Bona fide growth
|The Capital Region economy is on the upswing, thanks to lower natural gas prices.|
Judging strictly by Business Report's annual “Top 100 Private Companies” roster, the Capital Region economy appears to be on an upswing.
More than half of the companies on the list saw their revenue fall in 2009, while only about a third admitted to a drop in 2010.
On this year's list, which is based on 2011 revenue, only 16 companies reported a revenue decline, and only a few slipped by more than 15%. While generalizations are always risky, and your company's mileage may vary, things appear to be looking up.
If there's one reason for the sunnier outlook, it's the price of natural gas. While most people think of Louisiana as an oil state, natural gas, more than any other commodity, truly fuels the Capital Region economy.
Petrochemical plants pay the highest average wages in the region, and they use natural gas as both a fuel and a feedstock. When gas is expensive, the plants cut back. When the price is reasonable, they perform regularly scheduled maintenance and turnarounds, and expand if needed.
And when gas is ridiculously cheap, as it is now, potential new projects heretofore banished to a file cabinet are being dusted off, re-evaluated, and in some cases implemented.
“With the natural gas prices being what they are, [plants] had a lot of money on the sidelines,” says Walt Rachal, vice president for business development with Ford, Bacon & Davis, which does engineering and project management for industrial clients. “It became very profitable at that point with the low energy costs to pursue projects that companies have been lying in wait for for years.”
When the plants are spending money, the industrial builders, always well represented on the Top 100 list, have more work to do. Which means they hire more contractors, which means people have more money to spend at shops and restaurants.
BRAC President Adam Knapp says he started seeing an upward trend in the regional jobs numbers last fall.
“We're at our highest nonfarm job number in almost three years,” he says. “The last eight months of economic activity have been strong for our region.”
For a while during the recession and its aftermath, “flat is the new up” was a popular catchphrase used to emphasize that, while Baton Rouge wasn't booming, as least the economy wasn't collapsing.
Now, actual, bona fide growth might be the new norm. In late 2011, BRAC predicted 1% to 1.7% job growth for 2012 based on projections from Moody's Economy, the Louisiana Workforce Commission (in partnership with LSU), and Economic Modeling Specialists International.
“I think what we're seeing is the tip of the iceberg of work related to low natural gas prices,” Knapp says. “We think 2013 and into 2014 are going to be some of the best years in industrial development in south Louisiana in two or three decades.”
Economist Loren Scott says sales taxes paid in East Baton Rouge Parish by local manufacturers were up more than 26.3% the first quarter of this year compared to last year, including a whopping 77% increase in April.
“You don't have that unless they're getting ready to do some big stuff,” Scott says. “That is a good indicator that we're doing very well.”
General sales taxes on the retail side are up more than 4%, also a strong positive indicator, Scott adds. In Ascension Parish, home to a large portion of the region's chemical plants, economic development officials are looking at more than twice as many prospects as they were a year ago, he says.
Of course, a momentum-killing shock to the global economy, such as a meltdown in the euro zone, still is possible. But based on current local conditions, the next couple years should be strong ones for the Capital Region economy, driven by two of our old standbys: chemical plants and industrial builders.
“For the next three years to four years,” Rachal says, “we feel very optimistic.”
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