Forecasting the local and U.S. economy is tricky business these days. With the inauguration of a new president who is changing policy daily, “uncertainty" is the word of the day. And, as Mark Twain said, “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so." Strategic planning may seem futile in the face of this uncertainty, but sometimes uncertainty breeds opportunity.
Business owners and operators are smart to look to the latest economic indicators and drivers, particularly within their own business sectors, to help them plan for the coming year. Bank of Utah, the Ogden/Weber Chamber of Commerce and Weber State University John B. Goddard School of Business and Economics recently held an Annual Economic Outlook event featuring local experts in healthcare, finance, technology, the military and real estate. I’d like to share with you the key learnings from the event to help you be strategic in your business planning for the coming year.
Here are a few industry insights that I presented at the conference: 1) With Republicans now in power, you can expect tax cuts, a shift in power from federal to local, less government control of businesses and a prevailing philosophy that a free market economy provides prosperity; 2) foreign capital continues to invest in America, which is a positive sign for the U.S. economy; and 3) interest rates are going up, so you may be wondering about a possible recession. Recession occurrence is cyclical, giving us a 25 percent chance for one in 2017.
Tim Pehrson, Intermountain Healthcare, talked about the elephant in the room—the repeal and replacement of the Affordable Care Act. He said there will be a shift from government mandates to ensure that all Americans have access to healthcare toward state flexibility. Tim believes these changes may be made through policy changes by the Department of Health and Human Services, rather than through Congressional action. He sees government subsidies being replaced with tax credits and healthcare exchanges eliminated with the removal of mandates. Changes will create a rocky road ahead for the insurance and healthcare industries, and fewer people will choose to be insured.
Technology and Entrepreneurship
Alex Lawrence, Weber State University professor, talked about 2017 technology trends: The Internet of Things is the “thing." Consumer device connectivity to hardware is exploding and providing apps that control entire homes. Interactive devices such as Amazon Echo, Nest, Ring and smart plugs are increasing in popularity and startup companies that produce these devices are flourishing. 3D printing is becoming very sophisticated and prices are going down. As a result, 3D printer shipments have doubled over the past two years. Computing is everywhere, creating an increased emphasis on the mobile user experience. And we’re entering the time of robots, with smart machines that can understand and act autonomously such as self-driving cars. Big Data is on everyone’s lips and technologies that determine how to analyze data, such as Domo and Northern Utah’s GRO, are doing well. Unfortunately, Utah’s Silicon Slopes seem to stop at Farmington, and there are currently no big tech company ventures in the Ogden/Weber area.
Kevin Sullivan, Utah Defense Alliance, spoke of the huge impact that the defense and military sector has on Utah’s economy, with a combined economic contribution of $9 billion and the generation of 109,000 jobs. The military accounted for 5.8 percent of Utah jobs, 7.1 percent of earnings and 6.2 percent of the gross domestic product in 2015.
Kevin reported there are positive indicators that Hill will continue to be a big employer for Utah. Although President Trump has put a freeze on federal hiring, the military was exempt. The Air Force continues to rely on existing fighter aircrafts, and ICBM missiles are central to the U.S. defense—both produced and maintained at Hill. Also, the military provides technological jobs—90 percent of F-35 functionality is by software.
Jeff Neese, president of Western States Multifamily, provided insights on development trends. Data show a shift along the Wasatch Front from homeownership to renting, with 71.4 percent homeowners and 28.6 percent renters in 2006, compared to 42.2 percent homeowners and 57.8 percent renters in 2015. The reasons for renting vary from poor credit or lack of adequate down payment to a desire for access to services and recreational amenities, social events, shopping, services and mass transit. Also, a growing number of young adult singles are more likely to rent and live in cities.
Since 2011, 19,100 new rental units were completed in the Wasatch Front. This has added 9 percent to the supply of rental housing. Currently 21,500 new rental units are under construction or in the planning stage. This will add another 9 percent to the 2017 supply. Most new rental housing is being developed in Salt Lake and Utah Counties, and only 17.5 percent are being developed in Davis and Weber Counties.
Transit-oriented apartment projects are increasing, spurred by the success of the transit system, coupled with tax incentives. For the entire Wasatch Front Region, transit-oriented apartments represent 46 percent of all recently completed, under construction and planned units. But for Salt Lake County with its many transit hubs, transit-oriented apartments represent about 62 percent of all recently completed, under construction and planned units.
Dr. Peter Rupert, chair of the Department of Economics at the University of California, Santa Barbara, concluded our event with humor and hopeful economic signs: 1) 2017 may be a good year for the stock market; 2) according to the Real GDP, on average we get 2 percent richer every year; and 3) the Federal Open Market Community outlook for economic growth and inflation is optimistic.
Peter coined the word, “unequality," saying the world is full of it … housing values and growth are inconsistent across the country, but Utah’s growth rate is stable. In the financial sector, household liabilities are at post-recession levels and disposable income is high. Utah’s income and wages continue to be lower than the national average, but some counties have seen up to 130 percent growth. He said Utah employment has outpaced the U.S. average, with the highest rates in Provo/Orem. He noted that more communities are adopting a higher minimum wage; although good for low-income earners, this may result in increased firings due to higher employer expectations and fewer people being hired in the service industry.
Insights from Peter and our local business experts will be helpful in making budgeting decisions for your business and family, but they aren’t the only tools you can use for making smart choices. Real leaders don’t just stop there. I suggest that you ask more questions and admit that you don’t know the answers to everything (and that’s OK). You can often get the best results in planning and operating your business by surrounding yourself with good people and involving them in the decision-making process. It looks like 2017, with all its uncertainties and “unequalities," should turn out to be a good one for us all.
Bank of Utah President Douglas L. DeFries is known for his involvement in the community, having served as chairman for the Ogden Weber Chamber of Commerce, chairman of the United Way of Northern Utah and chairman of The Utah Chapter of the American Institute of Banking. He has served as vice chair of the Utah Housing Corporation, and has served on the Institutional Review Board of IHC Urban North for many years. Doug was selected as a 2010 CFO of the Year by Utah Business magazine.