Watching Our Six by Cincy Magazine

OHIO ECONOMY

Watching Our Six OHIO’S DISTINCT ECONOMIES FACE UNIQUE CHALLENGES AND OPPORTUNITIES BY TERRY TROY

ome to more than 11 million, Ohio has an economy that is as diverse as the people who call our state home. From the foothills of the Allegheny Mountains in the east, to the broad plains of western Ohio, to the major metropolitan areas that dot our state, Ohio is home to myriad industries, in very distinct and well-defined market areas. “Actually, the state of Ohio has six economies, each with a distinct labor market and each with a distinct set of goods and services that they produce,” says Edward “Ned” Hill, professor, economic development policy, John Glenn College of Public Affairs at The Ohio State University. “Clearly, the Cleveland and Akron metropolitan area is an integrated market. The Columbus metropolitan market is an area that reaches all the way up to Mansfield. “Then you have the Cincinnati area, which includes northern Kentucky and southern Indiana. That area reaches up toward Dayton, which is also a distinct market because of Wright-Patterson [Air Force Base]. Toledo is closely aligned with Detroit and southeast Michigan, but it is also a distinct labor market.” And of course, there is the Mahoning Valley, which was in the news late last year because of the announced closure of General Motors’ Lordstown plant, and the subsequent closure of supporting supplier companies, including Lordstown Seating Systems, a subsidiary of automotive supply company Magna. That news, while certainly not welcome

to those employed in automotive manufacturing, is not all bad. The Mahoning Valley has a very diverse economy that is no longer solely dependent on automotive manufacturing. “I don’t want to be dismissive of what happened in Lordstown, because there are a lot of people who will be displaced,” says Bill Koehler, CEO of Team NEO. “But the positive side is that, at least in theory, a lot of those same people are now available to work in other organizations that are having a hard time finding talent. There is an opportunity for these folks, maybe not tomorrow, but certainly over a reasonable time. So the impact may not be as great as

many people fear.” Moody’s has singled out Ohio’s heavy manufacturing as an industry sector that will encounter slower growth in the future. However, Ohio’s soybean farmers are also suffering due to the trade skirmish with China. “I would also argue that commodity agricultural activity, [such as soybean production] is distinct, and is spread out over the entire state,” adds Hill. “Then you have old coal Appalachia, which is also distinct, but in a lot of trouble.” Agriculture accounts for approximately one in eight jobs in our state, according to Chris Henney, president and CEO, Ohio AgriBusiness Association. Agriculture is also responsible for a total economic outw w w.ohiobusinessmag.com . W I N T E R 2 0 19

OHIO ECONOMY

Alex Boehnke, The Ohio Council of Retail Merchants

Bethia Burke, The Fund for Our Economic Future

Jacob Duritsky, Team NEO

put in excess of $100 billion a year. Other industr y sectors are equally important. Despite the well-publicized closure of shopping malls, retailing is very much alive and well across Ohio. The industry accounts for one in four jobs, according to Alex Boehnke, manager, public affairs, The Ohio Council of Retail Merchants. “Retail spending is a great barometer of economic activity,” says Boehnke, whose organization partners with the University of Cincinnati’s Economics Center to create an extensive report evaluating the industry each year. “Consumer confidence is at an all-time high, which bodes well for all of us in the state of Ohio.” Retailing boasts a total impact on state

GDP of almost $82 billion, according to the National Retail Federation. The industry is directly and indirectly responsible for 17 percent of the labor income in our state, supporting in excess of 1,564,300 jobs here. However, the industry is evolving to include to non-traditional retail venues such as Amazon. “Ninety percent of transactions still happened in stores and only 10 percent was online,” says Boehnke, citing 2017 statistics. “And that number is growing. However, most folks are still going to traditional brick-and-mortar stores, and that is good for the industry and good for employment.” Amazon and Wal-Mart online retail operations, as well as others, are also causing

employment to rise in both warehousing and fulfillment operations, where wages are on the rise for semi-skilled and unskilled workers. “Amazon jumped into that market kind of like a fat guy jumping into the low end of a swimming pool,” says Hill. “It was hard to get family-friendly earnings in [the semi-skilled and unskilled labor] side of the market, but now I think it will top out at about $20 an hour.”

