Economic Forum matrix: Seek manufacturing

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Recruiters, hoping to lure employers to the region, should pursue the manufacturing sector, instead of, say, sports organizations or nonprofits.

Computer and electronic manufacturing and telecommunication companies would bring the most economic benefit to the region.

That’s the word from the Southern Colorado Economic Forum, and it now has a way to prove it.

Tom Zwirlein, director of the forum, and Fred Crowley, senior economist, have devised a matrix that ranks 21 industries according to location quotient, employment multiplier, income multiplier and relative tax effect.

They’ve also assigned each industry an overall ranking.

A location quotient is an estimate of an area’s ability to attract a sector and develop a “cluster industry” around it. A high quotient suggests that few or no financial incentives would be necessary to create such a cluster.

It’s no secret that the Pikes Peak region has lost thousands of jobs in recent years, after several large IT firms and manufacturing companies either shuttered their doors or relocated.

But as the forum’s new matrix points out, not all sectors are created equal.

Best and worst sectors

Although transportation equipment manufacturing ranks dead last, or 21st, for location quotient, its overall rank is 13. What saves it from ignominy are high employment and income multipliers.

At the other end of the spectrum, educational services, while socially and morally necessary, ranked 21st overall because the sector creates few additional jobs, doesn’t pay well, and the region doesn’t inherently have many qualities to attract this sector.

On the other hand, computers and electronic manufacturing nabbed the No. 1 spot for location quotient, and an overall rank of second. Along with telecommunications, which ranked No. 1 overall, these two sectors are a logical and natural complement to the region, the forum said.

The computer and electronic manufacturing sector has a multiplier of 8.7, meaning each job in the sector creates nearly nine additional jobs.

That makes that sector especially attractive. But how good are the odds of attracting such companies?

Crowley thinks they’re fairly high.

In part, he said, that’s because one of the region’s strengths is the relatively low cost of doing business.

The forum measures this on its Cost of Business Index for El Paso County, whose baseline of 100 was set in 2001.

The index combines the average national cost of employee benefits and four local components — average wages, property taxes, electricity costs and commercial property rents. Together, these show the annual increase in the major costs for most businesses.

By the end of last year, the index jumped to 126.3, making the average cost of business more than 26 percent higher than in 2001. By way of comparison, the national Producer Price Index rose nearly 29 percent during the same time period. The PPI is a business equivalent of the consumer price index, measuring the cost of doing business for businesses.

“Ours is less of an increase than elsewhere in the nation,” Crowley said. “So there are advantages for businesses that move here.”

Given the growth of outsourcing, Crowley acknowledged the notion of chasing manufacturing jobs in today’s economy runs counter to prevailing trends.

“People have to embrace the idea of a manufacturing-driven economy a little bit harder,” Crowley said.

The region’s lower costs argue in his favor.

From 2001 to 2009, the average annual increase of the PPI was 4 percent, while the Cost of Business Index for the county averaged a 3 percent increase.

“This is not an apples-to-apples comparison, but it’s a pretty good proxy for it,” he said.

As they have for the past 13 years, Zwirlein and Crowley presented their latest forecast for the local economy Friday at the Antlers Hilton.

Some of the best news is that the local economy came out of the recession in March 2009, whereas the national recession ended in June of that year. The military and nonprofit sectors helped the region fare much better than the nation, Crowley said.

But the area cannot rely on those sectors for what it needs most — more jobs.

“Only the private sector will provide growth,” he said, adding that many of the initiatives in the Operation 6035 economic development plan could help.

The highlights:

Employment

As the economy improves, employment eventually will follow suit.

“Life is going to be noticeably better,” Crowley said.

He and Zwirlein expect the unemployment rate to drop next year to less than 8 percent. It peaked in June at 8.7 percent.

Not only that, but gross metropolitan product is expected to increase to 3 percent next year. Last year, it was negative 3.8 percent.

“It’s a huge swing,” Crowley said.

Job growth will likely increase by 1.8 percent in 2011. In 2009, that number dropped 4.3 percent.

“That’s not back to where we were, but it’s moving in the right direction,” he said. “We are still 10,000 to 15,000 jobs off our peak (in 2007). It will take several years of growth to get back to where we were.”

Gains of 2.5 to 3 percent are expected in per-capita personal income for the county, reaching $40,352 this year and $41,562 next year.

Housing and construction

In the next six months, the forum expects a significant increase in multi-family permit activity.

Single-family permits values are expected to hit $506 million this year and $601 million next year, while nonresidential permit values should reach $100 million this year and $160 million next year.

The region’s average home prices reached $237,318 in June, up 5.3 percent over last June. In addition, foreclosures and delinquency rates are declining, while income has increased.

So far this year, commercial permit values are about $100 million, considerably down from a peak of $447 million in 2008. For 2011, only a small gain is anticipated for this sector.

A recovery in the commercial sector is not likely until the end of next year and cannot happen until new jobs are created to clear out the inventory of vacant commercial space, the economists said.