Rockford Files - March 2001
The Washington Post
Copyright 2001, The Washington Post Co. All Rights Reserved
Sunday, March 25, 2001
Financial
A Barometer in the Heartland; Rockford, Ill., May Hold Clues to Shifts in U.S.
Economic Climate
Steven Pearlstein
Washington Post Staff Writer
ROCKFORD, Ill.
If recession overtakes the U.S. economy, chances are it will make an
early appearance in this fortified outpost of the old economy.
DaimlerChrysler AG has already announced it will drop the second shift at its Neon plant in nearby Belvidere, idling 900 workers. Up the road in Harvard, Motorola Inc. is shutting its new cellphone plant  2,500 more manufacturing jobs gone.
At auto parts suppliers, overtime has disappeared for thousands of workers who had built a lifestyle around the extra pay, while legions of "temps" have lost their jobs altogether.
Still, at Contry Homes, the area's largest home builder, "the phones are ringing, people are showing up at the open houses and sales are pretty steady right now," said Joe Contarino, the company's president.
"The economy locally looks good."
In Rockford, as in much of the rest of the country, economic strength
and weakness seem to have settled into an uneasy coexistence. It's hard to find someone who hasn't already been touched by the economic slump that began to show up last summer. But it's even harder to find someone who thinks it adds up to a recession  at least not yet.
"I was in Texas in the early '90s, so I know what a recession looks like  and it doesn't look like that here now," said Robert Larkin, head of commercial lending for the Rockford office of Firstar Bank, where loan volume remains brisk.
Over the past couple of months, the hopeful chatter in Rockford's business community has been that things would begin bouncing back as automakers and other manufacturers worked off excess inventory  an optimism reinforced by key policymakers at the Federal Reserve.
But in Rockford as elsewhere, the anticipated rebound has failed to materialize even as service companies with big local operations  WorldCom Inc. and United Parcel Service of America Inc.  have warned that they, too, are beginning to feel the impact of the downturn.
"Companies have done so well for so long that they have been able to ride through this for a while," said Thomas Furst, whose personnel firm used to provide temporary workers to many of the biggest companies in town. "But my sense is, that is coming to an end. If things don't get better soon, I'm afraid there will be another big round of layoffs."
Furst's concerns apparently are broadly shared on Wall Street, where a steep decline in stock prices over the past two weeks reflects a similar apprehension about the prospects for a quick rebound.
Companies as bluechip as Procter & Gamble Co. have announced major layoffs, while solid hightech firms such as Intel Corp., Cisco Systems Inc. and HewlettPackard Co. have announced they don't expect sales to rebound before the end of the year. Airlines report a sudden falloff in business travel, and profits are sinking fast at banks and investment houses. Forecasters who only two months ago were redicting a soft landing for the economy now put the probability of recession at 40 percent or more.
Done That
To Rockford residents who lived through the 1980s, all this probably seems like tame stuff. Back then, companies were leaving or closing their doors at such a pace that the city's unemployment rate briefly topped 25 percent, the highest in the nation. Industrial property was of so little value that one developer made money tearing down a factory and selling the individual bricks to Holiday Inn. Wages fell, and job openings routinely attracted a thousand applicants.
Since then, Rockford has moved to diversify an economy long reliant on making machine tools and components for the auto and aerospace industries. Outcroppings of high tech can be found in the new industrial parks that have sprouted on the city's east side, alongside medical complexes and shopping centers that now draw from a wide area of northwestern Illinois. And what remains of the industrial base has been modernized, restructured and retooled to compete in a global economy  so much so that the number of manufacturing jobs has increased over the past decade even as they fell nationwide.
"This area has learned a lot from the '80s fiasco," said Tracy Newnam,
director of engineering for Danfoss Drives, a maker of variablespeed
motor controls that recently broke ground on a new $18 million facility on the south side of town. "The businesses that survived are pretty solid companies  more diversified, bettermanaged, certainly more efficient."
Danfoss itself is a good example. The Rockford operation was bought more than a decade ago by a Dutch company that invested in new products and opened new markets around the world. And with a booming market for energyefficient heating and airconditioning units, executives back in December thought they could buck the overall downtrend and grow 25 percent this year. As it turns out, however, orders are barely running at the same pace as last year.
While Danfoss holds the line on employment and fills jobs that come open, other Rockford companies have been forced to cut back. The local unemployment rate, unadjusted for seasonal variations, jumped to 6 percent in January as initial claims for unemployment benefits ran 25 percent ahead of the same month in 2000.
In line to file for unemployment benefits one recent day was Keyondia
Watkins, 21, who was put out of work for the second time in a year. This time she was laid off by Anderson Packaging Inc., where she had been putting teethwhitening strips into plastic packs as a temporary
contract worker  a common arrangement now in the manufacturing sector. Before that, she was laid off by Adams Warner Lambert Co. after eight months of pulling peppermint chewing gum out of giant vats.
Ripple Effect
The impact of such layoffs is just beginning to spread.
At Cherryvale Mall, the area's biggest shopping center, sales began to fall behind the previous year's numbers in October, were off 7 percent at Christmas and haven't rebounded much since, according to figures distributed to retailers by the mall's owners. But as in the rest of the country, sales of highend luxury goods have been holding up surprisingly well. William Laird Fur Co. reported that its sales were up 20 percent in the past two months over 2000, after a record Christmas season.
