If it ain't broke ... Economic forecast 2006.
With great interest, Utah consumers and business owners have been watching the developments closely, trying to determine exactly how the national economy will affect the state's situation. Jeff Thredgold, economic consultant for Zions Bank, says Utahns can relax and enjoy continued growth during the coming year--the state's economy is in good shape and should remain that way through 2006, even taking into account national factors. While the state's economic growth may wane a bit during 2006 due to a slowing global economy, Utahns should feel confident that the economy will remain solid and intact.
The majority of economists and industry analysts share Thredgold's optimism, and why shouldn't they? Ever since the dark days that started around 2001, when words like "recession" were never spoken to avoid any self-fulfilling prophecies, Utah's economic conditions have been slowly improving.
And during the first three quarters of 2005, the most perceptive of Utahns may have stopped in their tracks, overcome by the sound of a collective sigh of relief that emanated from nearly every industry "We're not experiencing boom conditions," Thredgold muses, "but it sure does feel better."
When Kelly Matthews, chief economist for Wells Fargo Bank, predicts that Utah's job growth in 2005 should average somewhere between 3.25 and 3.5 percent, he sounds excited. He reels off the job growth numbers from the past few years: 0.6 percent in 2001, -0.7 in 2002 and the flat line of 0 percent in 2003. No wonder he's energized by 2005.
Thredgold recorded a 3.7 percent job growth for a 12-month period starting in the fall of 2004, making Utah the fourth best in the nation for job growth behind neighbors Nevada, Arizona and Idaho. Somehow, the West has become the best (unless you're Colorado) even though the recession thumped the region harshly.
"During this last mild recession, every region got hit, but we got hit particularly hard," Thredgold says, a rarity for the West. For the cause of this negative impact, he points to Utah's employment concentration of "the four T's: technology, telecom, travel and tourism." In the post Sept. 11 climate, the four T's couldn't remain strong. And although Thredgold says the 2002 Winter Olympic Games mitigated the pain, the boost wasn't enough to erase the state's woes entirely.
Americans traveled less in 2002, and Utah felt the impact of their urge to stay home. Nationally, air traffic declined 20 percent, and no one in Utah was hiring extra lifties or park rangers. The tech sector had discovered the nature of its own bubble, as the champagne-popping-the-Dow's-over-10,000 days turned into simple survival-of-the-fittest strategies.
Signs of Recovery
But times have changed. And the survivors are stronger and smarter, more realistic and appreciative of their successes. While no one is throwing a party quite yet, almost every sector has reason to smile. Thredgold says that every one of the state's 11 major employment sectors added jobs during the past year--no minor accomplishment. Professional and business services lead the pack, with 9,000 new high-paying jobs.
Compared to the rest of the nation, Utah has kept unemployment rates down. For the end of 2005, the state reports a 4.7 percent unemployment rate compared to the country's 5.1 percent, which Thredgold predicts will cause Utah's small business owners a few headaches during 2006. "While it won't be like the second half of the '90s, when everybody and their mother had a help-wanted sign in their store, many businesses will have trouble attracting and retaining desirable candidates for open positions," he explains.
Matthews credits much of the job creation and low unemployment during 2005 to the ongoing low interest rates on long-term tending, which contributed to a construction boom. While the real estate market has been hot in both residential and commercial areas both locally and nationwide, new construction during the past year contributed greatly to the state's economic growth.
In 2005, construction workers' wages in Utah were higher than the state's average wage, and the construction industry created about 9,000 new jobs. As consumers rushed to buy and build, the industry kept pace.
But the rebuilding in response to Hurricane Katrina will temper Utah's construction boom a bit, causing the cost of materials to rise along with demand. "Someone looking to build will definitely be paying more in 2006," says Thredgold.
Matthews has already heard about shortages of cement on a national scale, but he doesn't think that material supplies will remain low for long. In Utah, he says, construction will slow during the winter, as it always does. "But I'm not thinking there's going to be a huge reduction in construction activity," he predicts.
If construction stays steady, it's because consumers will keep buying new homes despite the predicted rise in interest rates. Even with what economists predict will be a steady barrage of quarter-point increases on short-term rates, long-term mortgage rates will remain historically low, says Robert Spendlove, manager of demographic and economic analysis for the state of Utah.
