Economic Outlook 2017

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Workforce shortages increasingly dominate the economic landscape of northeast Wisconsin

as businesses look into the year ahead

Story by J. S. Decker

December 2016

Deregulation and tax cuts promise to heat up the economy in 2017, but success brings near-record unemployment, and only legions of new skilled laborers could overcome record retirements of Baby Boomers to unleash maximum productivity.

“There’s just a tremendous shortfall of people to fill those needs,” said Fox Valley Technical College President Susan May. The children of the Greatest Generation have just started to retire, and worker shortages will only become more daunting.

Training, retraining and innovative recruitment are all underway to struggle through a stifling human resources bottleneck.

“That is exactly what’s starting to happen right now, according to employers,” lamented May, although outreach and education have made a difference.

Most every business leader we spoke with about the economy in 2017 agrees further growth lies ahead, especially locally here in northeast Wisconsin.

The “fairly robust” economy won’t be surging at record levels, reported Jeff Sachse, senior economist with the state Department of Workforce Development, but an aging population means the health care sector won’t lack for work, and major government contracts ensure a strong cash flow across the region’s supply chain.

From his office in Green Bay, Sasche points north to Marinette Marine, where next year the U.S. Navy is expected to again add to its $3.6 billion order for Littoral combat ships, which would enlarge the order backlog that now reaches until 2021. Each day 2,200 workers enter the shipyard in Marinette. To the south, Oshkosh Corp.’s recently earned a $42 million expansion of the $6.7 billion contract awarded in August 2015 to produce Joint Light Tactical Vehicles for the U.S. Army. In August, Oshkosh Defense received word the U.S. Marine Corps approved full rate production on the P-19 Replacement Aircraft Rescue Fire Fighting vehicle program, a $192 million contract awarded in May 2013, which the company now must start hiring in earnest to fulfill demand.

“The company has been fairly tight-lipped as far as their actual recruitment plans,” Sasche noted. “They’ve hired between 140 and 160, so they’re about halfway to their 2016 hiring goals.”

The economic impact of Oshkosh Corp. ripples throughout the state with more than 5,550 people employed in the Fox Valley alone, so the good news of these contract engagements is echoed at hundreds of suppliers, who just two years ago were laying off their workers. “This is creating opportunities up and down the market,” Sachse said.

Grassroots Machining LLC of Fox Crossing will benefit, too, even though they have no contracts with Oshkosh Corp.

“That will definitely flood all manufacturing in this area with work,” Grassroots owner Chuck Duginski explained. “Suppliers are going to take their current customers and more or less push them aside.”

His specialty job shop will be glad to step in.

Volatility

There’s no more work from Manitowoc Cranes or Brillion Ironworks, but economist Sasche indicated those recent closures were driven by changes in production or within specific markets, “not something that’s an indicator of a broader economic slowdown.”

Where and when the market tells ThedaCare to build a new regional medical center will have a great many impacts on the regional health care market.

“Once that is announced there will be more certainty among the other providers in the region as far as specific staffing demands,” Sasche explained. Some health care industry hiring seems to be on hold until then. “Health care really has been one of the more dormant growth areas, certainly over the course of the last year and a half or so. We’ve seen some demand, especially in direct care. Nurses, CNAs and technologists like radiology techs. There’s been some hiring and constant recruitment for those positions, but not necessarily what we would have expected, given an aging population throughout the region.”

Another factor is how President-Elect Trump might handle Medicare and Medicaid.

“Of the providers we’ve spoken to, one of the reasons they haven’t been hiring like they could is because of uncertainty about reimbursement rates,” Sachse said. Providers have always been paid rather little for services to those patients, but the new leadership in Washington could cut reimbursement further at a time when the average patient age is increasing.

Such uncertainty adds volatility to the marketplace, but Duginski is certain Trump was the best candidate for business.

