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As most people know, I am not an economist. But I am a reader and I am curious, and I want to know what the future holds for us, so I have been perusing the various writers and blogs about the economy and have come up with my best guess of what 2009 will look like. The economy has given what seems like a “surprise-a-week” over the past several weeks, however it seems lately the news has been operating from the premise of “no news is good news”. A good review of the local economy can be found at the EDC website’s Economic Summit page. We review the local economy with a local panel of experts. If you haven’t seen it check it out. It is a little long, but no longer than a Seinfeld episode.

So what does 2009 look like? Can the economy recover, and how soon will it recover. I have been talking to business people over the past couple weeks to gauge their thoughts and feelings. I will try to summarize them in the paragraphs that follow.

First the bad news: The economy is going to be tough for a lot of people. How is that for a prediction? There are going to be additional job loss. Manufacturing communities in the Midwest will feel the pinch no matter if the Feds help out the domestic auto companies or not. In any case GM and Chrysler cannot move forward in 2009 without major job layoffs, changes in contracts and a cut in demand to suppliers. This will reverberate all the way through the economy. First the suppliers, then their component and raw material suppliers and then tool and die makers and everyone who supplies them. Economists see the unemployment rate increasing to 9% to 10% nationwide. And this is just the manufacturing side. No one is buying cars either. Toyota announced their first loss in 70 years this past week.

Real Estate: Can home prices be any worse than they have been? I see ads on TV created by our local Realtors Association that are encouraging people to buy. for those who can buy, now is the time. The ads are right, prices are low and one can pick up a bargain in the market place. Home prices are still being driven down throughout the country. According to MarketWatch the median sales price fell 13.2% in the past year which amounts to the largest decline since data collection began in 1968. It is likely the greatest drop in home prices since the Great Depression.

Home inventory is also at the highest point ever, at least since the mid 80s’. The National Association of Realtors inventory of unsold homes on the market rose 0.1% to 4.2 million, an 11.2-month supply at the current sales pace according to NAR. The 11.2-month supply matches a recent peak set in April, and is the highest since the mid 1980s, according to NAR. Results were weak in all regions, with monthly sales down 12% in the Northeast, 10.9% in the South, 7.4% in the Midwest and 4.3% in the West. The good news according to NAR was the increase in the Mortgage Loan Application Index, a measure of mortgage loan application volume. This index rose 48 percent from a week earlier to the level of 1245. Refinance applications surged 62.6 percent in one week and purchase applications increased 10.6 percent.

The economy will continue to retract in 2009. Most estimates see GDP in the fourth quarter of 2008 at 1.2% to 1.4%. Estimates of GDP growth (or lack of) at 1.5% to 2.0%. What does this mean for people living in Bloomington Normal? Everyone here believes our economy is “recession-proof” due to the presence of stable employers such as State Farm and COUNTRY Financial along with higher education. Again, this recession is unlike any recession anyone living and paying attention has seen.

According to Nouriel Roubini,Professor of Economics at Stern School of Business at NYU and chairman of RGE Monitor and who predicted our current situation over a year ago, recently said the “U.S. will experience it’s most severe recession since WWII, much worse, longer and deeper than 1970s and 80s recessions. Recession will continue until at least 2009-end with a cumulative GDP drop of over 4%, unemployment rate will likely reach 9% by 2010.” Roubini believes the recession’s persistence in 2010 will depend on the success and aggressiveness of government policy actions. Can monetary policy and fiscal policy and efforts to recapitalize financial institutions in the US and elsewhere work?

I’m not sure we can keep the recession away from us. Our insurance providers will continue to keep policies intact, as everyone requires auto insurance and homeowners or rental insurance, but the trend line for growth is undoubtedly flat. Does this mean layoffs or reduction in jobs? I doubt it, but it does not portend growth.

My overall prediction for 2009 in Bloomington-Normal is that we will suffer from the national recession around us. Lower values in homes and income will reduce expenditures at retailers and reduce local government income. Property values will continue to suffer and those who took out second mortgage and are paying for new toys or even for junior’s college education may find themselves upside down. Real estate projects requiring funding will be available,but only to the best proforma’s and developers with bucketful of solid equity.

We will survive but times will be tough. Reviewing your strategy and taking advantage of the downturn by being ready for the upswing beginning in late 2009 and going into 2010 will be the right strategy.

