Multiple signs point to the local economy faring well next year, although challenges for Cummins Inc. will have an impact, a local economist said.
“Everything looks pretty good for 2016 except for our biggest company, but they do have a diversified portfolio, which should help buttress some of the uncertainty,” said Ryan Brewer, assistant professor of finance at IUPUC.
Brewer was among four panelists who made presentations Thursday morning at the Columbus Learning Center about what to expect in the global, national, state and local economies next year.
He said Columbus’ economic forecast is optimistic because:
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Residential building permits in the Columbus area were up 20 percent compared with the previous year.
Monetary value of all finished local goods and services rose 3.7 percent from 2013 to 2014.
The Bartholomew County labor force (43,968) and number of jobs (53,000) reached all-time highs in September.
U.S. automotive sales are expected to be on the uptick in 2016.
An increase in automotive sales should be good for local automotive supply companies such as NTN Driveshaft, Enkei and Faurecia, Brewer said.
Fifteen percent of local employment is tied to automotive manufacturing, so the national automotive sales forecast has a significant local implication, said Jason Hester, executive director of the Columbus Economic Development Board.
“Another record year ahead of us should bode well for that percentage of the (local) economy,” Hester said.
Elwood Staffing executive Michael Elwood, one of about 140 people in attendance, said he has a positive outlook for the local economy next year based on what he heard and what he sees with clients the staffing company serves. That’s despite the exposure Columbus has to global economic challenges, he said.
“Generally speaking, we’re encouraged through the lens of our customers. We’re positive of what opportunities they have, and for staffing it translates well,” said Elwood, a principal in the Columbus-based family company and president of Elwood Professional.
While the U.S. automotive forecast also is good for Cummins, the largest local employer and Columbus-based diesel engine maker, the company is facing serious, ongoing issues with international markets because of declining sales, slowdowns in economies and the negative impact of a strong U.S. dollar, Brewer said.
Cummins recently announced that it would reduce its global workforce by 2,000 salaried professionals as a way to control costs. The company said up to 500 employees from its Cummins and Seymour plants could be part of the workforce reduction.
Also, Cummins lowered its year-end revenue projection to flat to a 2 percent decline and said revenues next year could drop 5 percent.
The slowdown in the Chinese and European economies have hurt Cummins and other companies, such as Caterpillar, that are involved in the high-horsepower, mining-type industries, Brewer said.
“They have been forced to relook at their projections and capital investments, and they’ve had to cut back,” he said.
Hester noted that Cummins also represents 15 percent of local employment. If Cummins can hold strong despite the global downturn, that combined with the local benefits from a robust U.S. auto sales market would translate to the local economy being up a bit despite a mixed bag of news, he said.
While Cummins faces some rough conditions, Brewer said, the company’s business segments are diversified, which should help it — and Columbus — fare better than others.
“Fortunately we’re not as all-in as Caterpillar. In Peoria, Illinois (home base for Caterpillar), they’re really hurting,” Brewer said. “I wouldn’t say it’s their fault. They’re caught up in this storm of revisions downward.”
Sales of heavy-duty engines for semitrailer tractors and similar vehicles have done well this year, although they are forecast to go down next year, Brewer said.
Cummins also has had good news on sales of midrange engines, used in delivery trucks and buses, and its large market share, he said.
How Cummins fares in its high-horsepower and heavy-duty markets will be of particular interest to watch next year, he said.
“Their bread-and-butter has been buttressing revenues. How long can they go? They’ve been going bull market for six or seven years straight. Eventually the cycles change, and that’s what’s expected to happen,” Brewer said.
Another factor worth keeping tabs on next year is what impact new city leadership will have, Brewer said.
Republican Jim Lienhoop will step in as mayor Jan. 1, succeeding one-term incumbent Kristen Brown, whom Lienhoop defeated in the GOP primary.
Having the infusion of a new leader in the city — similar to when a company has a new chief executive officer — could result in a different energy level, Brewer said.
“At the end of the day, a new personality at the top could potentially break down some barriers, introduce some new relationships, introduce new opportunities for networking that they have in their basket,” Brewer said.
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Some highlights of economic forecasts for global, national and state economies and markets as presented Thursday morning at the Columbus Learning Center.
Global
- Weak economic growth in China and Europe is having negative effect on the U.S. economy.
- The strength and stability of the U.S. dollar has resulted in U.S. exports not being as attractive as before.
- Those two issues are likely to continue.
United States
- U.S. auto industry is doing well, partly driven by low gasoline prices. That’s helping drive the U.S. economy. The auto industry will continue to do well next year, but growth is likely to peak.
- Declining oil prices will lead to less investment in domestic energy production. That will affect total output and business investment and overall employment numbers.
- Inflation and interest rates are expected to remain low.
- Outlook overall is fairly stable, but economic growth will fall short of what was hoped.
Indiana
- Forecast “suspiciously upbeat” for the state.
- Expecting personal income to grow slightly the rest of this year and next year.
- Expecting state’s economic growth rate to outpace the nation’s. However, if Indiana’s exports and U.S. auto sales decline, then projections would be scaled back.
- Consumer spending will be tied to low prices and low interest rates.
- Economic growth is expected in Europe next year, and Europe is a large purchaser of Indiana exports.
- Impact of the Clean Power Plan, which mandates that states reduce their carbon outputs, is worth monitoring because of Indiana’s reliance on coal as a source of energy.
Financial markets
- The U.S. Federal Reserve System should increase the federal funds rate — the average rate borrowing banks pay to lending banks — in the near future.
- Wall Street expects earnings to be about 8.3 percent, although the projection has been declining since the fall.
- With low inflation and moderate gross domestic product growth, the 2016 forecast is similar to 2015: below average returns but still positive.
Sources: Kyle Anderson, clinical associate professor of business economics at the Kelley School of Business in Indianapolis; Jerry Conover, director of the Indiana Business Research Center at Indiana University’s Kelley School of Business; Charles Trzcinka, James and Virginia Cozad Chair of Finance at IU’s Kelley School of Business
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The economic forecast for Columbus in 2016 looks good, according to Ryan Brewer, assistant professor of finance at IUPUC. He cited factors such as record jobs and an all-time high labor force for the positive outlook, which he presented Thursday during a panel discussion at IUPUC. Here’s a look at how Columbus compares to a year ago in several categories important to the local economy.
;2014;2015;Change
Building permits;224;269;20.1%
Labor force;42,876;43,968;2.7%
Jobs;50,900;53,000;4.1%
Employment;41,074;42,665;3.9%
* Residential building permits in Columbus measured from October 2014 to September 2015, compared with October 2014 to September 2015. Labor force and jobs measured from September 2014 compared with September 2015.
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