Economic survey reveals local optimism

Despite a bear market and the best efforts of terrorists, business leaders polled by Com-merce Bank believe that next year the national economy will be better not worse and most are confident that Ameri-can business is meeting its challenges.

Questionnaires for Com-merce Bank's 2002 Economic Survey were sent to approximately 1,000 business and civic leaders. About 29 percent 289 were filled out and re-turned.

The survey results will be presented at 11:45 a.m. Oct. 30 during Commerce's Economic Conference and luncheon at the University Plaza Convention Center.

Of those who responded, 79 percent affirmed that they be-lieve the national economy is worse than a year ago, yet 45 percent are optimistic that it will be better next year. Another 36 percent thought the economy would be about the same as now in 2002.

Local optimism generally tracks last year's responses to the same question 71.3 percent thought this year's economy would be better or stable. However, last year's poll was taken before the economy started slowing down.

Rick Gutman, CFP, senior vice president and manager for the Commerce Trust Company, said the poll is usually "right on."

Those being polled represent a fair cross-section of area businesses, he said. "Our audience pretty much foretells what's going to happen in the economy some times better than other times," Gutman said.

He added, "We have a pretty diverse economy here, and so you don't have anybody overweighting this report in the way of producer-manufacturing or retail sales," etc.

Springfield Area Chamber of Commerce President Jim Anderson described the survey findings as "cautious optimism."

Sept. 11 impact

The questionnaire added several questions this year one concerned the impact of the events of Sept. 11 on local businesses. Of those polled, 52.5 percent of the respondents felt an immediate and negative impact on their businesses after the terrorist attack, but 47.5 percent said they didn't.

"That reinforces (that we have a) diversified economy," Anderson said. "We're about as insulated from economic downturns as any community I think you're going to find because of that diversification of that economic base."

Of those businesses that reported an immediate and negative impact as a result of the terrorist attack, 32.9 percent reported that their investment/ financial markets were affected.

Another 29.4 percent delayed or canceled major purchases in their businesses. Only 21.5 percent reported that shipping or sales/business travel were de-layed or canceled.

And 7.7 percent said they would institute a hiring freeze as a response to the attack, with 8.5 percent reducing or laying off staff.

The respondents to the poll expect that the prime rate will be 5.99 percent by the fourth quarter next year. Last year's respondents fell woefully short on their estimation of what the prime rate would be the end of the fourth quarter 2001 9.2 percent but the economy was stronger then and the prime rate at the end of the fourth quarter of 2000 was 9.5 percent, Gutman said. Earlier this month it was 6 percent, but it has dropped to 5.5 percent, he said.

Gutman said the economy is finally cycling like it should, after eight years of prosperity, but he added that if a recession does occur defined as two consecutive quarters of no growth then it will probably be mild.

He said that fiscal and business incentives in place have been just enough to help, not strangle, the free enterprise system. Unlike the extreme measures taken during Jimmy Carter's administration like freezing prices the incentives have kept the economy going during the rough spots, like now.

"We were coming out of the slump before Sept. 11, and we are going to delay the recovery for about six months ... we should see a slight gain in the first quarter and then start to bounce back to real recovery second quarter," Anderson said.

Gutman said economists look at growth in the gross domestic product which is the market value of all the final goods and services produced on American soil. It has been "next to nil this year," 1.3 percent as the final GDP for the first quarter, 0.3 percent for the second quarter. The third quarter's advance GDP number an early number that will be reassessed twice more will be issued Oct. 31, Gutman said.

The final GDP forecast ex-pected "is in the neighborhood of -0.5 percent to 1 percent" which represents "minimal growth for the year."

Inflation, which Gutman describes a "too many dollars chasing two few goods" is at 0.2 percent and is "benign."

Businesses' largest worry

Health care, not finances or labor availability, was listed as the biggest concern by 35.8 percent of the survey respondents.

The biggest issue was cost. The majority of respondents 69.8 percent said managed care was not meeting their companies' needs as far as cost control was concerned.

Also, 58.6 percent indicated managed care was not meeting their needs in terms of flexibility, while 46.4 percent found convenience of managed care to be an problem.

Larry Wallis, chief executive officer of Cox Health Systems, Inc., said "It's a utilization issue ... in regard to managed care. One of the dilemmas is this with (health maintenance or-ganizations) the access to health care is very easy and there is not an incentive to the patient to be as concerned with the health care costs. The original concept of HMOs and it's still there is that if people are able to access health care easier, they are going to have a healthier long-term lifestyle because they are going to take care of health care problems on the front end, and sometime down the road they are not going to have the problems that some people have who do not access health care at the front end."

