Kansas Business Review Abstracts

Vol. 21, No. 2, Winter 1997-98

The Outlook for Kansas and the Nation, 1998

by Norman Clifford, Institute for Public Policy and Business Research, University of Kansas.

The national economy did about as well as economists thought that it was capable of doing in 1996, but few felt that it would be better in the near future, let alone the next year. And yet, by all indications, the achievements of the national economy in 1997 were clearly superior to those of 1996. Real output grew by more than three and a half percent, the unemployment rate fell to an average of five percent for the year, and the rate of inflation as measured by the consumer price index actually fell by more than half a percentage point. The forecast for 1998 is positive: although output will grow a little slower than in 1997, the unemployment rate will fall, along with the rate of inflation. The greatest uncertainty for 1998 appears to be what will happen to interest rates.

The Kansas economy has also performed strongly over the past two years and is expected to continue to do so in 1998, although the current situation in Asia introduces a significant amount of uncertainty into the forecast. Job growth has been well above average in Kansas during the last four years and is expected to continue to be above average in 1998. Although agriculture continues to be an important structural component in the state's economy, solid growth in some other sectors, including construction, several areas of manufacturing, and services indicates that the current strength of Kansas' economy derives from many sources. Such an economy should be less vulnerable to individual shocks and have a smoother path of progress than one which depends upon a single industry for its strength.

Kansas Agricultural Outlook

by Allen M. Featherstone, James Mintert, and Terry L. Kastens, Kansas State University.

Excellent weather conditions in 1997 for all crops caused Kansas net farm income to increase from its 1996 level. Record production in wheat, corn, and soybeans more than offset the decline in crop prices from the previous year. Livestock profit ability rose moderately from its 1996 level and remained well above the depressed levels of 1994 and 1995. Estimates for 1998 indicate that crop income will fall from the robust levels of 1996 and 1997 while livestock income is expected to strengthen again. Land values are expected to increase at a rate slightly above the inflation rate during 1998. Although the actual 1997 Kansas net farm income is not yet available, it appears that Kansas net farm income exceeded $2.0 billion for the first time ever. A substantial drop in net farm income is expected in 1998. A moderate improvement in livestock income will not be enough to offset the large expected decline in crop income. The outlook indicates that Kansas' net farm income will range from 1.4 to 1.7 billion dollars in 1998.

The Northeast Kansas Outlook: Slightly Slower Growth

by Robert H. Glass, Institute for Public Policy and Business Research, University of Kansas.

Employment in northeast Kansas is expected to grow at a 2.8 percent rate in 1998, which is slightly slower than the 1997 growth rate of 3.6 percent. Employment in both the U.S. and Kansas is also expected to grow less in 1998 than in 1997, but although the pattern is the same for the three areas, the level of growth is quite different. The Kansas employment growth rate in 1997 was 2.9 percent and is expected to fall to 2.6 percent in 1998, while the U.S. rate is expected to fall from 2.0 percent in 1997 to 1.5 percent in 1998. Throughout the 1990s Kansas has had better employment growth than the U.S., and northeast Kansas employment growth has been better than the state's. From 1991--the end of the last recession--throughout the 1998 forecast, U.S. employment has grown 13.6 percent, Kansas employment has grown 18.4 percent, and northeast Kansas employment has grown 23.4 percent.

North Central Kansas: Slow but Steady Growth

by Arthur J. Janssen, Emporia State University.

With a 0.2 percent growth in population from 1990-1995, a 1.1 percent growth in real personal income, and a 1.4 percent increase in employment in the same period, the north central Kansas regional economy is growing, albeit slowly, as the forecasts show. The economic pattern for the next year in north central Kansas seems to be similar to the pattern in the past. The regional economy appears to be following the same general trend as the state, but it does not seem to be growing as fast. Since the government sector is the largest sector there has to be some concern that a continuation of military cutbacks will adversely affect the regional economy. No doubt the recent cutbacks have resulted in slower economic growth for the region. What may be surprising, though, is that the region does continue to grow, however slowly, despite the reductions in its most important sector.

