December 1, 2008

Cover Story

Succession Planning

In early June, the powerful leader of one of Utah’s largest business empires ...Read More

Featured Articles

Economic Forecast 2009

CEO Lessons Learned

Sections

People
Jim Thornton

People
Mark DeYoung

TechKnowledge
On the Patent Hunt

Legal Briefs
The Negotiating Table

Executive Living
'Tis the Season

Executive Getaways
Spice It Up

Executive Health
Scale Up

EntrepreneurEdge
Cyber Real Estate

Business Trends
Feeling the Crunch

Regional Report
Washington and Iron Counties

Regional Report
Southern Utah

Focus
The Euro Effect

Industry Outlook
Wealth Management

Article

Economic Forecast 2009

Standing Strong Against the Economic Downwinds

Peri Kinder

December 1, 2008


It’s been a disaster waiting to happen for years. The effects of the subprime lending industry, loose credit standards, dubious mortgage loans and a slowing economy have finally reached a peak, and now the nation faces a financial crisis of historic proportions. Not since the Great Depression have the U.S. and global economies been confronted with such a serious threat to economic stability. Everyone in Utah, from Governor Jon Huntsman to the family next door, is wondering how the stalling economy will affect their lives. Business owners brace themselves for a tough and rocky road during the next 12 months as credit requirements tighten and loans are harder to come by. Gray Skies Ahead Though the picture is dreary, it isn’t all doom and gloom. While surrounding states are experiencing recessions, the Beehive State is clinging to hope that there is an economic light at the end of the financial crisis tunnel. “It’s a scary time right now,” says Jeff Thredgold, Zions Bank economic consultant. “But we have to make the assumption we’re going to get through this. What makes the market work is confidence.” Bear markets are nothing new for the U.S. economy. In fact, according to Dave Young, Paragon Wealth Management president, this is the 34th bear market since 1900. Young’s company tracks stock market cycles and he believes the economy has reached the upswing of the bear market pendulum. “In all of our research, bear markets last an average of 363 days and experience a 27 percent decline,” he says. “It usually takes this much time to work its way out. If you look at it historically, the high percentage of bear markets end in September or October.” Using Young’s calculations, the 363-day bear market cycle ended at the beginning of October 2008. He feels within six months, the economy should be showing slight signs of improvement. Anyway you view it, Utah’s economy will face some challenges during the first part of 2009. After losing nearly 15,000 jobs during the past year, the state’s construction industry will still be hurting as a sluggish economy has delayed, or even halted, major development projects. And, with acres of commercial real estate sitting vacant and dozens of development sites abandoned, contractors, developers and all those associated with the real estate market will have definite obstacles to overcome. “They can’t sell anything because of tightened credit requirements and they’re going down in flames,” Young says. “They’re sitting on all this inventory and can’t sell it. Many of them are facing bankruptcy.” While higher credit costs and limited credit availability have harshly influenced the state’s housing market and commercial real estate projects, historic actions by the U.S. Treasury Department should help alleviate the financial burden to many companies while restoring confidence in the credit market. Thredgold believes the U.S. housing market should show growth by the middle or end of 2009, with Utah’s industry not far behind. “The subprime lenders came in and moved from making quality loans to creating a quantity of loans. Hopefully, we can learn something from this and improve the housing market,” he says. Surviving the Storm Luckily for Utah, a growing broad base of industries might help stave off more severe economic hardships. With diverse job opportunities, Utah businesses are still attracting people to the state looking for jobs in technology, life sciences, research and renewable energy solutions. In fact, according to Thredgold, Utah’s jobless rate ranks among the lowest in the United States. Jason Perry, the Governor’s Office of Economic Development’s executive director, is excited for Utah’s opportunities in the coming year. Life-science research is bringing personalized medicine into mainstream society, and Utah is at the forefront of diagnostic and preventative DNA research. Science-related companies and medical device manufacturers are also moving into the state, bringing high-paying, high-tech jobs that should help bolster Utah’s economy. “A DNA database is an invaluable asset to the state,” Perry says. “Researchers all over the world are coming here to take advantage of it.” Renewable energy is the way of the future and will be a big part of Utah’s job growth in 2009. With dynamic, long-term energy projects in the works across the state, Perry thinks Utah can possibly withstand the nationwide economic crisis although, “we’re part of the global economy and we’re going to feel the effects,” he says. By developing both wind and geo-thermal technologies, state leaders hope to create energy independence in the state and develop more jobs. Construction of Utah’s first geothermal power plant in 23 years concluded in October, utilizing some of the most productive geothermal pressure in the United States. Oil exploration in central Utah, along with research into carbon capture and sequestration, which burns coal cleaner, will continue to create opportunities for new development. “We’re facilitating renewable energy and using resources the state already has,” says Perry. “The state of Utah has great natural assets that will make us leaders in the industry. There is a lot of money to be made in those technologies.” Lecia Langston agrees. Serving as the regional economist for the Department of Workforce Services, Langston oversees 11 counties in the central and southwestern parts of Utah. While much of the economic focus is on the larger cities in the state, her job is to strengthen and develop the small towns and counties that have been hit hard by the national financial crisis. Counties in central and southwest Utah are also hurting from construction job losses, foreclosures and overbuilding, Langston says. The financial services industry in these areas is also feeling the pinch as fewer people are qualifying for or requesting loans. Fortunately, the current push for renewable energy has spurred new growth in these areas, which are in desperate need of good news. “I think sometimes people think small counties are immune to national financial issues,” says Langston. “But we’re not. Unemployment rates are going up in all the counties. But people shouldn’t panic. That’s when they make stupid decisions.” The region hasn’t experienced its current level of unemployment since 1982 and although the rate of people moving into these counties is sluggish, there