Editor’s Note: As President Barack Obama was preparing for Tuesday’s State of the Union address, msnbc.com returned to Elkhart, Ind., the northern Indiana city it profiled at the height of the recession and the community that Obama promised to help on his first trip outside Washington after his election. MSNBC’s mission: see how the soft national recovery is playing out on this economically ravaged landscape and find out what role federal stimulus spending played in the rebound. MSNBC’s story by Mike Brunker, project teams editor, follows.
The economy in the nation’s industrial heartland — as embodied by manufacturing-reliant “RV capital of the world” Elkhart, Ind., — is growing again, with factories calling back some workers who lost their jobs in droves at the height of the recession. But as is the case in many parts of the country, the recovery here is really two tales of one city: one told by those who are hiring or being rehired, and another by those who so far have been left behind.
What we found was in some ways encouraging: The slimmed-down recreational vehicle industry and boat builders, both mainstays of the local economy, have rehired some laid-off workers. New players, notably electric vehicle manufacturers Think and Navistar, and revitalized old-timers like musical instrument maker E.K. Blessing have set up shop in empty RV plants and are ramping up production.
(The pickup in manufacturing is not peculiar to Elkhart. The Wall Street Journal reported last week that nationally the U.S. manufacturing sector outperformed many forecasts by creating 136,000 jobs in 2010 — its first net gain since 1997. It quoted economists at HIS Global Insight and Moody’s Analytics as predicting that the sector will continue to see modest growth over the next couple years.)
‘The fear is gone’
The entrepreneurial spirit that has seen Elkhart through previous economic downturns is sending up some green shoots now, such as the area’s first commercial fish-farming operation.
“The fear is gone,” is how Amish Shah, president and CEO of the Elkhart-based supply-chain-management firm Kem Krest, describes the community’s new “let’s get back to business” mind-set.
But Elkhart and neighboring towns in Elkhart County have a long way to go to erase the scars from the worst economic downturn in nearly a century. Unemployment hit 13.3% in November, well below the high-water mark of 20.1% registered in March 2009. Still, joblessness remains substantially higher than the national average of 9.4%.
And while some manufacturers are hiring, others continue to shut down or lay off workers. Medtec Ambulance Corp., for example, recently announced it was closing its plant in Goshen, while audio equipment manufacturer Crown International said in December it would lay off an unspecified number of workers at its Elkhart plant.
The improvement in the unemployment rate is itself somewhat deceptive, said Bill Witte, professor emeritus of economics at Indiana University in Bloomington.
“A big reason why Elkhart looks good now is they were hit so hard,” he said. “There has been shrinkage in the labor force — people have either dropped out or moved away — and once you get to a low base (of employment) it doesn’t take a lot of improvement to look good.”
And the local housing market remains in a shambles, with distressed properties, either foreclosures or short sales, accounting for most residential sales over the past year, according to real estate agents. On the commercial side, the market for office and retail space continues to be weak, though a number of larger complexes have changed hands.
Situation dire for long-term jobless
For the long-term unemployed, many of whom have exhausted their jobless benefits, the situation is increasingly dire.
Dean Preheim-Bartel, executive director of the ecumenical nonprofit Church Community Services, said more than 2,000 individuals and families received groceries through its food pantry in December, even though it was closed for a week around the Christmas holiday.
“While there is evidence of some slight recovery in the local economy, on the ground where we work it’s not very evident yet,” he said. “We’re seeing record numbers of people in need of food or financial assistance.”
Interviews with shoppers, workers and passers-by on Main Street in Elkhart underscored the divergent views on the local economy, with a majority of those questioned saying they have seen little or no evidence of a recovery.
“If it’s there, it’s in hiding,” said Terry Reardon, an apprentice ironworker from Goshen who has worked only occasionally over the past two years.
But Elkhart Mayor Dick Moore, who was elected shortly before the recession walloped the town, said he has no doubts the city’s economy is on a path to recovery.
“While we have farther to go … we are getting out of this much faster than many experts thought we would,” he said.
The scattered economic bright spots in Elkhart County do challenge assumptions about how quickly and to what degree U.S. manufacturing would bounce back from the recession.
For starters, much of the rehiring has occurred in RV and boat-building businesses, both of which appeared dead in the water a year ago.
Economic stalwarts lead hiring
“Families need to relax and vacation together, and this is the most cost-effective way to do that,” said Matt Zimmerman, a general manager with Keystone RV Co. in Goshen, referring to the travel trailers and fifth-wheel trailers the firm makes. Keystone is operating at near capacity and has rehired 1,100 workers over the past 18 months, bringing its total work force to about 3,100, near its historic high, he said.
Rick Gasaway, chief sales and marketing officer for Elkhart’s Nautic Global Group, one of the nation’s largest boat builders, said his firm added about 10% to its work force in four northern Indiana plants last year, bringing the total to about 500 employees. He predicted similar growth in 2011 in response to increased demand and low inventories.
