NORTH PEORIA'S TOP 10 - #1 The Economy

Staff Writer
Woodford Times

At mid-year the national economy began to sour under the weight of the mortgage and credit crisis.

Yet, Peoria’s economy was seemingly  untouched. Whether that will remain the case is yet to be seen. 

But, in September we were reporting the mortgage crisis sweeping across America had caused barely a ripple in Peoria.

That was the message from Dan Daly, regional president of Busey Banks, and Laure Feld, president of American Mortgage Lending. That is not to say the impact could not be felt later, because, Feld said, there are more shoes to drop.

Despite that, both said they saw a light at the end of the tunnel. Peoria, both said, weathered this financial disaster because Peorians and Peoria banks did not play the mortgage shell game.

But, events elsewhere in the country will impact credit availability in Peoria. However, Feld said, there is help available for credit-worthy people. She brokers loans — in other words, finds a bank willing to work with a lender’s unique situation.

“I’m a problem solver. I’m still making things happen,” she said.

The FDIC, the insurance company in essence for banks, is running out of money, Daly said, raising concerns in financial circles.

He said, so far, the failure of IndyMac has cost the FDIC $8.9 billion. And, he said, more failed banks are on the horizon. Currently, there are 117 banks on the industry’s troubled list. That is up from 90 in March.

“It’s concern,” Daly said. 

As a result, the FDIC is cracking down on banks’ lending practices.

“They’re pushing for tighter credit,” Daly said.

The tightening of this credit, he said, is hitting commercial real estate developers the hardest.

The FHA default rate is on the rise, as well.

“It’s shutting out some people,” Daly said.

He said the fault for this situation lay at the feet of the Clinton administration, Wall Street and the banking industry.

In 1997, Daly said, the Clinton administration approved legislation making real estate investment more attractive. People kept buying and moving up the real estate ladder. Interest rates were low.

After being burned on Wall Street when the dot-com bubble burst, people looking for a safer investment vehicle began moving into real estate.

“My industry didn’t do a lot to stop this madness … We fed the fire,” Daly said.

Investors looking for profits pushed banks to make more and more loans to people who really did not have the assets or credit discipline to buy a home. 

As the mortgage crisis unfolded, people found themselves upside down in their real estate, with their homes worth drastically less than the amount owed.

Good ranking

Later in September, we reported Peoria’s ever diversifying economy was bringing the city positive national attention.

“Inc.” magazine, in its annual ranking of cities as good places for companies to locate, saw Peoria jump 46 spots in the mid-sized rankings from 67 in 2007 to 21 in 2008. That is the biggest jump for any city in the country.

And, in the overall ranking for all cities, regardless of size, Peoria jumped to 83 from 208 for all cities in the country from last year.

The index was created by a summary of recent growth trends: the current and prior year’s employment growth rates, with the current year emphasized; mid-term growth: the average annual 2002-2007 growth rate; long-term trend: the sum of the 2002-2007 and 1996-2001 employment growth rates multiplied by the ratio of the 1996-2001 growth rate over the 2002-2007 growth rate; and current year growth.

Jim McConoughey, CEO of the Heartland Partnership said this is very good news for the Peoria area.

“The Peoria area, for years, has been advancing the idea it is a good place to do business,” he said.

“This ranking says to companies, ‘You have a chance to be profitable and successful here.’”

McConoughey said companies pay attention to these lists. These kind of rankings, he said, show company executives that public policies are in place to aid business.

“We’ve worked hard over the past seven to 10 years to diversify the local economy. We’ve started work on public legislation that is receptive to business,” McConoughey said.

“This is a demonstration that diversifying the economy is a solid public policy.”

McConoughey said the Peoria area has been vigilant in making sure the local economy stays diversified, having learned a hard lesson about having all your economic eggs in one basket in the ‘80s.

He said today the Peoria area has about 30,000 jobs in manufacturing, about 30,000 in health care, about 30,000 in service industries and about 15,000 in education.

That, he said, is a good mix.

McConoughey said the dramatic jump in Peoria’s rankings for mid-sized cities is no accident.

“This stuff takes years to develop. What happened is when the economy went south for the rest of the country we were in a bubble here because of our public policies,” McConoughey said.

