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2010 Outlook

By Mark Green

Though expectations for 2010 vary, the consensus falls in the half-full/half-empty zone of solid economic growth but continued high unemployment. On the whole, Kentucky is likely to see SDP growth of 3-4 percent, which is not bad. But the jobless rate forecast is 9.5 -10 percent through the year, which is not good.

In The Lane Report’s annual survey of public and private sector leaders from across the state, there is a sense that the worst likely is over for the Great Recession that sent shivers through the economy globally for the past year and a half. Kentucky leaders express optimism, not so much that happy days are here again but that the painful belt tightening and sacrifice has probably been productive.

Organizations have made themselves stronger and more productive. That is expected to lead to improved profitability in 2010 and some hiring but likely not enough to drive the jobless rate down from around 10 percent. Unemployment rates in that range limit consumer spending – directly because so many people don’t have an income and indirectly because those with jobs remain a little fearful about their own prospects.

What activity the always-important housing sector is seeing is largely due to government tax incentives, which are scheduled to run out by mid-year. If the economic mood can brighten by then, that sector hopes to sustain its budding signs of life.

There are encouraging developments. Ford and GE are bringing major “green” manufacturing activities to Louisville, which will open a major downtown arena late in the year. State economic development officials ended 2009 with a flurry of announcements of new business investments. Water utilities in Louisville and Lexington have major infrastructure projects in midstream, and the medical industry continues an impressive construction agenda. Manufacturing is poised for at least a mild rebound to refill inventories that have been squeezed to the last drop during the recession.

And in late September and early October, the Alltech 2010 FEI World Equestrian Games at the Kentucky Horse Park will be the largest sporting event in the United States this year, with attendance of 500,000 to 600,000. Kentucky will have its signature assets polished for a world audience.

GEORGETOWN
“We have never seen a business environment like this past year, but shared sacrifice puts us now in a stronger position as this economy rebounds. We value our people. That’s why we kept all of our full-time team members. It worked because executives took a cut in pay and everyone lost bonuses. During non-production days, we retrained employees and used their suggestions to make process improvements. Looking long-term, it was a great investment. As we recover, we have the benefit of having our greatest resource intact – our people.”

LOUISVILLE
“Since we have over 8,000 customers throughout Kentucky and the surrounding states, we feel somewhat protected from a massive decline in sales. In late 2008 and early 2009, we were seeing an above-average decline. Many office customers were laying off employees, which had an effect on sales at our restaurant customers. To eliminate the decline, our staff produced more affordable coffee and tea products for the office. Several restaurant chains, including White Castle, Wendy’s, Qdoba and the Kentucky State Parks, upgraded their coffee and tea offerings to minimize their decline in sales or, in most cases, actually improve sales. By working with our customers, we had a significant increase in sales and look forward to a great 2010.”

FRANKFORT
“2009 has been a tough year for all business sectors, but especially so for Kentucky’s manufacturing community. We all know someone who has been laid off during the Great Recession, and increased employment will be slow to return as it always is after the economy improves following a recessionary period. Nevertheless, I believe that 2010 will be a more prosperous year for Kentucky manufacturers, including increases in productivity, production output and profitability.”

FRANKFORT
“Now, more than ever, Kentucky must be positioned to emerge from this recession stronger and more economically innovative. In 2009, we made great strides toward that goal. We leveraged the use of tax incentives to create and maintain thousands of jobs across the state. We invested in Kentucky’s workforce development, manufacturing, small businesses and the infrastructure necessary to ensure we grow and thrive. We will continue to provide a welcoming climate for businesses to bring jobs, opportunity and optimism to the commonwealth as we look toward a brighter tomorrow in 2010 and beyond.”

LEXINGTON
“We see Kentucky businesses leveraging the investments they have made in information technology to improve efficiencies in their businesses. The improvement of business process and utilization of business analytics are two key factors in improving the decision-making processes. There is significant opportunity to leverage information technology to maintain a competitive advantage. We see our Kentucky clients continuing to invest in their information technology infrastructure in 2010.”

LEXINGTON
“Although below national and state averages, Lexington faced rising unemployment last year, which impacted our citizens and city budget. However, I believe the worst is behind us and our community is in a position of considerable economic strength. Despite the recession, businesses expanded and invested. Our horse, healthcare and high-tech sectors continued to grow, producing good-paying jobs. The connection between the research bench at the University of Kentucky and Lexington’s business world has never been stronger, with ground-breaking research fueling entrepreneurial activity. All our major hospitals have announced or are building additions; UK is building a totally new facility. Our diverse economy is weathering the storm; better days are ahead.”

