September 30, 2013

Limited job growth forecast for Kansas City area

A new forecast for the Kansas City area economy paints a much less rosy picture than prior predictions.

A new forecast for the Kansas City area economy paints a much less rosy picture than prior predictions.

Longtime economic forecaster Frank Lenk, with more than a decade of area expertise under his belt, has given up waiting for the big rebound from the Great Recession.

“I have made the other forecasts for the last three years in a row, and I’ve been wrong every time. I’m tired of being wrong,” Lenk said Monday to an audience of Kansas City business leaders.

A weak national recovery will continue to limit job growth in the Kansas City area for the next two years, according to Lenk’s new official forecast of the Greater Kansas City Chamber of Commerce. Lenk is director of research services at the Mid-America Regional Council.

The forecast is the chamber’s annual effort to divine the area’s economic fate. This year unlike past predictions, it’s having none of the get-better-soon forecasts that have dominated since the recovery began in 2009.

“While there is a possibility that the U.S. economy will suddenly shift into a higher gear, this does not seem to be the most likely outcome,” the forecast said.

The area economy was supposed to be doing better than this. Lots of economic predictors painted a rosier picture than the one area residents see all around them.

For example, the chamber’s forecast from two years ago said the Kansas City area job market was going to crank out “a whopping 36,700 jobs in 2013.” According to that forecast, businesses, local governments and anyone else with a payroll would be hiring more than twice as many new employees as during normal times.

Now that 2013 is nearly over, expect a disappointing one third as many new jobs. It gets better from here, but we’re in for a long climb.

“It’s kind of like driving from here to Colorado,” said Mark Jorgenson, regional president for U.S. Bank. “It’s just a gradual increase in the elevation of the economy.”

Tough for job seekers

This new outlook comes as solemn news for job hunters. Monday’s forecast offers one of the weakest local job outlooks in years.

This year likely will have seen 12,300 new jobs pop up in the Kansas City area before it ends, the forecast said. It’s a far cry from the 36,700 in the chamber forecast two years ago.

Job creation rises to 14,300 next year, the new outlook says, still below the area’s average of about 15,000.

Two years from now, the Kansas City area economy likely will generate 16,700 new jobs, it said.

In presenting his forecast to a chamber audience Monday, Lenk previewed his remarks in deadpan fashion with a line that listeners seemed to regard a joke.

“It’s been a year of growth, but sluggish. And that’s how we see it going into the future,” he said.

As some laughter subsided, Lenk explained that, this year, the forecast rejects the usual it’ll-get-better approach.

“We’ve had a really tough time recovering out of this recession,” he said.

Upside story

There has been improvement.

So far this year, Kansas City’s economy has beaten the national recovery’s pace. Area economic growth likely will come in at 2.7 percent for all of 2013, compared with only 2 percent for the nation, according to the forecast.

We’ve fared better on the jobs front, too.

“At least for this year, we expect that we will grow (jobs) faster than the U.S. for the first time in a long time,” Lenk said Monday. “We hope that’s a harbinger of things to come.”

Manufacturing jobs have gotten a boost from the Ford and General Motors assembly plants here. Construction work is up with a rebound in housing.

Sprint Corp., one of the area’s largest employers, just got a $5 billion financial boost from its new largest stockholder, SoftBank Corp. in Tokyo. It’s pretty good assurance the company’s next few years will be steadier than the last few.

Cerner Corp. is riding the wave of health care’s embrace of information technology.

Jorgenson said voters could give the area another boost by approving the half-cent sales tax in Jackson County to support medical research. It’s a jobs creator and more, he said.

“It creates a buzz for Kansas City,” said Jorgenson, a vocal backer of the tax. “The medical scientific community nationwide is talking about Kansas City.”

Homeowners are feeling better and borrowing against their confidence and their homes’ seemingly steadier values, said Commerce Bank president Kevin Barth. Businesses, too.

“We’re seeing substantial demand for loans across the board,” Barth said. “For the first time in five years, we’ve seen an increase in commercial real estate construction lending.”

Barth shares his customers’ confidence. Commerce is not only making those loans but hanging onto them instead of selling them off to investors.

Jason Brown, an economist at the Federal Reserve Bank of Kansas City, pointed to one hopeful trend.

Recent job growth has been faster in higher paying jobs like those in the professional and business services areas. Previously, he said, gains were bigger in leisure and hospitality jobs that pay less than half as much in wages.

The recovery’s chief problem, here and around the nation, is that not all parts of the economy are improving. It has been uneven. And that keeps a lid on how fast the economy grows and jobs appear.

None of this contradicts Lenk’s view of this year or the future.

“We’re on firmer footing than we have been at any time since the recession began,” he said during the presentation, “but we are growing slowly.”

Diving deeper

So, what’s with the forecast?

Lenk’s prediction of modest job gains reflects a fundamental decision to avoid the mistaken assumptions of recent years – that the economy simply will get better faster next year.

His previous unrequited optimism had relied on national economic forecasts produced by Moody’s Analytics, a respected firm that has overestimated the recovery along with many other forecasting groups.

This year, Moody’s again offered a “baseline” or most-likely forecast of an accelerating recovery and faster jobs growth for the nation. It also contained a second forecast that basically says the economy continues to muddle through at its current modest rate of recovery.

Lenk this year chose Moody’s more conservative national outlook as the basis for predicting Kansas City’s economic fate, using an economic model of the local economy designed by Regional Economic Models Inc.

The results show that the area economy – currently growing faster than the national recovery – slows next year to roughly the national average and then lags the nation in 2015 but only by a bit.

And there are risks even to a future of muddling through. Chief among these is the U.S. Treasury’s mid-October forecast of when it hits the debt ceiling. Economists aren’t sure what would happen if Uncle Sam stopped paying his bills, though it certainly would be bad for the economy and jobs.

If the chamber’s forecast holds a bit of optimism then it lies in Lenk’s limited assumptions. It predicts a return to normal job growth in the Kansas City area in 2015 even if the national economic rebound stays at its lackluster pace.

We might do better. Lenk’s hoping we do.

After acknowledging the errors of past optimism, Lenk charged his business-packed audience to turn the tables at his expense.

“My goal is to come in lower than expected and you guys beat me this year. I’m depending on you to make Lenk wrong,” he said.

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