Government, not economy, biggest concern for Iowa business in 2014
Survey finds tempered optimism among business leaders
The day after the federal budget deal was announced in mid-December, Walter Corey noticed his backlog for orders went up 10 percent.
It's circumstantial, the president of Pickwick Manufacturing Services admitted. But it also reflects how closely businesses are watching what's happening in Washington.
“The problem as I see it — it’s not the economy, that’s recovering — the problem is the polarization in Washington, D.C., and its inability to set aside ideologies and be realists,” Corey said.
After years of slow economic recovery, political fighting in the nation's capitol and changing health care laws, the budget deal that President Barack Obama signed on Thursday that set 2014 fiscal year spending at $1.012 trillion and averted $63 billion in sequestration cuts did appear to offer an incentive for optimism for Iowa business leaders.
According to a December forecast from the Iowa Business Council, 90 percent of chief executive officers expected steady or increased sales through May 2014, while another 90 percent anticipated steady or increased capital spending. Eighty-five percent of respondents said hiring levels will remain steady or grow in the next six months.
The quarterly survey asks the top executives from Iowa’s largest companies, the Iowa Banking Association and three public universities about their expectations on sales, capital spending and employment for the coming six months. The companies combined directly employ a quarter-million workers.
That sentiment of tempered optimism was expressed by other companies in the Corridor. At Pickwick Manufacturing, Corey said he hopes to hire 100 people in 2014, a process that he already has started.
"Next year is looking better for us," he said.
Pickwick Manufacturing uses lasers to cut sheet metal for parts and fabrications. It works with companies worldwide, making such diverse products as greens rollers used at an Australian golf course to parts for a scanning system for an English company for quality control.
Businesses generally come to his company when they’re seeking to grow or expand, he said. But those plans can be put on hold when the government is lurching from one crisis to another.
Dave Gosch, senior public relations specialist for Rockwell Collins, said the December budget deal and the elimination of the sequester cuts was a positive step.
“By eliminating sequestration, the Department of Defense can now plan its budgets in the upcoming two years without having to make across the board cuts,” he said. “We view this as a much more common-sense approach to budget planning and will help companies like ours plan for the future as well.”
The avionics and communications company had said earlier this year that it was anticipating a $200 million impact in fiscal year 2014 because of the across-the-board spending cuts known as sequestration.
Rockwell officials are now re-evaluating that, Gosch said, adding “we don’t know the details, (but) it is encouraging news, and it will have a positive effect on the aerospace and defense industry as a whole.”
The company plans to continue the gradual ramping up of its international sales, which made up 36 percent of total sales in fiscal year 2013, he said. Rockwell projects international sales will reach 50 percent by the end of the decade.
"Globalization and the rise of emerging economies in Brazil, Russia, India and China, along with growth in the Middle East, have presented great opportunities for Rockwell Collins," Gosch said. "We are taking advantage of those opportunities by expanding our presence in those counties and strengthening the relationships we have already established."
Tale of two agricultures
For farming, 2014 will send a mixed message — crop prices will be down from 2013 while livestock prices will be up, according to Dave Miller, director of research for the Iowa Farm Bureau.
"It's the tale of two agricultures," he said, corn prices could be down as much as 40 percent while soybeans could be down between 10 to 15 percent. "The last few years has been good for crops but bad for livestock."
Land prices may also start to fall — though it won't be anything like the crash in the 1980s, Miller said.
"Bids have softened a bit," he added. "I'd say they'll fall between 5 to 15 percent from their peak."
State averages were about $8,600 an acre, he said, but some sold for as much as $12,000 an acre.
The agriculture industry also will continue to wait for a farm bill, Miller said. Congress passed a one-year extension in December 2012 but has been unable to agree on a new five-year bill.
"People seem more optimistic that it will come together in 2014," he said. "We're hoping that when Congress comes back from recess, they'll pass one in January."
The trucking industry likely will see more of the same that it saw in 2013, said Mike Gerdin, chairman and CEO of Heartland Express in North Liberty. That's both good news and bad news.
“The economy is going to be pretty flat — not terrible like in ’09 and ’10, but not robust like in ’06 and ’07,” he said. “It will be nice and steady, so we can’t complain — but we’re not thrilled.”
He also anticipates the company will move the same amount of freight as last year and will continue to look for more drivers.
Trucking companies industrywide are concerned about a driver shortage. The long hours and thousands of miles on the road make it hard to recruit and retain employees.
“It’s a tough job,” Gerdin said. “It’s a struggle to find workers, which is sad since the unemployment is where it is. It’s an industry problem, wages need to be increased but we don’t have enough leverage with our customers to increase prices.”
Heartland Express, which has about 5,000 employees, including drivers, mechanics and other non-drivers. Gerdin said the company could stand to grow its employee base between 10 to 12 percent.
CRST Expedited in Cedar Rapids announced in October that is would increase overall driver pay by $10 million to combat the shortage, hoping that the higher wages would retain more employees and draw in new ones. President Cameron Holzer said CRST Expedited’s driver base is short about 200 drivers.
This combined with federal regulations that began in January 2013 that limit the number of hours a truck driver can operate his vehicle, in an attempt to reduce fatigue-related accidents, can make hiring, to say nothing of logistics, even more challenging.“We have more freight to haul than we have trucks,” Gerdin said. “And we don’t have enough drivers to put in the seats.”