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DRIVING OHIO Even though GM decided to eliminate the Chevy Cruze from its product lineup and to shutter its storied Lordstown plant, heavy manufacturing and automotive manufacturing are still critical to our

Edward “Ned” Hill, John Glenn College of Public Affairs, The Ohio State University

Bill Koehler, Team NEO

Kimm Lauterbach, REDI Cinncinati

state’s economy. Toledo is an excellent example. The city is home to Jeep manufacturing, which will soon begin production on the new and long-awaited midsized truck, the 2020 Jeep Gladiator. The vehicle is already being billed by Fiat Chrysler (which owns the Jeep brand) as the most capable midsized truck ever. Lower gas prices are fueling an increased consumer appetite for Jeep’s SUVs, which are selling at a record clip. Jeep shut down production of its Jeep Cherokee plant in Toledo, laying off 1,350 to retool. But those same workers should be back on the job well before production of the new Gladiator begins in mid-April. In other sections of the state, both auto-

motive parts manufacturing and vehicle assembly are on the rise. Considered a part of the Columbus market, Honda of America Manufacturing employs almost 11,000 at its Marysville, Russells Point, East Liberty and Anna operations. The vehicles and components being manufactured at those plants, including the Honda Accord, are all selling well. In addition to the automotive manufacturing to its north and west, Columbus is a shining example of economic and population growth in our state. Indeed, Realtor. com ranked Columbus as America’s fourth hottest housing market. According to a report in Forbes, Columbus is the only large northern city with a population that grew by more than 10 percent from 2010 to 2017.

Today, it is the 14th largest city in the country and is home to financial giants, including JP Morgan Chase & Co., whose financial services, software services and data center employ more than 20,000 folks in the region. Insurance is another staple of the Columbus economy, with major firms, including Nationwide, employing over 13,000. Similarly, the three-state Cincinnati economy has enjoyed a great deal of recent success. “We have had great success with our business development efforts,” says Kimm Lauterbach, president and CEO, REDI Cincinnati. “In fact, we were recently named the Fastest Growing Economy in the Midwest by the Bureau of Economic LEFT: AgriBusiness accounts for 1 in 8 jobs in our state. MIDDLE: Retailing is still alive and well, providing 17 percent of labor income. RIGHT: Despite the closure of Lordstown, automotive and heavy manufacturing are still crucial to our state’s economy.

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OHIO ECONOMY Analysis. We have great momentum going on and we are constantly looking at ways to build on that momentum.” The Greater Cincinnati area was also ranked No. 2 for college grads by SmartAsset, 11th best city for tech jobs by Time Magazine and one of the top seven cities in the country for startups by CNBC. Cincinnati’s economy spreads across three states and five key industry clusters that include advanced aerospace and automotive manufacturing; biohealth; food and flavoring; information technology; and shared services such as financial firms and insurance companies. Those industry clusters are fed by workers and employees from a talent pipeline that spreads across the area’s three states. “We simply can’t look at our region as three different states, or it doesn’t work,” says Lauterbach. “We like to say that the Ohio River is our Main Street versus being a divide. “I don’t think we are any different from other cities across the country. We are all concerned that we have enough talent in our pipeline to continue to serve our economy and to make sure that it grows. I think we’re pretty far ahead of the curve.” However, the same cannot be said of every major economic region in Ohio.

NORTHEAST OHIO RESURGENCE “I’d say we’re very bullish,” says Team NEO member Koehler, evaluating the Cleveland/Akron area’s economy. “There are challenges that we have to deal with, but if you look at the economy in Northeast Ohio, it’s very strong.” Although it earned a reputation as a hardscrabble working class town in the ‘60s and ‘70s, Cleveland has made the transition into a world-class medical center. That industry sector employs more than 125,000 spread across three major hospital systems. Those include the world-renowned Cleveland Clinic; University Hospitals, consistently recognized as among the top care providers at both a national and international level; and the MetroHealth System, home to one of the most advanced trauma centers in the nation. “But you also have very strong manufacturing here and an emerging technological capability,” says Koehler. “We’re seeing the greatest opportunity where health care, 20

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IT manufacturing and IT are becoming more integrated, in terms of both business models and delivery systems.” “While we will see continued growth in health care at places like the [Cleveland] Clinic and University Hospitals, we’re also seeing a lot of new jobs in areas like professional services,” adds Jacob Duritsky, vice president of strategy and research at Team NEO. “We’re starting to see the growth of IT jobs in areas like headquarters, legal, accounting and finance. We have growth in IT not directly from IT companies, but imbedded in a lot of companies that need those services.” Duritsky’s optimistic vision is not tainted by rose-colored glasses. Even outside resources are recognizing the growth of tech jobs in Northeast Ohio. A report last year from CBRE Group ranked Cleveland as the eighth fastest growing tech talent market in the U.S., rubbing elbows with the likes of San Francisco, Silicon Valley and San Diego. In fact, Cleveland and Columbus were both identified in the report as being among the fastest growing emerging tech markets. According to Team NEO, the Northeast Ohio area is projected to add 20,700 jobs across all occupations over the next five years, including 8,500 new health care openings for practitioners, and technical and health care support personnel. Additionally, more than 1 million replacement workers will be needed over the next five years, including 160,000 in office and administrative occupations, and more than 100,000 in production sectors. Health care-related occupations will require 77,700 replacement workers. Demand for technology expertise continues to grow in manufacturing, as well as in headquarter operations across industry segments throughout the region, with corresponding increases in employment opportunities. “The landscape for future jobs is shifting as technology plays an increasingly pivotal role in our economy,” says Koehler. “Specialized skills are needed in areas such as smart manufacturing for the implementation of the Industrial Internet of Things.”

