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Warnings of a slow recovery here
In the meantime, some in business see opportunities as they adjust
By Jeff McDonald / The Bulletin
Published: May 24. 2009 4:00AM PST
Source: University of Oregon College of Arts and Sciences and Department of Economics Greg Cross / The Bulletin
Editor’s note: The Bulletin has partnered with the University of Oregon’s College of Arts and Sciences and Department of Economics to produce the Central Oregon Business Index. The index provides a regular snapshot of the region’s economy using economic models consistent with national standards. The index, exclusive to The Bulletin, appears quarterly in the Sunday Business section.
Most aspects of Central Oregon’s economy worsened in the first quarter of 2009, which means it could take at least into next year and possibly 2011 before the region pulls itself out of the national recession, according to a University of Oregon economist who authors a quarterly business index for The Bulletin.
The region’s jobs picture worsened in the revised index as a result of new employment data released earlier this year, according to Timothy Duy, adjunct professor of economics and author of the Central Oregon Business Index.
Tourism activity also slid during the quarter while housing activity remained flat, Duy said.
“I would not be terribly surprised if this is a long recovery process,” he said. “Job growth is going to be weak going forward through next year and into 2011. It is going to be another jobless recovery. When things come back, it won’t be like before.”
The region is experiencing, in economic terms, what is considered a classic recessionary cycle where businesses are in the process of shifting their size to meet falling demand, Duy said.
“That is what happens in every downturn,” he said. “Demand shifts and the capacity has to meet that (falling) demand. Workers are fired in that process. Companies have to find a new base. There will be opportunities for growth again.”
The index provides a seasonally adjusted look at the region’s economy based on nine economic variables, including Deschutes County building permits and Central Oregon housing units sold, Bend lodging tax revenue and unemployment claims. The index dropped to 129.8, down 3.1 percent from the final quarter of 2008 and 12.2 percent from the first quarter of last year. It is the sixth consecutive quarter the index has declined.
Central Oregon has been hit hard by unemployment, with seasonally adjusted rates in March ranging from 14.7 percent in Deschutes County to 18.5 percent in Crook County. Deschutes County has lost jobs on an annual basis for 16 consecutive months, dating back to December 2007, according to the Oregon Employment Department.
While the employment picture remains bleak, companies are making adjustments to stay afloat during the recession and emerge stronger when it ends, said Eric Strobel, business development manager at Economic Development for Central Oregon, which promotes business development and retention in the region. EDCO mostly works with traded-sector companies, which sell goods outside of the region.
“A lot of companies are trying to gain market share,” he said. “Other companies have a diversified market overseas. Domestically, they may not be doing as well, but in Europe, they are way up.”
One company that has bolstered its customer base — Structus Building Technologies of Bend — sells roughly 98 percent of its drywall product outside the state, including Europe, Canada, Russia and Southeast Asia, said Bill Scannell, company president.
While drywall shipments for new building construction dropped by half over the last four years, the company has been able to grow its market over that time period by deploying a sales team touting its drywall across the country and around the world, Scannell said.
“We are fortunate in that we have a vastly differentiated product,” he said. “It is a time- and money-saver, which is what everybody is trying to do right now.”
When the domestic and global economy comes back, the increased market share will help Structus grow its business, Strobel said.
Other companies surviving the recession include Prineville-based Contact Industries, a secondary wood products manufacturer that has diversified its product line, and Bend-based Ruff Wear Inc., which is selling its dog gear products in overseas markets, Strobel said.
Entrepreneurial activity also has spiked during the recession and could provide jobs in the future as companies get funded and grow, Strobel said.
“Some of the companies are highly technical in the green industry,” he said, noting biomass and other projects that are developing around the region. “We are seeing some interesting projects.”
Central Oregon’s traditionally strongest industries — tourism, manufacturing and construction — have borne the brunt of a national recession that started in fourth quarter 2007.
Estimated lodging taxes, adjusted for inflation, dropped sharply, down 15 percent from the first quarter of 2008, reverting to levels last seen in 2003, according to the index. Passenger traffic at Redmond Airport, however, remained relatively flat from the fourth quarter of 2008, according to the seasonally adjusted index. However, passenger traffic declined sharply on a year-over-year basis at the airport, Duy said.
St. George, Utah-based SkyWest Airlines, which flies as United Express and Delta Connection at Redmond, will launch new United Express jet service on its Redmond-San Francisco flight June 4 and will begin daily nonstop service to Denver International Airport on the same day, said Marissa Snow, a company spokeswoman.
“We are continually evaluating demand in all of our markets and making sure capacity matches demand,” Snow said. “In Redmond, we are actually adding service in June, which is huge.”
Duy pointed to a single bright spot in the index: Surprisingly, it came from the region’s housing market.
“Houses seem to be selling faster, but I think this is entirely attributable to the price drop — those houses that sell are now around $200,000,” he said.
The median sales price of a single-family home in Bend, which peaked at $396,000 in May 2007, fell to $195,000 in April, a decline of 51 percent. Bend home sales, however, rose nearly 18 percent from 89 in March to 105 in April. Sales surged 12.9 percent from April 2008.
“The low 200s is the biggest price range for sales right now,” said Wendy Adkisson, principal broker of The Garner Group in Bend. “That inventory is down right now. The upper price range is a painful place.”
For homes priced between $200,000 and $250,000 in Bend, there is an eight-month supply, Adkisson said. There are 16.5 months of inventory on the market for homes priced less than $500,000 and 78 months of inventory for homes priced more than $500,000, she said. A healthy supply of inventory, which is how long it takes to sell existing homes on the market, is about six months.
Home sales at lower price ranges will inevitably bring down the higher-priced homes, Duy said. The housing market is not likely to return to bubble-era prices, he said.
Duy agreed that traded-sector companies will fare better as the economy rebounds than those that depend on a credit-infused growth dynamic.
“Now that the real estate thing is over, what do you have?” he said. “You have lower land prices, so a firm that chooses to relocate can relocate. Employees can afford to buy a house. Companies can buy property for plant expansion. That’s the story. Is there one overarching industry at this point? The answer is probably no.”
Jeff McDonald can be reached at 541-383-0323 or jmcdonald@bendbulletin.com.