Metro-east economy still sluggish

News-DemocratMay 4, 2013 

The local economy is rebounding, but ever so slowly.

Economic indicators throughout Southwestern Illinois reveal a scant upgrade during the past three years, but one that that is still far from a complete recovery.

The local unemployment rate has gradually declined, home sales have been inching upward, but residential and commercial development has stalled.

As the senior vice president of the commercial banking group at The Bank of Edwardsville, Rick Parks witnessed some increases in metro-east housing construction during the past two years, but commercial development has lagged and the region's manufacturing sector has no new capital investments.

That also means little job growth.

"I would describe it only as a slight improvement from 2011 and '12, at best," Parks said.

And following the recent completion of multi-billion-dollar projects such as the $4 billion Prairie State Energy Campus in Washington County and Phillips 66 Wood River Refinery expansion in Roxana, the region awaits the next big project.

"In terms of hiring, I don't sense that many businesses are hiring," Parks said. "If they are, they are for very select positions. They are not hiring because of anticipated large sales increases. It's more select positions."

Jobs

Statistically, the metro-east's unemployment rate has improved. But like the region's economy, those gains have been coming slowly and are still far from pre-recession levels.

During the recession's height, in March 2010, the jobless rate reached 12 percent in the eight-county region that includes St. Clair and Madison counties. Three years prior, months before the recession began, the region's unemployment rate recorded in March 2007 was 5.6 percent.

In March 2012, that rate had fallen to 9.8 percent, and then further declined to 8.9 percent by last March.

Local cities have also witnessed declining unemployment rates during the last year. In March, the jobless rate in Belleville was 9.6 percent, 7.4 percent in O'Fallon, 15 percent in East St. Louis, 8.3 percent in Collinsville and 9.6 percent in Granite City.

Southern Illinois University Edwardsville Department of Economics and Finance professor and Chairman John Navin said there is some improvement in the job numbers, but the statistics do not give economists much to indicate a return to better times.

"Anecdotally, I can tell you I'm definitely seeing an increase in economic activity," Navin said. "But in terms of unemployment, that always lags."

Economist and Federal Reserve Bank of St. Louis Assistant Vice President Bill Emmons said the local economy remains weak as the unemployment rate shows little improvement.

"The recovery has been very sluggish," Emmons said. "As a whole we have recovered only about 30 percent of the lost jobs since the downturn here. We have come up on four years since the economy has bottomed during mid-2009. We're a third of the way back and that really hasn't varied much into 2010, '11, '12 and into '13."

The unemployment remains higher in Illinois than in surrounding states. The latest figures from the Illinois Department of Employment Security reveal that while the U.S. unemployment rate was 7.6 percent in March. Illinois' jobless rate was 9.4 percent during the month compared to the 6.7 percent rate recorded in Missouri.

"Unemployment is more distinctly different across the river in Illinois," he said. "Unemployment looks higher across the board there compared to the Missouri side."

The region's largest employers are already at risk. Navin said local school districts in Belleville, Cahokia and Edwardsville have just announced teacher layoffs, which is a reflection of Illinois' budget deficit, which is expected to surpass $8 billion by the end of the current fiscal year.

"When you see reduction in teachers, it hits local consumers pretty hard," Navin said.

McKendree University professor of economics and MBA program Director Frank Spreng also said the metro-east's jobless rate suffers under the weight of the Illinois' high unemployment, which factors into the region's slow job growth.

"My conclusion is the unemployment front in Illinois is doing badly and the metro-east reflects that," Spreng said. "It is progressing, but very slowly."

Spreng said the possible closure of Scott Air Force Base, where workers have recently been forced to take furloughs following federal spending cuts, would deeply impact the local economy.

"The greatest threat there is to this part of the community is if there are any big changes to Scott Air Force Base."

Income

Gov. Pat Quinn recently announced an initiative to increase Illinois' minimum wage to $10 an hour. Currently at $8.25 an hour, the state already has one of the highest minimum wage rates.

Oregon has the highest minimum wage rate, at $8.95 an hour, while Illinois, Connecticut, Washington, D.C., and Nevada have minimum wages at $8.25 an hour. Eighteen states have minimum wages greater than the federal minimum wage of $7.25 an hour and 18 other states have minimum wages at the federal minimum wage. Four states have minimum wages below the federal standard and five have no minimum wage requirement.

"Our businesses are only as good as the employees who drive their success," Quinn said earlier this year. "Nobody in Illinois should work 40 hours a week and live in poverty. That's a principle as old as the Bible. That's why, over the next four years, we must raise the minimum wage to at least $10 an hour."

But Spreng said raising the state's minimum wage to $10 an hour would only discourage employers from hiring, especially considering that the state is already surrounded by other states where the minimum wage is a dollar lower.

"In a state with high unemployment, why would you want to make it harder for people to get jobs?" he said. "It just doesn't make any sense at all."

Housing

Real estate transactions have recently been on the rise. But despite record-low interest rates and increasing sales, Parks said prices have slowly bounced back, just like consumers coming back onto the market.

"We continue to read that housing prices are going up, but we're really not seeing that among our customers that much," Parks said. "Appraisal values are still coming in depressed and I think the buyers are still looking for deals."

Emmons said housing prices are still hard to gauge in the region and the rest of the state. He said it depends where prospective buyers are looking.

"It does look like it's just a little more sluggish on the Illinois side," he said. "Building permits are little bit weak."

Home sales are slowly rising, but remain below pre-recession levels. In 2006, St. Clair County recorded 3,388 sales, and Madison County had 3,605. That annual total had fallen each of the following five years. Then, last year, sales numbers increased for the first time to 2,182 in St. Clair County and 2,658 in Madison County.

Navin said he does not expect the interest rate for home mortgages to change anytime soon. He said there has been more activity in the local housing market, but not enough to change the average interest rates.

"I don't think they're going to budge," he said. "I don't think they're going to move a whole lot. It's going to take a lot to get them to the point where it will slow down people from borrowing. We're at a historic low as far as the cost of money."

According to statistics from government-sponsored mortgage lender Freddie Mac, 30-year fixed mortgage rates have hovered around 3.5 percent during February and March.

Agriculture

Parks said his bank does not conduct much lending for farm land transactions, however, he has witnessed growth in the local agricultural sector. He said recent cost per acre in the Land of Lincoln recently topped $6,700 per acre, an all-time high price.

"The last 10 years have been very good for agriculture, for the most part," he said. "They have some reserves and they're fairly healthy. Land prices continue to remain high, but increase. It seems to be counter to any other kind of real estate right now."

Emmons also said the region's agricultural industry has faired well, even during the recent drought.

"Incomes were pretty good and also because of insurance," he said. "There were also higher crop prices, for those who had a crop."

Contact reporter Will Buss at wbuss@bnd.com or 239-2526.

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