ABSTRACTS FROM THE KANSAS BUSINESS REVIEW, Vol. 23, No. 2, Winter 1999-2000

Kansas Business Review Abstracts

Vol. 23, No.2, Winter 1999-2000

The Outlook for Kansas and the Nation, 2000

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

The national economy is completing another strong year of economic growth in 1999 and appears to be poised for a year only slightly less good in 2000. The major risks to the national economy come from the international sector. If recoveries in the economies of the nation's major trading partners slow, then export growth could be slower than predicted. Furthermore, if the price of crude oil continues to rise, and these price increases work their way through the economy to emerge as higher overall rates of inflation, then a strong reaction by the Federal Reserve Board in the form of interest rate hikes is likely. Such a reaction by the Fed would eventually cause the rate of GDP growth to slow.

Although in 1999 the Kansas economy has continued to add jobs at a rate that is comparable to its average rate of job increase during the last decade, this rate of job growth is down from the high rates of increase in 1997 and 1998. Higher interest rates and a buildup in the stock of houses, highways, and other structures could cause employment growth in construction to be less robust than predicted. On the other hand, a return of the rate of job growth in services to the average levels of this decade would provide an impetus to higher job growth than has been forecasted.

Kansas Agricultural Outlook

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

Kansas net farm income fell during 1999 for the third straight year, driven by a decline in a total crop output along with another slide in crop prices. Wheat and grain sorghum prices in 1999 were less than 50 and 70 percent of their respective 1996 levels. During 2000 crop prices are expected to improve slightly; however, it is expected that the level of supplemental appropriation to the sector will fall from 1999 levels. Thus, while crop income received via the market may actually increase, overall crop income will fall again during 2000 unless government appropriations are approved by Congress. The livestock profit outlook for 2000 indicates that returns in the Kansas livestock sector will remain near their 1999 level. After combining the crop and livestock sectors, it is expected that net farm income could range from $0.6 to $1.0 billion. The low crop income forecast implies that Kansas land values will be stagnant again in 2000 with the year to year change in statewide average land values ranging from negative two to positive two percent.

The Northeast Kansas Outlook: Fast Employment Growth, Slow Income 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 3.7 percent rate in 2000, down from the region's spectacular growth rate of 4.7 percent in 1999. Since the decline in the Northeast growth rate is significantly greater than the decline in the Kansas growth rate, the forecast for the rest of Kansas is for an increase in the growth rate of employment from 0.4 percent to 0.8 percent. Of the six private sectors out of the seven basic non-farm sectors, only one is expected to grow faster in the rest of Kansas than in Northeast Kansas: finance, insurance, and real estate. The remaining five sectors of the private economy, which represent 94.5 percent of the Northeast Kansas non-farm economy, all are expected to grow more rapidly in Northeast Kansas than in the rest of Kansas.

Although Northeast Kansas has the state capital, the largest state university, and a few community colleges, government is a smaller portion of the Northeast non-farm economy (16.2 percent) than government is of the rest of Kansas non-farm economy (19.6 percent). The expected growth rates for government employment in each part of Kansas for 2000 suggest that this gap will continue to widen.

North Central Kansas: Very Slow Growth

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

With almost no population growth, personal income growing at a rate of 1.7 percent, and employment increasing at a rate of 0.9 percent, the economy of North Central Kansas has been growing, but that growth has been slow and causes the region to lag behind the rest of the state. The forecasts seem to indicate much of the same - very slow growth. In fact, the growth predicted is slightly below historical trends. Forecasts for real personal income indicate once again slow growth, with an overall increase of about 0.4 percent for the year 2000. Mining and construction are predicted to decline, as are wholesale and retail trade. The agriculture sector is forecast to experience the greatest decline; two of the larger sectors, government and services, are expected to be flat for the year. Employment in the region is, like income, forecast to grow slowly, at a rate of 0.5 percent.

Western Kansas: Slow Growth in 2000

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

Expect 2000 to be a very slow year for Western Kansas. Low commodity prices, a large supply of agricultural products, a weak demand for commodities, and a strong dollar continue to weaken the region's economy. The continued strength of the national economy has a small positive effect on the region. Low interest rates and low unemployment appear to be conditions that will continue for at least the first part of 2000. Inflationary pressures are a concern and the Federal Reserve has effectively increased interest rates at strategic opportunities to slow the expanding economy. For Western Kansas to experience additional benefits from the national economic expansion certain events will need to occur. Trade agreements should be worked out so that U.S. agriculture has equal opportunities to market its products fairly throughout the world. If farm policies are to be enacted, the supply side should be of concern and not just the price. Finally, agricultural research and development, both private and public, should continue to develop more efficient production techniques as well as better varieties of products.

South Central Kansas: Modest Growth

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

The Center for Economic Development and Business Research (CEDBR) expects 2000 to be a year of modest growth for South Central Kansas, due to continued economic difficulties around the globe and an expected slow down in the U.S. economy as the Federal Reserve is likely to raise interest rates. Employment among Wichita's manufacturers saw double-digit growth rates in 1996 and 1997, but manufacturing job growth slowed to less than 2 percent in 1998, and 1999 will end with net job losses. The slowdown in commercial aviation manufacturing jobs and the consolidations and mergers among small and mid-sized machine shops have contributed to the sluggish job growth in manufacturing. The robust U.S. economy, combined with the growth of corporate profits and new product introductions, indicate that sales of general aviation planes should increase in 2000. The CEDBR is projecting flat employment growth in the manufacturing sector in 2000. Personal income will continue to grow, but at a slower rate, primarily due to the lack of growth in manufacturing employment. Personal income is expected to grow 4 percent in 1999 but will likely grow at a moderated pace of 3.5 percent in 2000. Overall, the region is estimated to add about 7,600 jobs in 1999, for a growth rate of 1.7 percent, compared to 1998's rate of 2.6 percent. Since 1990, employment in the region has grown, on average, 1.6 percent annually. Given the flat growth in manufacturing employment and the relatively higher pay in the sector, a slowdown in the growth rate for total income growth in 2000 is expected.

Southeast Kansas Outlook: a Tight Labor Market

by Robert B. Catlett, School of Business, Emporia State University

For the first time in decades Southeast Kansas begins to flirt with full employment, and it is possible that the region has more capacity than might be indicated by data reporting its labor market conditions, especially over a short or temporary time frame. Furthermore, the opportunity to hold multiple jobs will likely expand as employers search for workers in tight labor markets. If the region expands beyond a sustainable level of output in the year ahead, we are likely to see growth in income outpace the number of jobs. If this happens, the unemployment rate will not necessarily dip below a certain threshold. An abundance of job opportunities can contribute to short-term unemployment as more potential workers enter labor markets.

Perhaps the most provocative questions revolve around how long this economic climate will last and whether the region can settle into an equilibrium-like state at or near full employment. If the majority of its key sectors strain capacity over a longer time span and lure workers away from their current jobs, we may see nominal income growth; however, real income growth may be reduced or eliminated by inflationary pressures.