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Recovery gains steam, but so do business failures
May. 3rd, 2010
By Keith Benman - keith.benman@nwi.com, (219) 933-3326 | Posted: Sunday, May 2, 2010 12:05 am
Businesses with the resources to succeed have more spring in their step as the national recovery begins to take hold. But some smaller businesses and the construction sector continue to suffer significant hangovers from the Great Recession.
The Times Board of Economists, made up of 23 business leaders from across the region, predicted the local economy's health will score a 6.3 on a scale of 1 to 10 during the next three months. That's a significant bounce from the score of 4.71 board members gave it just three months ago. And it's an even bigger bounce from the score of 4.38 members gave it six months ago.
The board met April 21 at the Patio Restaurant in Merrillville.
Some members even think businesses may not be moving quickly enough to seize new growth opportunities created by a recovery that most agreed is now well under way.
"I think many of us will look back at this time five years from now and ask ourselves if we truly took advantage of all the opportunities out there," said Donald Weiss, president of WiseWay foods.
But even with a recovery under way, the economy remains full of pitfalls and conundrums.
Steel processors are scrambling to find steel to satisfy customer demand, said Roy Berlin, president of Berlin Metals. His company saw about a 25 percent increase in shipments in the first three months of this year.
At the same time, many of his smaller customers still cannot get banks to lend them money. There have been more bankruptcies among his customers in the first three months of this year than there were in the previous nine months combined.
The overall picture for steel worldwide has turned markedly positive.
Worldwide steel use will increase 10.7 percent this year and reach record levels as it improves 5.3 percent in 2011, according to the World Steel Association forecast. Steel use fell by 6.7 percent last year.
"It's a pretty hearty rebound for steel," said Chuck Rice, general manager of public affairs for U.S. Steel.
With the Dow Jones industrial average rising about 41 percent in the past 12 months and interest rates on 10-year U.S. Treasurys recently approaching the 4 percent mark, the picture has definitely brightened for investors, said Bruce Quint, a vice president and residential director at Merrill Lynch's Merrillville office.
Merrill Lynch is forecasting U.S. gross domestic product will grow 4.6 percent this year, which is slower than in past recoveries but a welcome relief after 2009, Quint said.
Unfortunately, that kind of GDP growth probably will not put much of a dent in the national unemployment rate of 9.7 percent any time soon. Merrill Lynch forecasts an unemployment rate of about 9 percent at year's end.
Last month, 162,000 jobs were created in the United States, but that wasn't enough to bring the unemployment rate down even a tick.
"It is unemployment trends that to a large extent will determine whether this recovery turns into an expansion," Quint said.
Construction workers have suffered much of the brunt of job loss in the Great Recession, with 701,000 fewer construction workers on the job in the United States than one year ago, according to the U.S. Bureau of Labor Statistics.
In Northwest Indiana, man-hours worked are down 23 percent year over year, and the improvement in construction activity this year will only be slight, probably about 5 percent, said William Hasse III, president of Hasse Construction.
Just as in steel processing, Hasse said the contraction has been hard particularly on smaller suppliers and subcontractors, with bankruptcies in the first quarter of this year on track to exceed the number that went under in all of last year.
It remains a buyer's market in construction, with prices at historical lows because of the intense competition among contractors and generally low commodity prices.
"What it means for anyone here is if you are going to build, it's a good time," Hasse told those around the table.
The worst may be over for the banking sector, with loan delinquencies leveling off and a growth in new mortgage activity, said David Rose, Horizon Bank market president for Northwest Indiana.
"From the consumer side, I think we have weathered the storm rather well," Rose said. "Commercial real estate will be the challenge for the rest of the year."
Lower food prices and sharply lower natural gas prices have helped fast-food restaurants improve their bottom lines, said John Barney, president of Barney Enterprises, which operates a number of Wendy's restaurants in the area. More people driving more miles also are driving up sales.
The health care reform legislation recently enacted remains a big unknown for the restaurant industry and business in general, but it will undoubtedly drive up costs, Barney said.
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