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Published: Sunday, 1/2/2005

Cautious hope for area economy

BY MARY-BETH McLAUGHLIN
BLADE BUSINESS WRITER

Economists and experts in a number of industries say they're optimistic that 2005 is going to be a good year locally and nationally, although they're not as confident as they'd like to be.

That's because they think this year is going to be a lot like 2004, which started out strong, had some softness in the middle because of high energy prices, and then rebounded somewhat, except for employment.

"We thought last year we were going to have a more standard expansion scenario. In retrospect, that looks quite foolish," said Michael Bryan, an economist at the Cleveland Federal Reserve Bank.

Economist James Coons, of J.W. Coons Advisors LLC in Columbus, said, "I've got my fingers crossed, but these higher energy prices really pack a wallop."

The nation's broadest measure of the economy, the gross domestic product, will increase this year by 3.5 to 4 percent, which could lead companies to start adding workers in big numbers, economists said.

But, they add, setbacks are possible if energy costs climb, cutting the amount available to firms to buy equipment and to expand.

Locally, construction firms say there is pent-up demand, and a manufacturing index for northwest Ohio has shown growth in the past year but still lags the national rate.

Unemployment rates in most area counties have been higher than the statewide rate, but generally are down. Home sales have been strong and are expected to continue to be, but bankruptcy filings locally have soared and a quick dropoff isn't expected.

That adds up to tentative signs of recovery, experts say. But because of strong ties to the sluggish automotive industry, the area will take longer to experience added jobs and other benefits, they said.

"The early stages of an economic expansion exhibit the strongest gains in labor productivity," said Richard DeKaser, chief economist for National City Bank in Cleveland. "As that wears on, productivity tends to slow, and companies will be obligated to meet this level of economic growth."

That has started to play out at area manufacturers such as Frazier Machine & Production Inc. in Perrysburg and Norton Manufacturing Co. in Fostoria.

"We're pretty optimistic about business going into 2005," said Jeff Frazier, president of the Perrysburg company that makes machine parts sold to a number of industries.

"One of the biggest reasons why we're optimistic is that the new orders that we're receiving are across all industries - automotive, electronics, medical. Clearly, the manufacturing need for machine tools is strong right now."

The company had considered adding equipment in 2003 but delayed when the economy drastically slowed, Mr. Frazier said.

Sales picked up 23 percent in 2004, so the company added equipment and employees and expects to do more of that this year.

Norton Manufacturing, which makes crankshafts for engines that are then put into machines, has had a pickup in business, especially in the agricultural and construction fields, said Les Lipski, chief financial officer.

The company's growth is so strong that it added nearly 100 workers last year and expects to add 45 this year, plus $4 million in new equipment, he said.

"The demand has been much better recently than in the previous three years and we think we'll see a continuation of that," Mr. Lipski said.

Hiring at such a rapid pace has caused problems for the non-union company because job applicants are either underqualified or overqualified, he said. The positions pay $10 to $20 an hour.

Not all the job news has been good, however.

For example, Reichert Stamping Co. in Sylvania Township closed after 80 years, taking 65 jobs with it.

Fleetwood Travel Trailers announced it was closing its Edgerton, Ohio, plant, eliminating 250 jobs, and Alcoa Inc. closed its Northwood plant last month, dumping 140 jobs.

Generally, those laid off locally said it has taken longer to find work.

At the height of his eight-month job search, information technology specialist Bob Martoncik figured he was sending out 300 resumes a month and lost count of the times he was told he was too qualified for the position or didn't have enough experience.

The search, which devastated his finances and strained his marriage, was much longer than he had anticipated when he lost his job last fall.

"I thought it'd take me maybe a month, if that," said Mr. Martoncik, 50. "Of course, I was laid off along with 87,000 other people, and a lot of the requirements that the people were asking for were totally insane."

He works in the information technology department for Lucas County and his household income is about 40 percent less than what it had been.

Layoffs are common in recessions, but different this time has been the relatively slow rate at which companies have added jobs since the end of the 2001 recession, said Mr. Bryan, the Federal Reserve economist.

Hiring in Ohio has been much more subdued than that nationally, he added.

The monthly unemployment rates in Toledo and Lucas County each month in 2004 were consistently higher than those statewide and are at levels most economists say is far from full employment.

Such economic conditions are one reason bankruptcy filings in northwest Ohio hit record numbers last year, and some expect strong numbers again this year.

Through November, 9,924 cases had been filed in the Toledo office of U.S. Bankruptcy Court, enough to ensure that once December's numbers are counted the 2004 figure will surpass the 2003 record of 10,381 cases.

Many filing for bankruptcy were carrying a great deal of debt on credit cards, and more of that is expected this year, keeping new cases flowing in.

Consumer spending nationally was strong last year but was not the driving force behind growth, and it won't be this year, said National City's Mr. DeKaser.

"The big story in terms of the economy was the transition from consumer to business investment spending," he said. "Business investment was very strong, buoyed by tax benefits, low interest rates, increasingly competitive lending, and rising operating rates."

Area construction-company executives said they hope companies this year will proceed with projects put on hold in recent years.

Bill Rudolph, president of Rudolph/Libbe Cos. Inc., the Walbridge-based parent company of three construction-related firms, said his firms had a sales drop in 2003 and last year had revenues about even with 2002's.

The firms kept busy on renovations but are counting on new construction this year, especially in manufacturing, health care, and schools., he said.

"We're optimistic that 2005 is going to be a good year for projects in construction in northwest Ohio," he said.

Echoing that sentiment is Bill Bostleman, president of Bostleman Corp., in Maumee.

He called 2004 mediocre, somewhat because of delayed projects, such as the rebuilding of Toledo public schools.

But, he added: "We believe this now will be the year that it really takes off. We feel really good about 2005."

Contact Mary-Beth McLaughlin at: mmclaughlin@theblade.com or 419-724-6199.



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