Kem Krest, another longtime Elkhart business that manages supply chains for numerous automakers, also has been a positive influence on the local economy through the recession. It managed to avoid layoffs despite the auto industry’s troubles and more recently started hiring as demand picked up. The company now employs about 100 workers at its warehouse, said Shah, the firm’s 36-year-old CEO and an Elkhart native.
While the old stalwarts have led the way in hiring, employers new to the area have generated the most buzz. The marquee names are two electric vehicle makers that set up shop in Elkhart County.
Think, the North American arm of a Norwegian electric car manufacturer, has so far hired just 27 employees to build its two-passenger vehicles in Elkhart.
Manufacture of the cars, which are initially being sold only as fleet vehicles, is currently taking place in Finland, with final assembly in Elkhart. But after the company moves into full production at the plant this summer, about 100 workers will be employed by year’s end and 400 by the end of 2013, said Think spokesman Brendan Prebo. The operation also will send positive ripples through the local and state economies as it begins relying more on local suppliers, he said.
That depends, however, on the company receiving a $25 million loan from the U.S. Energy Department under its Advanced Technology Vehicles Manufacturing program.
“In terms of moving on to Phase Two and increasing our production, the ATVM loan is really a key part of that business strategy for us,” Prebo said.
Navistar, in the early stages of producing electric delivery trucks in nearby Wakarusa, Ind., already has federal money in hand — $39 million DOE grant announced in August 2009, when Obama paid his most recent visit to Elkhart County.
The company has assembled 78 eStar trucks in a former Monaco Motorcoach facility after buying the bankrupt company’s assets in early 2009. The truck-building operation has so far created 38 production line jobs, many of them going to former Monaco employees, said Shane Terblanche, vice president and general manager for Navistar Electric Vehicles.
That number will grow as the company ramps up to produce what the company anticipates will be several thousand vehicles annually over the next several years. It, too, plans to rely more on local suppliers, with an ultimate goal of 75 percent of parts and equipment being made in the United States, he said.
Former ‘band instrument capital’
Another manufacturer generating some joyful noises in town is a combination of new and old blood.
Many employees of E.K. Blessing, a musical instrument manufacturer founded in Elkhart in 1906, feared for the livelihoods when the company was put up for sale in 2009 by Randy Johnson, the fourth-generation owner/operator of the firm, figuring the buyer would send their jobs overseas.
But the purchaser, Verne Q. Powell Flutes of Maynard, Mass., had no intention of uprooting one of the last three companies remaining from the days when Elkhart was known as the “band instrument capital of the world.”
Instead, Powell Flutes President Steven Wasser spent more than $2.6 million to move the Blessing operation out of its old cramped facility and into what was formerly a Damon Motor Coach plant. That will enable Blessing to expand its traditional lines of student and intermediate instruments to include a new universe of professional instruments.
Blessing will be competing with foreign manufacturers that can make instruments at roughly one-third the cost, but Wasser and his team are gambling that professional musicians will be willing to pay a premium for high-end craftsmanship and customization that will help subsidize production of the lower-end instruments.
“We will have to win on quality and, to a certain extent, on personal buying philosophy by emphasizing that we’re the only company committed to manufacturing our instruments entirely in the U.S.,” said Steve Rorie, Blessing’s vice president and general manager.
Sweet sounds on a factory floor
Offering a sonic taste of what the future will hold, Mike Smith, a professional saxophonist and educator, demonstrated Blessing’s new prototype saxophone on the factory floor. The company says it will be the only entirely U.S.-made sax on the market when production begins later this year.
On the other end of the spectrum in terms of investment, two childhood friends — John Metz and Kevin Boyer from Elkhart — have dipped their toes into aquaculture, apparently becoming the first commercial fish farmers in Elkhart County.
Their company, Northern Indiana Aquaproducts, is ensconced in a long-empty outbuilding in Goshen, where they have set up three 3,500-gallon water tanks to serve as pastures for their tilapia crop.
They invested roughly $60,000 of their own money to get the operation off the ground after they were unable to find a bank willing to lend to a start-up in an industry with no track record in this part of the state.
The pair purchased their first 5,000 tilapia fry, or fingerlings, in early January and expect to deliver their first fish to market in June. They, too, will be competing with foreign suppliers in Asia and South America, and are banking that consumers will be willing to “pay a little more for something that is produced locally and is fresh,” said Boyer, a former commercial pilot.
They see the tilapia as just the first step in building a broader “green” business that will use the nutrient-rich water from the tanks to grow hydroponic vegetables and dry fish waste for use either as compost or as fuel to create energy for the fish farming operation.
Part of the appeal was the fact that the business is unique in Elkhart County, said Metz, a 38-year-old military veteran who retired from the Army after being injured while serving in Iraq.
“I remember Elkhart as being so vibrant and varied when we were kids, but over the last 30 years it’s become more and more concentrated on RVs and modular housing,” he said. “We wanted to do something that adds to the diversity.”