Western Kansas: Continued Growth

by Thomas Johansen, Fort Hays State University.

In both southwest and northwest Kansas, the primary source of exogenous growth is agriculture and agriculture related. Expenditures on agricultural products originate outside the region, outside the state, and, in large part, outside the nation. This makes the expenditure multiplier large.

In the coming year, a potential danger for the western Kansas region is in the effect of export demand changes on grain prices. The continuing economic stress in the countries surrounding, and largely dependent on, Japan may dampen demand for food and feed grains and for meat products. As a nation, some 30 percent of our exports flow to the Pacific rim countries. As a state, Kansas has a larger-than-equal share of those exports, both from the transportation and agricultural sectors. There is nothing western Kansas can do to prevent economic storms from occurring, any more than storms of the meteorological kind. Just as when severe weather threatens, we can only try to protect ourselves from the most harmful efffects. Hopefully, the International Monetary Fund and Japan can find the will and the means to deal with Asian economic and financial problems. Even so, prudence suggests that more attention than usual should be given to caution, to preservation rather than expansion, and to liquidity rather than revenue maximization.

South Central Kansas: Maintaining the Momentum

by Janet Nickel and Carlene Hill, Wichita State University.

Manufacturing, the largest industry in the south central economy, significantly impacts the overall regional economy. The 1998 outlook for manufacturing in south central Kansas continues to be positive, as manufacturing employment growth in the region is being fueled by the robost growth in general and commercial aircraft manufacturing. The strong sales for general and commercial aviation should continue in 1998, but the pace of hiring is likely to slow. Labor shortages continue to be a serious challenge in the region, particularly for mid- to small-sized manufacturers. The sharp increase in hiring in 1996 and 1997 by the aircraft industry absorbed much of the available skilled labor pool in the area. Overall, the region is projected to add approximately 6,300 jobs in 1998, for a growth rate of 1.4 percent, compared to 1997's estimated rate of 5.3 percent.

A shortage of skilled workers may affect job growth in the region. A recent CEDBR study showed that if current population and migration trends continue, the supply of labor in Sedgwick County is expected to become a serious limiting factor to growth as early as the year 2000. Projected demographic trends show Sedgwick County's labor supply peaking by the year 2015. The slow growth in labor supply is due to the aging of the work force and the relatively low level of immigration of labor from outside the region. As today's work force grows older and workers begin to drop out of the work force, Wichita and its competitor cities will be challenged to attract new and younger workers; however, with a healthy economy nationwide, the competition among regions for skilled labor is intense.

Given the robust growth in manufacturing and the relatively higher pay of the sector, the outlook for total income growth in 1998 is excellent. The estimated growth rates for total personal income in 1996 and 1997 are six and seven percent, respectively. The projected growth rate for the region in 1998 is six percent. South central Kansas is in the midst of a broad-based expansion. The resurgence of manufacturing employment that began in early 1996 will continue into 1998, fueling significant growth in both employment and income.

Southeast Kansas Economy: Building Momentum

by Robert B. Catlett, Emporia State University.

The regional economy in southeastern Kansas has recently emerged from an extended period of no economic growth into one of modest growth in both employment and income. The historical trends, industrial composition, and demographic structure of the region are significantly different from the nation and the state as a whole. This does not mean the region is insulated from the larger economic spheres within which it operates but suggests that careful attention to the structure of the region's economy is necessary to form an accurate assessment of the region's economic near-term future.

After a long hiatus from economic growth, the region's economy is starting to build momentum. The industries that are likely to provide the impetus for this growth are the service sector, manufacturing, wholesale and retail trade, and the public sector. The export nature of manufacturing closelty links it with the economic performance of other areas, so the performance of the state and national economies is likely to have some impact on the region. Agriculture, mining, and the financial sector could diminish in importance. Since they are relatively small already, the expansion of the larger sectors is likely to offset these decreases.

