“The NWIBRT Education Committee has organized one of the best line-ups in the history of the Business Outlook for this year. There are certainly going to be a lot of interesting topics coming ahead for 2023,” said Kevin Comerford, director of professional development with CAF and chair of the NWIBRT Education Committee.
Explosion of Investment, Development
Heather Ennis.Heather Ennis, president and CEO of the NWI Forum spoke about the massive development coming to Northwest Indiana backed by the recently secured READI Grant funding.
“The NWI Forum launched the Ignite the Region economic development initiative in partnership with multiple regional organizations and industry stakeholders. Together, we built a budget and began to raise funds for talent development together as a group. When the state’s READI program was announced, we already had a plan. This is where preparedness meets opportunity. In fall of 2021, we submitted our plans for grant funding through READI, and the result of this was an allocation of $50 million for Northwest Indiana. That $50 million have been allocated and is expected to go on to create an additional $550 million in regional investment.”
A total of 34 projects are currently underway through this program. One of them is additional hangar facility space planned at the Gary International Airport, which will create new jobs and transportation opportunities at the airport. Another is the quantum-level computing network along the Indiana Toll Road, which will attract research, development, and defense opportunities.
READI will also be funding new industrial development, commercial development, a new business park at the junction of I-65 and Route 2 near Lowell, walkable communities near the Hammond train station, new trailway systems, a new sports and recreation complex in Valparaiso, ecological educational programming, new workforce housing near Burns Harbor, a prison relocation study in Michigan City, local farming and food hubs, a new centers for STEM and entrepreneurial education, tools to accelerate small businesses, multiple talent development initiatives, diversity and inclusion business training, energy technology training, and more.
“If we want to continue to evolve, we’re going to have to figure out what’s next and we’re going to have to be nimble. So, it’s critically important that we continue to teach our kids to be entrepreneurial and innovative.”
See Ennis's presentation here.
Transit Taking NWI Forward
Sherri Ziller.Sherri Ziller, president and CEO of the NWI Regional Development Authority (RDA), spoke about the large economic potential surrounding the region’s transit development districts (TDDs). Multiple localized projects are taking shape around the rail expansions happening along the South Shore Line and the forthcoming West Lake Corridor.
“Businesses want talent and talent wants place,” Ziller said, speaking about the “missing middle” housing options throughout the region. These are options including structures like duplexes, townhomes, and other multiplex options for homebuyers and renters.
Ziller described two communities where housing developments are taking place – Michigan City and Hammond. In Michigan City, 2 to 5 million square feet of new development is expected by 2046, which is enough capacity for about 1,000 new employees working downtown. In Hammond, about 1 to 2.25 million square feet of housing development is expected by 2046, which is enough capacity for about 850 new employees working in the area. Those are just two of the many TDDs taking shape along the South Shore’s expansion, such as Ogden Dunes, Portage, Gary Miller, East Chicago, Beverly Shores, Dyer, Munster, and others.
“Our communities are ready for growth, and they have new tools in their toolkits for when developers come knocking,” Ziller said. “I still remain very excited about the future of Northwest Indiana. I see all sorts of reasons for optimism. We’re investing in our people and we’re right on the cusp of transformational change here.”
See Ziller's presentation here.
Energy Transformation
John Sabotnik.
Andrew Campbell.Andrew Campbell, director of portfolio management and origination with NIPSCO, spoke about the major changes taking shape in the region’s energy profile. Multiple projects are underway.
John Sabotnik, manager of major projects with NIPSCO, spoke about infrastructure modernization. The company is evaluating all of its energy infrastructure, including electric and gas systems. Improvements are being made using new technology advancements to improve safety, reduce downtime, and support economic growth.
“In the past 8 years, we’ve invested $2.7 billion to upgrade our infrastructure – both gas and electric,” Sabotnik said. “In just 2022 alone, we’re looking at improvements to 53 miles of overhead distribution lines and 241,245 feet of underground cable. New natural gas facilities and electrical substations have been built to support sustainability and reliability.”
The company has also been modernizing and providing new energy capacity for many of the major developments taking place throughout the region, such as many of those mentioned under the READI grant developments. NIPSCO has been assisting communities in developing strategic site inventories for marketing new projects. This includes “mega site identifications” via partnerships with state and local partners to help attract large investment projects.
See Sabotnik and Campbell's presentation here.
Steel Perspectives
Patrick Bloom.Patrick Bloom, vice president of government relations with Cleveland-Cliffs Inc., highlighted several trends that are impacting the steel industry throughout the state.
“Indiana leads the nation in steel production, and Northwest Indiana leads the state of Indiana in steel production,” Bloom said.
Cleveland-Cliffs produced 15.9 million tons of finished steel shipments in 2021, making it the largest North American producer of flat-rolled steel in North America. The company has experienced a 10-fold growth in revenue from 2019 through 2021, topping out around $20 billion for 2021.
Since 2000, much of the flat-rolled market has consolidated. Today, the four largest steelmakers comprise about 84% of the market, up from 44% in 2000.
Cleveland-Cliffs produces about half of the steel used in the nation’s annual vehicle production stream. With the rise of electric vehicle production, the company remains uniquely posed as the only electric steel producer in North America – producing steel for everything like frames, battery support and protection, motors, and even charging devices. Automotive market share growth of electric vehicles is expected to reach 51% by 2030.
The company recently finalized two major labor agreements with USW in the latter half of 2022. Bloom explained that Cleveland-Cliffs has “far more in common with its labor unions than it has differences.”
By 2030, the steelmaker has a goal to reduce greenhouse gas emissions by 25%. Locally, new carbon capture technology is planned for Burns Harbor. Nationwide, the entire domestic steel industry produces about 1% of our total U.S. emissions, which supports steel as a viable option for auto manufacturers and other organizations with sustainability targets.
