The upside of the down economy
Business may seem bleak in the capital city, but there are reasons for optimism
The cold December wind sweeps through the quiet parking lot of Dane’s Discount store, where a large sign proclaims, “STORE CLOSING” above shiny new motor scooters with prices slashed in half.
Inside, the store is eerily quiet. Barely audible is the cheery music that trickles through speakers overhead, and the usual jolly crowds of holiday shoppers are replaced by a handful of solitary bargain hunters sprinkled sparsely through the aisles. The six-year-old store is closing its doors for good at the end of the year, and the atmosphere there mirrors the solemn mood of owner Dane Wacaser.
“It’s very frustrating,” Wacaser says, glancing pensively toward the floor. “We’ve done our 65 hours of work each week for six years, and to see it not work is pretty disappointing. We’ve been going backwards since the fourth quarter of last year. We’re looking down the road and don’t see a change in the near future.”
Wacaser and his two sons run the store, which features one-time bargains snatched up in bulk and offered to customers at a discount. Now the task has become liquidating inventory to try to break even.
“We’re just trying to get back to zero,” he says matter-of-factly.
Dane’s Discount is one casualty of a tough economic climate that has seen consumers holding on to income that was once considered expendable. Sales of big-ticket items, such as the scooters sitting in front of the store, have dropped dramatically, Wacaser says, and his already-thin profit margin has simply vanished.
“We had never been really profitable, and the downturn just finished us off,” he says. “There’s the bottom line, and we were on the wrong side of it for a little over a year. We looked at it and didn’t see this Christmas season being good, and we knew it was time to pull the plug.”
Besides Wacaser’s bargain store, several other local businesses — Brew Bakers Caffe, Coco Bon Gourmet candy shop and River Wilde gift store to name a few — were shuttered this year as the troubled national economy continued to flounder, despite reassurances from the federal government that economic recovery is under way.
Consumers are concerned about the future – and legitimately so – says Mike Farmer, director of the city’s Office of Planning and Economic Development.
“I think there was, in the past 12 to 18 months, a kind of malaise with the larger picture, with people not feeling good about their investments, not feeling good about the value of their home, their job,” Farmer says. “They were timid, afraid, whatever word you want to use. People pulled back and held on to their money.”
As the troubled national economy sputters toward a fork in the road, it could veer toward recovery or collapse – an uncertainty that has Springfield’s consumers, business owners and government bodies scrambling to cut costs and hedge bets. At first glance, the economic numbers don’t seem encouraging, but some Springfield professionals say the future looks promising.
Seeing the big picture can be tough when the economy is concerned, so experts look to certain indicators for clues about economic health – things like unemployment rates and business growth. Additionally, the rate of home foreclosures in a community has become an indicator of concern lately because of waves of home foreclosures nationwide. These are only a few of the important indicators, but they together show why Springfield residents may be apprehensive about the future.
Unemployment rates in the Springfield area have increased 54 percent in the past two years, with data from the Illinois Department of Employment Security estimating Springfield’s jobless rate at 8.2 percent of the workforce for October, the most recent month for which data is available. The data show an estimated 9,300 area workers were without jobs that month.
Ameren Corp. let go about 300 Springfield workers this year through layoffs and buyouts, while the soon-to-close Honeywell Hobbs plant will cut 120 workers when the company moves operations to Mexico. State government workers – a longtime staple of Springfield’s employment scene – have faced a steady decline in numbers over the past 20 years, with an average of 316 jobs lost each year (See “Springfield’s shrinking state workforce,” by Patrick Yeagle, Oct. 1, 2009), and countless locally-owned small businesses have had to cut labor forces to stay afloat as well. The Springfield area’s average monthly unemployment is 7.1 percent so far this year – the highest average rate in 26 years.
New construction – an indicator of development and thus economic vigor – has seen a tough year as well. The number of new construction permits issued by the city has fallen only slightly this year compared with 2008, but the combined value of those projects has plummeted, compared with last year’s figures. By October 2008, the city had issued 165 new building permits for projects worth almost $122 million. By October 2009, it had issued 152 permits worth only $67 million. The decreased valuation means less ambitious projects and less tax revenue to support city services.
Home foreclosures in Sangamon County seem to have slowed their pace, with 509 so far this year, according to data from Sangamon County Circuit Clerk Tony Libri’s office. That number is relatively low for the area, considering there were 761 foreclosures here in 2008, 688 in 2007 and 693 in 2006.
Online foreclosure tracker RealtyTrac, Inc., says Illinois has the sixth highest foreclosure rate among all states, with almost 20,000 foreclosures statewide through October — one for every 263 homes. Across the United States, that rate is even higher, with 937,840 homes — one in every 136 — receiving a foreclosure filing in the third quarter of this year, the company says.
Despite the lower number of foreclosures locally, the state and national rates remain high, feeding fears among consumers that the worst is yet to come.
Considering those factors – shuttered businesses, high unemployment, slowed growth and high foreclosure rates – the situation looks rather bleak, but there is another side of the story that the numbers alone don’t tell. Things could have been a lot worse, say some local professionals, and Springfield’s unique characteristics have spared this city much of the suffering felt elsewhere.
“The past year has been a struggle for a lot of businesses,” Farmer says. “But for cities our size, we’ve fared pretty well. Springfield has always had a fairly reasonable ability to withstand downturns because of some of the stabilizing elements in our economy, like state employment, insurance companies, health care, tourism….”
Despite its high unemployment numbers, Springfield is relatively better off than the rest of the state and the nation. The national unemployment rate is estimated at 10.2 percent, and Illinois’ unemployment rate was 11 percent as of October, with Decatur and Rockford experiencing rates of 13 and 16 percent, respectively. Farmer says Springfield has the second-lowest unemployment rate for middle-sized cities in Illinois, following closely behind Bloomington-Normal.
