Central Ohio's economy has significantly outperformed the U.S. economy since 2010. But ongoing workforce concerns could constrain growth.
Peering into the crystal ball of economic conditions, Columbus-area business leaders are anticipating a strong start to the next decade—locally, at least.
Half of the respondents in Columbus CEO’s annual survey of economic conditions expect continued growth in Central Ohio’s economy over the next 12 months, even as only 22 percent are counting on improvement in the U.S. economy and a mere 14 percent believe the global economy will improve.
The local optimism is hardly surprising given the course of the past decade.
Central Ohio’s economy has significantly outperformed the U.S. economy since 2010, with employment growth of 22 percent and gross domestic product growth of 28 percent, each more than 25 percent faster than the national average, according to the report.
Charts: Survey results show most CEOs surveyed expect growth in revenue, profit, productivity and staffing in 2020; most organizations are undergoing massive change; labor, changing customer needs are top challenges; appraisals of economic environment vary.
Global expectations, meanwhile, are being dragged down by trade tensions and slowing growth in major markets, including the U.S. and China.
Local business leaders are wary of the U.S. economy, with 39 percent expecting a decline over the coming year and 37 percent believing it will tread water.
“I think it’s just the idea that we’ve now had more than 10 years of economic growth, and some people may be thinking that we are due for a recession, says Bill LaFayette, a Columbus-based economist with Regionomics LLC, who completed the analysis for Columbus CEO.Stay up to date with the region’s thriving business scene. Subscribe to Columbus CEO’s weekly newsletter.
“Expansions do not die of old age, they die because something gets out of whack,” he says. “Growth is certainly slow and that makes it more vulnerable to shocks, but there’s really nothing readily apparent that is a real danger sign at this point.”
The one real worry—if not a danger sign—is that the record-long U.S. economic expansion becomes a victim of its own success.
“It seems pretty clear to me that the slowdown is not due to underlying economic reasons as much as it is to the fact that businesses aren’t able to hire qualified people,” LaFayette says. “And that in itself could produce a slower economy.”
Although survey respondents generally say they are satisfied with Central Ohio’s workforce—91 percent rating the quality as either adequate or high—labor availability is proving to be the dominant challenge for local businesses.
“It’s a big concern for them, and it’s a big concern for me, too,” LaFayette says, noting the region’s jobs have grown more rapidly than the working age population. “You can’t have 2-plus percent growth in employment and 1 percent growth in the relative workforce forever—it doesn’t work.”
Still, Central Ohio’s tight labor market is not expected to have a significant impact on wages. More than 40 percent of businesses are planning no change in compensation, with another 26 percent intending to hold their increases to less than 5 percent.
Many executives are expecting growth to come from productivity—because even if businesses cannot add all the people they need, they can increase productivity from those already in place. That should help drive sales and profits, as 75 percent of respondents expect some degree of revenue growth over the next year and 55 percent anticipate growth in net income.
Needs and challenges
Survey respondents say Central Ohio’s business climate is attractive, thanks primarily to affordability, a collaborative culture and family-friendly environment.
When asked to identify the single most important action that would improve the local business climate, executives most frequently cited the need for better education, public transportation and affordable housing, as well as larger business incentives.
“Public transportation is especially important because it allows more people to participate in the workforce, LaFayette says. “And it helps businesses by bringing more people who might join their workforce.”
LaFayette is encouraged by the ongoing discussion around affordable housing in Central Ohio, noting the product is needed to support population growth and, in turn, economic expansion that is tied to affordable housing options.
Asked to identify the top challenges facing their businesses, respondents most often cited labor availability, changing customer needs, domestic competition and the current economic climate.
Looking at the makeup of survey respondents, LaFayette says at least one thing stands out: inexperience in dealing with a recession.
Half of those responding have experienced significant changes since 2010, with 19 percent transforming completely over the past decade. Another 10 percent of organizations did not exist when the expansion began.
“That is something that I’m a little bit worried about, personally,” LaFayette says. “(A recession) is going to come... And that is something that all businesses have to have in their planning.”