Economic Outlook experts gaze into Wichita’s 2017

How’s the Wichita economy going to do next year?

The same as in 2016, but more: aircraft manufacturing kind of flat. Oil and gas and agriculture still down. But everything else up.

The net: About 2,500 more jobs in the Wichita area, and 12,000 more jobs statewide. Both are less than a 1 percent increase and slower than growth nationally.

That’s the takeaway from the scores of charts and three-plus hours of talking by forecasters Thursday morning at the 2016 Wichita Area Economic Outlook Conference.

Many of the business leaders in the audience have lived through the slow Wichita recovery and said they understand underwhelming forecasts.

“It’s fair, and it’s conservative,” said Mark Murphy, a commercial banker with Fidelity Bank. “Some sectors in the service are seeing some growth, and there’s been some growth in the aircraft sector.”

“It’s about right,” said Junetta Everett, vice president with Delta Dental. “I’m optimistic.

“It’s faster than Topeka, slower than Kansas City.”

But for some sectors, things are moving a bit faster.

“This is a booming period,” said Derek Volgamore of Sunflower Bank. “There are all sorts of business that are wanting to talk about loans with all of the low interest rates.”

Corporate aircraft

Richard Aboulafia, vice president of the Teal Group, said Wichita’s aircraft industry took a bigger hit in 2009 than anyone.

Sales of the small- and medium-sized jets made in Wichita and sold to companies in North America never rebounded as credit remained tight and the corporate culture shifted.

Instead, local airplane makers faced increased competition from Brazilian planemaker Embraer, even as the large business jet makers – such as Gulfstream – saw their sales to oil-rich countries soar.

That has changed in the past two years. Plunging commodity prices have hurt the large jet makers, and Embraer seems to have stalled in its attempts to grab more market share.

Aboulafia said he expects the small- and medium-jet market to remain flat or rise slightly over the next five years.

That’s a clear benefit to Wichita, he said, although the health of Bombardier Learjet remains a question.

Commercial aircraft

Wichita also benefits from trends in commercial aircraft, Aboulafia said.

It looks like Boeing and Airbus are getting close to overproducing for the market demand.

But that overproduction is coming mainly in wide-bodies, such as the Boeing 777 and the Airbus A330, while demand for the narrow-body 737 will remain strong.

Wichita’s Spirit AeroSystems makes 70 percent of the 737 and depends heavily on demand for it for its well-being.

Aboulafia forecasts a slowing of growth followed by a slight dip in 2021, but the decline will leave Wichita largely unaffected, he said.

Agriculture, energy

Mykel Taylor, a professor at Kansas State University, said farmers’ incomes have plunged since 2014, which has rippled out into the rural economy.

She sees accelerating job losses throughout the rural parts of the state. Declining farm land values are pushing farmers to operate very conservatively, and banks are stretching out repayments and even forcing a few to sell off equipment or land.

“I think it will continue at least a couple more years,” she said. “Most will figure out a way to continue with lower costs, but some producers will not make it out.”

The energy sector is in similar straits, with low prices wrecking the ability of local producers to keep operating.

Caron Lawhorn, senior vice president for One Gas, the largest natural gas supplier in Kansas, said the overall energy market in the U.S. remains in flux.

Part of the uncertainty is who gets elected at the federal level. That will probably determine how hard environmental controls on emissions are applied.

Some of her predictions: Renewable energy will continue to grow; nuclear will remain in the mix; coal will continue to shrink; natural gas will replace much of coal in generation of electricity.

Real estate

The area’s real estate really looks good, but not great, said Tom Johnson, president of the Martens Cos., which distributed its annual commercial real estate forecast on Wednesday.

“We’re generally pretty optimistic, overall,” said Johnson. “The economy is growing, but nothing dynamic. Jobs aren’t growing at any fast clip.”

Highlights of the report:

▪ Office: A lot of activity, with sizable companies moving, but it hasn’t cut down on the overall vacancy rates. Vacancy rates will actually rise and rents will stay level.

▪ Retail: With employment and incomes growing, this sector is expanding, particularly northeast and northwest. Vacancy rates will fall and rents rise.

▪ Industrial: After years of no new construction, a lot of new industrial space was built in the last year. That will continue. Vacancy rates will fall and rents rise.

This story was originally published October 6, 2016 at 6:56 PM with the headline "Economic Outlook experts gaze into Wichita’s 2017."