Jaren Davis, president of the Utah Association of Realtors, says Utah has become highly attractive to out-of-state buyers. "The country went into fast appreciation while we were stagnant," he says. "We were identified as one of the most affordable housing markets in America."
And while 20-year real estate veteran Davis says 2005 has been a record year for him, the word "bubble" shouldn't be applied to Utah or anywhere else in the country. "If there were a real estate bubble--and there isn't--it absolutely does not exist in Utah," he says. Since growth in the market can be attributed to good-value properties--"nice homes in great neighborhoods"--Davis doesn't see a boom that could lead to a bust.
Thredgold agrees to some degree. "There is a housing bubble on both coasts, but not in Utah or the intermountain West," he says. But for Utah, real estate will remain strong throughout 2006, a prediction Davis shares. "It will be a great year for investing, owning and transacting real estate," he says.
Stronger IT Survivors
For the technology sector, Utah has been a good place to do business during the past year. But Richard Nelson, president and CEO of the Utah Information Technology Association, says 2005 was a transition year.
"We went from bleak to positive," he says, "which means 2005 was better but still recovery oriented." In Utah, new IT company growth increased 13 percent to produce some 3,100 new IT companies through March 2005. Nelson predicts this "bullish" growth will continue through 2006. "Where our industry was going through a depression, losing many young start-ups, now our execs are enjoying optimism as they build profitability and sustainability."
Utah's growth well exceeded the national IT industry, which flat-lined during the past fiscal year. Nelson explains the Beehive State's two top research universities and strong colleges helped fuel IT growth, as did the "entrepreneurial environment" that has become famous for creating start-up stories of over-speculations and surprising successes.
But there have been some benefits to the tech industry's post-bubble recession, Nelson says. "Because the vast number of these 3,100 companies are survivors of those three very tough years, they're much stronger for it and are in a much better position to succeed now."
Will West, CEO of Contro14, a home automation systems manufacturer, started his company in March 2003 because he and his partners saw an emerging economic recovery period that could benefit a new company that capitalized on emerging Internet technologies.
Because the company has pushed to make home automation more affordable and accessible to existing home owners on a national scale. West seems nonplussed by the state's 2005 construction boom. And he takes other potentially damaging economic factors, such as rising energy prices, as a sign of possible future revenue. "If your heating and electrical bill are going up and up and up, you're more inclined to want to use a smart home to provide better energy management," he says.
West has an impressive track record of raising private capital for various enterprises, and as the chairman for the state's $100 million Fund of Funds, which was established by the Utah State Legislature in 2003, he's watched the state's start-up environment change dramatically during the past few years.
"I'm hearing more and more about people wanting to start companies, which is not new in Utah," he says. "But the number of good companies starting in Utah is the more recent phenomenon." Control4 rests squarely in that group, an example of the post-bubble start-ups that have found a way to be profitable in a recovering economy.
The pray-for-snow parties finally worked. During the 2004-2005 ski season, Utah's resorts received dumping after dumping of the coveted white stuff, something Ski Utah's president, Nathan Rafferty, says will remain frozen in the memories of skiers for years. "We could have a bad snow year in 2006, but people will still visit based on last year's season," he says. "Skiers have long memories when it comes to snowfall." Rafferty reports that bookings for Utah resorts during the 2005-2006 season are already up 5 to 15 percent.
The 2004-05 ski season was the greatest on record in Utah, with 3,895,578 skier visits, which translated into an estimated $667,258,065 in non-resident spending and $204,468,474 in resident spending. Some of those funds will be funneled back into resort improvements and some will contribute to popular acceptance of a new state budget: $14 million for marketing
Utah to the World
The huge increase in marketing funding is a turning point for tourism, says Leigh von der Esch, managing director of the Utah Office of Tourism and Film. "While other states have been spending millions in the past to advertise, we have had the same budget for a year for the entire state: $900,000--an amount that Vail, Colorado had just for their summer campaign," she explains. "We were in the last tier for state spending on advertising, but we believe this [new budget] will lift us to being one of the top 15 states."
While state and national park visits were down in 2005 from 2004, the amount of people flying in and out of the Salt Lake International Airport rose by 23 percent, an important number for the overall tourism picture.
