In some ways, today’s economic divide reflects two Americas.
Corporate entities are hoarding their cash, but many are reporting healthy quarterly earnings, especially those that tap global markets.
Privately held businesses, especially retailers, are struggling to regain the consistency that marked their pre-recession sales amid a sluggish national economy marked by sagging consumer confidence.
In this, our initial In Business Wisconsin feature, we sought a variety of opinions on whether Wisconsin businesses can outperform a weakening national economy.
Are we exceptional?
By some accounts, the “Great Recession” and post-recession period have been very different than past downturns. In the recession of 1990-91, Wisconsin’s economy outperformed the national economy, and some credited the policies of then Gov. Tommy Thompson.
Before enacting his most controversial policy, the curtailment of collecting bargaining powers for public employees, current Gov. Scott Walker signed into law several policies, including a reduction in tax rates and tort reform, that pleased business groups like Wisconsin Manufacturers & Commerce and the Wisconsin Club for Growth.
While the state economy created nearly 40,000 jobs in the first six months of Walker’s administration, the state has lost jobs in recent months as the national economy teeters on the edge of a double-dip recession. That does not portend good things for a state that had been gaining traction in the sluggish recovery that followed the Great Recession.
“No state completely controls its own economic destiny, which means Wisconsin is unlikely to achieve a full recovery until the U.S. economy rebounds,” stated Kurt Bauer, president of WMC. “But Wisconsin has enacted some key fiscal, regulatory, and litigation reforms since January that will position us to recover faster and stronger than states that have been unwilling to make the difficult but necessary choices.”
Piece of the Rock
One business that has weathered the economic rollercoaster is Rockwell Automation, whose third quarter 2011 results reflect a global business at the top of its game. The Milwaukee-based industrial automation company, which closed two acquisitions in the quarter, set new highs in quarterly sales with $1.516 billion, up 20% from the same quarter in 2010, and income from continuing operations, which rose 50% to $178.8 million, or $1.22 per share, compared to $119.4 million ($0.83 per share) a year ago.
Joe Bartolomeo, a Rockwell district manager in charge of Wisconsin, Minnesota, and North and South Dakota, is convinced that Wisconsin is capable of sustaining strong business performance. He cited a highly skilled workforce of college graduates, especially engineers, shaped by the state’s university system, and an economical infrastructure of highways, freight rail, water, and affordable energy – all of which are important to manufacturers.
“There are really heavy energy-intensive industries here in Wisconsin – pulp and paper being one, chemical being another,” he noted. “When you look at those attributes, Wisconsin does a great job of providing an economical infrastructure for not only the operation of a business, but expansion.”
The skilled workforce, however, pertains to the collegiate level. There is room for improvement with people who do not go beyond high school, a function of the skills mismatches now cited by executives and workforce development officials.
“When it comes to traditional blue-collar trades, it’s not obvious that we have a good system to nurture those who don’t want to pursue a bachelor’s degree,” Bartolomeo noted. “I’ve talked to customers who say, ‘If you look at electricians and plumbers, that’s an aging workforce. We don’t see a lot of younger people.’”
Rockwell also foresees a shortage of engineers over the next 20 years, which is in part due to negative perceptions of manufacturing – principally, a lack of glamour – among the young and, in Bartolomeo’s view, a lack of interest among government leaders in making manufacturing competitiveness a high priority.
If Rockwell has an overriding concern, it’s something that cuts across industry sectors and geography – managing different generations of workers. Baby boomers and the younger Generation Xs and Ys value different things and they have divergent interests, which present a challenge to employers. “They (younger workers) want to stay connected with computers and communicate with their friends,” Bartolomeo noted. “That’s kind of a challenge independent of whether you’re an engineer or in sales and marketing.”
One solution is to head off career angst before it becomes embedded enough to cause a departure. In addition to mentoring and training for the skill sets it requires, Rockwell employs simple outreach and awareness to explain different career tracks available to employees.
“We try to have those discussions early and often,” Bartolomeo stated. “Let’s talk about the career tracks that are available and start developing skills. There are a lot of people who will delegate their career away, and you can’t let them do that.”
Independent streak
As an independent retailer, Dan Wettstein likes hearing footsteps, but he began to sense fewer of them in 2008, when the unfolding recession hit home. Wettstein, owner of Wettstein’s in La Crosse, an independent retailer of appliances, furniture, and lighting, believes the state economy will follow the national trend.
Compared to past downturns, this one “seems to be really deep,” he said. As a retailer, he wants sales in July 2011 to exceed sales for July of the previous year, but other than occasional upticks, the revenue just “hasn’t been there” since October of 2008, which saw a double-digit drop in sales from the previous October. That occurred as Wettstein’s was heading into what is historically its biggest three-month period.
Thanks in part to political machinations of the debt crisis, consumer confidence has hit a 30-year low, and retailers could only watch in frustration as elected officials appeared to be intentionally scaring people to gain political advantage. According to Wettstein, this was reflected in their spending habits. Whereas they might have purchased a new washer and matching dryer, they would instead buy the washer and make do with the dryer they have, or they simply would put off a purchase of higher-end products.
As a result, Wettstein does not believe Wisconsin is immune to national trends. “As much as I would like to say that Wisconsin can weather the storm, I think Wisconsin, like every other state, is going to follow the nation, especially because the recession is so deep right now and, secondly, the economy seems to be so fragile,” he explained. “The consumer confidence has led to that fragility, and it’s not there month after month.”
