Posted by King White
Jan 15, 2015 2:30:00 PM
Each new year brings a different set of challenges for corporations seeking the optimal location to expand their company. Whether it is their headquarters, manufacturing plant, distribution or contact center, it is critical that companies understand the latest trends that may impact their location decisions. Site Selection Group has identified the following 10 economic development trends that will have the greatest impact on site selection decisions in 2015.
- Wage Inflation – Communities across the U.S. will be faced with mounting wage inflation. Expect to see wages for highly demanded occupations such as technology, advanced manufacturing and back-office workers to increase by 5% to 10% in 2015. These dramatic increases could decrease domestic job creation as the value proposition of offshore destinations becomes more attractive.
- Shortage of Skilled Labor – The demand for skilled labor continues to be a major problem across the U.S. There is no short-term solution to fix the problem, which could push growth to offshore destinations where the talent exists. It is critical that economic development organizations implement the necessary plans to train their workforce, especially in positions such as skilled manufacturing, for future labor demand.
- Minimum Wage Increases – Minimum wages are a hot topic at both the city and state level. Twenty states increased their minimum wage in 2015 while cities like Seattle, Louisville and Chicago have taken the initiative local. Look for lower wage employers such as call centers, distribution centers and low-end manufacturing plants to exit these locations for alternative lower-cost locations.
- Oil Price Volatility – With oil prices dropping to less than $50 per barrel, job creation spurred from the high growth energy sector in key states such as Texas will slow significantly until prices increase. The positive is that consumer spending will increase, creating greater demand for consumer goods and services.
- Increasing Interest Rates – The extremely low cost of capital has provided many companies the opportunity to increase capital investments in new projects. With the anticipated interest rate increase in the second half of the year, it will be interesting to see if capital investment will begin to taper off and cause a slowdown in new capital intensive projects such as manufacturing plants.
- Transportation Infrastructure Challenges – Cities across the U.S. are facing some serious infrastructure challenges due to the amount of growth and new development spurred by the recovering economy. The transportation infrastructure is highly strained and that will impact distribution channels as well as employee commute patterns. Economic developers need to have a defined plan to address these challenges to avoid losing projects.
- Natural Resource Challenges – Water is in great demand across many cities and states. California, Texas, Arizona, New Mexico, Oklahoma and Kansas have some of the worst drought conditions in recent history. The droughts will impact agriculture and reservoir levels in these regions. Economic developers need to have a clearly defined water strategy to prepare their regions for the long-term implications of the drought.
- Federal Tax Credit Extensions – In December 2014, federal legislators extended some of the most used federal tax-credit programs. This was only a one-year extension so only time will tell what happens in 2016.
- Negative Media on Economic Incentive Policies – The media has become highly critical of economic incentives across the U.S. As a result, economic incentives have become a political hot bed for public reaction, which is now influencing politicians seeking exposure. It is critical that economic developers and the companies seeking incentives carefully manage the media frenzy.
- Changes in Economic Development Policies – Local and state economic development organizations are always undergoing changes to their policies. Texas and North Carolina are anticipated to have some of the biggest changes this year. The departure of Gov. Rick Perry in Texas will create the groundwork for restructuring how the Texas Enterprise Fund is managed. While in North Carolina, the state economic development organization will be privatized which will potentially create a more competitive location for big projects.