Batesville Herald Tribune, Batesville, Indiana

December 20, 2013

Economist responds to local questions

Debbie Blank The Herald-Tribune
The Batesville Herald-Tribune

---- — After Ball State University economist Michael Hicks, Ph.D., spoke Dec. 11 at Hillcrest Country Club at an event co-hosted by the BSU Center for Business and Economic Research, which he directs, and Hillenbrand Inc., it was time for questions.

Chris Lowery, Batesville, a Hillenbrand Inc. public policy and engagement director who helped organize the session, noted the Batesville ZIP code is “pretty healthy economically.” He said “many of us in the room” are probably concerned about the skills gap and age of the work force here. “Where do you think we’re headed?”

Hicks pointed out, “The state manufactures an enormous amount of goods.” In fact, 2013 is the peak year for Indiana in both manufacturing and agriculture, both “extraordinarily important to us.”

He replied that markets will have to adjust when baby boomers retire, which he called “a time bomb for labor.” The profile of factory workers is changing, the director observed. In 2006 half of manufacturing workers had some college experience. Now more that 75 percent of factory new hires have been to college. “That’s a startling number. People are shocked by that.”

He said in the future, plant associates “will look like the operating engineers in a power plant. These are elite workers, upper middle class employees.” Employers desire students who took AP statistics courses, a requirement of Lean Six Sigma, a business concept that improves efficiency.

Indiana leaders are implementing different initiatives to ready students for more sophisticated jobs. Conexus Indiana will use a $220,000 Chase grant for its Hire Technology curriculum program that partners industry with high schools to help fill middle skill jobs in advanced manufacturing and logistics. The program was piloted in nine locations around the state last year, including Batesville High School.

Tyler Stock, a Hillenbrand Inc. senior communications associate, asked about economic growth in general. Hicks reported the U.S. population is growing at 1.1 percent a year, not because of a baby boom, but partly due to people living longer and immigration. He predicted the population will remain static here. Employers are concerned about the supply of local labor and demand for goods if population growth is sluggish.

Nancy Spivey, Northern Kentucky Chamber of Commerce chief operating officer, asked why so many of those laid off during the recent recession are not able to return to the labor force. According to the professor, many “are going to be hard to re-employ because they have antiquated skills.”

Hicks said most employers today tend to hire persons who already have jobs. They are more attractive and less risky because employers basically already have screened them.

Persons now jobless might have to settle for work that pays less. Those who used to make “$22 are now facing $10 an hour and that’s really tough,” he noted.

Jan Holm, Batesville, asked about the Federal Reserve System’s quantitative easing tactics, which grow the U.S. money supply to keep interest rates low. Hicks said Janet Yellen, an American economist and professor who is the Federal Reserve System Board of Governors vice chair and poised to become chairman in January, “has Nobel quality research under her belt. Her challenge is to communicate the decision the Federal Reserve has already told us ... ‘When our forecast model is met by the economy, we will stop stimulating the economy.’”

He added, “Many economists believe, and I’m among them, the very high stock market prices are contingent upon the Federal Reserve pumping money into the system.” Earlier in the session, he explained every month the Fed buys $85 billion in bonds to push money into the U.S. economy. The motive “is to stimulate capital investment … we’re hoping that capital investment turns into jobs and economic activity.”

Yellen faces the challenge of keeping inflation low and employment high. Hicks confided, “We’re not seeing the bank lending that we should.”

He warned, “If it’s not easy for workers to find jobs and businesses to find workers, then stimulating the economy through a monetary policy will not work.”

The expert asked rhetorically, “Where will you put your (money to save for) retirement?” In bonds or a bank, which offer little or no interest? Then Hicks gave the correct answer: “The only place you’re going to put assets today would be in the stock market.” Once the Federal Reserve lessens its bond purchases, bond rates will rise. The speaker predicted the stock market could come down “rather precipitously.” He reflected, “I’d be the richest man in the world if I could predict a (stock market) bubble confidently.”

Jeff Stratman, the Aurora city attorney, asked about a prediction Hicks made while speaking in Batesville a year ago that didn’t come true. The economist admitted that he thought 18 months ago the U.S. would go into another recession, following Europe. Hicks said he was particularly worried about Indiana, which exports many goods to European Union countries.

Hicks explained the reason he was wrong was “our biggest trading partners (Germany and England) really weren’t part of the European recession. In the past, the whole continent moved together” in economic fortunes.

“We did dodge that recession. That’s good news, but we’re still feeling a hangover” from European economic activities.

Debbie Blank can be contacted at debbie.blank@batesvilleheraldtribune.com or 812-934-4343, Ext. 113.

Second in a two-part series Part 1: Dr. Hicks contemplates a Walmart in Batesville and forecasts how the region, state and nation will do economically, Dec. 17