What do you think? Is our economy immune? What are you doing to ride out the storm?

The President announced this morning a new deal for the big three automakers. The President is offering $17.4 billion in loans to help GM and Chrysler get through a “tough” period. The money comes from the original bailout money since Congress couldn’t agree on a plan.

Earlier this week I had indicated my preference for the government not to bailout the auto industry. While I still think that this is probably the right thing to do, I am willing to modify my argument, and perhaps over time I will be convinced to change my mind altogether. In politics they call this a “flip-flop”. Since I am not running for any office I cannot be accused of this recent horrifying political transgression.

I find it difficult to understand why we vilify a political candidate or even a sitting elected official for changing their mind. When faced with new information, better information, data that perhaps wasn’t available when a politician first uttered their position on a an issue, I want them to change their mind. I want my elected leaders to change their mind when they have new and better information. Isn’t it humbling to see a leader move in a logical and perhaps more informed position, rather than be set in their ways and be stubborn. Perhaps we will get to the day where a “flip-flop” is seen as a virtue versus a vice.

A banker I know and respect thought perhaps a bailout in these very difficult time times is warranted. He said under the current economic conditions a massive hiccup in the auto industry may be devastating to the economy (as if everything that is occurring isn’t). Perhaps he has a point. Mike Seeborg, Economics professor at Illinois Wesleyan University indicated at our Economic Summit several weeks ago, that we should not bailout the domestics. You can see his comments and others on our website. I wonder if perhaps he has modified his opinion a bit as well.

2009 will be a tough year for everyone. I hope the President’s bailout is the right thing to do. I hope that the car companies, unions, bondholders and investors can all come to the tale with concessions that will turn these once proud companies into profitable and vibrant employers.

Illinois State University, my alma mater, is announcing their new football coach tomorrow. Brock Spack, the defensive coordinator for Purdue is an excellent choice for this position. I would like to say that I know Brock Spack, but I really don’t. I would like to think that he knows me, but he probably doesn’t.

Here is what I do know. Coach Spack and I played against each other on an unseasonably warm October afternoon in 1978, when I was a senior pulling guard for the Thomas Jefferson High School J-Hawks and he played middle linebacker for our mortal enemy, the Rockford East E-Rabs. They beat us and I remember it as the most physically demanding game I have ever played in. No doubt, Spack had something to do with it.

He was really good then, and I remember him as a rising star. I graduated, he played another year and then went on to Purdue. I played one miserable year at community college and ended my football career after that.

Congratulations to Coach Spack. Hey, Brock, if you want to get a good tour of the community, let me know, I am the economic development guy and I know the place pretty well.

If he coaches with the same intensity he played 30 years ago, we are are in for some good years here in Normal, IL. Great job by the ISU Athletic Director Dr. Sheahon Zenger in getting a top guy who is intense, smart and devoted to a sport he loves.

At our annual meeting and breakfast two weeks Rich Karlgaard, the eminent journalist from Forbes magazine apparently outed me as a “pro-business democrat”. I’m not sure how he came up with that label because by that point in time he and I had only been BFF since the day before and had spent a mere 3 hours together in the car together coming back from O’Hare airport the day before he spoke to our group.

We discussed politics, business, regulation, demographics, Richard Florida, Malcolm Gladwell, etc. Now I am going to out him: He said that if it weren’t for the super uber-crazy left wing Democrats that posed as his friends in the San Francisco area perhaps he too would be a Democrat. He said it at mile marker 76 on Interstate 55 heading south towards Bloomington-Normal. He’ll never be able to deny it, as I remember it clearly.

Rich, you have done great damage to my reputation, as most people, particularly my Board of Directors believe, as they should, that I am a card carrying, pro-business, God-fearing Reagan Republican. My friends and relatives, (specifically my older sister) based on our many conversations, rants and discussions believe I am secretary-treasurer of the local “Apologists for Debs” chapter.

Well as my former preacher neighbor once said, “my congregation should never know my politics”, and as such no one should no mine. Economic Development is “label-less” sport and should resist labeling. I hate labels. What does”pro-business” mean? If I am pro-business am I for Wal-Mart or the little guy selling picture frames in his photo shop in a downtown. If I am “pro-life” am I against abortion but for capital-punishment?

