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Dr. Bill LaFayette Explains the Columbus Economy

Walker Evans Walker Evans
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We recently sat down with Dr. Bill LaFayette, the Vice President of Economic Analysis at the Columbus Chamber of Commerce, to discuss a variety of topics related to the Columbus economy.

Bill shares with us his professional insight and research on some of the most important job sectors in the region, the growing importance of the creative class and urban renewal, and his thoughts on how Columbus is weathering the current economic recession.

Walker Evans: There was an interesting article in the CS Monitor in April about which areas in the nation are going to economically recover more quickly than others in regards to employment. In the whole Midwest, it all looks fairly bleak. Especially around Detroit, Toledo and Cleveland – they are all looking at least five years down the road before they come back to pre-recession levels. However, the two shining spots in the Midwest were Indianapolis (which looks like they should be back to normal at the end of this year or next year) and Columbus (which they said 2011). Do you have any thoughts on this analysis?

Bill LaFayette: Yeah. Columbus is very different from the Midwest, first of all. I guess I’m being a little scattered but I suppose I should start with the idea that recessions aren’t really defined in terms of employment, they’re defined in terms of output. The thinking now is that output is going to start growing in the third quarter, that the second quarter that I guess we just finished, is going to be much, much milder in terms of output decline than the past couple quarters.

WE: Are you talking nationally?

BL: Nationally. Those are the only numbers I have in terms of output that aren’t two years after the fact. The recession, then, should end sooner rather than later they’re thinking. The problem is that employment is a lagging indicator. Employment sometimes only starts falling after recessions have begun and there are a lot of times when it doesn’t turn and start going back up until well after a recession is over. The textbook case is 2001 where a recession ended in November 2001 and employment didn’t turn until July or August of 2003. So we had pretty much 21 months where output was growing and employment was declining. So employment is a very, very important indicator but it’s not the only indicator. Employment maybe gives the Midwest a little bit of a bad rap especially because the Midwest is very manufacturing dependent. Manufacturing employment never grows… after the 2001 recession it kept falling. At the same time we had increases in manufacturing output that were greater than the all-center average and that was true nationally and that was true in Ohio. So it’s just projecting from that, that is why they are saying that Midwestern employment is going to continue falling for years. My own thought is that we may not see the same rate of decline in manufacturing employment after this recession that we saw after the last one because we had an increase in output per worker of 1/3 between 2001 and 2006. You don’t see increases in output like that, and that sort of thing is not sustainable. So, my guess is it’s going to be much harder for manufacturing employers to increase output without increasing headcount this time. Much harder than it was last time.

WE: I have heard a couple of people, and read a couple of news articles that say that states like Ohio with a heavy industrial manufacturing base stand to benefit a from new energy plans… solar panel development, wind turbine development and things like that. But I have also heard some people skeptical because a lot of times it’s easier to build new cites and new manufacturing bases than it is to reuse an old site, by cleaning it up and starting it back up again. There’s also concern that some of the labor union issues in Ohio might be a turn off for some of the job creation in Ohio specifically. Do you have any thoughts on how our state might fare in terms of this type of potential development?

BL: I guess it depends on the level of cleanup incentives that are offered. There may well be federal money available for that, but the one thing that we can point to is the productivity of the Ohio workforce. We’ve got a ready workforce available. There was a story, I think in The Times recently, about Michigan manufacturing workers being refitted to take some of these green jobs, just a really, really interesting program and I think that the same thing could happen in Ohio.

WE: It seems that Columbus is always cited as the one glowing spot in the state. Maybe because we don’t have that heavy manufacturing based that has declined as much as the other cities such as Toledo and Akron. But we are the state capital, we have a large university. Do you see Columbus standing to benefit from those kinds of things and where do you see Columbus standing in the long-term? I have heard some people say that even though Columbus is doing well in a state that is not doing quite as well, the whole state is going to bring us down.

BL: Manufacturing is a lot more important to us than many of us think. There are several subsectors of manufacturing that are key drivers for our region’s economy. That would include auto parts manufacturing, especially with Honda here; plastics, chemicals and pharmaceuticals, glass and clay products, food and beverages. Those are all manufacturing industries that have a higher than average concentration of activity here, that’s growing faster than average. That by definition, makes those sectors a driver. I think that people on the street may not realize the industry’s sectors that are important here. Those sectors include: those manufacturing sectors previously mentioned; transportation and distribution; arts, entertainment and tourism; business services (including architects, accountants, engineers); marketing firms; research and development organizations – notably Battelle; corporate administration (which is very important for our economy); employment services, waste services…so it is a big part of the economy that is bigger here than it is in many places. Finance and insurance is very important. Healthcare is important from the research angle too. So not to minimize the importance of the state government, because that cuts both ways as we’re understanding now, we have these other sectors that really do drive our economy and when you compare our total government employment to the national average we are like 16.8 percent of our total employment in government, national average is something like 16.3. So that why I like to say that in one sense this is a government town and in one sense it’s not.