Global Reach, Local Roots

Excerpts from a dinner speech given by Jeff Turner, Vice President and General Manager, Boeing Commercial Airplane Group, Wichita Division, at the University of Kansas, October 23, on the evening before IPPBR's 21st Annual Economic Outlook Conference, 1997.

Good evening, and thank you for inviting me to enjoy your fine hospitality and good company. Tomorrow you will be discussing "The New Structure of the Kansas Economy," and tonight it is my pleasure to talk to you about the newest company in Wichita--my very own Boeing Company--and how we all fit together in today's global economy.

One thing I've noticed lately is that it doesn't really matter what company, business, or institution you are with, we are all moving at breakneck speeds just to stay caught up. The aviation industry is no exception, especially right now with our high production rates.

At one point last year we were making about 18 airplanes a month; now we are on our way to building 40 a month by the end of the year. This is the greatest production increase in the shortest amount of time in the history of the jet age.

The changing fortunes of our company have been just as dramatic. A year ago we were one of the biggest aerospace companies in the world; today, we are the biggest aerospace company in the world, thanks to our merger with McDonnell Douglas in August. We went from roughly 160,000 employees before the merger to over 220,000 employees. We are still adjusting to seeing ourselves as the newest company in town, even though we've been operating here in Kansas for over 60 years.

It is going to take us some time to learn about all the new products in our new company. Probably the most obvious change brought about by the merger is the increased breadth and depth of our products, along with which our operations have expanded to 27 states.

Here, in Kansas, we have about 21,000 people working for Boeing. Our market place is truly global, with customers in 145 countries world-wide. Within the part of Boeing known as the Commercial Airplane Group about 70 percent of our jet transports are sold to non-U.S. customers. Our supplier network is also global: it includes about 1,500 major suppliers and their subcontractors in more than 40 countries. Every three seconds a Boeing airplane takes off and lands somewhere in the world; that means that by the time my presentation is over about 700 Boeing airplanes will have taken off and landed.

Clearly, we are a global company - and we are enjoying a successful run of product acceptance by a world-wide market. To a great extent our success internationally is due to open trade and the technology--such as jet airplanes--that has linked the world together as a global community.

Another factor that stimulates world trade is the power of the market economies. In a market economy consumers decide which car, VCR, or television set wins market share, not the government. The government does have a role, however, and that is to provide a structure for market economies to work and to ensure that our products have access to foreign markets. When that happens we all prosper. So our success--past, present, and future--is strongly linked to our relationships with our governments on the state, national, and international levels.

When our local business and community leaders ask us, "How is the merger going to impact Boeing Wichita?", what they are really asking is: "How is it going to affect our relationship?" The answer for the immediate future is that we don't expect any signficant changes.

The long-term scenario, however, is a little fuzzier, because different factors come into play. One of the biggest factors is the increased competition we will be facing. Airbus, the European airplane manufacturing consortium, has made no secret of the fact that it wants 50 percent of the commercial airplane market. Right now we've got close to 70 percent, and one of our goals is to prevent them from reaching their goal. They are tough competitors, and the stakes are tremendously high.

Our latest forecast projects a market demand for 16,000 airplanes over the next 20 years: that's more than two airplanes every day. The value of these aircraft is more than one trillion dollars.

But Airbus is just one source of competition we will have to deal with. Many nations and second-tier suppliers look enviously at our markets and the high-tech, high-paying jobs of our industry. Another source of competition, oddly enough, is ourselves. By that I mean we are in competition with the other plants and facilities throughout this new, global company. Earlier I mentioned that we have operations in 27 states now; that means that with our recent mergers, significantly more capacity exists within the company. Many more choices besides Seattle and Wichita now exist for where new work can be placed.