And although many small businesses around Springfield closed this year, other businesses saw fit to expand operations. The Orthopaedic Center of Illinois opened a posh new facility on Koke Mill Road in early September, allowing them to add more physicians and new services. Despite a decrease in elective surgeries and $2 million in Medicare charges unpaid by the state, OCI was in a position to expand this year because of good planning, says chief executive officer Lori Roethemeyer.
“Luckily, a lot of this was planned three years ago,” Roethemeyer says. “All of the financing was in place before the recent downturn started. And it does make us nervous, but once you start, you can’t stop. We’re taking the approach of growth – that we need to expand our services and revenue options to continue to grow.”
OCI is only one example of health care providers in Springfield pushing forward despite tough conditions. The Springfield Clinic also expanded this year, while the national Kindred Healthcare chain continued building a new 45-bed long-term acute care facility at Walnut and Miller Streets.
Meanwhile, community banks have been able to expand and keep lending relatively flat over the past year, despite the turbulence and scandal enveloping large national bank chains, says J. Michael Houston, president of Town and Country Bank and 2009 chair of the Greater Springfield Chamber of Commerce board of directors.
“If you go back and look at what happened, there was a liquidity crisis among the large banks,” Houston says. “Literally all your community banks here had money to lend for those people who were credit-worthy and capable of borrowing money. It was never a matter of there not being money to lend, whereas on a national basis, people couldn’t borrow.”
Houston says community banks with continued lending capabilities are able to support small businesses, in turn fostering job growth.
“Replacing the jobs we’ve lost will be the key to recovery,” he says. “When you look at businesses that have reduced their employment, they try to operate on a very lean basis. They’re not going to be anxious to add additional cost in terms of people or anything else, unless they start to see some recovery in their own businesses.”
Springfield has a unique advantage as the political stomping grounds of one of history’s most recognizable figures. Practically everything here bears the mark of Honest Abe, from the Old State Capitol where he served as a state representative to the Abraham Lincoln Presidential Library and Museum where many of his personal items still enthrall visitors from around the world.
The Springfield Convention and Visitors Bureau is tasked with marketing the city as a tourist destination, and executive director Tim Farley says making the most of the countless Lincoln treasures in Springfield helps insulate the area from the ravages of an economic downturn.
“We’re very fortunate that when the economy took a crash and tourism was in a fearful way across the country, Springfield had been preparing for the Lincoln Bicentennial for three or four years,” Farley says, referring to the year-long celebration of Lincoln’s 1809 birth. Tourism director Kim Rosendahl says visits to tourist spots in Springfield are up about 26 percent this year, and the majority of those spots are Lincoln-related. Tourism brings in $350 million each year for Sangamon County and is the fourth largest employment industry in Springfield, she notes.
“Tourism obviously has a huge effect on the economy of our city,” Rosendahl says.
In addition to tourism, the bureau works to bring conventions to town, like the 2009 World Horseshoe Pitching Championships at the Prairie Capital Convention Center, which brought about 1,500 contestants and their families to Springfield for 10 days – along with an estimated $1.5 million dollars in revenue.
“We’re constantly looking for not only the traditional conventions, but also the non-traditional things people don’t think about,” Farley says. “Sometimes, the convention side goes unnoticed, but there’s something going on at the state fairgrounds almost every weekend, and it is a true asset to us.”
Real estate – Real recovery?
As many parts of the nation struggle with real estate markets that hit bottom and haven’t recovered, Springfield is seeing only a muted version of the national drama.
“Overall, we’re certainly a lot better off than some other parts of the country, from having some Midwestern sensibility,” says Michelle Higginbotham, a commercial realtor with Coldwell Banker Commercial. “We never had the huge increase and double-digit growth in prices, so we haven’t had the bottom fall out, either. We’re also not completely immune.”
Mike Farmer agrees, saying the areas hardest hit by economic troubles were those that previously had the biggest real estate frenzies.
“People didn’t flock to Springfield to speculate on real estate, so I think a general economic sense prevailed in terms of loan-to-value ratios,” he says. “I don’t think there were a lot of people underwater on the low-interest loans.”
The good, the bad and the future
The current economic climate is one of uncertainty and dichotomy: on one side are business owners closing shop as a result of consumers fearing the worst; on the other are the planners and developers claiming to see the “green shoots” of economic revival lauded by Federal Reserve chairman Ben Bernanke earlier this year. If the revival takes root, businesses will once again thrive, but if the roots are too shallow or too slow in growing, the weight of failed businesses will topple the entire plant.
“I think things are probably better today than they were 12 months ago,” Michael Houston says. “That doesn’t mean things are good; that just means things are better.
And recovery won’t happen overnight.
“I think that what we will see is a slow, steady recovery,” Houston says. “One of the things to keep in mind is that in Illinois, we tend to be late going into a recession and late coming out of a recession.”
As for Dane Wacaser and his sons, the future does hold some promise. Despite having to close Dane’s Discount, they’re trying their hand at retail once more, opening a new store, the Rug Rack, which will sell area rugs at White Oaks Mall.
“That’s something that worked well in here for us,” he says. “That’s open right now, and it seems to be working.”
Wacaser says he has learned a lot in six years at his bargain store.
“It just didn’t work,” he says. “But we’ve had a lot of fun, enjoyed it immensely, and we appreciate our regular customers. We met a lot of people, made some friends, and now we’ll go on down the road.”
Contact Patrick Yeagle at firstname.lastname@example.org.