A Board member of my organization who I respect for his business acumen, discipline and advice he has given me over the past two years gave me my annual review tonight. One reason I like him is that he always likes to do it over steaks and beer at our favorite Irish pub (thank God we actually have one in our community). He told me I am a rebel. At once I relish the thought and at the same time I realize it hurts me. But it correctly assesses my character. My ex-wife, children and immediate family would say I am argumentative. Again, I rejoice and lament at that label.

Call me Republican, Democratic, conservative, liberal, or ass, but call me something. One will never know, because the minute you think you know, I promise to say something or do something that will throw you off. My congregation should never know my politics.

(Day 6 of the Blagojevich Watch…the world waits)

I just spent my Sunday morning as I often do watching Sunday Morning on CBS. This long format news show runs 90 minutes and is hosted by Charles Osgood. He seems to have added weight since I first started watching this show at my ex-mother in law’s Florida home. This was her favorite news programs and I can see why. It wasn’t too heavy, it provided a break from the bad news and almost always does it’s own “lite” version of celebrity news stories. This morning one could hear a biography of Richard Wagner, #2 to fans of Austin Powers movies, and former husband to Natalie Wood.

Of course following this show is the hard news program, Face the Nation with Bob Schieffer, who covered two stories this morning, the Illinois Governor (please resign, would ‘ya?) and the auto bailout. I like how Bob always cuts off people by saying “we are simply just out of time”.

So what about the bail out? What should Congress do? What should the president do? I has taken me a while to come to my own conclusions and I am conflicted. Richard Karlgaard, at our breakfast the other day repeated another economist by saying this economic recession has been characterized by it’s consistency in providing surprises, so it is difficult for me to determine which way to go on this issue.

I lived through the last auto bailout of Chrysler back in 1979. With a Chrysler assembly plant in next-door Belvidere Illinois, Lee Iaccoca, CEO at the time came to town (Rockford) seeking cooperation from the one lone holdout bank, American National Bank of Rockford (now, Amcore) and their very conservative Bank President, David Knapp. In order for the federal loan guarantees to work in this version of a bailout, every lender to Chrysler had to agree to the new terms. Knapp initially said “no” and subsequently the bank was subject to protests by the local UAW and others. Eventually Knapp gave in under the pressure and agreed to the new terms. As I recall Lee Iaccoca had few nice things to say about the experience in his biography he wrote some years later. I wonder what the now deceased Knapp would have to say about the current crises. Maybe he was on to something or maybe we should bring Iaccoca in to help the situation.

Dan Gerstein, a Forbes.com columnist is someone who is not in favor of a bail-out. He refers to the bailout as “Detroit’s biggest snow job yet–literally as well as figuratively”. He saves his animus for Cerberus, the private equity firm that owns Chrysler. He gives no quarter to “Cerberus CEO John Snow, who spent three-and-a-half lackluster, and some might say lap-doggish, years as President Bush’s second Treasury secretary” and “is leading a who’s who of crony capitalists in a lobbying campaign for a taxpayer bailout to salvage Cerberus’ investment in Chrysler.” This is an argument to which I agree. Why should we as taxpayers, bail out a private equity firm that made a bad investment? If Cerberus could come up with $7.4 billion for the fire-sale price for Chrysler a couple years ago, can’t they rely on their huge portfolio or their own stable of investors to bail them out now.

As an open market, free-trading, capitalist I think we should let the auto-makers, and in particular Chrysler work out the issues as any company in our business market-place would do. Whether they are bailed out or declare bankruptcy, I don’t think there will be too much difference in the economic landscape. In either case we have to be prepared for massive layoffs. As of this morning the only way the automakers can shake loose the burdensome yoke of legacy labor costs,pension commitments, and medical guarantees is to downsize and become a much leaner, more productive and efficient manufacturer. Either way they will have to do this in Chapter 11 or under the terms of a government bailout. Only then can they compete with non-domestic auto manufacturers.

Will they do this under the false cloud of a government bailout? The executives of the big three or whatever they can be called these days, are barely the titans of manufacturing their predecessors were. At this point not only do they want government to step in and save their backsides, they would probably love a bailout of their medical plan in the form of government sponsored health care. It feels like we are in the midst of nationalizing our domestic auto manufacturing. and indeed some have suggested this, at least on a temporary basis. This morning Senator Carl Levin of Michigan said on Face the Nation that “other countries wouldn’t let their auto makers fail” In fact Levin has moved on from supporting a congressional bailout to putting his hopes on the TARP program.