That makes it more difficult to maintain a workforce. Wettstein’s, with 45 full-time employees, has seven fewer employees than it did in 2007. That’s partly due to the difficulty of finding people willing to work retail hours, and partly by design as a result of economic conditions. If somebody leaves the company, it doesn’t automatically hire a replacement. Management reviews the job responsibilities of the departed employee, along with two or three other employees’ job responsibilities, and determines what can be cut from or added to each.
“What happens is we end up absorbing a position,” Wettstein said, “and we’ve done that several times over the last three years.”
Another reason retail is a tough business, especially for the brick-and-mortar variety, is that online-only retailers do not have to collect and remit sales taxes (consumers are required to, but seldom do). Wettstein called on state government to address this competitive disadvantage, but the Walker administration’s position is to call on Congress to establish a national policy on how the tax is applied and collected.
Noting that La Crosse County has a 0.5% sales tax to go with the 5% statewide sales tax, Wettstein said: “Right off the bat, the Internet (only) retailer is 5.5% cheaper than we are.”
Trickle-down effect
Business is different today, and constant reinvention has become a survival skill, according to Kim Bassett-Heitzmann, CEO of Bassett Mechanical in Kaukauna. The mechanical contractor and metals manufacturer, which is observing its 75th anniversary, continues to strategically plan, research different markets to meet the demands of customers, and grow its presence in the Madison and Milwaukee markets.
Bassett-Heitzmann feels that Wisconsin businesses, which she described as conservative yet resourceful, are indeed impacted by national trends. “I think the state and national economies are intertwined,” she said. “Wisconsin will experience a negative downdraft if the national economy declines substantially.”
The business leaders that Bassett-Heitzmann speaks to have maintained a sense of optimism, but a little more help from the state and federal governments would do wonders. She gives state government credit for balancing the budget without increasing taxes, but she worries that it’s sending the wrong signals on the green economy. A Walker administration proposal to change the setbacks for wind towers would have represented a missed opportunity for Bassett Mechanical to build them and others to erect them or maintain them.
“That would have killed the wind industry for Wisconsin, which in turn would affect job creation because you can’t build the towers, and there’s no need to transport them and no need to erect them. It would have had a very bad trickle-down effect on people.”
At both levels of government, regulations should be evaluated because excessive regulation raises the cost of doing business, she said. “When costs increase, it’s more difficult for customers to justify purchasing your product or service, which in turn makes it less competitive and makes that customer look to other states or even other countries.”
Tight credit is another concern, she noted, especially with bank regulators making it harder for banks to fund projects. “I just heard from a bank president that banks have the capital to release,” she noted, “but regulators are making it difficult because you have high standards now where you have to meet so many different criteria to get the money.”
Wired for growth
Brian Wagner, operation manager with Minnesota Wire & Cable, which employs 110 people in Eau Claire, acknowledges his company, which has few customers in Wisconsin, marches to a different drummer. Due in large measure to the health of the medical industry, the company enjoys annual growth averaging from 3% to 5%. But on occasion its annual revenue spikes up, as it did in 2010 when Oshkosh Truck landed a large defense contract and Minnesota Wire brokered a component of that, making cable assemblies that went into communications and antennas for the vehicles. Its sales grew 30% that year, lending legitimacy to its decision five years ago to start building defense-related products.
The Eau Claire facility serves as the manufacturing arm, and the St. Paul office houses development, engineering, sales, and administration groups. Roughly 80% of its sales are domestic, and 20% are overseas. “The defense industry took a big rise in expenditures over last couple of years, and we’ve reaped the benefit of that,” Wagner acknowledged. “The continual malaise of the national economy so far hasn’t had a direct impact on us, other than maybe we could have had a better current year than we’ve had the past couple of years.”
Talk of defense cuts in the debate over the federal budget deficit has Wagner thinking he’ll see fewer revenue spikes, but “steady growth of 3% to 5% will be just fine for us,” he noted. “If you look at our medical manufacturing, it has been the source of most of our growth over the past 20 years. It’s that 3 or 4 or 5 percent that is usually medically based, and we’ll continue to depend on that.”
Wagner also cited the concern of tight capital, which can impact product churn. “We’ve seen cycles where products start to get developed, go through Food and Drug Administration approval, and then when money is tight, they don’t get made,” he said. “When money loosens up, then products become more readily available for development and production.
“We’ve got to have turnover. We’ve got to have change. We have not built the same product for the past 20 years. We continue to make what’s new about one-third of our products every year. We lose one-third and one-third is stable, but we need to see continual growth.”
Located near two universities, UW-Eau Claire and UW-Stout, and Chippewa Valley Technical College, Minnesota Wire has no trouble finding young people with the necessary skills (IPC 620 standards for cable and wire), and it has relied on a fair number of people who lost jobs with other employers. The company has a good relationship with contract laborers, and it has developed a variety of training programs where people can be generally or specifically trained, depending on how fast it needs to ramp up its workforce for occasional work spikes.
“We’ve done quite well at developing a system where that happens on a regular basis, where we go up and down with capacity demands,” Wagner said. “We’ve collaborated locally with CVTC on training programs and they actually teach some of the things we require people to have before they enter the workforce.”
250,000 reasons to believe
If the U.S. experiences a double-dip recession, Gov. Walker could be hard-pressed to reach his goal of 250,000 new jobs in four years. “I believe the goal is absolutely achievable, provided the national and global economies don’t slip back into recession,” Bauer noted. “Again, Wisconsin can only do so much to control its economic fortunes during an economic downturn, but I believe that Wisconsin’s job growth is outpacing most other states’ because business leaders like what they see happening in Wisconsin. Confident businesses are more likely to hire.”
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