LOUISVILLE
“I’m optimistic about economic recovery in 2010. Ford Motor Co.’s plans for new vehicles and General Electric’s decision to make new, energy-efficient products here will create more jobs in the Louisville region. We have an impressive number of economic development projects in the pipeline, and with a little luck we will be putting more people back to work over the next 18 months.”

LOUISVILLE
“Commercial real estate lags the economic downturn by 18 months or more, so development investment will remain slow in 2010. Seventy percent of our economy is driven by consumer spending, and unemployment negatively affects this. Though unemployment won’t be “fixed” anytime soon, I believe there will be more hiring in 2010 than most forecast. This should start to improve consumer confidence and, thus, spending. Kentucky’s businesses are very entrepreneurial and diversified, and they’ve weathered this extremely difficult economic storm fairly well. However, until our legislature changes the way it conducts business, our economic outlook will remain cloudy. To attract meaningful new investment from outside of Kentucky, like Indiana and Tennessee have done so well, our government needs to transform: modernize spending formulas to invest more in key areas like education; modernize our tax code to make Kentucky business friendly; and shift some fiscal power and responsibility to local government, allowing local-option sales tax among other changes.”

FRANKFORT
“The housing industry will begin to turn around in 2010, but very slowly. The first part of the year, sales of new and existing homes will be fueled by extension and expansion of the federal tax credits: $8,000 for first-time buyers as well as a $6,500 credit for those who already own a home. Kentuckians can add to that a first-time buyer $2,000 mortgage-tax-credit certificate program, available only through the Kentucky Housing Corp., so shoppers would be smart to purchase a home prior to the April 30 deadline. Closing must occur before June 30. In the second half of the year, housing will move forward as unemployment begins to drop. Remodeling will remain a strong option for many homeowners.”

LEXINGTON
“As a small business owner, I’m optimistic that while 2010 will bring changes to the way we approach our business, the approach won’t be a negative one. As a training provider, the shift will be towards training existing employees on new skills, helping people uncover how to provide great customer service and how to work more efficiently. A workplace shift is taking place, and our business must respond appropriately.”

LOUISVILLE
“Passenger airlines are projecting capacity will remain at or below 2009 levels for the next 12 months. New growth will come from better utilization of existing aircraft. It is expected that improvements in the business climate over the next 12 months will translate into a better 2011. In the short term, we expect freight volume will continue to be influenced by poor global economic conditions. However, the future for air cargo is bright, and we expect continued growth in this segment of our business long-term. As airlines continue to adjust their business models to adapt to changing economic conditions, Louisville International will continue to aggressively pursue strategic opportunities that position the airport for success.”

LEXINGTON
“Based on current projections, 2010 will be a great year for meetings and conventions in Lexington. And that is not counting the World Equestrian Games! We are very hopeful that the Bourbon Distillery District continues to gain momentum. One of the most blighted areas of downtown holds the promise of becoming one of the brightest. The games will showcase the state and region for 16 wonderful days. The new investment in the Kentucky Horse Park will provide a payoff for years to come.”

BOWLING GREEN
“Kentucky’s tourism industry has fared well compared to the rest of the country in this challenging economy. Bowling Green tourist attractions are preparing for an economic rebound with fresh changes in 2010 as the National Corvette Museum adds two driving simulators to its newly expanded facility, Beech Bend more than doubles the size of its water park, and Lost River Cave lengthens its boat tour with a new interior dam. The Kentucky Museum on Western Kentucky University’s campus also is introducing a permanent exhibit: “The Horse in Kentucky.”

LOUISVILLE
“In 2009, Louisville’s tourism industry generated nearly $1.7B of tourism economic impact for Jefferson County, and we are forecasting a slight recovery in 2010 over 2009 travel figures. But the recovery is far from over. We are fortunate Louisville hosts six of our nation’s top 30 trade shows annually, but in 2009 attendance at most conventions was down between 5 percent and, in some cases, 40 percent. However, the signs of recovery are starting to emerge as conventions are beginning to see a slight increase in demand in delegate attendance for 2010. With forecasters predicting a slow rebound in the economy, we won’t see a full recovery in the hospitality industry until 2012 or 2013.”

FRANKFORT
“As the economy recovers, it will be nurtured by jobs created by small businesses. High-tech firms, such as those funded by the Department of Commercialization and Innovation, will play a significant role as they tend to pay higher salaries, produce intellectual property and generate new wealth that is reinvested in Kentucky’s economy.”