WE: Of those different kinds of industries and sectors you mentioned, are there any you think are being overlooked in terms of their value to the local economy? Is there potential there? I mention this because every once in a while an article will come up and strike me as something I’ve never really thought of before. One example, would be the Blue Jackets contributing $2 billion to the economy since their inception. Another – once a year it seems there is an article about Columbus State contributing an annual $700 million to the city. We also recently saw the Community Research Partners research that Jung Kim spoke about with their study pinpointing the value of the creative economy in Columbus, which hasn’t been accurately measured before on a local level. Are there any other things that stand out to you like that?

BL: I think the creative economy is very, very important. If you believe Richard Florida, a strong creative economy is a big draw for the young and talented whom we desperately need to draw into town and keep. Otherwise we face a major workforce shortage in the coming years. The U.S. as a whole will face it, we will face it to a somewhat lesser extent. But in order for us to really address this coming problem, we are going to have to draw more than our fair share of young professionals because all regions are going to see declines. I think that we don’t understand the national and international reach of some of our local creative firms. Some of our marketing firms have national and international clients, so again that’s really important – having lots of creative people in town helps with our quality of life here. Financial services are very important. We’ve had declines in financial service employment here, like the rest of the nation has, but to a much smaller extent. When you look at the impact J.P. Morgan Chase has, just amazing. I believe they’ve added 2,600 jobs since the merger with Bank One, we are now supposedly their second largest concentration of employment in the world and now they’re bringing in 1,150 more. Transportation and distribution are really important, that was a sector that went from pretty much nothing in 1990 to where it’s a key driver of the region now. In 1990 our employment in transportation and distribution was 25% less than the national average and now it’s something like 50% more. There are a couple of major projects that are happening to give that big boost. The one that is online now is the Norfolk Southern Intermodal that just opened up southwest of Rickenbacker. That serves a rail line that connects directly with the port of Norfolk. The other project is the Heartland Corridor that is just about ready finished. It takes that rail line that runs through West Virginia right here into Columbus and it makes that rail line able to carry double stack container trains, effectively doubling its capacity. So what you’re going see is lots more shipments coming into Columbus and then some of them will distribute from here, others will go on to Chicago and that rail line is already double stack capable. So that is already a big, big thing for us and it’s going to make us even more of a center for freight distribution than we are now.

WE: Being able to see some of these results from the shipping and commercial rail sector, do you think we could see some of the same types economic benefits from passenger rail service? We’re very close to seeing the 3C passenger rail system starting. Do you think we will see a similar type of benefit from personal transportation?

BL: Different but important. The benefit would be making it easy to get from Cincinnati to here, from Cleveland to here, which would be a big boost for our tourism market. Again, another sector that we may not give as much credit to as it deserves, we get a lot of tourism here. We have been cited as a travel spot. The Short North specifically has been cited in national and international publications. We have been in The New York Times travel magazine a of couple times, The Los Angeles Times and when SkyBus was flying, just about every city that SkyBus connected Columbus with sent a reporter here to ask the question, “why would in the world would anyone jump on a plane and go to Columbus?” And those articles were absolutely glowing, so we sell ourselves short, we definitely do. There is much more to see and do here than we often think.

WE: We posted links to a lot of those stories as they started to roll in due to Skybus. After they ended up folding, a lot of people were saying it was a total waste of time, waste of money, a waste of everything… but the amount of positive press on a national level that Columbus received out of the whole ordeal might have helped balance the equation in the end.

BL: Oh, it was definitely a positive. It sort of reminded the air travel community that Port Columbus is an available, accessible airport with capacity.

WE: On a more local level, the big political issue right now is Issue 1 concerning the income tax increase and the city’s budget problems – part of which sound like they were brought on by the recession and part of which sound like they’re due to the decline in revenue. Do you have any thoughts on the state of the city budget right now?

BL: The whole point of the economic advisory committee study was that this really is not a recession driven problem, the recession didn’t help, but there is a structural problem that the amount of services the city is called upon to offer can’t be sustained with the budget of current income tax revenues that’s coming in. That’s the major source of city revenue and so it really does boil down to a quality of life question. We cannot keep hacking away at city services without an adverse effect on our quality of life, our ability to draw new residents to town, our ability to draw new companies to town. And so it is a big problem, and necessary, I think, to improve our quality of life we enjoy here.

WE: We sat down with the mayor recently to discuss the issues and one of my questions to him was the fact that, and this was based on some of the things he was saying at the time, the costs of those services have increased over the years as inflation and things just get more expensive, and that Columbus has flattened out over the years. You have fewer and fewer people living in the central city than you did 50 years ago, and the city size has grown through annexation so we’re serving a larger population over a flatter area. To provide 1,000 people with fire safety services in one dense area is much easier because you have less distance to travel than if those 1,000 people were spread out in a larger area. He acknowledged that was a valid point of concern, but the problem is how does anyone go about correcting that? How do you encourage people to live more densely? Do you think we will continue to see some sort of movement towards that?