Which brings us back to our relationships with the city and the state. Our hope, quite frankly, is that they don't change. Over the years, our relationship with Wichita and Kansas has been very fruitful and mutually beneficial. I don't think that it's any exaggeration to say that without these good relationships we would not have enjoyed all the successes we are now enjoying. We would not have added critical machinery and doubled the size of our facility since the late 1970s. Without a positive business climate and good relationships we would not have remained competitive, landed new busines, and stabilized our workforce. Without the use of industrial revelue bonds, for instance, I doubt that we would have made the decisions to expand our plant and invest in new equipment.

The end result, not only for Boeing Wichita, but for the Wichita community and the state of Kansas, has been positive indeed. We will end 1997 with about 21,000 employees at our Wichita site and a payroll of over 1 billion dollars. Compare that to 1977, when we had just under 7,000 employees and a payroll of 100 million dollars.

The growth in the value of supplies purchased from Kansas vendors over the same period of time is equally dramatic. For 1996 the figure was almost 470 million dollars, and in 1977 it was 19 million dollars.

But it doesn't end there, because we haven't talked about the effect on the greater community. If you factor in the multiplier effect, the 21,000 Boeing jobs have, in turn, created more than 71,000 jobs outside the company - jobs such as construction, finance and insurance, and wholesale and retail trade.

In the grand scheme of things: of the 358,000 jobs in south central Kansas, our local expanded presence is responsible for more than 20 percent of them. Our state and our local governments have fostered conditions which have facilitated our expansion. Industrial revenue bonds have helped put Boeing Wichita in a favorable position compared to Seattle, St. Louis, and Maricopa County, Arizona - locations where we have other Boeing facilities.

Compared to other states, Kansas ranks 6th in the nation when measuring the costs of doing business and educational performance.

This positive business climate is the result of a responsive state government that has:
There is another measure I touched on a moment ago, and that was educational performance. When you talk about the future and the economy it is impossible not to talk about education. The education and skill levels of tomorrow's workers are critical ingredients to our future success - as companies and as communities.

In Wichita, and at the state level, some very important cooperative efforts are under way to train, develop, and attract skilled workers. Earlier this year a partnership with the Wichita Area Technical College was announced to train machinists through a program called "Fast Start." This program gives workers the skills and training they need in today's technical workplace, and it gives businesses in the community a pool of talented workers.

We've also partnered with the public schools in the Wichita area on a programm called Technical Preparation, or Tech Prep, for short. This two-year program helps high school students--beginning in their junior year--get a jump on learning, so that when they graduate they will have the skills and training needed to find a meaningful job in a technical area. It also gives them a good base for future learning if they decide to pursue an associate's degree in one of the technical fields. We think it is critical to give our young people - our workers of tomorrow - every chance to be successful and contribute to the larger community.

The state of Kansas also has invested in a number of programs designed to make training programs less costly to implement, and to encourage businesses to come to Kansas. These programs include:
These grants and tax reform measures complement the recruitment efforts we have been engaged in for the past year in Wichita. We call it "Flying in Formation." It is a unique collaboration of Raytheon, Cessna, Learjet, Boeing, and the Wichita Area Chamber of Commerce designed to draw skilled workers to Wichita. The job fairs and advertising campaign we conducted last year generated over 4,000 applications and brought a number of talented employees to Wichita, to the benefit of the whole community.

It has been said that the future only comes in terms of what we do today. So what is it that we have to do? It comes down to three key areas:
1. Continue to have public policies that are responsive and supportive of firms doing business in Kansas. We simply cannot complete globally without the support of our home communities.
2. Focus on education and training. If the workers of tomorrow are going to succeed we have got to help them get the skills they need so that when they enter the workforce they will be ready to contribute. In helping them we will be helping ourselves.
3. Recruiting and training. We need to continue looking for creative ways to bring--and keep--high-paying jobs in our communities.
In a nutshell: we must think globally and act locally. We are intent on charting a course for a successful future - one that starts right here at home, because 'home' is where global success really begins.

Thank you for letting me be a part of tonight's program, and good luck with the Conference tomorrow.

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