Stimulus role debated
The role that federal stimulus spending has played in what is, even by the most optimistic accounts, a mild recovery in Elkhart remains a hot topic for debate.
Moore, Elkhart’s mayor and a vocal advocate for the stimulus spending, said it produced immediate results.
“I definitely think it was a shot in the arm at a time when we needed it,” he said, ticking off paving projects, lead remediation and major highway work as projects that put people back to work and benefited the community.
He said the long-term impacts are still being felt.
“This was never intended to be an Elkhart or state of Indiana stimulus act, it was for the United States of America,” he said. “When we did those projects, we ordered parts and supplies from all over the country. And because we needed parts from Iowa, there’s a guy there who now has a job making those parts we need. And that’s a guy who can go out and buy an RV because he’s working.”
But Kyle Hannon, a spokesman for the Greater Elkhart Chamber of Commerce, said many local business leaders and residents don’t feel that Elkhart got much bang from the stimulus, in large part because of how it was spent.
“When the president came and sold the stimulus money, he didn’t say this, but people had an impression going back to the Great Depression — visions of guys digging ditches,” he said. “So when they began announcing various projects, it didn’t help that the first project we got was the Elkhart Airport runway and then road repaving. Many people remain very critical because of the disconnect between what people were expecting and what happened.”
The final judgment on whether the stimulus was money well spent won’t be emerge until Elkhart has fully beaten back the recession, and that’s likely to take quite some time, said economist Witte, who helps prepare U.S. economic forecasts for the Indiana Business Research Center at Indiana University.
“Our forecast has been pretty consistent since late 2008 — a fairly deep recession that would bottom out sometime in 2009 and then unemployment coming down very slowly,” he said. “But our most recent forecasts have gotten just a little bit gloomier. We thought we might get a bounce of growth of 4% or 4.5%, but now we expect around 3% next year. We just don’t see the strength that it takes to really propel the economy.”
That will mean more waiting and suffering for those who have yet to benefit from the mild recovery that has so far taken place in Elkhart, said Shah, the Kem Krest executive.
“I think they’re waiting in the wings for something to happen,” he said. “And so far I think in their perspective it’s been simply talk, it’s been data, it’s been statistics, but it hasn’t resulted in anything that has bettered their lives.”
It may not feel like it for those who are out of work or deep in debt, but Elkhart, Ind., the nation’s RV headquarters, is one of the 79 U.S. metro areas that was economically “in recovery” in August, according to the Adversity Index, a gauge of economic activity produced by Moody’s Economy.com for msnbc.com.
The index, which is based on government data on unemployment, housing and industrial production, had previously rated the city as “in recession” for 32 consecutive months, dating to December 2006., according to msnbc.com
The positive signal for Elkhart lends support to pronouncements by local officials that business activity has been picking up in recent months. But it also comes with warnings that the recovery – if it has in fact begun – will be neither quick nor smooth.
Still, word of the uptick was warmly received by Dorinda Heiden-Guss, president of the Economic Development Corporation of Elkhart County, who said it jibes with what she’s been seeing.
“Based on what I’ve seen from both existing companies and prospective new companies, that appears to be the case,” she told msnbc.com.
Heiden-Guss said that RV makers, which have recently been hiring back some laid-off workers, are expected to see sales rebound in the coming year, citing an EDC forecast calling for a 20%. And over the past two months, EDC staff have identified as many as nine local businesses interested in expanding operations. The group also continues to see “extremely heavy interest” from manufacturers of a variety of non-RV-related products who currently do not have operations in the area, she said.
But despite such positives, economist Andrew Gledhill of Moody’s Economy.com warned that Elkhart is by no means out of the recessionary woods.
“Elkhart definitely remains in a quandary, and the economy may never fully recover to what it once was,” he said. “In fact, in our long-term employment forecast, we never have Elkhart reaching its pre-recession peak. … Elkhart is in bad shape and will be for the foreseeable future.”
And Grant Black, an economics professor at Indiana University at South Bend, said that a one-month surge in the Adversity Index doesn’t necessarily mean that the recession is in fact in retreat.
“It’s going to give you a good ballpark of what’s going on,” he said of the measure, “but it may not tell you where you are right at the moment. In other words, it’s not going to be the best instrument for saying we’ve bottomed out and turned the corner.”
Black said recent data show Elkhart County has several areas of continuing concern. Chief among them, he said, is that while the unemployment rate has been steadily declining since spring, so too have employment numbers. The labor force in the county now stands at roughly 94,000, down more than 6,800 since the fourth quarter of 2007, he said.
And 12,000 households in the county were receiving food stamps in July, up 11% from January, he noted.
Figures like that keep County Commissioner Mike Yoder from taking too much satisfaction from the recent surge of business activity and interest that he’s seen. He’s worried that many recently rehired RV workers will soon be laid off again as manufacturers pare back during what are the traditionally slow winter months.
“I’m really concerned that it’s going to be a really rough winter for a pretty good segment of our community,” he said. “We can all celebrate next summer when everyone’s employed again.”