LEXINGTON
“Lots of excitement in 2010. Blue Grass Airport is expecting moderate passenger growth as it welcomes AirTran Airways, which will provide non-stop service to both Fort Lauderdale and Orlando. This will stimulate low fares in our market and create additional competition among our air carriers. With the World Equestrian Games quickly approaching, Blue Grass Airport is aggressively preparing to welcome the world to Kentucky. Tac-Air, our fixed based operator, will be opening a new $11 million terminal facility to better serve general aviation. The general aviation runway relocation is underway, and main terminal improvements and a prominent new airport entrance will provide visitors with a lasting impression of our region.”

HIGHLAND HEIGHTS
“Kentucky confronts some extremely difficult choices. Immediate fiscal challenges must be addressed, but we’ve got to make sure decisions don’t undermine our capacity to rebound when the recession finally ends. Despite the gloom and doom, this could be a year we lay the foundation for Kentucky’s future progress. We can use this period to become more focused, more efficient, more disciplined and rethink the fundamentals of who we serve and how we go about our work. We’ve learned at NKU that focusing on the latter can launch the university into a dynamic, forward-thinking and opportunity-focused period of development. Our objective is to be a stronger, more focused, and better positioned university at the end of this recession than when we entered it.”

LOUISVILLE
“While certainly many of the issues facing our state today are amplified by this climate, most are not created by it. This rocky economic environment serves as a “black light,” bringing to the surface fundamental flaws challenging the commonwealth. Core issues such as extreme educational disparities across the state, the misaligned application of governmental and private sector resources, and a lack of unifying purpose for the people of the commonwealth, all threaten to deny folks the richer, fuller lives they deserve.”

FRANKFORT
“Kentucky farmers have exceeded $4 billion in cash receipts for their farm products for each of the past four years. The Kentucky Proud marketing program generated some $250 million in retail sales of Kentucky farm products through member retailers in the past two years, enabling many family farmers to stay on the farm. The agricultural sector will experience numerous opportunities for growth in 2010 and beyond, such as expanding use of biomass for fuel, which will create jobs and reduce America’s dependence on foreign oil. Kentucky is poised to take advantage of these opportunities as they develop.”

FRANKFORT
“We recently conducted a survey of our members – large and small businesses – across the state. When asked to predict their employment trends for 2010, 52 percent said they expected to increase their employment by the fall of 2010; 36 percent predicted no change, while 12 percent predicted further reductions. This snapshot of our members’ projections was considerably more optimistic than the results of the same survey conducted among our members six months earlier. Optimism is increasing. We hope it gains some momentum in 2010.”

COVINGTON
“Our economic development project pipeline showed a slight uptick in 4Q ’09. We’re looking for a steady climb out of the recession in 2010. We’re reviewing our target industries for attraction purposes, while providing key support work for our existing industries. A bright spot: Through the efforts of Northern Kentucky e-zone, our entrepreneurial support division, we’ve led the state since 2002 with over 1,088 new jobs in high-tech job creation from start-ups.”

LEXINGTON
“As the national economy struggles to overcome the worst recession in quite some time, Central Kentucky’s resilience amid downturns was never more evident than in 2009. Already in 2010, we’re seeing positive signs in manufacturing, while the areas of healthcare, K-12 and higher education, bio-life sciences and technology will make us an attractive location for business for many years to come. The region will continue to build on its many national accolades, as the U.S.’s 2nd Most Educated Workforce (Business Facilities); 6th Best Place to Start a Small Business (CNN Money), a Top Ten Best Place to Live (Relocate America), and the Nation’s #13th Top Hotspot for Young, Talented Workers (NextCities).”

LEXINGTON
“Kentucky American Water will celebrate two key milestones in 2010. We will mark our 125th year of operation, with our roots dating back to 1885 when the Lexington Hydraulic and Manufacturing Co. launched water service for the first time in the town’s history. And then later in the year, we’ll begin operation of a new water treatment plant and 31-mile underground water pipeline that will help us meet Central Kentucky’s needs for high-quality, reliable drinking water for the next 20 to 30 years – and still at less than one penny per gallon.”

LEXINGTON
“Long-term cattle supplies are expected to decline an additional 1.2 percent during 2010, following a 1.6 percent decline in 2009. At a 47-year low, beef cow numbers are responding to higher operating costs, lower prices and volatile weather in certain parts of the U.S. It will likely take several years of an improved operating environment before the beef herd show significant growth. Beef demand declined significantly in 2009 but the decline should slow in 2010. U.S. consumers hold the keys to a rebound in demand. On a positive note, export demand for U.S. beef is expected to improve slightly in 2010.”