"When it's cold, people buy furs, and this winter it was very cold," explained Eva WilliamsLaird.
Sitting  furless  at the mall that same evening, Chad and Susan Newsome watched 2yearold Keaton romp in the children's play pit as they reflected how their own lives intersected with the economic downturn. Chad's job at a booming software company allowed the couple to build and furnish a new home last year. But more recently, Susan, a human resources administrator, has been working on the plans for a major layoff at her consumerproducts company, the first in 20 years.
"A year ago we couldn't get them to work all the overtime hours we needed, so this is going to be a shock," she said. "Many of these people won't get jobs so easily."
Tellingly, the Newsomes have decided to hold off buying the new $30,000 sportutility vehicle Chad's been eyeing  not so much because they don't have the money but because they may need it later. Similar apprehension has driven down consumer confidence across the country.
None of this would come as a surprise to Pat Bachrodt, president of Rockford's largest family of auto dealerships. Bachrodt said sales of
new domestic cars were down 20 percent in the past two months. That's
better than his sales in November and December, but still not enough to work off the unsold inventory of Chevys and Jeeps.
"At this rate it will be six weeks, at least, before I start ordering
anything from the manufacturers," Bachrodt said. At the same time, he
said, sales of higherpriced BMWs are brisk, and he can't keep enough
Volkswagens in stock.
Also mirroring national trends, the real estate market in Rockford is
beginning to show cracks. Although the housing market has been buoyed by lower interest rates, commercial real estate is showing signs of softness after a decade of rapid  perhaps too rapid  growth.
Prices for raw land, which had been climbing 15 percent a year, are no longer rising. Vacancy rates for retail, office and industrial space are rising fast as smaller, weaker players are forced out of business. Hotel occupancy rates have fallen.
Recently, First Rockford Group, the area's biggest developer, pulled the plug on a $40 million technology park announced with much fanfare
last August because the two anchor tenants got cold feet.
“Both businesses are still doing very well, as far as I know," said the developer, Sunil Puri. "It's just with the economy as it is, they felt uncomfortable making a commitment."
Manufacturing Slump
Continued strength in the worldwide aerospace business has provided steady employment at two of Rockford's biggest employers, Hamilton Sunstrand Corp. and Woodward Governor Co. But prospects for others are less secure  such as Ingersoll Milling Machine Co., which has been producing the big machines used to grind, bore and cut metal parts since the days of Henry Ford's Model T.
Until 1997, Ingersoll was working flat out to produce a new generation of highspeed, computercontrolled equipment for the booming auto industry. But once the automakers had invested hundreds of millions of dollars to retool their factories, orders fell 35 percent. They haven't recovered much.
Ingersoll's plight is symptomatic of problems facing manufacturers of
many categories of business equipment across the country, from computers and optical routers to assemblyline robots. After investing record amounts of money in the latest equipment, American business won't really buy as much until that equipment wears out or becomes obsolete. And in an increasingly hightech economy, the economic cycle and the technology cycle are moving in tandem.
The cycle for companies like Ingersoll is definitely on the downslope.
Over the past year, more than 250 jobs were eliminated through layoffs and attrition and a profitable cuttingtool division was sold to generate cash for the rest of the business, which began losing money in 1998. Now, to find profitable work for the remaining 1,300 engineers and highly skilled machinists, Ingersoll has shifted its marketing efforts to the healthier aerospace and powergeneration industries, submitting 200 bids in February alone.
"I don't think it's a recession, at least not yet," said Rod Drummond,
Ingersoll's chief operating officer. "There's still quite a bit of opportunity out there  it's just in different places."
Peter Provenzano knows all about finding opportunity in new places. Three years ago, his family's small purchasing company beat out several billiondollar firms for a Pentagon contract to supply military depots in the Midwest with everything from bolts and light bulbs to offtheshelf heating and airconditioning units. Now Rockford is looking to growing entrepreneurial companies such as his SupplyCore.com to pick up the economic slack created by big company layoffs.
Over the past three years, SupplyCore.com has hired 60 employees, with 40 more expected to be added by the end of the year. Provenzano recruited his top managers from the staff of the local community college, picked up experienced purchasing managers from local manufacturing firms and even turned a few of Rockford's young machinists into computer programmers. But in a community where fewer than a quarter of workingage adults have a bachelor's degree, service companies such as SupplyCore.com are unlikely to offer an alternative to metal forgers and auto workers being laid off by the region's biggest employers.
"In most cases the people being laid off do not necessarily have the skills of those being hired," said Joseph Huggins, director of the Office of Employment and Grants at Rock Valley College, who has worked at the local employment office since 1983. He predicted that by June, the new hires won't be able to make up for the large layoffs that are scheduled to take effect.
Still, there seems to be a gritty determination among Rockford residents to roll with the economic punches.
Last August, for example, Anjoe Suan was laid off from his $12anhour job at a local autoparts manufacturer, where he produced bearings for alternators, just weeks after moving into a new and bigger house. Now, most days he takes care of the two kids while his wife, a registered nurse, holds down two jobs that pay as much as $45 an hour. And the medical sector looks so good that he has enrolled in a program that should earn him a nursing degree in three years.
"We just bought a riding mower and a 32 inch Sony TV," said Suan, 32, a native of the Philippines. "For the moment, we're okay." |