“We are standing out now.”

Peoria Mayor Jim Ardis was also pleased with the city’s jump in the rankings.

“For one thing it’s exciting. A lot of cities use this to market themselves. We will, too,” Ardis said.

“Another thing that pleases me about this is this dispels the take that Peoria is a hard place to do business in. You guys write about that all the time. I think this supports the idea that Peoria is a good place to do business, and not by our standards, but by the magazines.”

Best economy downstate

While most of the nation is bearish on the economy one bank executive said in October people should be bullish on Peoria’s economy,.

Ed Scharlau, vice-chairman of First Busey Corp., was in Peoria Oct. 7 to address the Peoria Area Chamber — Busey Bank Economic Seminar. His assessment of Peoria’s economy is that it is the best in downstate Illinois.

Scharlau said the evidence for his assessment is plain for those who seek it out.

He said the Tri-County area has seen the value of agriculture rise $217 million in just the past two years, making it a $660 million business in the region.

Scharlau said even the news he found showing a local economic downturn was too small to be of great concern. He expects retail sales for ‘08 to be flat at just over $4.7 billion in the Tri-County area. But, he said, flat is much better than declining.

When it came to home sales in 2007, he said, Peoria, Tazewell, Woodford and Fulton counties saw the number of homes and condos sold fall 315. Yet, he said, 2007 went down as the second biggest year in terms of dollar volume in the history of the Peoria Area Association of Realtors.

Employment figures, Scharlau said, is where the Greater Peoria Area really shines.

In the past 12 months, he said, Caterpillar Inc. added 1,500 new jobs in Illinois, with 1,000 of those in the Peoria area. That, he said, brings the total of new jobs at Caterpillar Inc. in the Peoria area over the past five years to 5,000.

Scharlau then turned his attention to health care.

“Health care in Peoria is practically bigger than Caterpillar,” Scharlau said. He said health care in the Peoria area employs 29,606 people, a rise of 883 in one year.

“The future economic growth in Peoria is being driven by several major projects at all three Peoria hospitals and the University of Illinois College of Medicine,” he said.

Those projects amount to a minimum $729 million.

“Peoria’s ever-growing health care industry will continue to bolster the area’s economy throughout the 21st century,” he said

Scharlau said, however, all the good news about the region has only a minimal impact if not marketed.

“It’s important to position Peoria as a place with a positive tone,” Scharlau said.

“You’re probably the strongest economy in downstate Illinois.”

Former Peoria Mayor Jim Maloof agrees.

He spearheaded a program promoting Peoria’s positive attributes in 1985 called “Forward Peoria.” Maloof was running for mayor when he unveiled the program, which gathered 400 volunteers.

“I challenged people to rebuild the city. They came back with recommendations to improve the city,” Maloof said.

“We had a city people could be proud of. We got our light out from under a bushel.”

Maloof said Peoria needs to learn from the past and get back to promoting the city’s positives.

“What a time to toot our horns,” he said

“It’s not hard. You just have to believe in yourself and your leaders. The leaders have to set a can-do attitude.”

Maloof said he is not greatly impressed with the city’s efforts to market itself to the outside world.

“It could be better, much better. We’ve got this man from outside saying how good it is here. We should be saying it,” Maloof said.

“We’re in a great position to take advantage of things. We’re not doing enough.We’ve got to light a fire under the community. If it worked in ‘85 when conditions were so bad, why wouldn’t it work today when we have so many good things going on?”

“It’s important to position Peoria as a place with a positive tone,” Scharlau said.

“You’re probably the strongest economy in downstate Illinois.”

Former Peoria Mayor Jim Maloof agrees. He spearheaded a program promoting Peoria’s positive attributes in 1985 called “Forward Peoria.” Maloof was running for mayor when he unveiled the program, which gathered 400 volunteers.

“I challenged people to rebuild the city. They came back with recommendations to improve the city,” Maloof said.

“We had a city people could be proud of. We got our light out from under a bushel.”

Maloof said Peoria needs to learn from the past and get back to promoting the city’s positives.

“What a time to toot our horns,” he said

“It’s not hard. You just have to believe in yourself and your leaders. The leaders have to set a can-do attitude.”

