Region makes nervous recovery

Vermont Business Magazine, Jul 01, 2003 by Kelley, Kevin

The worst appears to be over for the Chittenden County economy, forecasters agree, but they're also not expecting the best to emerge anytime soon.

The consensus among prognosticators is for a weak recovery in the most economically important part of Vermont. Hiring, however, may fail to keep pace with even the slow rate of growth that economists think will prevail until at least the end of this year.

"Most economic indicators are pointing up, except the one that matters most, which is unemployment," says Art Woolf, publisher of the Vermont Economy Newsletter.

The current recovery is unusual in another way as well, Woolf observes, "because we generally come out of downturns much faster than we're coming out of this one."

The Burlington area lost more than 1,000 nonfarm jobs in the past year, and that total would be even higher if government payrolls had not increased by 800 positions during the same period. Damage was most severe in the manufacturing sector, where 2,350 jobs were cut during the year ending this April. Overall, the unemployment rate in the Burlington area rose to 3.5 percent from 2.9 percent one year earlier.

Despite this lackluster performance, Chittenden County's job market remains healthier than that of the state as a whole. Vermont's unemployment rate was measured at 4.3 percent in April - which itself is significantly lower than the current national figure of 6.1 percent.

The Burlington area should eventually be able to return to the peak employment levels it reached about two years ago, says state economist Jeffrey Carr. But the way up is certain to be arduous and could also be lengthy, Carr cautions. In addition, the types of jobs to be added in the coming years will not be the same as those that were shed, he says. Woolf agrees, asserting that the manufacturing positions lost since 2001 "are gone permanently."

At the same time, manufacturing in Chittenden County appears to have begun a turnaround. Allen & Brooks, a real estate analysis firm in South Burlington, is predicting a nearly 3 percent increase in factory space in 2003 following what was "the worst year on record" for manufacturing in the Burlington area.

Economists pay special attention to the manufacturing sector because whatever happens there sends waves through the rest of the economy. As Allen & Brooks notes in its most recent regional assessment, "The health of the industrial market is a direct reflection of economic conditions, and may be viewed as a leading indicator of economic improvement."

Worried by the dim outlook for employment, the Vermont Legislature recently sought to nudge private-sector job totals upward by increasing the resources available to the Vermont Economic Development Authority.

VEDA is using some of the newly available money to create a Vermont Opportunity Fund that could contain as much as $25 million in investment capital, according to Jo Bradley, the authority's director. Investments in the range of $500,000 to $1.5 million will be made in companies with strong potential for job creation, Bradley says. The choice of recipients will be based in part on their likelihood of producing a good return on VEDA's investment.

The chosen companies "won't be startups," Bradley says. But VEDA is developing a separate program designed to help fledgling firms, and it's also planning to make loans to spur improvements in the state's technological infrastructure. Bradley predicts that Chittenden County businesses will find opportunities through both those initiatives due to the area's entrepreneurial culture and the City of Burlington's expressed interest in developing a locally controlled telecommunications network.

The new fund's first round of investments will be made about a year from now, Bradley says.

As the regional recovery plods forward, jobs will slowly be added in the retail sector. Allen & Brooks expects 4 percent growth in retail space this year, mainly as a result of new stores opening in South Burlington's Gateway Center (formerly Mall 189) and at Maple Tree Place in Williston.

Empty stores are also starting to, find tenants. The retail vacancy rate in Chittenden County fell to 7.3 percent last month from a 10 percent rate at the end of 2002, prompting Allen & Brooks to conclude that a "modest recovery" is taking place in this sector.

Conditions are also improving for developers of office space. Growth in this sector is predicted to be a feeble 0.5 percent in the current year, but that still represents a significant improvement over last year. The office vacancy rate hit a record high of 7.7 percent in December and has since dropped to 7.3 percent, according to the Allen & Brooks report.

The broad trends defining Chittenden County's economic direction are quite similar to those evident nationally. That's not a surprise to local analysts since most of them believe that the enormous American economy decisively influences. conditions in tiny Vermont.

"What happens here all depends on what happens nationally," says Vermont Deputy Economic Commissioner Tom Douse.