2016: Trends and Predictions

January 20, 2016

By: Jon Roberts, Principal, TIP Strategies

There is something irresistible about making New Year’s predictions. Never mind that things always turn out differently than we expected. It’s an exercise worthy of the effort. From an economic (and economic development) perspective, 2015 was certainly an odd year. The biggest news was probably the precipitous decline in oil prices.

Global price of WTI crude_DailySource: International Monetary Fund, Global price of WTI Crude [POILWTIUSDM], retrieved from FRED, January 18, 2016

The effects of this decrease will continue to be felt in the new year. While good news for consumers, the drop hit oil-producing regions especially hard (nationally and internationally). The ripples are being felt in the renewable energy market and in the automotive industry (with lagging hybrid and electric car sales). It even has significant implications for the reshoring of manufacturing companies (due to the reduction in shipping costs). Of course, the job market in domestic oil and gas producing regions has suffered accordingly.

So what does this mean for 2016? Will prices remain low? My friend Chris Tomlinson of the Houston Chronicle predicted the coming price drop, and I’m persuaded that he’s right. Prices will remain low throughout 2016.

From energy let’s move to technology, especially automotive technology. By now we’ve come to realize that some of the biggest breakthroughs are in relatively mundane sectors. Uber and Lyft are nothing more than apps that rely largely on ordinary mobile devices. The implications of these services, however, are wide-ranging. Can we imagine a generation for whom car ownership is of little importance? We can, because they are already among us. Add to that radical breakthroughs in driving-assisted technologies, and the future of the auto industry suddenly begins to look very different from what it does now. Is this a prediction for 2016? Yes it is. But the changes will be incremental. And it’s only when we look back from, say, 2025 that we’ll realize how profound the changes have been.

On a related note, the Tesla battery factory in Reno deserves prominent attention. Tesla’s site selection can be seen as a way to stay in California without paying California taxes. It’s less than a four hour drive from the Tesla HQ to Reno, and a lot less if you are in a Tesla without CHIPs to patrol you (funny how word associations change). What Tesla’s energy innovations mean for 2016, especially in light of low oil prices, makes for interesting speculation. Will there be fewer Teslas sold? Or will the firm’s auto sales be only a small part of a larger battery technology play? Elon Musk is spearheading a move on the energy grid, targeting commercial and residential customers. I think it’s safe to assume that the impact of battery storage in the building industry will be as significant as anything in the automotive realm. Commercial battery storage will make news in 2016, but the implications will be with us for the rest of the decade.

The other inescapable economic story of 2015 was income inequality. The following chart (courtesy of National Public Radio) gives a remarkably broad perspective on the subject:

IncomeGrowthChart-NPRSource: World Top Incomes Database via Quoctrung Bui/NPR, Note: Income is inflation adjusted in 2012 dollars

Going all the way back to the 1920s, we can see that the “rise of the 1%” doesn’t begin in earnest until the early 80s. And it doesn’t exceed the rate of income growth of the bottom 90% of earners until after the year 2000. So the question for 2016, and well beyond, is: What will the chart look like? Will the extremely wealthy get more so? And will it come at the expense of the bottom 90%? The answer to the second question is usually assumed to be yes. But, in reality, the equation is complicated. Income inequality is not inherently negative. If we could achieve a significant reduction in poverty, even if a large disparity remained, would that be a bad thing? The better way to frame the question is how much “inequality” can the economy tolerate? This brings us to Thomas Piketty’s much-discussed thesis. If the rate of return on wealth exceeds economic growth, then inequality increases—and that (implicitly) becomes unsustainable. 2016 won’t bring an answer, but we can safely predict that it will be a pressing topic. Why? Because 2016 will see one of the most contentious elections ever. Among the issues will be income inequality and what to do about it.