Maloof said he is not greatly impressed with the city’s efforts to market itself to the outside world.

“It could be better, much better. We’ve got this man from outside saying how good it is here. We should be saying it,” Maloof said.

“We’re in a great position to take advantage of things. We’re not doing enough. We’ve got to light a fire under the community. If it worked in ‘85 when conditions were so bad, why wouldn’t it work today when we have so many good things going on?”

Good news continues

We reported in early December that anyone trying to maneuver around North Peoria’s shopping districts in the days since Thanksgiving might get the idea the recession has not slowed down holiday spending in Peoria.

That is exactly the message many economic leaders in Peoria wanted sent — a message that illustrates Peoria is leading, not following, the rest of the country in economic terms.

Bob Woolsey, CEO of Jones Bros. Jewelers, speaking at the annual Robert T. Stevenson Lecture Dec. 8, said at his store, and elsewhere, “I’m seeing people spending money.”

He continued, “It’s exciting to be part of a community that is different,” referring to a community that is not tied strongly to the nation’s economic problems.

“In our store we are doing well ... Customers are concerned about the economy, but they are spending,” he said.

“It is different and better in Peoria.”  

A recent national survey on spending habits of the affluent appear to bear out Woolsey’s assessment that Peoria is “different and better.”

Unity Marketing, a Stevens, Pa. market research firm, in October found its measure of affluent consumer confidence stood at a historic low, and luxury consumers are changing their behavior. 

The measure — known as Unity Marketing’s Luxury Consumption Index — dropped 10.7 points to reach an historic low of 40.3 points, the lowest level ever since Unity started measuring affluent consumer confidence at the end of 2003. 

“Unity Marketing’s most recent survey of luxury consumers, conducted Oct. 3-8 following the bailout and during the recent stock market upheaval, shows that affluent consumers’ negative feelings about their economic situation are translating into changes in their shopping behavior,” said Pam Danziger, president of Unity Marketing. 

“What is of more importance to luxury marketers than the decline in the Luxury Consumption Index is that luxury consumers are taking action in response to the current economic crisis.”

The findings show about 56 percent are spending less on luxury now as compared with 12 months ago, and 54 percent expect to spend less on luxury in the next year.

The results from the survey caused Danziger to predict a challenging 4th quarter in 2008.

Danziger said, “Among the changes in their shopping behavior, luxury consumers are shopping more strategically by looking for sales. They are trading down to less premium brands. In fine dining, they are choosing less premium restaurants and dining out less often. And they are simply staying out of the stores to resist temptation. The latest survey shows affluent shoppers are being prudent and careful with their money. They are still indulging in luxuries, but they are being more selective in what they choose to indulge.”

In terms of holiday spending Thomas Bodenberg, Unity Marketing’s chief consumer economist, said, “In taking the pulse of the luxury consumer’s mind set, we don’t yet see a turnaround emerging shortly ... For this holiday season, we see affluent shoppers turning more frequently to mass-market retailers with a high-quality, value-driven image ... as well as to outlet shopping where luxury brands can be had for less.”

Woolsey said he has seen and heard nothing to indicate discretionary spending is down in the Peoria area.

“I hear what they are saying. I hear from people all over the country that spending for luxury items and restaurants is down,” Woolsey said.

“But, I haven’t seen it here.”

He said one day last week he was at Longhorn Steakhouse and the place was full at 2 p.m. He said during a visit to Jim’s Bistro two weeks ago he could hardly get seated. And, he added, his cousin is a hostess at Alexander’s Steakhouse and on a recent Saturday night they were struggling to seat 1,500 people who showed up.

“It’s obvious discretionary spending here has not been impacted,” Woolsey said.

“It seems to me that real estate is doing fine here, too. A friend of mine just bought a house above the list price. There were three people bidding on it. It sold within 48 hours of its listing.”

Woolsey said he puts little stock in national economic surveys.

“There’s a sense of stability in Peoria you don’t see elsewhere,” Woolsey said.

Good news lost on some

 Local consumer confidence in the economy continues a decline in December, underway since early 2007. 

