Kansas City economy has lagged the country since recession. Is that about to change?
For many years, the economic engine of the Kansas City area outpaced growth rates of the national economy. But that longstanding trend has not held true during the years following the Great Recession.
Instead, for the past decade Kansas City has lagged behind as the U.S. economy enjoys its longest ever economic expansion.
“We’re not getting as much of that share as we have in the past,” said Jeff Pinkerton, an economist at the Mid-America Regional Council. “I do think it’s alarming.”
Key economic measurements like employment, productivity and unemployment have improved here, but the economy has grown significantly slower than the nation and other mid-sized cities.
Local groups have long compared Kansas City’s performance to that of 30 other metro areas — 15 immediately smaller in population, 15 immediately larger. But Kansas City’s metro area has performed below average on median household income, quality jobs and gross domestic product, or GDP — the total value of all goods and services produced and a key economic indicator.
“Some metros that 20 years ago our economy was much larger than have passed us by,” Pinkerton said. “And we should wonder why.”
It’s unclear what factors are holding Kansas City back. But he noted that cities like Nashville and Columbus tout marquee universities and each have built a dominance in a specific industry — Columbus in insurance and Nashville in health care.
But after a decade of lagging growth, Kansas City has some good economic news: The local economy has started to accelerate just as the national economy slows, according to an economic forecast completed by MARC, Kansas City’s regional planning agency.
The report predicts that the metro’s economy will grow slightly faster than the U.S. economy in 2019 and 2020. That’s in part due to the added boost of building the new $1.5 billion terminal at Kansas City International Airport. But the report also projects growth in transportation, IT and engineering jobs here.
“There’s momentum here,” said Joe Reardon, president and CEO of the Greater Kansas City Chamber of Commerce. “There’s been some smart moves and it’s taken some time for that to start to reveal itself in the data that’s out there.”
He specifically cited the redevelopment of downtown Kansas City and projects like the streetcar as drivers of future economic growth.
Still, Kansas City must find ways to address entrenched problems. The economy may be growing, but it’s left behind many people. Even with record low unemployment rates, chamber data highlight the longstanding disparities between either side of Troost Avenue. While the metro area’s unemployment has been below 5% for several years, the rates of people out of work can reach nearly 30% in parts of the east side.
Reardon said those figures underscore the need to invest in both workforce development and mass transportation to connect local people with jobs. If the city doesn’t improve in those areas, he said the results could be catastrophic because Kansas City cannot solely rely on recruiting people to move here to fill job openings.
“Our economy will slow down to a stop,” he said, “because we already have a labor shortage here.”
Sprint, Cerner and engineering
Cities across the country are grappling with the fast changing nature of jobs.
That’s because the share of jobs committed to producing goods has declined against the rising share of positions dedicated to providing services.
“The jobs that are available today require higher levels of learning than the jobs that had been available in the past in Kansas City that have fueled our economy,” Reardon said.
Manufacturing jobs, for instance, have shown some positive growth in the Kansas City area. But they make up less than 7% of the metro area’s 1.15 million jobs.
MARC’s study also highlighted major changes in the companies that comprise the workforce: For years, the trajectory of the local economy was closely linked to the success or failure of Sprint Corp., a massive employer with headquarters in Overland Park.
But as the wireless carrier has struggled financially, it’s significantly reduced its workforce, cutting 15,000 jobs across the company in less than a decade.
At the same time, North Kansas City-based Cerner Corp. has exploded. With some 14,000 local workers, it’s now the area’s largest private employer. Even with recent layoffs, the company said it had already hired several thousand workers this year.
The influence Cerner now has on the economy is reminiscent of Sprint’s former dominance. And the local economy depends more upon growing jobs in healthcare and professional, scientific and technical services.
With three of the nation’s largest engineering firms headquartered here, the local share of employment in the architecture and engineering industry is 57 percent greater than the U.S. average.
And that’s a strength worth building upon, said Steven Edwards, chairman and CEO of engineering firm Black & Veatch. He said workers are already comfortable moving to Kansas City because of the wide variety of jobs available in construction, architecture and engineering.
Those firms are particularly prized because they produce local value while completing projects around the globe. Edwards said the need to improve infrastructure continues to grow in both the developed and undeveloped worlds.
“That means there’s more work and more jobs here in Kansas City as well,” he said. “There’s an absolute direct link.”
Black & Veatch employs about 11,500, including about 3,000 in Kansas City. He said the company had increasingly had to look outside of the metro to find workers to fill openings. The industry is working to market Kansas City as a destination for those who build everything from sports stadiums to water treatment plants through an initiative called KC Global Design.
Aside from his industry, the CEO said it’s important for Kansas City to post better economic growth numbers. A city known for lagging behind will make it even harder to recruit the kind of talent needed to fill good jobs.
“Over time it can have a cascading effect,” he said. “If we fall behind then it’s really hard to turn that around. It gets harder and harder to really change the trajectory once you start falling behind.”