“Do I believe one man can make that much of a difference? No, I don’t. But the backbone of America, the average workers, really got a shot in the arm because he won the election,” Duginski said. “If what he says is true about curbing the offshore accounts and invoking some tariffs to get work back in this country.”

Red tape and other bureaucratic headaches challenging Duginski to include Grassroots Machining on the list of potential government suppliers could diminish or disappear under Trump.

“The paperwork is just mind boggling,” he said. “It’s just horrible. It’s like they create all this documentation just so they can create more government jobs.”

Breaking barriers

Duginski does firmly believe the workforce needs “to do away with that old stereotype that it’s a man’s world.”

As a member of the manufacturing steering committee for Fox Valley Tech, Duginski promotes inviting women to apply for skilled blue collar jobs. Modern men are easier to get along with, he added, and automation and safety standards mean machine shops are not the dingy, greasy environment of years ago.

Fox Valley Tech President May agrees that new demographics are the only place to find new workers.

“The average age of our student is 28 years old, rather than right out of high school,” she explained. “Technical colleges right now are attracting about 15 percent of high school graduates. We need 50 or 60 percent!”

Millennials are far less numerous than the 71 million Baby Boomers, who began retiring in 2011. The problem of an overstretched workforce is only going to get worse.

“Manufacturing is where we’re seeing the most need,” said May. “Welding is very much an ongoing need. Industrial equipment maintenance, millwrights and machinists and fabricators. These positions have often been held for decades by very skilled people.”

Truck drivers and automotive technicians are in short supply, she added, but the need for skilled human resources reaches almost everywhere. “Information technology, sales and marketing, administrative professionals…the final area we’re seeing a lot of need right now in advanced manufacturing is electro-mechanical, automation and systems design.”

Until a recruitment breakthrough is found, May said, employers must use training to be more efficient.

“We work with more than 2,000 employers every year providing customized training,” she noted, providing education to nearly 22,000 employees last year in areas such as lean manufacturing, value stream mapping and project management.

Often, state and federal matching funds are available, and sometimes they cover the entire cost of such employee training. May won’t know until next July what new funding levels might be available from the 2017-19 biennial state budget. “It’s hard for me to pull out a crystal ball and see what’s ahead in state budget resources,” she admitted. “If we were to make a bet, I would expect the amount of grant funding to remain solid. I don’t think there will be any new money, because I don’t think new money is available.”

Running of the bulls

The year ahead will likely continue to be a secular bull market, where the overall trend is upward with volatility along the way, said William Bowman, president and senior advisor of Aegis Financial Planning in Oshkosh. A certified public accountant by training with 30 years experience as a financial advisor, Bowman indicated businesses likely won’t mind paying a bit more to borrow money in the year ahead if it ultimately leads to an even better bottom line.

“Although we may see a slight pickup in (interest) rates, business construction and expansion loans look favorable in 2017, especially with the potential of lowering corporate tax rates,” Bowman predicted. “If the rates are reduced, corporations should have more funds to spend on expansion. With the past quarter of improvements in corporate earnings, we appear to be on track with continued economic expansion.”

Gold prices jumped after the election, then teetered back in a sign of confidence. The stock market waffled only momentarily, then hit record highs just before the Thanksgiving holiday. Looming international shadows passed by with no storms.

“In fact, it almost feels like the U.S. customer has totally forgotten about Brexit,” remarked Bowman. It doesn’t help matters that other nations have talked about leaving the European Union. “What we do know is that the market does not like uncertainty, and this uncertainty is not going away anytime soon.”

Inflation has been kept at bay due to the slow-growing national gross domestic product, a trend that Bowman doesn’t expect to change much heading into 2017.

Building more space for manufacturers

Spend time driving a around any given community in northeast Wisconsin and you’ll immediately come to the conclusion that construction is a bustling industry sector right now.

