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Southwest Wisconsin's economic forecast: Cautious optimism
Second year of drought, what happens to Farm Bill pose concerns
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The past few years have been tumultuous years for the American economy.

What, then, does 2013 hold for southwest Wisconsin’s economy?

The specific answer depends on whom you ask, but the best description of a consensus economic forecast is “cautiously optimistic.” Perhaps very cautiously optimistic.

“My sense is that we’re still feeling the effects of the down economy,” said Kathy Kopp, executive director of the Platteville Area Chamber of Commerce. “I get the sense there are businesses in a holding pattern; they’d like to do something, but there are too many variables.”

“Certainly as you read, you get a worrisome sense that things are sliding — at best a mixed message,” said Mike North of First Capitol Ag in Platteville. “I think where we’re at in southwest Wisconsin, because we have a strong presence in agriculture, as well as ag’s done for four or five years, even last year with the drought, I think there will be a pretty good economic outlook looking forward.”

“The good news in the U.S. economy — something we’re emphasizing when people come in — we’re not investing in the federal government; we’re investing in corporate America,” said Ben Reeves of Edward Jones in Platteville. “Corporate America is doing much better than the federal government. Corporate America is generally strengthening, and we’re getting that much farther away from 2008.”

Whether 2012 was a good year depended in part on the status of one’s employer. Lands’ End in Dodgeville announced job cuts last year, and Quad/Graphics announced the closing of its Dubuque printing plant.

One thing that might help the economy is merely the replacing of 2012, an election year, with 2013.

“People look to see what the election produces, and you had recall elections,” said Ron Brisbois, executive director of the Grant County Economic Development Corp. “You had people wait to see what will happen from a political standpoint, and you see businesses wait and see.”

Brisbois sees many reasons to be optimistic, beginning with Grant County’s unemployment rate, which is “still one of the lowest unemployment rates in Wisconsin.”

“What I’m seeing right now around the county is very positive,” he said, pointing to expansions of four existing manufacturers, “and that’s what you’re usually going to see — the old adage is that 80 percent of your job growth will come from existing businesses.”

The Platteville area’s strength is that even though agriculture has done well the past few years, the area’s economy is not just tied to agriculture.

“We’re relatively fortunate in that we are an ag-based society here, but our other major product would be cheese, and we have a great set of cheese companies, and many of them are expanding and looking to expand,” said Ken Harwood, executive director of the Lafayette Development Corporation.

“This is a time where the Platteville area is poised for growth,” said North, pointing to enrollment growth at UW–Platteville and the effect of IBM in Dubuque.

Reeves said UW–Platteville “is pretty stable as far as jolts to our economy.”

“We have a lot of potential growth occurring,” said Brisbois. “We still need industrial buildings.”

Kopp believes a good economic year is possible “as long as the federal government takes care of the Farm Bill and addresses the budget deficit — if they get their act together and put some solid numbers into working to put things on an even keel.”

If that happens, she said, “I think we’ll be in a mode where things will really come back. If that doesn’t happen, then I think we’ll make some strides in the tourism realm.

“Things are going to light up when spring gets here. We’ve got businesses that I think are going to become staples and help us continue to get through this down period.”

Interest rates remain low, which is bad news for those with savings accounts, but good news for those buying things.
Reeves said interest rates will “stay level for a year or two probably until things will continue to improve.”

That makes investing in the stock market more appealing.

“The market’s selling at pretty reasonable valuation at 15 times earnings, which is a pretty good thing right now,” said Reeves. “We’re always subject to a 5- to 10-percent correction, but we’re not anticipating a 50-percent correction. It’s a pretty good time to be in the market right now.”

But while interest rates are low, which is good news for borrowers, credit standards remain tight, according to Harwood.

“It’s sort of a double-edged sword in that it’s difficult to get loans even though there’s very low interest rates,” he said.

Another downside is a drop in take-home pay that resulted from the end of the payroll tax cut, which restored the Social Security tax to 6.2 percent of income, up from 4.2 percent with the two-year payroll tax cut.