If Congress does nothing or if TARP is not used, what happens to our economy if the dire predictions of a collapsed domestic auto industry come true? Many are predicting thousands of job layoffs rippling through not only the US but throughout the world. In fact, even though the issue is centered around the US domestics, transplants are also feeling the pinch as are global suppliers. Even workers at GM’s Indian unit are worried according to reports. General Motors makes its own case with a video now on YouTube that emphasizes their devastating case.

One problem with the video above and many of the people who are arguing for a bailout is they assume total and complete collapse. the doomsayers are implying that if GM, Ford and Chrysler don’t get a government bridge loan and have to file for Chapter 11, that this will result in total and complete collapse of the auto industry. I haven’t heard anyone say they will quit making cars completely.

Chapter 11 bankruptcy is often called “reorganization”, and perhaps under this protection the auto makers can sell off brands that other companies might want to buy, sell off plants that other companies may want to make more productive, and become that leaner more productive company that can then compete and grow. If the domestics produce less cars won’t other automobile makers pick up the slack as the economy grows? Won’t the dozens of other automobile manufacturing plants in Alabama, Kentucky, Tennessee, Indiana, and right here in Normal, Illinois (home of Mitsubishi Motors Manufacturing North America)produce more cars to meet the demands. Is this merely a geographic and current stakeholders (the domestics and UAW)issue?

As a country we have to ask ourselves, do we want to take away the risk-reward incentive that motivates entrepreneurs and even large corporate entities to take chances by propping them up every time trouble stares them down, or do we put in a “fix” and hope someone else can deal with the problem later?

My liberal friends and colleagues in labor my lament at my comments here, as they are likely interested in the jobs and the social issues that will result of doing nothing. My conservative friends and the business owners I know have to come to grips that we need to let some companies fail, and let the course of the economy take its toll. This is not a collapse of a sector, as cars will still be made in the United Sates, but perhaps not by these companies. We are not talking about the banking system. The toll will be heavy and the medicine is bitter, and I am sad we have come this far, but if we bail out the auto industry I do believe we are on a slippery slope and we cannot become more productive, more efficient, and truly appreciate capitalism the way it was intended to be.

At the age of 21 my daughter is experiencing the joys and frustrations of operating her own retail underground boutique. She will tell you that is sometimes very hard and difficult and perhaps there are days she wants to give up and try something less risky. But she doesn’t. Why? Because she knows there is hope that one day bigger, better success will come her way. She knows that she gets to control her future to a great extent. She knows that along with the good days there are going to be bad days. But if she overextended herself, if she didn’t change with her customers, if she kept paying her employees more and more without regard to the marketplace conditions, she will be out of business, and rightfully so. No one is going to bail her out. She knows it.

Do we change the rules when our businesses get too big too fail?

What do you think? Am I wrong in my assertions? Are saving jobs more important than the sanctity of our risk-reward system? Let me know what you think.

By now most people will have noticed that the Gov. of Illinois was served with a criminal complaint that indicates that he was involved in a level of unprecedented fraud and scheming. Let me say that of course, I believe in our criminal justice system and have to say that I believe that everyone accused is innocent until proven guilty. I once served on a jury and the prosecutor did such a lousy job proving the case against the defendant that we let him off on one of the charges. Everyone should truly get their day in court, and I’m sure that the Governor will have his.

Many people know I know involved in government, politics or economic development in the state of Illinois have said for a long time that it was merely a matter of time before the Feds caught up with the guv. These were all whispers, and I by no means am a political insider, but it was pretty common knowledge that his number was going to be called and soon. Consider the distance that President-Elect Obama kept from his home state governor. In my home town it was very difficult to find too many people, including Democrats could find anything very nice to say about Rod. Prior to today’s events, the Governor’s approval rating was a whopping 13%.

When I first heard the news this morning, I was elated. Economic Development programs have been devastated in the State of Illinois under the Blagojevich administration. The politics of divisiveness has run rampant. The Illinois government has not accomplished what is necessary for the people of Illinois. Economic development in Illinois is difficult because of the perception that has been created by our dysfunctional state government.

