Economist: Diversification key for Wichita’s future

Scott Anderson, senior vice president and chief economist at Bank of the West, is scheduled to be one of the featured speakers at this year’s Wichita Area Economic Outlook Conference, which takes place Thursday at Century II.

Eagle business reporter Bryan Horwath interviewed Anderson, who is based in San Francisco, and got his insights on the economy from the local level all the way to a global scale.

Q. There’s been a lot of talk lately about the weakness of the global economy. How are we doing?

A: “There has definitely been a deteriorating global outlook. The big concern right now is the health of China’s economy. We know they have a lot of structural imbalances, including a bubble on their property market and high debt levels. They’re trying to transition away from an export- and manufacturing-driven economy to a more service-based and consumer-driven economy, which hasn’t been going very well.

“All of those things have impacted China’s growth rate. Last week, we cut our forecast for China to 6.5 percent growth for this year, which would be below the Chinese government’s target of 7 percent. We’re forecasting 6 percent growth for them next year, so that will bring down the outlook for the entire developing Asia region.”

Q: It’s no secret that the economy in Wichita has been affected by the loss of jobs in the aviation industry in recent years. What can Wichita leaders do to ensure that the city has a bright economic future?

A: “(The aviation industry job losses) were a huge blow to the Wichita economy. I just looked at the data this morning, and Wichita job growth is now negative at 0.5 percent year over year. You’re seeing job loss in manufacturing, retail trade, government and professional businesses services, so there’s a very mixed employment picture there.

“There is job growth, but it’s in construction, wholesale trade, leisure and hospitality and a little bit in health care. You’re not seeing population growth, so it’s a challenging environment.

“What you can do is diversify your economy away from having so much reliance on one sector. Besides its low cost of doing business and relatively low cost of living, I think one of the benefits that Wichita has is that it has a university in Wichita State that is cutting-edge on manufacturing. It’s opening up this Innovation Campus, which I think will be good, and there is a strong connection to defense and military in Wichita, so all those things will continue to support the community.

“What an economist would say is that you need to invest in the educational system and invest in transportation infrastructure systems. The knowledge-based economy is where you want to be, even in manufacturing.”

Q: Oil prices have been down for quite a while, with the price for a barrel of West Texas Intermediate crude coming in at under $50 for more than a month. How long will oil stay down, and what does it mean for the U.S. economy?

A: “Gasoline prices are about a dollar per gallon lower than they were a year ago at this time, so we think that’s going to be a positive for consumers as far as consumer spending. We’re still primarily a consumption-driven economy that is reliant on cheaper energy costs.

“There are, however, areas being hurt by the lower oil prices, and we’re seeing that around the Kansas market in places like Denver, Wyoming, Colorado and Texas, which have all seen slowdowns in economic activity. We forecast that oil prices are going to remain low for quite some time, which is partly due to the strong dollar.”

Q: Election night is still more than a year away, but we already seem to be in the middle of the election cycle frenzy. As the presidential election spotlight continues to brighten, how will the markets be affected?

A: “First of all, we’re a little bit worried right now about the potential for a government shutdown over the debt ceiling again. With John Boehner’s exit as speaker of the House, perhaps a shutdown has been averted, but we’re going to be up against that issue again in December with a new speaker, who might be less willing to bargain. Those sorts of uncertainties are not good for the financial markets and for the economy overall. Businesses, when this sort of uncertainty surfaces, they tend to put their projects on hold, and you see a slowdown in investment and expansion.

“Looking to the presidential race, businesses are looking for someone who could perhaps initiate some movement on the lowering of corporate tax rates. Our tax rates tend to be a lot higher than other developed countries around the world, and that’s having some impact on the way companies operate here. A lot of big companies are holding their profits overseas as a way of trying to avoid taxes here, which doesn’t help anybody.”

Q: Some thought that the Federal Reserve would raise the Fed funds rate at its last meeting, but that didn’t happen. With 2016 being a presidential election year, will we see the Fed raise rates before 2015 ends?

A: Our baseline view is that they will raise in December, but with the speaker announcing his resignation just a few days ago, it will be interesting to hear how Fed officials view that. Perhaps a December rate hike is lower probably now than it was before that announcement.

“They may wait now until 2016 because of the uncertainty that a government shutdown could create, both for financial markets as well as the economy. I still haven’t changed my view that the Fed will raise in December, but we know events could change fairly quickly.”

This story was originally published September 29, 2015 at 4:32 PM with the headline "Economist: Diversification key for Wichita’s future."