LOUISVILLE
“I would expect flat to slightly negative employment growth in Kentucky over the next year, resulting in very modest personal income growth. The state’s budget will be a train wreck. We have no new revenue sources but need to replace the one-time stimulus funds that have been used to avoid educational cuts in the current year. I expect tuition to increase again in a 4 percent to 6 percent range for the next academic year, but also expect that the weak economy will result in continued modest enrollment growth on the public campuses.”

LEXINGTON
“Kentucky’s workers’ compensation insurance market will likely remain competitive throughout 2010, which is good news for employers. When seeking coverage, businesses should be aware of insurance carriers’ financial standing. They should look for financially stable companies that continue to improve their services, utilize technology and develop efficiencies that will ultimately result in cost savings for policyholders.”

RICHMOND
“I’ve been accused of being a pathological optimist, but I really do see encouraging signs that things are beginning to improve. But things will never be just like they were before. In higher education, we are talking about adjusting to the ‘new normal,’ whatever that turns out to be. At EKU, we will be working hard to improve student success, our service to our region, and to work on our goal of educating critical and creative thinkers.”

PADUCAH
“Entering 2010, Paducah has a healthy business climate with a jobless rate (8.8 percent) lower than other areas of Kentucky. Barkley Regional Airport will have a new carrier starting Feb. 11 with United Airlines bringing SkyWest commuter service via Chicago. With the northernmost ice-free U.S. inland waterways port, there are over 5,000 jobs in the river industry; Ingram Barge, Marquette Transportation, Hunter Marine, AEP and Crounse Corp. have all expaned the past two years. Paducah has.”

FRANKFORT
“As the commonwealth continues to recover from an economic recession of historic impact, it’s encouraging to see that Gov. Steve Beshear’s aggressive actions to update our state’s economic development toolbox are achieving results. Kentucky’s revamped incentive programs, known as Incentives for a New Kentucky (INK), put a focus on strengthening and growing our existing industries and laid the groundwork to allow us to respond to the needs of business in this difficult time. From industry expansions, to retooling of facilities to remain competitive, to protecting hundreds of existing jobs from being consolidated to plants outside the state, INK is having an impact.”

FRANKFORT
“Kentucky’s arts industry faced many challenges in 2009, which will continue into 2010 and beyond as a result of the economic climate. On the positive side, interest in high-quality, locally produced art – whether performances, literature, visual art or craft – has increased, and arts organizations have formed new partnerships and developed creative operating strategies. The arts will play an increasingly crucial role in economic and community development.”

OWENSBORO
“I continue to see a ‘mixed bag’ outlook related to the economy in our region for 2010. I recently talked to two local business owners who told me 2009
was the best year they’ve ever had. Of course, we’ve also seen other businesses close. The unemployment rate will be slow to recover because most
businesses will be very cautious about re-hiring employees. Many of them are also concerned about how some prominent national issues could eventually affect them. We are seeing a lot of business activity and interest in Owensboro due to our ongoing riverfront and downtown redevelopment and I expect this to continue.”

LEXINGTON
“This year presents Kentucky with a prime opportunity to continue building a diverse, high-tech economy that is ready to compete in a global marketplace. With visitors from across the world descending upon the Bluegrass for the Alltech 2010 FEI World Equestrian Games, Kentucky is in a unique position to showcase our talent and creativity on a world stage.”

GEORGETOWN
“I have a strong sense of optimism for 2010. During tough times, a quality education opens doors and provides opportunities. Private colleges face different challenges from those of the state-funded schools. To continue to offer a high-quality educational experience, we must manage our resources carefully and find new partners to help support our mission. Our alumni and friends came through for us this past year, and I expect Georgetown College will have an even better year in 2010.”

LOUISVILLE
“In spite of the troubled economy and reductions in medical service reimbursements nationwide, the demand for advanced medical visualization services increased during 2009 and looks strong going into 2010. Hospitals and medical imaging centers are increasingly using outsourced services such as those we provide as an alternative to an in-house laboratory to conserve capital, reduce personnel costs and improve image quality.”

LOUISVILLE
“You can judge the strength of a community not only by how it celebrates good times but how it meets the challenges of bad ones. In the face of one of the sharpest economic recessions in generations, I am proud to report communities across our commonwealth are focused not on setbacks but on opportunities for innovation. We’re investing in the next generation of ideas and industries, and doggedly focused on expanding and attracting businesses. Now we must ensure our state’s policies and regulations encourage – not hinder – future job and business growth. Only through these efforts will Kentucky emerge from the recession quickly and create prosperity for all our citizens – a true testament to the strength of a community.”