But later as I talked to more people, listened to the news conference by the U.S. Attorney, I found myself feeling a little blue, embarrassed and frankly ticked off. Now you might be thinking that I am pissed at the “government”, but having been a student of government and having worked in local government I never say something like that. Because I believe as “citizens” we deserve the fruits of what we sow, I think that we have allowed this to happen. Many will say, that downstate has no chance with Chicago voters putting only Chicago politicians in office. But we have voted good people into office as well.

I was ticked off at how we are all complicit in the election of this guy. We haven’t done enough in this state to honestly consider what our real issues are. We vote for people who say things we like while we ignore our infrastructure, economic development issues and the very basics of social justice.

We can vote good people into office. I know a lot of very good honest people that hold office. We can recover from this. I know I may sound like a Pollyanna, but trust me I am not. I merely believe in the system.

Leadership comes from a wide variety of areas, disciplines and sectors. Maybe you are one of those people.

It’s a tragic story here in Illinois, but we will come out of it.

Economic Development is at best an “undisciplined discipline”. I have thought and believed this for a long time. When Ken Springer our Research Analyst was our graduate student and working on his masters degree, he took a class in the economics department titled, appropriately “Economic Development 101″, or something similar and more befitting a graduate level course. In any case I’m sure it was designed to be a wide exposure to the principles and practice of economic development. Through Ken I was asked to come and speak to his class, whose students were in various stages of getting through the ISU program that provides educational training to coming and going Peace Corps fellows.

I asked Ken, prior to my presentation, if I could see his textbook. As I browsed through the book, and although I shouldn’t have been surprised, I found topic matter that would have never been addressed at any International Economic Development Council (IEDC, our professional association) conference or training session. In other words this was a deep theory class and was designed to give students a deeper, and richer understanding of underlying principles of economic theories, constructs and the like. I don’t know to many practicing economic developers who would be interested in the topic matter of the class much less pass it!

Which leads me to the undisciplined part of our profession. Our profession attracts many types of people. I started out in government working in local government management and wit the intent of being a city manager someday. Various decisions and opportunities led me to where I am today. My experience includes everything from sales, consulting,commercial property development and a small retail business, to city management, public finance, and community image building and marketing. I feel as though I have the best of all worlds. As one can see my job, or many jobs in my career track requires a wide variety of experiences. But that is just my experiences. In my work I have met economists, lawyers, former department store managers, real estate brokers, planners, engineers, architects, hospital administrators, developers, executive assistants, and preachers. For their communities they have achieved some level of success or another.

Rich Karlgaard, publisher of Forbes and keynote speaker at our annual community leaders breakfast said something that I’ve been thinking about since Thursday morning. In relation to other communities he related a story about how Fargo, North Dakota has done well. He talked about how once a community sees one company or entrepreneur begins doing well, they begin to believe in themselves and the community. It spurs others to move forward. People begin to believe “It can be done here”.

“It can be done here” is the motto that I believe should and could work for many communities that must work through this recession. It speaks to the attitude of local self-help. Economic Development is not a great mystery. It is one person with one idea interested in growing a business, solving a problem in the marketplace and enriching themselves and others. Economic Development as a practice should be about nurturing and creating these opportunities for people. I will write about these ideas in the year to come. Grow your own and developing business in your community should be the goal of a community. This will bring long-term sustainable economic growth.

December is here as is the cold snow and wind. Winter arrived right on time. It looks as though the weather will be winter like all week. Our big annual meeting is being held this week. Rich Karlgaard the publisher of Forbes Magazine and author will be speaking. I heard Mr. Karlgaard speak before. In September of 2005, I attended the International Economic Development Council (IEDC) annual conference in Chicago. Mr. Karlgaard was a keynote speaker and had just published a book titled:

Life 2.0 –How People Across America Are Transforming Their Lives by Finding the Where of Their Happiness.

This book is a “road book” but with a twist. Mr. Karlgaard flew around the United States in his own plane after learning how to fly interviewing various business people, entrepreneurs and others about what it is like living and working in middle America. Unfortunately the book is out of print, but you can read my review of his book at the EDC website. One can also find used copies on Amazon.

The highlight of my week will be picking up Mr. Karlgaard at O’Hare and spending the next two hours driving back to Bloomington Normal for his engagement with us. I hope that I can hold up my end of the conversation.
Mr. Karlgaard and his blog can be found at his blog: Digital Rules http://blogs.forbes.com/