Many attribute the increase to Delta Airlines closing its Dallas-Fort Worth hub. And even though the airline, one of the state's largest employers, announced in 2005 that it would be filing for bankruptcy, Thredgold predicts the move will actually strengthen the company, as it has for other airlines in the past few years. Even as Delta announced its bankruptcy, it also said it would be adding 12 new flights from Salt Lake City.
But rising prices at the pump could deter the 78 percent of out-of-state visitors who arrive by automobile. Von der Esch hopes that the type of traveler who enjoys a mix of outdoor activities with sampling the arts and gourmet dining will be drawn to Utah in 2006 no matter what gasoline costs. "Utah is the perfect state for the hybrid traveler who wants to do a triathlon then see a great symphony or [visit an] art museum," she enthuses.
This year, both Utah business owners and consumers have expressed confidence in newly installed Gov. Jon Huntsman, Jr. as an economic powerhouse. "The fact that [Gov. Huntsman] has strong political and business ties across Asia and an influential family, helps," says Thredgold. "But the economy is coming back on its own inherent strength because we were on our backs for two or three years."
The governor proves that having a good image doesn't hurt, which could apply to the entire state based on its media coverage in 2005. Outside magazine named Salt Lake City one of the 18 most desirable places to live in the country, citing its progressive environmentalism and accessibility to the outdoors. SKI magazine named Deer Valley the number one best place to ski in North America. With a solid image that will only become enhanced by the state's new, expensive marketing campaign, the future at least looks bright, if not blinding.
Energy's New Promise
Sure, high gas prices squeeze the consumer wallet and may negatively affect many industries, such as tourism. But in one Utah county, the country's pressing need for oil and natural gas fills wallets as well as tanks and creates high expectations for people like Bill Johnson.
Johnson works as the economic development director for the town of Vernal and Uintah County, a job that has taken on new dimensions during the past five years. The first sign of burgeoning came with natural gas discoveries that were made thanks to new two- and three-dimensional mapping techniques in 2000. Now, it's all about oil. Suddenly national and international magnates are eyeing the region's underground oil shale and tar sand deposits, which up until now have been untouchable because of the cost of extracting what the industry calls "recoverable oil." Johnson says that Uintah County alone holds two to three times the reserves of Saudi Arabia, a fact widely publicized by Rep. Orrin Hatch, who helped craft the large energy bill approved by Congress in July of 2005.
The bill includes a special provision for oil shale and tar sands development, which puts Uintah County on the edge of exciting economic times. "We're not sure if we're in the boom yet," Johnson says. "It may be a boom in its infancy."
New technology rests at the crux of the region's potential. "Lots of entrepreneurs are trying to create the technology we need," he explains, "from guys in their garages to Shell Oil."
But Uintah County's boom isn't entirely dependent on oil production. Johnson estimates that by the end of 2005, the nearly 750 gas wells in the region, which cost about $2 million each from start to finish, will pump $1.5 billion into the area. And if his predictions are correct, 60 percent of that money will stay in Uintah County.
Oil and gas companies cannot find enough employees to fill positions that pay from $45,000 to $60,000 a year. "Nobody out here who is capable of working doesn't have a job," Johnson says. "We're really behind the eight ball. We've got to attract people to the area."
But a boom in Uintah County remains a small piece in the state's larger economic puzzle. While energy has become a hot topic due to rising prices, and even prompted Gov. Huntsman to create the Energy Advisory Council, the growth in all 11 major employment sectors points toward an overall picture of slow, steady recovery.
Thredgold views his overall outlook, which seems to be shared by nearly every industry analyst, as on the mark. "I don't see a lot of irresponsible exuberance about the Utah economy," he says. Because of a strong, diversified Utah economy, valuable housing that exists outside the national real estate bubble and consumer confidence, 2006 should be a good year. But the state doesn't exist in a vacuum. If the global economy slows during 2006, as most economists say it will, the Utah economy will not grow as much as it did during 2005. "I'm not being Pollyanna-like, but realistic," he says.
Lucy Burningham is a freelance writer and frequent contributor to Utah Business.
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|Article Type:||Cover Story|
|Date:||Dec 1, 2005|
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