The fundamental dislocations that led to the recession of 2007 to 2009 have not been addressed.
The result is retarded economic growth and continuing high unemployment. Yet Wichita's economy has the potential to be an oasis of growth amid a national economy in the doldrums. Three factors stand out: energy, exports and entrepreneurship.
A quick survey of the numbers demonstrates that the national economy is mired in a malaise worse than in any previous postwar U.S. recession. Total domestic spending has grown 2.56 percent since the official recession bottom in June 2009. While total production (GDP) grew slightly faster at 3.66 percent, this was driven by an enormous restocking of inventories. Simultaneously, imports rose 22 percent, much faster than exports (16 percent), dissipating the economy's forward momentum.
Slow growth has kept the national unemployment rate near 10 percent. Seasonally adjusted, it rose to 9.8 percent in November.
The Federal Reserve badly misjudged the recession of 2001. It kept interest rates extremely low from 2001 to 2004. This subsidized the investment banks' creation of obscure and dangerous financial instruments and caused a huge over-expansion of credit. The resulting financial bubble created enormous misallocations of real resources.
By the summer of 2006, housing starts hit 2.2 million, dominated by costly models in hot markets. Auto sales topped 20 million, concentrated in SUVs and luxury cars with big price tags and low fuel efficiency that frequently were financed through leasing. General aviation orders soared in 2006 and 2007. These levels were never sustainable over the long run, and now we are paying the price.
The bubble worsened some fundamental imbalances in the U.S. economy. American's saving rate was far too low, and our trade balance was in deep deficit. We need to save more, import less, and export more. Economic policy, both during the boom and the bust, has not addressed these long-term problems and generally made them worse.
The dislocations caused by the bubble economy are holding down U.S. economic growth.
How might our local economy fare in this environment? We have three significant strengths on which a contrary trend can be built: exports, energy and entrepreneurship.
While the U.S. economy is in a malaise, the global economy is recovering strongly. As of October, international trade was growing at more than 11 percent and global industrial production at close to 8 percent. Germany is showing that a developed economy can export and grow if it has favorable policies and a solid band of medium-size firms that will exploit opportunities around the world. Firms like our own Tramco, recently bought by a Canadian company, exemplify the type of firm that can create export-led growth here.
Shale gas is the least recognized story in 2010. After decades of struggling to develop techniques for extracting natural gas from deep shale formations, there is now a boom in this unconventional area. Natural gas is abundant and prices reflect that. With oil more than $90 a barrel, natural gas is selling at less than a third of its energy equivalent. This means there are opportunities for industries like fertilizer that can exploit this as a competitive advantage.
Wichita has a strong entrepreneurial culture and a supportive and competitive banking market. This makes us a place to take advantage of the opportunities and swim against the tide.