Kansas Business Review Abstracts

Vol. 22, No.2, Winter 1998-99

The Outlook for Kansas and the Nation, 1999

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

The national economy had another exceptional year in 1998, despite the fact that most observers had predicted that this would be a year when the economy would cool off. However, the national economy is expected to slow somewhat in 1999, although the forecast still projects output growth of 2.2 percent. This forecast depends upon real consumption expenditure growth of 2.9 percent and small but positive real export growth of 1.0 percent which, though modest, is greater than the rate of export growth that was experienced in 1998. Nevertheless, the nation is dependent upon the economies of our major trading partners; therefore, there is a good deal of uncertainty surrounding the U.S. forecast for 1999.

The Kansas economy completed another strong year in 1998--in fact, is has had a very strong run during the last 5 years-- but it will probably slow down during 1999. However, relative to the longer-run performance of the economy, indicators such as the unemployment rate and real personal income growth will still look better than average, and even job growth will be only slightly below average. A large portion of Kansas exports go to the Far East, where there is still a great deal of uncertainty about how the areas' economies will perform in the coming year; therefore, at this point 1999 appears to be a year in which predictions could be revised significantly as events unfold.

Kansas Agricultural Outlook

by Allen M. Featherstone, James Mintert, and Terry L. Kastens, Department of Agricultural Economics, Kansas State University

Real net farm income during 1998 fell for the second straight year, driven by a sharp decline in crop prices and large losses in both the cattle and hog sectors. Although yields and total crop production approached record levels, the production increase was not sufficient to offset the price decline. During 1999 crop prices could improve modestly, but production levels are forecast to return to long term trend levels. Combined with a sharp reduction in government payments, the expected decline in crop production should lead to another significant decline in crop income.

Large total meat supplies led to large losses for both pork and cattle producers during 1998. Supplies of both commodities are expected to be smaller in 1999, and prices higher, than in 1998, but the resultant improvement in livestock income will not be enough to offset the expected decline in crop income. As a result, Kansas' real net farm income is expected to fall in 1999 to a range of $200 to $400 million. The low crop income implies that Kansas land prices will be weak compared to recent years.

The Northeast Kansas Outlook: 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 2.3 percent rate in 1999, which is down from the 3.1 percent growth rate in 1998. A comparison of the total non-farm wage and salary employment shows that of the six private sectors, only two are expected to grow faster in Northeast Kansas than in the rest of Kansas: wholesale and retail trade, and services. The fastest growing sectors in Northeast Kansas are expected to be services, wholesale and retail trade, and mining and construction. The finance, insurance, and real estate sector will once again show a decrease in employment. An examination of the four sections of the Northeast Kansas economy shows that in the Lawrence area, non-farm wage and salary employment growth is projected to fall to 5.5 percent in 1999, down from 6.5 percent growth in 1998; in the Northern Tier Area it is expected to fall to 1.6 percent growth from 1.8 percent the previous year. The Topeka area should see its total employment growth decrease from 1.3 percent in 1998 to 0.7 percent in 1999, and the Kansas City, Kansas, area's total employment will fall from 3.1 percent growth to 2.3 percent.

North Central Kansas: Some, but Slow Growth

by Arthur J. Janssen, School of Business, Emporia State University

With flat population growth from 1991-96, personal income growing at 1.9 percent, and employment growing at 1.6 percent, the economy of North Central Kansas has been growing, although very slowly and lagging a bit behind the rest of the state. The forecasts seem to indicate much of the same for the future--steady, but slow, growth. The region does not seem to grow at the same rate as the state in times of prosperity, but it does not seem to go through any severe declines either: it just continues to grow at a very slow rate. One major reason for the slow growth in recent years has been the reductions at the military post. Like any area where the government sector plays such an important role, economic activity in the region is largely dependent on Congress's attitude toward defense spending. Given the current political atmosphere, there is no reason to believe that there will be any major changes soon, and these projections do not give one any cause to believe things will be much different in the next few years.

Western Kansas: A Slowing Economy

by Thomas Johansen, Department of Economics/Finance, Fort Hays State University.

Agricultural conditions in both Northwest and Southwest Kansas have worsened since last year. Lower commodity prices combined with near record yields have contributed to the problems. Lower cattle prices along with the grains have also contributed to the weaker agricultural conditions. Opportunities to work in Western Kansas remain about the same as last year. Many specialized businesses, in the most populated areas, are in need of labor but are unable to find the necessary skills. Unfortunately wage rates have not increased enough to attract appropriately-skilled labor. Western Kansas has been influenced greatly by the international recession. Government reforms passed recently can provide some short-term relief, but until demand for agricultural products increases internationally, Western Kansas will likely lag behind the U.S. economy for the next year, at least. Recovery of the economies in Asia, Russia, and Central and South America is critical if demand for agricultural and energy products is to improve. Only then will the economy in Western Kansas resume its growth.

South Central Kansas: Modest Growth

by Janet Nickel and Carlene Hill, Center for Economic Development and Business Research, Wichita State University

The South Central Kansas economy had a good year in 1998, but 1999 should be a year of modest growth for the region. The outlook for manufacturing in the area is for a decline in employment of approximately 900 jobs, as aircraft orders continue at a cautious pace due to global uncertainties. However, employment in the service sector is expected to increase 4 percent, or about 4,200 additional jobs. The majority of growth in service employment is likely to occur in business and health care services. Historically, a slowdown in manufacturing employment eased labor shortages for service industries. Personal income will continue to grow but at a slower pace, primarily due to the slowdown in manufacturing employment.

Overall, the region is projected to add 4,500 jobs in 1999, for a growth rate of 1 percent, compared to 1998's estimated rate of 2.1 percent. Given the decline in manufacturing employment and the relatively higher pay in the sector, a slowdown in the growth rate for total income is expected in 1999. The projected growth rate for the region in 1999 is 3 percent. Retail sales should remain strong as South Central Kansas continues to enjoy new retail offerings and a wider market area.

Southeast Kansas: Continued Growth at a Slower Pace

by Robert Catlett, School of Business, Emporia State University

The momentum the region began to experience in 1994 is showing signs of weakening as slower growth appears to be the norm in the near-term. The international financial crisis and the resulting decline in markets for exports from the region will undoubtedly slow the growth of the region's manufacturing sector. The financial roots of the crisis may also affect the region through changes in interest rates and other financial variables, as dividends and interest are unusually large in this region as a source of income. Fortunately, while the financial crisis and less demand for exports are important, they are not so pervasive as to cause a major downturn in Southeast Kansas. For example, transfer payments and health care services are not likely to be slowed by international or even domestic recessions.

Labor shortages are likely to present the region with a greater challenge. Even if the unemployment rate inches lower, there just are not enough workers to allow for a fast-paced expansion over an extended period of time. A migration of workers to Southeast Kansas is not likely with the average earnings per job in the region well below the state or nation as a whole.

The outlook for the region is for continued growth, albeit at a slower pace than a few years earlier and somewhat slower than other analysts forecast for the state and nation as a whole. The outlook for the twenty-first century is another story and the next few years may make a significant difference as the region adapts to change.

Copyright@1999 IPPBR, All Rights Reserved