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Economist: Q-C economy needs to diversify to weather long-term changing economics
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Economist: Q-C economy needs to diversify to weather long-term changing economics

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An economist told Quad-City business leaders Thursday morning that certain trends indicated a slowdown looming for the local economy and the region needs to diversify to protect itself.

Dr. Kenneth Kriz, author and distinguished professor at the University of Illinois, said there is a “small probability” of a national recession, but there are indicators of a slowdown on the horizon. He pointed to issues in the manufacturing sector, which is affected by the ongoing trade war between the United States and China.

Kriz was the keynote speaker for the Quad Cities Chamber of Commerce’s annual economic forecast Thursday morning at Rhythm City Casino in Davenport. Paul Rumler, president and chief executive officer of the Chamber, said 250 people attended.

“The larger concern with the local economy is the overall structure being very heavily dependent on a couple of industries. Primary metal manufacturing — so your John Deere and your suppliers and things like that — has a disproportionate impact on the local economy,” Kriz said.

“That’s a sector that’s not forecast to grow very strongly over the next 10 years, and so the concern would be there," Kriz said. "It’s like you’re making a bet on a horse that we think isn’t going to be as fast-moving forward into the future.”

Rumler, however, pushed back a bit on that sentiment by saying manufacturing makes up about 20% of the local economy.

"What he was saying is if net new jobs are important then the Quad-Cities should look over the long-term horizon to see how we can adjust to more job-creating industries," he said.

Employment statistics by industry projected through 2028, showed several local sectors with either slow growth, under 1% growth but in a positive direction, or a negative change, meaning contraction.

“A lot of these industries are not particularly projected to generate a lot of jobs so that will be the longer-term concern because a lot of these industries are becoming more efficient, to be frank, and are able to produce output with not so many workers with a lot of innovations, which is great for the company … but in terms of generating jobs, it may be a bit of a concern,” he said.

The impact of trade wars

While there is talk of a potential U.S.-China trade deal, at this point that is all it is — talk.

“They are now talking about a potential deal with China and having that be a model for new trade deals moving forward,” Kriz said. “There’s a negotiation now with the U.S.-Germany trade deal. That obviously has big implications for things like a lot of the heavy machinery industry."

Kris said it is difficult to forecast such negotiations because they are based on who is in the room negotiating.

But with ongoing trade wars, China, for example, has begun to get its soybeans from South American countries, such as Brazil, instead of from U.S. farmers.

“If the trade deal gets resolved, (businesses in China) will probably shift back because it’s cheaper to ship from the U.S., quite frankly. So that will be the adjustment … if it goes on for a long time or becomes permanent, what happens there, but what happens to our other trade deals?” Kriz said.

There has also been talk of tariffs with Vietnam, coupled with negotiations with Germany.

“Do these things spread … if there’s a spreading of this, then all bets are off and you could be talking about huge impacts,” he said.

During a question-and-answer period, Kriz recommended retail storefronts have an online presence while maintaining a traditional brick-and-mortar store.

“People want to come out and experience things," he said. "You can’t experience anything on Amazon.com so what we teach in economics is that the more people need to try something on or try out something, probably the better it is to be in a storefront, period, to give an experience to the consumer."

Overall, Rumler said this year's event, which was held in December ahead of the next year rather than in February, provided insight for business leaders from multiple sectors with a broader market analysis.

The Quad-City economy is "growing and outpacing the regional and national economy. We're still going to be in a good position (in 2020) so it should give people confidence in their business and that there will be customers for their product," Rumler said.

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