But, some of the consumer confidence news is positive, according to Dr. Bernie Goitein, director of the Center for Business and Economic Research at Bradley University.

“The perception of a buyer’s market for homes is reported, with favorable attitudes toward buying conditions for homes reported by 61 percent,” Goitein reported.

This figure is off only slightly from the 68 percent reported last Spring.

Family financial considerations figured greatly in the confidence numbers.

Thirty-four percent said they were worse off, compared to 33 percent who said they were better off.

Of those reporting they were worse off, 50 percent cited income loss as the reason.

Another 22 percent said increased utility and gasoline costs were the cause.

However, good news was found when respondents were asked about their future finance expectations.

Only 12 percent expected to be worse off in the future, while 26 percent expect to be better off.

And, Goitein reported the inauguration of Barack Obama could significantly boost consumer confidence.

“Attitudes can change dramatically with a new president, even before the inauguration of a new administration,” Goitein said, “particularly when confidence in government economic policies is low.

“In November 1992, the local November Index of Consumer Sentiment rose 14 points following President Clinton’s election, well before his inauguration.”

Goitein said since the figures for this survey were collected before the election a special December survey is planned to assess what, if any, changes in local consumer confidence were caused by Obama’s election.

Not all the news was positive.  The consumer confidence level fell to 69.2 on a scale of 120.

“These declines put confidence in the economy among residents of the Peoria Metropolitan Statistical Area at levels associated with the national recessions of 1990-91,” Goitein said, “but still well above the levels recorded in the early 1980’s, in the wake of the very severe national recession of 1981-82.”

Only 27 percent of local respondents labeled the local economy as good or excellent, down 10 percent from the 37 percent who responded the same six months earlier.

The loss of consumer confidence showed up in buying attitudes of those surveyed.

The report shows:

• Only one if three said market conditions are favorable for buying household durable goods - such as a washer or refrigerator - down from 47 percent last Spring, and 59 percent a year ago. 

• Reluctance to use credit cards spiked to 55 percent of respondents saying they use their credit cards “less” or “not at all.”

• Forty-five percent said this is a good time to buy a car, down from 51 percent last Spring, and 63 percent a year ago.

The decline in local consumer confidence had fallen from February.

Sentiment among Central Illinoisians about the local economy is not rosy, but neither is it bleak, a February story shopwed..

That is the assessment of Dr. Bernard?Goitein, director of the Center for?Business and?Economic Research at Bradley University, following his latest survey for the index of local consumer confidence.

Goitein’s report showed consumer confidence dropped from 94.5 in the spring of 2007 to 88.4 in October and November of ‘07.

But, Goitein said the drop is not a prediction of a sagging economy.

“We’ve had bigger drops. Generally, when we have numbers in the 90s, people are confident about the economy,”?Goitein said.

“Between 80 and 90, it’s a mixed bag. I’d be happier if the number was 90. I’d be more worried if it was below 80.”

Goitein said, the number expresses a fair level of confidence among Central Illinoisians about the local economy right now.

The survey found 47 percent of area families said they were “better off,” while only 23 percent were “worse off” than the previous survey. 

What Goitein said made the rate dip was concerns Central Illinoisians harbor about the future.

The survey has five parts, only two of which deal with the present.

“We actually have a majority — 56 percent — who view the economy right now as positive,”?Goitein said.

“The drop-off is because of future expectations. Twenty-three percent of respondents expect unemployment to rise. Looking five years out, a majority — 52 percent — are worried about unemployment. That’s up from 45 percent in the spring.”

The survey was conducted with 182 households in the Peoria-Pekin?Metropolitan Statistical Area.

Goitein said he did not go into the survey knowing what to expect.

“I figured it would go down. I didn’t expect a disaster, and we didn’t get one,” he said.

For the time being, Goitein said, he expects buying will not slow down dramatically in most business sectors, other than real estate.

“I think we’re still basically positive about buying big household items,” he said.

The survey showed 59 percent of respondents reported positive attitudes about big purchases, only down a few percentage from the 62 percent in the?spring ’07 survey.

Where there is less confidence, Goitein said, is real estate purchases.

He said 59 percent of those surveyed expect no increase in their home value in the near future.