Recessions are inevitable, but when the next one will come and how hard it would hit the Dayton region remain big questions.
Even if a slowdown comes this year, our region is better prepared to weather it than when the Great Recession hit more than a decade ago, local government and development officials said. The local economy is now more diverse, less reliant on the automobile industry and gaining jobs from expanding missions at Wright-Patterson Air Force Base.
“Local companies survived the Great Recession by working to diversify their sales markets and customer base. This puts them in a more competitive position to respond to any potential economic downturns,” said Erik Collins, Montgomery County director of economic development. “The region is also in a better position because communities have cultivated a broader base of businesses by attracting foreign direct investment and promoting industries like logistics, medical manufacturing, technology and aerospace.”
The Dayton Daily News Path Forward initiative seeks solutions to the most pressing issues in our community, including making sure the region is prepared for the economy of the future. This story digs into the question of whether a recession is coming soon and, if so, how it might affect the Miami Valley. We also wanted to know what the region learned from the Great Recession, which spanned December 2007 to June 2009.
Many of the experts the Dayton Daily News spoke to are cautiously optimistic that we can avoid a downturn this year, despite volatile stock markets and mixed economic data.
And everyone we spoke to hopes that the next slowdown won’t match the ferocity of the Great Recession that combined a global financial meltdown with a home foreclosure explosion.
Local unemployment rates soared close to 12 percent in Montgomery County by 2009 as Delphi and General Motors shut down their plants, eliminating nearly 8,500 jobs here between 2003 and 2008. In 2009 NCR moved its headquarters to Georgia, costing 1,250 good-paying jobs. DHL left Wilmington, eliminating 7,000 jobs in 2008.
“We can call that a perfect storm of badness back then for the Southwest Ohio region, (but) I’m guessing we won’t see something like that again,” Sinclair Community College President Steven Johnson said. “We’re hoping if we have a recession, it would certainly be milder than the last one.”
The last recession led to greater collaboration between government, social services and educational institutions tasked with helping local people who lost their jobs, he said. Sinclair ramped up programs to handle a surge of students, about 8,000 of whom were displaced workers in their 30s and 40s needing retrained. The consequence of that resonates in an improved workforce, trained for today’s jobs.
“The good news embedded within the Great Recession is it tested us and we passed,” Johnson said.
Could downtown housing boom go bust?
Housing was hit hard during the last recession. So could a downturn halt the current downtown Dayton housing boom?
Apartments and condos are being leased or bought as soon as they go online, said Eric VanZwieten, head of public relations and marketing for the Windsor Companies, the Columbus-based developer of the Fire Blocks District, the Grant-Deneau Tower, and the Graphic Arts and Firefly buildings.
“My gut is people are keeping an eye on what happens with the markets, but I don’t know that there is any imminent fear right now,” said Jason Woodard, principal at Woodard Development, a Dayton firm that is co-developer for the massive Water Street District and the Avant-Garde building.
“Lenders have been pretty prudent since that last recession,” he said. “They’ve stayed persistent in doing due diligence on deals. We haven’t seen lenders pull back.”
The long-delayed Arcade redevelopment — a planned mix of commercial, educational and residential uses — has begun and an array of small retail businesses as well as firms like Beavercreek defense contractor JJR Solutions are moving downtown.
JRR Owner Dave Judson is moving into Avant-Garde because he needs more space, the cost is less than what he pays in Beavercreek and the location should help him attract talent in the extremely competitive high-tech job market.
“When you look at the things that are happening in downtown Dayton — not only the economic development pieces — but when you look at the Arcade and the different restaurants and pubs, it’s the walkability,” Judson said. “It matches our culture better and the things we are doing to recruit employees.”
One result of the last recession was a decline in the value of downtown properties, making them more affordable as developers move to capitalize on a growing demand for urban living, said Sandy Gudorf, president of the Downtown Dayton Association.
“What we’ve seen is instead of investors picking up buildings because they are cheap, they are picking them up so they can reinvest in them and transition them to a higher and better use, whether it’s housing or mixed use,” Gudorf said. “I think the various investors and developers who have chosen to locate here have the stability to withstand economic downturns.”
The broader housing market also has recovered, with $2.5 billion in sales in Montgomery, Greene, Preble, Darke and northern Warren counties through November, according to the Dayton Realtors. In 2011 — the worst year for sales in the recession’s wake — sales totaled $1.2 billion.
Jan Leverett, the group’s president, said she doubts lenders will return to the practices that led to the sub-prime mortgage crisis, although it worries her that at least one company now offers a no-income verification mortgage, one of the things that contributed to the last crash.