BL: I think that the central city is becoming more attractive to people than it was before. I honestly think the Downtown plan has been a big help. We’ve certainly seen a lot more development in the urban core than we’ve seen in a long time. And when you see neighborhoods like Merion Village, Victorian Village and King Lincoln becoming more attractive and drawing people who want a more urban lifestyle, that’s certainly going to help. I think people have begun to rethink the advisability to committing themselves to a 45 minute commute every day given the uncertainty of gas prices. But one more thing about city budget and city services in general, the one thing that impressed me more than anything else while I was on that economic advisory committee, was we brought in all the major city departments who gave us presentations and showed us how they operate. I was very impressed that there was really very little waste. The departments were operating efficiently. There were no easy answers at all to that question. We certainly recommended improvements in some departments operations, but in general, there was no easy answer to the question.  There really was not the fat to cut that some people say there is.

WE: So what other sorts of things are you working on right now?

BL: I’m going to be speaking at the Columbus Metropolitan Club on August 19th. We’ve basically been thinking about where we are in the economic cycle and what the future of Columbus holds, and this forum panel is going to be centered around the discussion about the driving sectors and driving industries.

WE: Are you moderating the panel?

BL: Yes, I am moderating the panel and I’ll probably have a comment or two to offer myself, not that I’m ever shy. Just helping people understand that we do have a vibrant economy that is vibrant in ways that people maybe don’t realize. So it’s going to essentially be about “Columbus after the recession” and I think it’s going to be a cheerful little program. So, I’m working on that. I’m also about to take a look at where we are in terms of employment which I do at the end of every quarter. I put out a quarterly report that’s available on our website. This quarter’s report, the second quarter, features a mid-course correction of the annual forecasts that I bring out at the beginning of the year. This is what we thought was going to happen in January over the course of the year, this is what’s happened so far, and this is what we think is going to happen for the rest of the year. So that’s going to be a part of it too.

WE: I noticed on your LinkedIn page that you have been in your position 10 years now.

BL: Yes, 10 years this month.

WE: Congratulations!

BL: Thank you.

WE: I planning on doing a feature on Columbus Underground about where the city has come in the past ten years. I think when you pay a lot of attention to development and the economy and things like that on a daily basis, its hard to see how much has changed over time because you are watching things progress so slowly. I think it’s easy to take for granted what Downtown looked like in 1999 and even what the Short North looked like in 1999. I mean, you have a place like the Arena District that only recently opened and I think it would be an interesting look back, 10 years time, to see how much things have actually changed.

BL: Oh, I would love to help you with that. That would be a lot of fun.

WE: Are there any specific areas that you are impressed by or stood out in your mind that have radically different than they were ten years ago when you started?

BL: Downtown, without a doubt. When I started at the Chamber, I started working Downtown. Before I started at the Chamber I was way out at Rickenbacker, so it really has impressed me the impact that the downtown plan of 2002 has had on downtown. I was, I’ll be honest, just a touch skeptical when I was sitting there, I think it was in the Southern Theater, listening to all these plans about where downtown was going to be by 2012 and by golly we’re getting there. That has been a very positive thing. Certainly another change that’s happened over the last 10 years is our retail employment. The problem was that we dramatically overbuilt retail through the late 80s and most of the 90s and that left that sector a sitting duck when the 2001 recession hit we lost something like 22,000 retail jobs between 2000 and 2006. That has actually brought our numbers back into line and so I think retail is going to offer some interesting opportunity in the years ahead and I’m certainly still hoping for more central city retail. I think that’s an area of the region that is still under retailed and there’s certainly opportunities available.

WE: I’ve talked to a couple people about that, recently, as far as downtown retail development goes…

BL: Chris Boring?

WE: Yeah, I’ve talked with Chris Boring, I’ve talked with Cleve Ricksecker, and I’ve talked with Mike Brown on a couple of occasions about it. One of the reoccurring things I am hearing about it is that everyone is looking to entrepreneurialism and small business start-ups as the new face of Downtown retail. I know there has been a lot of concern with the development of Grandview Yard – they just announced their first phase of development – but that whole project seems to include more of the big-box type retail that some people would like to see downtown. Whether it’s a Best Buy or some other kind of large footprint store -we definitely have room them for Downtown. Do you also see it going more entrepreneurial?

BL: I think we really need a mix. I think there are a lot of opportunities for entrepreneurs. I go to the Pearl Market every week and it really thrills me – the energy there, the wide range of things that are available – and it’s really very cool. That really is, I think, a nice stepping stone for folks to see what the Downtown market has to offer.

WE: Well, thanks again for taking the time to sit down with me today.

BL: No problem, Walker. My pleasure!

For more information, Dr. Bill LaFayette also posts regular updates at the Columbus Chamber of Commerce Blog.

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