Kansas, Missouri and KC
In many ways, Kansas City’s sluggish performance is in line with the economic trends of both Kansas and Missouri.
Data from the Bureau of Economic Analysis shows Kansas and Missouri have lagged in Gross Domestic Product, the total value of all goods and services produced and a key measure of economic prowess.
Between 2008 and 2018, the nation averaged annual GDP growth of 1.8%. That figure was only .4% in Missouri and .9% in Kansas, according to the bureau.
The Greater Kansas City Chamber of Commerce estimates the Missouri side of the metro is responsible for nearly a quarter of the state GDP, while the Kansas side of the metro area is responsible for about 41 % of the total state economy.
Even so, Kansas Commerce Secretary David Toland said suburban and urban Kansans should be concerned about the health of rural Kansas.
“The urban and rural economies in our state are inextricably linked,” he said. “When you look at the Kansas City metro, that talent bench in many cases is filled by many people coming out of rural Kansas.”
While the economy is stable, Toland is dissatisfied with the state’s slow rate of growth. That’s part of the reason why his department has hired an outside firm to help create a new economic development strategy.
A recent report from the KC Tech Council found that Kansas ranked second to last for growth in tech jobs. More than 40 states saw tech employment grow between 2017 and 2018, but research from the Computing Technology Industry Association shows Kansas lost 220 tech jobs over that time period.
Toland called the report “alarming” and said the governor is studying ways to reverse those trends. He said Kansas has the second highest rate of out migration among millennials — a major challenge to employment and population growth.
“That’s the kind of talent that our colleges and universities are turning out and we are exporting that talent at a deficit,” he said. “That is no way to run a railroad.”
Officials from the Missouri Department of Economic Development did not respond to multiple requests for comment. But the agency’s website shows continued challenges around workforce: in a recent survey, nearly half of all employers reported a labor shortage.
Missouri Gov. Mike Parson has identified workforce development as a top priority.
He pushed legislation that created a scholarship program called Fast Track to encourage adults to go back to college to learn high-demand skills. Another program, named One Start, incentivizes businesses to send their workers back to college for re-training. The governor also signed legislation this year that allowed the state to offer tax incentives to prospective companies up front, before hitting jobs or capital investment goals.
Is a recession imminent?
Jobs are a crucial measurement of an economy’s strength. But population is another important yardstick, said Jason Brown, research and policy officer at the Federal Reserve Bank of Kansas City.
He believes much of Kansas City’s sluggish economic growth is tied to population.
Census figures showed the metro area grew by 6.7 % between 2010 and 2018. That was just below the national average for metropolitan areas and well behind the rates of growth for the metros of Boise, Idaho; Charleston, South Carolina and Fargo, North Dakota.
“My sense is it’s really about demographics and it’s really about just sustained lower population growth over time that’s really been limiting the metro’s growth potential,” Brown said.
Moving forward, he expects healthcare and technical work like that at Cerner to be big drivers of the local economy as industries like manufacturing become more automated and require less human labor.
But Brown noted that the economy isn’t working for everyone. Many workers lack the skills employers increasingly demand. And others struggle to keep up with the rising costs of housing.
“Those structural issues are still challenging,” he said. “They’re still there.”
John Ricciardelli, president of Honeywell Federal Manufacturing and Technology, said local companies are focusing more on reaching the unemployed and underemployed.
He pointed to Honeywell’s local scholarship program that helps train students for high-skilled careers in manufacturing, which can offer starting pay as high as $50,000 or $60,000. He says it’s the kind of effort that can help solve two problems: provide stable employment for those who need it most and help employers fill positions that will help them grow.
“We’ve all had to get a little bit creative” Ricciardelli said. “The economy and unemployment has forced us to kind of think about how we hire our skilled workforce differently.”
Creighton University Economist Ernie Goss, who studies the economies of nine Midwestern states, reported that a lack of workers was hampering growth across the region in October.
Locally, unemployment continues to drop to record levels: the Bureau of Labor Statistics reported the Kansas City metro area had an unemployment rate of 2.5% in September.
Despite those challenges, Goss predicted continued employment and wage growth for both Kansas and Missouri.
Still, businesses across the nation have grown more cautious about spending amid fears of an impending recession. And the president’s ongoing trade wars continue to infuse markets with uncertainty.
But aside from those issues, fundamentals like employment and wages remain strong, said Derek Hamilton, global economist at Ivy Investments, a division of Overland Park’s Waddell & Reed.
“The consumer is the driver of the U.S. economy,” he said. “And there’s nothing that we look at that says the consumer is about to come under pressure here.”
Hamilton expects some stabilization in 2020 particularly if trade tensions are resolved. Even as the current economic expansion persists to historic lengths, he doesn’t believe that’s cause for concern. He also noted that a recession requires some sort of external shock like a housing crisis or worsening trade tensions.
“Expansions do not die of old age,” he said. “It’s very hard to essentially talk yourself into a recession just because you haven’t had one.”
The Star’s Crystal Thomas contributed to this report.
This story was originally published November 12, 2019 at 5:00 AM.