“We all saw adjustments to our paychecks in January, and that could have had a much greater impact” without a fiscal cliff deal getting approved by Congress, said Harwood. “If you don’t have expendable income, you’re not going to buy as many dairy products.

“What the federal government needs to understand — we need to get partisanship out of it and we really need to look at opportunities to bring everybody up, and the answer is not handouts, it’s lifting everybody up. Government needs to work with farmers, work with businessmen, and understand the dynamics.”

One huge question is what the weather will do this year, after a year in which by one estimate southwest Wisconsin received half the amount of precipitation of a normal year.

“If you look at companies like John Deere and all our smaller agribusinesses — fully two-thirds of the population in this county are employed by small businesses — you can go right down the list — anybody that supplies these operations or are indirectly tied to them, they’re going to feel the pinch” if the drought enters a second year, said North.

Somewhat surprisingly, though, southwest Wisconsin weathered the 2012 drought and heat better than in any one year of the late 1980s drought.

“Crop farmers, if they got rain, they did quite well, and if they had [crop] insurance, things turned out quite well,” said Reeves. “Livestock farmers, they’re having a tough time if they have to buy feed. It’s not a homogeneous-type situation.”

“The area did do a lot better than it could have,” said Harwood. “The problem is in the drought there were winners and losers.”

“Government isn’t there as the safety net that it was in the 1980s,” said Brisbois. “Right now commodity grain prices for these farmers that can produce a crop, they’re doing very well. If we have another year like we did, we’ll see ramifications with not only farmers, but with businesses that serve the ag industry.

“A lot of farmers had inventory built up, but if we have another [dry] year it’s going to be a very different environment. If you have to buy $6 corn or $14 soybeans, you can’t survive that.”

The fear of another year of drought “varies from area of the Midwest to Midwest, but it is out there,” said North, who added the most concerned farmers are those who have to buy grain instead of grow it. “It’s not the price, it’s the availability.”

The most unusual period of the economic year occurred at the end of the year, when speculation over whether Congress would pass, or turn down, a new Farm Bill pushed predictions of commodity prices to wild heights.

“I never in my 17 years thought that I would have had the conversations I was having daily in the last weeks of 2012 — what if the farm gate [milk] price got to $38” per hundredweight, said North. “It’s like any new regulation — it takes you away from decisions you should be making. Those things should never be talked about, and yet they were. It’s made business that much more difficult. That is what takes away from economic performance all over the place when you have to stop and wait for government.”

North said milk prices could have reached $6 per gallon gradually, instead of the predicted instant increase to $8 per gallon.

“The reality is there was a chance it could have gone higher, but it wouldn’t have been overnight,” he said.

Congress passed a one-year extension of the Farm Bill, meaning that the end-of-the-year deliberations could repeat themselves as soon as August.

“How do you do anything when year to year you have different rules?” said Kopp. “If our businesses ran the way Washington is running right now, they’d all be gone. The banks wouldn’t touch them.”

Harwood said federal ag programs “create winners and losers, and they’re not thinking about the average farmer. We need to look for ways to sustain the family farm, but more importantly support farm-to-family in a way that is fair and efficient and doesn’t create winners and losers.”

Brisbois’ view of potential economic concerns is longer-term.

“The biggest challenge I see in the foreseeable future is the skills gap — we have jobs available, but the skills in the workforce don’t match the jobs available,” he said.

The biggest demand for employees is in manufacturing, specifically machining. “They’d hire people out of technical college if they could have them, but the technical college can’t produce them fast enough,” said Brisbois.

One recommendation from Competitive Wisconsin’s Be Bold 2: Growing Wisconsin’s Talent Pool study is for economic development groups to get involved in workforce development issues, which Brisbois called “a very labor-intensive task.”

Brisbois said southwest Wisconsin is not immune to worldwide economic forces.

“We are such a global economy, and we’re not isolated from that in Grant County,” he said. “If we have another global Greece or another country in Asia, it will hit us here.”