Mixed economic signals
On its face the economy is strong — a slow, steady expansion that will be the nation’s longest if it lasts past July. Consumer confidence remains strong, unemployment is at historic lows and companies are hiring at a frenzied pace. Workers have started to see more money after years of wage stagnation as companies raise pay and add benefits to attract and keep qualified employees.
Federal Reserve Chairman Jerome H. Powell said last week that the “the U.S. economy is solid” and he doesn’t foresee a recession coming in 2019, the Washington Post reported.
In the Dayton Metropolitan Area — Montgomery, Greene and Miami counties — unemployment was 4 percent in November, down from 4.2 percent in October, according to non-seasonally adjusted federal data.
“Locally we are continuing to see strong economic confidence,” said Chris Kershner, executive vice president of the Dayton Area Chamber of Commerce. “Consumers are spending, businesses are investing and the economy is growing.”
He pointed to corporate investments in the region, including Verso Corp. moving their headquarters from Memphis to Miami Twp., Taylor Communications bringing 700 jobs downtown, CareSource investing in a second downtown building, online retailer Chewy announcing it would bring 600 jobs to the Dayton International Airport and the U.S. Air Force choosing Wright-Patt for a new F-35 mission and 400 related jobs.
Jeff Hoagland, president and CEO of the Dayton Development Coalition, points to other companies that have either expanded or located here in recent years, including Midmark, Hematite, GE Aviation and Amazon Air, which is locating at the Wilmington Air Park abandoned by DHL.
The coalition gets lots of inquiries from companies interested in locating or expanding here, Hoagland said, and he called it the “healthiest pipeline that we have ever seen” since the group became part of the state’s JobsOhio economic development arm in 2012.
“We all know what could happen if the economy slows down or stops and the stock market starts to go down or stays down. That’s when I think companies will start to hit the pause button,” Hoagland said. “But we haven’t seen that. That’s why I say, ‘Check back in a few months.’”
Some worrisome signs exist locally.
“While most of our country is feeling pretty strong right now, we are not seeing that here as far as visits to our pantry,” said Mike Lehner, spokesman for Catholic Social Services.
He said 2018 numbers aren’t finalized, but in 2017 the nonprofit served about 15,800 clients. That’s more than the nearly 12,300 people they helped in 2008 when the country was in the grip of the Great Recession.
“We are seeing a number of people who are employed coming to us for help because their paychecks are not covering what they did 15 or so years ago,” Lehner said.
‘Ohio has always suffered recessions worse’
The Dayton region still hasn’t recovered jobs lost since the 2001 recession, said Bill LaFayette, owner of Regionomics, a Columbus-based economic and workforce strategy firm. In November 2018, the Dayton Metro area had 393,700 jobs, nearly 34,000 less than in May of 2000, he said.
“I’ve looked at every expansion and contraction since 1939 and Ohio has always suffered recessions worse than average. And that’s because of the manufacturing focus,” LaFayette said.
Also of concern are the economic slowdowns in Europe and China, the trade war and tariffs driving up some costs, and stock market turmoil that has worried investors and hurt everyday people, who have seen their retirement funds shrink.
In December, for the first time in a decade, the yield on short term bond rates exceeded that of long-term bonds, which is called a “bond yield curve inversion” and is a reliable predictor of a recession occurring in about one year. That inversion prompted the Federal Reserve Bank of Cleveland to increase its estimated chance of a recession by December 2019 to 24 percent, said Ned Hill, professor of economic development Ohio State University.
It’s important to remember that the stock market isn’t the economy, Hill said, “but over the long run the stock market roughly gets it right.”
“Typically market volatility is not important for underlying economics until it starts to effect household behavior,” said Richard Stock, director of the University of Dayton Business Research Group.
The economy always has highs and lows, LaFayette said, it’s just a question of when and how severe.
“The consensus of the economic community is that we are OK for 2019,” he said. “But for 2020, not so much.”
The Dayton region has been doing a lot right to prepare for the next downturn, economist Andrew Kidd said, including bringing in new industries, developing downtown and improving the airport.
Kidd, who is with the Buckeye Institute, a conservative Columbus-based think tank, said those moves will “make the region more attractive for businesses. It still has a way to go to become like Columbus with its booming population, job opportunities and business growth, but Dayton is on the right track to redefining itself and its economy beyond its manufacturing roots.”
Downtown Dayton development by the numbers
1,585: Market rate housing units
97.5 percent: Downtown apartment occupancy rate
57 percent: Increase in housing units since 2010
32: New downtown businesses in 2018
Source: Downtown Dayton Partnership November 2018 report