Charting the great return to payroll strength

By Sean F. Driscoll

BusinessRockford.com

Long wait for employment rebound predicted

ROCKFORD — Another presidential term will be in the books before Rockford’s employment rebounds to its prerecession high, but local economists say signs of recovery will start to appear far earlier.

IHS Global Insight, an economic research firm, predicts that the metro area won’t hit its prerecession peak of 161,900 nonfarm workers until the third quarter of 2013, making the Rock River Valley one of the last areas in the state to rebound.

But John Lewis, an economist and associate vice president at the Northern Illinois University Center for Governmental Studies, said employment levels may not be the best indicator of recovery.

“I think employment is used as a yardstick because of the human aspect of it,” he said. “Let’s say the wealth of the region or its total output is back to what it used to be, but we’ve done it with 10 percent fewer employees. From a social welfare perspective, employment levels may be a good indicator. From an economic vitality perspective, it may not be. It all depends on how you define recovery.”

Behind the calculation
The prediction is based on historical data from previous recessions, national analysis of major business sectors and applying them to the mix of industries in Rockford, IHS assistant economist Bob Tomarelli said.

Local models are based largely on national data, but IHS economists look at region-specific events and tweak the timetables accordingly. Tomarelli and his colleagues monitor news sites to find out what’s happening in the state and metro areas and apply them to their estimates, which are issued quarterly.

“Obviously Rockford is going through huge changes because of the auto industry, but what (the IHS national arm) may not be aware of is a call center opening in a metro area,” he said. “That’s not going to come on their radar, but it is on ours.”

The Rock River Valley’s substantial reliance on manufacturing and service jobs is, in part, responsible for the four-year wait to return to prerecession employment, Tomarelli said. Of the Illinois metro areas, only three — St. Louis, which extends into southwestern Illinois, Chicago-Naperville-Joliet and Decatur — are predicted to have longer waits for a full employment recovery.

In the first quarter of 2009, the Rockford metro area’s nonfarm employment was 156,700 — 5,200 employees short of the high-water mark set in the second quarter of 2007. The quarterly figures from the Bureau of Labor Statistics are the averages of three months’ data and are seasonally adjusted.

In April, the metro area had 155,200 nonfarm employees, according to the Illinois Department of Employment Security. That figure, which is not seasonally adjusted, shows a loss of 4,700 jobs since April 2008 but a gain of 1,200 jobs in the past month.

“Segments that didn’t get hit hard at first but are getting hit harder now, we have to adjust our estimates based on differences from region to region,” Tomarelli said. “Each one is a different animal.”

Rockford typically exits a recession later than the nation, Lewis said, because of the region’s large manufacturing sector.

“Most of Rockford is second- and third- and fourth-tier manufacturers,” he said. “If sales go up, then the first tier’s work starts to increase, then the second tier. It takes a while for that switch to take effect here.”

Road to recovery sooner?
Lewis said he thinks the IHS Global estimate is conservative. He expects to see significant employment increases in the first half of 2010.

“The recovery is not going to be a quick recovery, but it will come back,” he said. “As with any recession, I’m hesitant to use employment (to) measure when we’re coming out of a recession. The value of business services produced is a better measure. My guess is, with any recession, when we come out of it, we’re going to be more efficient, investing in technology or capital goods that reduce the need for employment. In the past 20 years, we’ve seen an increase in labor productivity. With that increase in productivity, we can create as much with fewer workers.”

Joel Cowen, assistant dean of Health Systems Research at the University of Illinois College of Medicine at Rockford, agreed that the Rockford region will see an economic upturn sooner than 2013.

“I think they’re being very pessimistic,” he said. “Obviously, it’s going to depend on our large employers, certainly Chrysler. From a reasonable forecast, where you can see the discernible turnaround in employment would be at the end of 2010 and the beginning of 2011.”

Cowen, however, said employment is often the best indication of recovery because new figures are issued every month.

“That is the key thing. Those other measures of efficiency or output, they’re harder to measure, and they lag. In employment, we have a continual flow of monthly figures. Something like efficiency takes place in a continuous change over time. Especially for us, where we are so prone to these sizable reactions to shocks in our job scene, employment is the top indicator.”

The ‘X’ factor
Tomarelli said IHS Global Insight factors hiring announcements into its calculations, but the information is still based on old data and can’t quantify the effect of other changes to the region, said Janyce Fadden, president of the Rockford Area Economic Development Council.

“All economic models are based on the past repeating itself,” she said. “That’s something we don’t know for certain. If we do things to restructure our economy and bring in industries not in the model, if we can be aggressive to attract and retain companies that are here, the model won’t reflect that. This is a model. It’s really up to us to determine what our plan is as a region and how we’re going to attract and retain companies.”

Fadden said the region has made strides in how governments and economic development agencies work together. Better planning for growth has started as well.

For Rockford to beat the four-year estimate issued by IHS Global Insight, however, it will take more action as the country begins its economic rebound.

“We certainly could land a new employer, and we certainly could create a more vibrant economy here by creating our own businesses that are successful as we come out of the recession,” Fadden said. “We have to look at what industries the federal government is focusing on and target those industries to come to Rockford based on the assets we have here that are matching their assets.”

Reach staff writer Sean F. Driscoll at 815-987-1346 or sdriscoll@rrstar.com.