Economic immunity: Are the Valley and Central Virginia recession-proof?

Story by Chris Graham
freepress2@ntelos.net

The Shenandoah Valley is recession-proof. Charlottesville is recession-proof.

I’ve heard people say this for years.

As the argument goes, the local economies have two big things going for them – major universities and agriculture.

Kids still go to school in recessions. And kids and everybody else still eat in recessions.

But …

Is that enough to make us recession-proof?

I thought I’d ask around to get a sense of what those who would seem to be in the know might have to say about this idea.

If I can hint to what the consensus was – well, nobody tried to talk me out of writing this story, if that gives you any indication of things.

***

The presence of the University of Virginia is very much a stabilizing force for the Charlottesville-Albemarle regional economy, said Chris Engel, a specialist in the economic-development office in City Hall in Charlottesville.

“With the university, certainly, here in Charlottesville, almost 25 percent of the jobs in this metro area are related to the university, either with the hospital or the school. That’s a big chunk of the jobs that are controlled by them, and the university is pretty stable. They grow at a measured rate. They rarely lay people off or anything like that,” Engel said.

And in fact it seems that UVa. is going full-steam-ahead with projects that are part of its ambitious $3 billion capital campaign – providing a substantial boost to the local economy in the form of contracts and subcontracts and the rest that should keep the local building community hopping, if nothing else.

“They’re extending The Lawn with the South Lawn Project, they’re building a new children’s hospital, a new cancer center, new parking decks, all that kind of stuff,” Engel said.

“I don’t want to say it’s immune to the macroeconomic trends, but it is, in a way, because it’s being generated through fund-raising efforts that have occurred and are occurring. They may see some tailing off in their fund-raising in this economic recession or whatever it’s going to be, I don’t know, but there’s a lag time with that. And they’ve got projects in the pipeline that if it’s a real short recession will get us through without even hardly noticing,” Engel said.

“There’s a huge spinoff from their construction activity over there. And there’s a lot of companies in and around this area supporting that – small companies, in a lot of cases. So there’s definitely a spinoff effect in a positive way from a lot of activity at the university,” Engel said.

James Madison University certainly plays that kind of role in the Shenandoah Valley economy.

“We really do see that, Chris. We see that we do not have the large peaks and valleys that a lot of other economies do, for a lot of the reasons that you just mentioned,” said Brian Shull, the economic-development director in Harrisonburg.

“The university certainly does have a tremendous impact on the area. I’ve been looking at some of the economic-impact analysis that they’ve provided over the years, and it really does prove that out,” Shull said.

Robin Sullenberger, the executive director of the Shenandoah Valley Partnership, which manages economic-development activities in a seven-county, five-city region in the Central Shenandoah Valley, gives us another perspective on how colleges and universities can be economic engines.

One is through tuition and fees and student-related spending and having thousands of employees on the payroll. A second way is to have colleges and universities partnering with private industry on research and development in the manner of James Madison University and its budding relationship with R&D giant SRI International.

“We have a higher-education consortium that has 12 colleges and universities as members, including three community colleges, that extends all the way from Winchester to Lexington. So the colleges and universities at every level and of every type are getting more actively engaged in business and industry activities,” Sullenberger said.

***

“It’s certainly accurate that our Valley has been fortunate to have been able to weather economic downturns fairly well. We’re never at the extremes of the peaks and valleys. In terms of why that is, I’d like to give our agricultural economy credit for that, but I’m not sure if I have the basis to say that,” said Hobey Bauhan, the president of the Harrisonburg-based Virginia Poultry Federation, which sits at the head of a nearly billion-dollar industry in Virginia that is directly responsible for 5,000 Valley jobs and is indirectly responsible for another 35,000 ancillary jobs.

“The agricultural industry that we have in the Valley has always been the center of our economy here – and does stimulate a lot of economic benefits for our area,” Bauhan said. “In economic downtimes, people still have to eat. That is one thing that we can’t do without is food – and our Valley is a significant food producer. That part of our economy is certainly affected by the economic ups and downs over the years, but that can be a stabilizing economic influence.”

