The U.S. economy is potentially entering into a historic expansionary period beginning in 2017, which could create significant challenges for corporate site selection, economic development agencies and workforce development departments. This could be the perfect storm of heavy corporate investment and jobcreation; however, companies should be prepared for the short and long-term implications of their site selection decisions if they want to strategically take advantage of this opportunity. To help develop the right location strategy, Site Selection Group’s team of experts identified the following 10 trends that will have the greatest impact on corporate location decisions, economic development policies and workforce development strategies in 2017.
1. Major domestic corporate expansion and investment will occur despite rising interest
Chair of the Federal Reserve Janet Yellen’s increase in interest rates in December signals the beginning of the end of the low-cost capital environment that companies enjoyed as a result of the Federal Reserve’s efforts to prop up the economy. It likely is just the beginning of interest-rate increases. Companies that have been hoarding cash but were concerned about spending it due to the slow-growth economy will now start spending. As a result, the U.S. appears set for robust expansion as companies pounce on the opportunity while interest rates remain relatively low compared to historic expansionary cycles.
Charles Mulford, an accounting professor at the Georgia Institute of Technology, was recently quoted in The Wall Street Journal saying, “We could be in store for a significant [capital expenditure] boom.” This combined with the resurging dollar valuation suggests the expansion will be focused domestically.
2. Companies will reduce offshoring due to political pressure and media exposure.
Offshoring has become standard operating procedure for most companies as they seek to reduce cost and increase profitability. With the recent election of President Trump, companies are struggling to figure out what he might do to diminish the offshoring of operations such as manufacturing plants, call centers and software/application development operations. If the recent situation with Carrier Corp. in Indiana and Ford Motor Co. in Michigan is any indication, companies will need to be prepared for intense media exposure and political pressure. The details of Trump’s strategies have yet to be revealed; however, companies will remain cautious in making offshoring strategies going forward.
3. Wage inflation will put financial pressure on employers.Employers will be faced with wage inflation for a couple of reasons. First, the demand for skilled labor is in high demand. Highly skilled occupations such as software/application development and advanced manufacturing will cause employers to increase wages to attract talent. Employers should anticipate an increase of 5% to 10% in 2017 in these high demand occupations. Second, minimum wages are set to increase in multiple states across the U.S. as explained in my recent blog:Over 120,000 call center jobs at risk in Arizona, Colorado, Maine and Washington as the minimum wage increases to $12 per hourEmployers will be forced to adhere to these new laws or relocate to other states with lower minimum wages. These minimum wage laws will have the greatest impact on jobs paying less $12-14 per hour range and may cause wage inflation of greater than 10% for lower end jobs in retail, call centers, distribution centers and manufacturing.
4. The increasing value of the U.S. dollar will have global implications.
The dollar has increased its value by more than a third since 2011, and many analysts believe it will continue to strengthen in 2017 due to optimism in the health of the U.S. economy. The buying power of U.S. consumers and businesses will increase as it will be cheaper to buy imported items and to travel internationally. However, U.S. manufacturers will be less competitive internationally due to higher prices and reduced profitability on those exports. One of the biggest unknowns is the impact of future plans by the Trump administration to renegotiate trade agreements and modify trade policies.
5. Full employment will create challenges for employers.
With the unemployment rate reaching a nine-year low at 4.6% last month, the economy has reached near full employment. If the trend continues, labor markets will feel like they did in 2000 when it fell below 4%, which is the only time it dropped this low in 40 years. In my blog, 142 metro areas reach full employment: the potential impact on site selection decisions written over a year ago, there were certain metro areas identified in the analysis that will struggle more than others to attract talent. As a result, employers are going to be faced with some challenges including skills shortages, employee attrition, decreased productivity/performance levels, and wage inflation.
6. Migration from the Western U.S. will increase.
Companies are having trouble operating in the West due to an unfavorable business climate there. California has been historically the most challenging state for business due to its labor laws, tax conditions and general cost of doing business; however, the recent minimum wage increases in Washington, Colorado and Arizona will make it very challenging for call centers, distribution centers and manufacturers to be cost effective due to wage pressure. As a result, many companies may be forced to relocate to lower-cost regions unless there is a logistical reason to stay. In addition, these states likely won’t attract as many new companies as the region will score more negatively during the site selection process.
7. Workforce development will become critical to meet the needs of employers.
The demand for skilled labor is a major problem across the U.S. Employers continue to need higher skilled workers while workforce development departments struggle to create a workforce development strategy aligned to the changing needs of these employers. If the U.S. wants to truly bring jobs back to America, then it is critical that economic development organizations implement the necessary plans to train their workforce for future labor demand. These plans should include higher skill vocational training for manufacturing, coding skills for software/application development, and soft customer service/technical support skills for call centers. Otherwise, the resurging economy may hit a roadblock, sooner than later.
8. Understanding underemployment will be critical.
Underemployment has been a longtime challenge for communities across the U.S. As the U.S. reaches full employment and companies try to find workers, communities will need to tap into the underemployed labor force. These workers possess the potential skills to move up in the workforce; however, the community doesn’t have any job opportunities for them. As a result, it will be critical for local economic development and workforce departments to accurately determine the underemployment within their community and attract the right companies to their region through workforce evaluation products such as LaborSuite, which Site Selection Group developed specifically for these purposes.
9. Continued focus on economic incentives by the C-Suite and public scrutiny will drive more complex compliance policies.
The media continues to spotlight economic incentives and actions by the C-Suite of all types and sizes of companies. Today’s corporate executives have grown to expect economic incentives for job creation and capital investment. If economic development departments want to want compete and win projects in today’s highly competitive site selection process, they will need to have a clearly defined and expedited methodology to offer a variety of economic incentive programs including tax abatements, tax credits, training grants, infrastructure grants, utility rebates and cash grants. On the flip side, public scrutiny of these same programs creates more complex compliance procedures, which increases challenges for companies to actually receive these economic incentives. As a result, it will be critical that both companies and economic developers leverage some of the new cutting-edge economic incentive compliance tools released recently such as IncenTrak, a software application that manages the economic incentive compliance process.
10. The supply of functional office and industrial real estate may limit growth opportunities for certain geographies.
The demand for functional, modern designed office and industrial real estate continues to grow as the economy improves and the needs of employers change. Office users are demanding larger, more efficient buildings to allow for open, flexible office layout with higher parking density. In addition, workers seek a “live, work, play” environment around them, and employers will have to address this desire to attract top talent. Industrial users want greater logistical access and clear heights of 32 feet and greater, and many of the larger metro areas such as Dallas, Atlanta and Phoenix have been able to keep up with this demand. However, smaller metro areas with excellent labor conditions who can’t raise the capital for speculative development will be limited in their ability to compete on many projects, especially when a company needs occupancy in less than nine to 12 months.