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Terre Haute forecast 2018

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Associate Professor of Economics, Rose-Hulman Institute of Technology

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Professor of Economics, Indiana State University

For the past year, construction cranes have dotted the Terre Haute downtown skyline. A building boom, led by significant capital projects at Indiana State University (ISU), is injecting new life into the downtown core.

The most obvious project to visitors is the new $64 million College of Health and Human Services building that significantly alters ISU’s “front door” on U.S. 41. It is the most conspicuous component of $83 million in capital spending by ISU in 2017. ISU has plans for a comparable amount of capital spending during 2018, centered on renovations to the Hulman Center and the Great Depression-era Fine Arts building.

In addition to this spending, private investors have been leading a charge to significantly alter residential opportunities downtown. From the $23 million transformation of the ICON property on the riverfront, to the $25 million Annex 41 development on U.S. 41, facing ISU, to smaller projects like the Haute Maison luxury lofts, almost $100 million of private investment is providing new living options in downtown Terre Haute.

In part, these private investors may be responding to ISU’s long-range plans to grow enrollment from its present level of 13,600 to 16,000. That kind of growth, if it continues, is likely to spur further development. Hence, a lot could depend on ISU. On the other hand, should ISU not be able to sustain its recent enrollment growth, there could be a glut of rental apartments in Terre Haute and the recent boom in residential investment could become just a memory rather than a catalyst for future growth.

On the jobs front, Terre Haute experienced an abnormally good spring, with the unemployment rate dropping rapidly from February to May (see Figure 1). Unlike some other recent declines in the area’s unemployment rate, which sometimes were attributable to people leaving the labor force, this spring’s improvement was unambiguously due to a strong uptick in employment. This coincided with the ramping up of construction projects around town, highlighting the importance of the construction boom to the overall health of the local economy. This could also mean, however, that the improvement could be ephemeral if those jobs disappear again when the construction projects are complete.

Figure 1: Seasonally adjusted unemployment rates, January 2010 to July 2017

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Source: Authors’ calculations, using U.S. Bureau of Labor Statistics data

Thankfully, there is other good news on the jobs front. In October, ground was broken on the new $30 million Select Genetics poultry incubation facility on the south side of town in the Terre Haute industrial park. This high-tech operation will add about 100 new jobs to the local economy. On the north side of town, Pyrolyx is building a new $25 million rubber recycling facility that will add about 50 jobs, and GATX is investing almost $40 million to expand its facility, adding another 50 jobs and making the Terre Haute site one of its four major railcar repair facilities in the United States.

Putting some of these observations together, it is not surprising that some employers continue to report difficulty in filling job openings for skilled positions. The local labor market seems tighter than it has been in years. While we do not foresee any significant change in the region’s jobs numbers or unemployment rate during 2018, this labor market tightness highlights the ongoing challenge of workforce preparation.

We would also like to note some other important challenges facing the area. One such challenge is the decline of brick and mortar retailing. In the past, Terre Haute has touted itself as a regional shopping hub. As we have noted in previous outlooks, however, investment in restaurant and retail facilities may not have done much in the past to add to employment and output. Instead, it may have merely re-sorted the retail and entertainment mix. As new retail has appeared, Honey Creek mall has lost more tenants than it has gained.

In another area, one of the largest employers in town, Sony DADC, continues to face declining demand in its markets for physical media (games and Blu-Rays) as technologies rapidly evolve. A once-booming temporary hiring market for holiday retail jobs and summer production at Sony has dissipated. Thus, jobs such as those at Select Genetics, Pyrolyx and GATX are welcome additions to the economic landscape. Given its geographic location, investment in the agribusiness sector in particular would seem to offer great promise for the Terre Haute area.

A greater challenge, and one of the questions that regional leaders should address is why the Terre Haute region’s labor force has essentially not changed since 1990? In this respect, Terre Haute is similar to Kokomo and South Bend. It is slightly better than Muncie and Michigan City, both of which have experienced declines in the size of their labor forces over that period. But Terre Haute has lagged all of the other non-Indianapolis metro areas in Indiana, who have experienced labor force growth rates between 13 percent and 38 percent since 1990 (see Figure 2). That type of increase translates into, or is the result of, economic growth. The direction of causation does not matter for the comparison. To go for so long without measurable growth in the labor force, as Terre Haute has done, translates into economic stagnation.

Figure 2: Comparative labor market growth, January 1990 to July 2017

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Source: Local Area Unemployment Statistics (LAUS) data from the U.S. Bureau of Labor Statistics

In our view, this empirical observation goes right to the heart of Terre Haute’s greatest challenge: creating a vibrant community that attracts new people and sustainable jobs to the area. With regard to this, 2017 was a good year, and 2018 is shaping up to be an important year in which residents and community leadership will be asked to make decisions that may alter the regional landscape and the business community for years to come.

During 2018, the county will face tough decisions about a new jail, renovation or replacement of its three high schools, as well as some other less significant, but important public projects, such as the addition of a regional convention center to the downtown area. At a minimum, those public projects will require $20 million in tax increases to fund the debt incurred. Should the more expensive options of those that are on the table be chosen, particularly regarding the schools, the debt burden could turn Vigo County from one of the least indebted Indiana counties into its most indebted county.

We believe that the present downtown building boom illustrates how public and private investment are combining to create a more dynamic economic environment in Terre Haute. With regard to the funding decisions that Vigo County will face in 2018, we also believe that school investment is vitally important for quality of life and workforce preparation, and would be a stronger long-term catalyst for economic growth than jail investment. Like any community its size, however, Terre Haute will not be able to do everything it desires. Nevertheless, how the community deals with these regional imperatives in the coming year may ultimately have a lot to say about what the Terre Haute economy looks like decades from now.