In fact, Green Bay-based Bayland Buildings is wrapping up its best year ever in 2016 with more than $85 million in revenue, even with all the caution and concern related to the big election. Bayland CEO and founder Steve Ambrosius predicts 2017 will be another great year as well, indicating the commercial construction firm’s contracts extend into June, marking Bayland’s largest backlog in 10 years.

“Manufacturing has been a mainstay. Space in existing buildings is pretty much nonexistent,” Ambrosius said.

There are a number of $7 million-plus warehouses going up around the region. Nestle is preparing to build a $42 million, 300,000-sq. ft. freezer facility in Little Chute.

Among other industries, Ambrosius added that auto dealers are renovating and expanding, and that construction of retirement communities and other more intensive residential facilities for aging adults is an ever-growing market. Bayland is also building several Culvers restaurants around the nation, as well as agricultural construction projects across the Midwest and out to the east coast.

Following the recent elections, Ambrosius expects banking regulations will ease, along with many other burdensome restrictions on business.

“Sometimes it feels like they’re trying to hold up industry,” he lamented. “This feels like a new start for us. A totally opposite administration than what we’ve had.”

Despite such strong demand for construction, a tight labor market and healthy competition means good workers get poached. From Ambrosius’ perspective, retention is just as important as recruitment.

“If he’s a good employee, you’ve got to make sure he’s bumped up,” Ambrosius said. “If they’re offered an extra 50 cents an hour from another company, all of a sudden they’ll jump ship. That not only hurts us, because we just trained him and he knows our system, but it also hurts him because he’s starting one rung down the ladder at that other company.”

Many from Bayland’s staff have worked their way up from once being on a construction crew, and Ambrosius is blessed to have a good deal of long-tenured employees. Fortunately for Bayland, the fact that they hired these employees even 20 years ago when they were early in their careers means the company isn’t feeling the retirement crunch so harshly, yet.

Raising hospitality

Fox Crossing-based Wogernese Hospitality Group continues to see an uptick in revenue from the more than 50 properties it manages in 12 states. And while company CEO Brian Wogernese can’t say for certain that occupancy rates have increased, he did say hotel room prices have been a bit stronger, resulting in increased receipts.

As the franchisor for Cobblestone Hotels and Borders Inn & Suites – currently the only Wisconsin-based hotel franchise – Wogernese has quite a bit of optimism heading into 2017.

“For us, the pipeline going into next year is really good,” he said. “We’re currently building in five other states. We just started a project in Stevens Point.”

While unable to say with 100 percent certainty, Wogernese did hint at the possibly of announcing a new hotel development in the Fox Valley sometime during the first quarter of 2017. That could add to the company’s local portfolio, which includes four properties in Oshkosh, as well as properties in Brillion, Clintonville, Pulaski, Shawano and Ripon.

Personal Connections

Some of the biggest issues for businesses in 2017 may not be the traditional challenges of seeking financing and dealing with facilities that have exhausted their capacity. In fact, even many of the challenges surrounding work shortages may find some solutions through making closer personal connections, said Diane Penzenstadler, who serves on the board of directors for Greater Oshkosh Economic Development Corp.

“Are we a family-friendly area? Do we offer paid family leave? Do we assist with finding and subsidizing child care?” Penzenstadler asked. “These are all going to become critical attraction and retention issues.”

As owner of 44° North Advertising & Design in Oshkosh, Penzenstadler advises her clients to make strong personal connections as well. That means corporate advertising dollars might be driven by human resource needs more than ever before in an effort to attract job applicants and help employers brand themselves as a desirable place to work. “I don’t know if they’re going to be marketing dollars or if HR departments are going to pull in marketing objectives,” she said, but Penzenstadler is certain that social media isn’t the universal solution, whether for employee recruitment or for marketing a product or service. “Small businesses are trying to figure out the return on investment for social media. Where are my sales?”

Companies need to build a sense of loyalty among their clients, Penzenstadler suggested, and that requires customer engagement rather than just simple exposure. 

J.S. Decker is a writer and father based in Oshkosh.