THE GREAT TALENT CHALLENGE AHEAD Ohio’s overall state economy faces common challenges from macro-economic fac-

tors, including the trade skirmish and the possible slowing of our national economy. In addition, each of our state’s six economies face the common and perhaps even more important challenge of developing, attracting and retaining talent to keep our industries thriving. While areas like Cincinnati and Columbus are slightly ahead of the curve, our overall state’s population is growing much slower than other states around the country. Indeed, even the Columbus area is attracting more talent from inside our state than people from other states wishing to relocate here, according to published reports. Certainly, the Mahoning Valley has a surplus of manufacturing talent, the silver lining in the dark cloud of Lordstown’s closure. But other areas, including Northeast Ohio, face the challenge of retraining workers and retaining homegrown talent in order to remain competitive. “The real headwinds that we worry about relate to talent,” says Koehler. “There is no question that over the last 20 to 40 years the nature of manufacturing has been changing as more innovation and automation have been introduced into processes and business models. “At the same time, we have a declining population of a potential workforce to draw

from. So the question becomes: how do we address this demand gap as a community? Do we do it through training opportunities, or by leveraging the education system to make sure we are building a robust talent pipeline?” “Our manufacturing story has been one of employment decline, but we still need more production workers because so many people are leaving the labor force in the next five to 10 years,” adds Duritsky. In terms of economic output, manufacturing continues to dominate the discussion, says Duritsky, and thanks to advancements in technology, manufacturing output will continue to grow. “Right now, it’s about 20 percent of what we do,” says Duritsky. “But it’s projected to become 21 percent of everything we do. When you think about productivity over the last couple of decades, it’s up around 90 percent, and it’s projected to grow another 70 percent in the coming decade.”

THE TWO TOMMOROWS In order to remain competitive, t he economy of Northeast Ohio must strive to be more inclusive. In its recent report, “The Two Tomorrows,” the Fund for Our Economic Future outlined two future paths for Northeast Ohio. One direction clings

to a legacy industry mix and declining access to jobs. The other sees a vision that embraces bold job creation, job preparation and job access strategies. So does Northeast Ohio have two economies today? “Many people feel that we do,” says Bethia Burke, vice president, Fund for Our Economic Future. “When you think about the difference between who has benefitted in the past decade from gains in employment and productivity, those gains have not been felt equally across the board.” Drive around Northeast Ohio, and it is easy to see the neighborhoods of the have and have-nots. “There is a collective sense that what has happened isn’t good enough, for our residents or for our economy,” says Burke. In December of last year, more than 80 civic leaders from across Northeastern Ohio came together to address issues of systemic racial exclusion. “Many of the folks who were included in those discussions have influence politically, in the community or through funding,” says Burke. “They can use their influence in a positive way to change things that need to be changed.” While changes are needed in urban environments, the challenge of better

education is an economic issue that is truly statewide and really knows no boundaries. When you take away the morass of racism faced in many inner city neighborhoods, and simply evaluate demographics in terms of teenage pregnancy, malnutrition, education and economic success, “there is actually very little distinction between low income rural areas of our state, low income small towns and low income inner city neighborhoods,” according to Hill. “So there is that ‘other’ Ohio,” she says. The state of Ohio needs to provide access to better education, nutrition, medicine and a safe environment for learning in order to remain competitive, says Hill. “We know what makes a successful school. We also need some sort of supplemental services for our education system,” Hill adds. “Every Ohioan needs to be literate and numerate. And Ohioans need to be resigned to and embrace the fact that they need to be lifelong learners. “We also need to make sure that the trades and technologically sophisticated manufacturers recognize a way to a middle income lifestyle.” If all of that does come to fruition, it would be like a rising tide that lifts all boats, including our state’s six economies. n w w w.ohiobusinessmag.com . W I N T E R 2 0 19