See Bloom's presentation here.
50% Chance of a Recession in 2023
Steve Skalka.Steve Skalka, chief fiduciary officer with Harbour Trust Investment Management Company, delivered a rapid-fire overview of equity, inflation, and economic data.
“Are we in a recession? That’s what we hear over and over again,” Skalka said. “We have negative economic growth forecasted for the first two quarters of the year in the U.S. During the pandemic, overstimulation led to inflation and the end of easy monetary policy. Supply and demand led to inflation. Four primary supply bottlenecks that escalated inflationary pressure were products (think semiconductors), transportation, labor, and energy. Some relief is projected on the product front moving forward in areas like agricultural products and primary metals.”
“Good news is that prices are showing signs of coming down. Some relief is also showing on the transportation front. But labor remains an issue,” he said. “We have more job openings than people willing to take those jobs. Fewer workers equal higher wages. Energy is also an issue, as it impacts everything. Hostile energy policies have led to a drop in infrastructure investment.”
“When fighting inflation, we have to look back at history. Ultimately what finally put the brakes on inflation before is the increases in interest rates, a recession, and a fed pivot. The Fed pivoted too fast in the late 1970s and inflation took off again. It took a second recession to put the brakes on inflation. That’s why we think the Fed is not going to pivot again too quickly. Inflation will go down, but the Fed’s probably got some more moves to make.”
“Realistically, there’s about a 50% chance of a recession in 2023,” Skalka said. “On the equity side, earnings decline during a recession. But there are pockets of opportunity. Energy and defense contractor stocks have done well, for example. Also, higher-quality stock bands are doing better.”
“The good news is that here, locally, our area might be a standout. In these instances, you probably don’t want to be on either coast. The exodus from Illinois has brought about a lot of changes here,” Skalka added.
See Skalka's presentation here.
Economic Overview
Tony Sindone.
Micah Pollak.Two of the region’s brightest economics experts delivered their 2023 local and national economic forecast together. Tony Sindone, clinical associate professor of finance and economic development from Purdue University Northwest (PNW), and Micah Pollak, associate professor of economics from Indiana University Northwest (IUN), spoke on the trends headed our way.
Sindone began with a look at the economy from the national level down to local. Real GDP for the entire U.S. economy is on a slight upward trend, but the national debt is more than what we’re making in a year.
“That means each one of us citizens owes about $250,000. So, not bad,” Sindone teased. “We’re coming back from the hangover of the pandemic, supported by robust manufacturing and our high-tech service sector. The state of Indiana is bouncing back as well. For our region, real GDP is about $35.28 billion, which is good but is leveling off a little. We’re doing pretty well, and as Steve mentioned the coastal areas are not doing as well with their bounce back.”
“Regarding inflation and the rise of grocery and gas prices, the Chicago Metropolitan area (which we are part of) is a little bit higher in this region than the national average. Why is that? Food and energy prices have climbed. Inflation is real. Free money – virtually zero interest rates for years – has driven this inflation. Economic stimulus was also one other reason for upward pressure on prices.
“The traditional answer for increases in food prices would have to do with things like transportation, production costs, etc. But we’re also seeing fertilizer costs rise at more than a three-fold increase. As such, we are seeing reductions in supplies of feed grains. We used to import a lot of fertilizer from Ukraine and Russia, which is now disrupted.”
As for gas prices, Sindone explained in a historical context that gas prices are actually not that bad. Gas is cheaper today than it was in 1980 when adjusted to 1980s dollars.
Pollak added that Indiana is one of the higher-taxing states. But when adjusting for inflation, the price of gas is not higher than it was in 1980.
Next, Pollak discussed the labor market here in Northwest Indiana. The amount of employment in the region dipped sharply during the pandemic, but for the most part has recovered back to where we were.
“We’re not that far behind pre-pandemic levels,” Pollak said. “Our resiliency is really impressive. We actually went from the highest unemployment on record to the lowest on record in roughly 18 months. But right now, the labor market does not have that much wiggle room – there are not that many people unemployed. To hire someone now, you basically have to steal them from another company. The labor force is down about 2.5% from pre-pandemic levels, many employees have exited the workforce for lots of different reasons.”
“With these changes, we’ve seen wages starting to rise. One side effect of this has been a decline in the numbers of people working more than one job. That’s one less employee going to a job than before,” Pollak said. “There’s been about a 6.7% growth in weekly pay in Northwest Indiana between Q3 2019 and Q3 2022.”
“Overall, this has been really good for Northwest Indiana,” Pollak said. “Households and workers have fared well. Wage growth is outpacing inflation. Firms and employers are facing major challenges from rising costs and rising interest rates (investment). As a firm, you really need to be flexible and reinvent the way you do business. The ones that can be flexible will do fine.”
See Pollak and Sindone's presentation here.
Forecast for 2023
Sindone and Pollak’s forecast for 2023 found no indication of an imminent recession, but actions from the Federal Reserve and the federal government show signs of a recession approaching near the start of 2023. Sindone said that institutional investors are buying more long-term bonds than short-term ones, which indicates uncertainty.
“It’s not a sure thing, but I see indications that could lead us towards recession,” Sindone said. He jokingly noted that he didn’t have that notion in writing in his presentation.
Pollak forecasted continuing increases to interest rates, slowing wage and inflation growth, and a continuing tightness of the labor market. He also said the housing market will slow substantially, and concerns may arise over population migration.
“We might see a market that benefits workers more than employers for a while,” Pollak said. “Worker gains are likely to remain, and unemployment rates will remain historically low.”
For more information on NWIBRT’s and CAF’s efforts to educate and support the NWI business community, visit NWIBRT.org and CAFNWIN.org.
