

But business and general aircraft manufacturing isn't expected to turn up before 2012, even as corporate cash piles up in record amounts.

Dave Strohm, CEO of investment management firm TrueNorth in Wichita, said that companies are getting close to the point where they will buy a jet. Corporate profits are forecast to rise 13 percent in 2011.

"There is no question they are getting to the point they can afford them," he said. "If they hit the 13 percent increase (in earnings) you will see some increased demand and that will help the market, but it will be still somewhat soft. The bigger impact will be 2012."

Sectors such as professional services or retail that depend on production industries will only see big improvement when the city economy as a whole improves.

Hill, for one, thinks this year is a good time to start a business. Global demand is there, domestic demand is beginning to pick up and the skilled labor is readily available, he said.

"There is a lot of opportunity for somebody to move forward," he said. "It just has to happen."

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