One topic, however, will be conspicuously absent from the political debate: the impact of technological advances on the economy. Why is that? Because the relationship of technology to economic growth is difficult for politicians— and economic developers—to address. Technology companies–and the Silicon Valley model–remain the Holy Grail of community leaders. The reality, again, is much more complicated. At TIP, we have been arguing for years that the job growth potential of tech companies is nowhere near what the economic development world assumes it to be. Jerry Davis, a professor at the University of Michigan’s Ross School of Business, makes this point convincingly in an article for Brookings, in which he points to research documenting the growing disconnect between high-valuation companies and job creation. (See table below.) With the exception of Walmart, the top five US corporations in terms of their market capitalization in 2012 employ a fraction of the workforce that firms at the top of the list did 50 years previously.

Top Five Market Cap

Source: Compustat, as published in “Capital markets and job creation in the 21st century,” by Jerry Davis for the Center for Effective Public Management at Brookings, December 2015

Corporate (and stock) valuation is not a function of employment and hasn’t been for some time. Interesting, then, to compare corporate valuations with the income growth graph. To put it bluntly, there is a negative correlation between the use of technology and the need for workers—skilled or otherwise. It may be regrettable that none of our presidential candidates are willing to tackle this issue, but it will be front and center in cities and regions across the country.

Energy, equity, and technology are sure to be pressing issues in 2016. We would do well to rethink the relationship between economic growth and employment growth. Let that be our New Year’s resolution.

TIP Strategies Announces Seattle Office Expansion

January 18, 2016

By: TIP Strategies

Ashton headshotAshton Allison, CEcD, joined TIP Strategies’ Seattle office as a consultant this month. Ashton has over 14 years of experience in marketing and economic development in the private, public and nonprofit sectors. He specializes in economic development marketing, including historical marketing analysis, strategic communications planning, branding, copywriting, media strategy and placement, community relations, and earned media strategies.

Before joining TIP Strategies, Ashton worked as an economic development practitioner and director of marketing for the Amarillo Economic Development Corporation (EDC). During his time there, Ashton was responsible for creating and managing the organization’s annual plan of work, strategic communications plan, and lead generation program. His work earned a Gold Award from the International Economic Development Council (IEDC) in 2011.

Prior to working for the Amarillo EDC, Ashton served as the executive director for Entrepreneur Alliance, a consortium of organizations promoting entrepreneurship and providing assistance to small business owners in the northwestern-most 26 counties of the Texas High Plains.
He started his career and spent over six years at a full-service marketing firm, where he served as a manager and copywriter for the Amarillo EDC account.

Ashton holds a Bachelor of Business Administration degree in marketing from Baylor University. He achieved his Certified Economic Developer (CEcD) designation through the International Economic Development Council in October 2014.

Tom Stellman, TEDxBrookings, and the Geography of Recovery

January 15, 2016

By: TIP Strategies

In October, TIP Strategies founder and CEO, Tom Stellman was featured as a speaker at the independently organized TED talk event, TEDxBrookings. His presentation was part of the “Origins of Community” session and has recently been released on YouTube. Tom’s talk addressed the changing geography of jobs before, during, and after the Great Recession.

The changing landscape of jobs is a topic we return to regularly at TIP Strategies. Beginning in the spring of 2008, we sought to visualize the answer to a seemingly simple question: How did the impact of the recession play out across the country? Our original interactive map, The Geography of Jobs, (revamped in 2014) became a widely distributed illustration of the dramatic gains and losses of the Great Recession. Yet we felt that part of the story was still missing. While the media were touting the “recovery” of all jobs lost since the start of the recession (a milestone achieved at the national level during the second quarter of 2014), we were seeing a different picture on the ground.

Our latest visualization, The Geography of Recovery, seeks to illustrate the cumulative impact of the Great Recession. Using the same data that fed the Geography of Jobs, we’ve taken a different approach, comparing employment levels in each metro area to the number of jobs reported at the beginning of the economic downturn. The result is decidedly less dramatic visually, yet a striking revelation is exposed: the unevenness of the recovery. As of July 2015—more than one year after the country returned to pre-recession employment levels—fully one-third (120) of the more than 300 areas analyzed had not yet recovered the number of jobs lost during the recession.