But even as people will always need to eat, there is also an obvious impact on the stability of the ag economy from macroeconomic trends.

“We’re seeing significantly higher feed costs, and that has been caused in part by the amount of corn that is now going toward the ethanol industry as well as just the world demand of corn. That has driven up the cost of corn the past couple of years, and corn is one of the major input costs for the production of poultry, as soybeans are as well,” Bauhan said.

“Those are not costs that the industry can just immediately pass on to its customers – so it tends to go against the bottom line. The other cost factor going against the industry, as with other sectors of the economy, is energy, as energy costs have gone way up, as has been the case for other sectors as well,” Bauhan said.

“Balance in supply and demand has allowed price strength. But production is forecast to increase, and that will put downward pressure on price. And with increased production costs, that tends to stress profits. That’s what we’re facing on a macroeconomic level going into the near term,” Bauhan said.

***

We all want more industry and manufacturing jobs. The world revolves around how we all want more industry and manufacturing jobs. But, and it’s a mixed blessing, maybe part of our immunity, if you will, to economic downturns comes from our relative paucity of industry and manufacturing jobs.

“We have, unfortunately, significantly less manufacturing employment here than we did five, ten, fifteen years ago. That’s a national trend, though. And those tend to be more sensitive to the ups and downs of the macroeconomy,” said Michael Harvey, the executive director of the Thomas Jefferson Partnership for Economic Development, which coordinates economic-development activities for the Greater Charlottesville region.

And even though efforts to attract industry and manufacturing jobs won’t stop because there’s a downturn or recession or whatever it is that’s happening right now, they will slow down, if only because that’s what we see when times get tight in the short term.

“We still have strong interest from people looking in the Valley, but when we go through tougher national economic times, we just notice the timeline seems to extend out a little bit,” Harrisonburg economic-development director Brian Shull said.

“It takes a little longer for those decisions to be made. I think a lot of that comes down to financing issues – it takes a little bit longer for them to work through all those issues when the credit crunch is a little tighter,” Shull said.

“What we’re basically seeing right now is a lull period. And we would anticipate that would be anywhere from six to eighteen months long,” Shenandoah Valley Partnership executive director Robin Sullenberger said.

“There is a good side to that from an economic-development perspective – and that is that it’s an ideal time to prepare for the next economic upturn. And we do many things to work toward that – and the primary thing that we’re working on right now is advancing our workforce skills. Because we do think that the economy will be more geared toward technologically advanced job opportunities, and our workforce certainly needs to be nurtured to get to that level,” Sullenberger said.

***

So what’s going on out there, anyway?

I’ve been sidestepping the answer to that question, but it might not hurt us to know what is going on in the world at large, whether it ultimately affects us or not.

“My take would be that we have entered a slowdown – and I’m avoiding using the word recession at the moment,” UVa. economics professor Peter Rodriguez said.

“I think we can expect that to endure for another couple of quarters, and I think that the remainder of ’08 is going to be one of flat to no growth. I’m not exactly confident that we’re going to experience a classic or textbook recession where we actually have the economy shrink, but we certainly have entered into a notably slower period for the economy. And I expect that to remain through ’08,” Rodriguez said.

And what does the academic think this will mean for our local economy? Does he agree with the developers and ag producers and university leaders and the rest that we’re going to emerge from the slowdown pretty much unscathed?

We’re all waiting breathlessly for the final verdict, aren’t we?

“It’s certainly true that none of the local industries are in any serious threat of long-term decline. So I think that the underlying base for the local economy is quite solid. And what I mean by that is if you think of this as a very high-growth construction area like, say, Las Vegas, or a manufacturing area like the Detroit area, those places are in long-term decline, and I think that the underlying base there threatens those economies. But for us, that’s not a concern,” Rodriguez said.

“The flip side of that is, no one is completely exempt, and with a little less confidence around the economy, you’ll feel it. You’ll feel it no matter where you are and how strong your base is,” Rodriguez said.

“But I don’t expect that there will be a pronounced fallout locally like I expect it will hit major cities – and in particular some high-growth areas of the East Coast and the West Coast,” Rodriguez said.

You can exhale now.


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