hasn’t been an out-migration for decades. “The best thing to look at is what your jobs are doing. If you’re losing jobs, your economy is contracting,” Langston says. “When jobs are created, the economy is back on the upswing.” But Mark Knold, Department of Workforce Services’ chief economist, doesn’t see an upswing in jobs anytime soon. He predicts the unemployment rate will reach 5 percent during the next year, with more than one industry being affected. The financial services sector, manufacturing companies, residential and commercial construction and em-ployment agencies are just a few of the businesses that could be facing cutbacks. “With financial services, they’ll be lucky to find their feet in two years. They’ve got some big housecleaning to do,” says Knold. “It’s like a loose tooth. You can wiggle it a little every day until it finally falls out or just yank it out and be done with it.” On the other hand, Perry says there are thousands of jobs available for highly train-ed people, such as engineers, designers and other technical positions. While many companies are having layoffs, the research and development industry is facing a workforce shortage. “For each engineer, you need seven or eight support people for production and prototype design,” says Perry. “We still have opportunities and can keep unemployment at good levels. When some sectors start to cool down, some get warmer and some even start to get hot.” In his publication, “Insight: Economic News of Utah and the Nation,” Thredgold points out some good news. “Education and health services, government, trade, transportation and utilities and the leisure and hospitality sector have added modestly to Utah employment ranks.” Sink or Swim So what do business owners in Utah do during the next year to keep their companies afloat? Both Thredgold and Young say the key is to be proactive when it comes to working with financial institutions. With tighter credit requirements, banks may be reluctant to loan small businesses the money they need for growth. Larger down payments and extensive paperwork will continue to make the loan process a painful procedure. “They need to talk with their financial institution, getting clarity and making sure they can get money when they need it,” Young says. “Getting credit or obtaining loans may be more difficult so employers shouldn’t be surprised after the fact.” Perry agrees, but advises employers not to panic. By making wise business choices concerning growth and development, and acquiring the right kind of money, local companies should be able to weather the storm. Monitoring and managing inventory meticulously can help avoid overproduction while maintaining a solid credit rating could ensure success when the market is strong again. “There’s a huge psychological aspect,” Perry says. “It’s a very difficult time for the United States. It’s fairly unique and something we haven’t experienced. They need to make business choices that will help them in the long run.” Light at the Tunnel’s End? There are reasons to be optimistic about Utah’s 2009 economic forecast. In September 2008, the Milken Institute released its national job performance rankings. The Provo-Orem area ranked first in the study with Salt Lake City earning third place and Ogden not far behind. The state’s work ethic combined with the appealing cost of doing business, affordable cost of living, strong technology and business environments, an educated workforce and growing population contribute to the ranking as well as whether each city is developing a prosperous and competitive economy. “We do seem to have a very diverse economy,” Knold says. “We do have a history of performing much better than the national economy.” Overall, the experts agree 2009 will show a continued downturn in the Utah economy with construction and real estate developers struggling through the entire year. Other industrial areas, like manufacturing, retail trade, transportation, financial services, professional and business services could also experience job loss due to the economic instability. Knold’s best-case scenario details a downward drop in employment with the lowest point occurring around the first part of the year, but the recent financial crisis has made accurate predictions nearly impossible. “I certainly don’t think we’ve hit the bottom yet,” says Langston. “I think we’ll have another year of no or very slow growth.” Either way, business owners, consumers and employees need to be patient as the national market works through the financial crisis. Utah is not immune to the effects of the global economy and residents will certainly feel the pressure. But by practicing old-fashioned financial values, the average home owner or business owner should survive the current financial quandary. “It’s basic finance fundamentals,” says Young. “Avoid debt and only use debt for things that appreciate. Live within your means. If you make $40,000 a year and spend $35,000, life is good. But if you make $200,000 and spend $220,000, you’ll find yourself in a losing situation. Save money if you can and if you do those things, regardless of the economy, you’ll do fine.” Once the current financial crisis is over, the experts believe the Beehive State will come out stronger and hopefully smarter. It could be a slow, painful process as employers and employees tighten their belts, hoping to ride out the storm. Perry says state leaders are determined to keep growth steady by paying attention to the concerns of Utah businesses. Strong recruitment efforts are underway to increase the diverse selection of industries in the state and incentives could be offered to businesses to encourage their growth. “We’re one of the few states really staying in positive territory and really focusing on job growth,” says Perry. “Utah is not just a place to be for business but the critical place to be for business.”
Utah Business Social
UB Events View All
Sustainable Business Awards 2014Utah Business Event
Nov 13, 2014
Utah Business magazine along with presenting sponsor Big D Construction, premier sponsor Rocky Mo...
Best Companies to Work For 2014Utah Business Event
Dec 11, 2014
Utah Business magazine along with our sponsors Diversified Insurance and Miller Motor Sports Park...
SAMY Awards 2015Utah Business Event
Jan 23, 2015
Utah Business magazine along with Presenting Sponsor Griffin Hill are pleased to present the 201...
Community Events View All
Grief and the Holidays
Nov 3, 2014
Caring Connections: A Hope and Comfort in Grief Program will hold its annual Grief and the Holida...
Project Level 1
Nov 4, 2014
Learn your way around the industry standard in project management software. Through the use of ex...

info@utahbusiness.com  |  90 South 400 West, Ste 650 Salt Lake City, Utah 84101   |  (801) 568-0114

Advertise with Utah Business

Submit an Event

* indicates required information
* Event Name:
Price (general):
Website (if applicable):
Coordinator's Name:
Coordinator's Email:
Coordinator's Phone:
Venue Name:
Venue Address:
Venue City:
Venue Zip:
Event Capacity:
Date(s):
to
* Event Description:
  Cancel