Unfortunately, the cost savings are in the future, he said.

For instance, Wallis said, if a person can be convinced to quit smoking, then they might not have to be treated later for lung cancer.

Because of overuse of the system and the far-off cost-savings, "That concept is something that is going to have be to be revisited."

In his opinion, Wallis said, managed care is just not working. "It's not necessarily preventive care that they are coming in for," he added.

"A $10 copay (in an HMO) is a lot different incentive than if you have a $500 deductible," as in traditional insurance programs.

As for the issue of flexibility, Wallis said, "it's a trade off" because volume business means lower prices.

"That's the way the system has evolved, including in Springfield, Missouri ... the provider has to have a network of physicians that can deliver to the table," he added.

He said that has caused hospitals and physicians to group together and "that's what caused the limitation ... in choice." Wallis said there "is nothing out there ... other than going back to ... fee for service."

Cora Scott, spokeswoman for St. John's Health System, said she found it interesting that the employers were unhappy with health care costs but also wanted flexibility.

"There's a dichotomy between people wanting lower costs and yet all the flexibility in the choice of physicians. You see that correlation?"

Construction

Construction and sales of new residential housing on the national level are expected by to be relatively unchanged from last year's poll about 16.2 percent think it will increase, while 39.4 percent think it will remain unchanged. Last year 17.6 percent expected an increase, while 39.6 percent expected no change.

As for expectations in construction and sales of new residential housing in the greater Springfield area, 25.3 percent predict an increase, while 46.3 percent anticipate no change. Last year 31.6 percent expected an increase and 41 percent didn't.

Business environment

The optimism extends to business conditions in Springfield for next year only 18.3 percent believe conditions will be less favorable than at present. More than half of those polled 55.3 percent believe business conditions will remain the same and 26.1 percent think they will be better.

There was not much change in the percentage of respondents who plan to expand their facilities 30.3 percent said they will expand next year; 29.6 percent respondents in last year's poll expected they would expand.

Forty-five percent of respondents stated they believe their own economic situation will be better by the end of 2002, 5 percent higher than last year.

Nearly 40 percent expect their economic situation will be unchanged, compared to last year's 47.5 percent. Just 11.5 percent predict their economic situation will worsen, compared to 9 percent last year.

Employment issues

Almost half 49.5 percent believe that the unemployment rate in the Springfield area will be about the same in 2002, but 43.4 percent think it will be higher.

Another 6 percent predict the already low rate of unemployment will be even lower, and they might be right. Anderson said unemployment for August is 3 percent.

Unemployment has remained below 4 percent for about eight years, he said.

Within the next 18 months, nearly 30 percent of respondents expect to increase their employee level, while 60.8 percent expect to maintain their current level.

Pay increases still are planned nearly 40 percent will give a 3 percent to 6 percent increase, while 56.5 percent will give raises of 0 percent to 3 percent.

About 29.5 percent plan to add employees next year, while 60.8 percent plan to keep the status quo. Only 6.8 percent expect to decrease employment.

Last year 34 percent expected to increase employment, 62.2 percent expected to maintain their existing level, and 3.4 percent expected to decrease employment.

About 56.6 percent indicated they experience difficulty attracting quality applicants. The greatest shortage of applicants was in the area of skilled employees about 32.7 percent have trouble finding them, while about 40 percent have difficulty in finding unskilled, low-skilled and technically skilled applicants.

Attracting quality management is anticipated to be difficult for 11.4 percent of the respondents.

About 87.7 percent state that local employment opportunities will be good or fair for Springfield college graduates, but only 32.3 percent said they will require a four-year degree of new employees next year. About 28 percent indicated they will hire those with vocational training and another 22.5 percent said a high school diploma is sufficient for employment. Only 17.5 percent said they will have jobs that require a graduate degree.

In attracting new employees next year, about 46.6 percent said salary is the main concern of applicants; quality of life was next at 41.8 percent. Cost of living was expected to be a concern by 7.6 percent and the school system, 4 percent.

What can help expand business?

A new question posed to business and civic leaders this year concerned government incentives that would make business expansion more attractive. Although 31.4 percent weren't certain, another 36.5 percent thought equipment investment tax credits would help.

Anderson said "We are a conservative area, thank heavens, and people are not after a bunch of tax incentives or abatements. They think the less government intervention the better." However, in the next couple of years, "for them to remain competitive or for them to expand their local business they are going to need to have some capital spending, and that would accelerate their decision to expand or to buy their equipment if there is some tax advantage."

Job training credits came in as the next most desirable incentive, with enterprise zone tax abatements and infrastructure site grants closely tied for third place.