Waiting for the tide to turn
- July 29, 2009
People in Doug Bassett’s business like it when winter comes, because their customers tend to hunker down indoors. That means they have more time to notice whether their furniture looks worn out. “They focus on their home when it gets cold, and they’re home bound,” says Bassett, the executive vice president and chief operating officer of Vaughan-Bassett Furniture Co. in Galax.
This past winter, though, was a bad one for the business, and Vaughan-Bassett, a 90-year-old family-owned company, was struggling just to stay afloat. There weren’t a lot of houses being sold anywhere, and consumers were having a tough time getting credit. Which means the 3,000 or so dealers that sell Vaughan-Bassett’s bedroom furniture weren’t doing much business.
So the company’s leaders — Doug Bassett; his father, company Chairman John Bassett III; and his brother, CEO Wyatt Bassett — had to hunker down, too. In December, they closed their 400-employee plant in Elkin, N.C., just across the state line, and consolidated the company’s manufacturing at the plant in Galax. “It was painful, but it was very wise,” Douglas Bassett says. “We had two [plants] limping along and not being profitable.”
The furniture-making business has taken a beating in recent years, in Virginia and around the U.S., mainly because of competition from Asian manufacturers. “You’re talking about an industry that over the past two or three years has shrunk by 30 to 50 percent,” says Doug Bassett. Vaughan-Bassett’s sales are down 11 percent from a year ago, but closing the North Carolina plant has let it put about $30 million in the bank, he says.
Now the company is waiting for the credit crunch to ease and for the housing market to pick up. In the meantime, it’s putting money into its operations, spending about $2.5 million on new mill equipment that should let it get more yield from its lumber supply. The company also has hired about 70 people at its Galax plant, bringing its total number of jobs to 625, great news for a city with an unemployment rate near 10 percent. “We think that being at a rough break-even is wonderful in this economy,” Doug Bassett says.
It’s hard to disagree with that point. Virginia has a diverse economy, and its overall economic health is relatively good. The economies of the state’s largest urban areas in Northern Virginia and Hampton Roads — supported in large part by federal and military spending — have helped cushion the blow. But it’s still been a rough ride for many job sectors and regions, and it’s not over yet.
In the 12 months ending in March, 10 of the 12 major employment sectors in Virginia shed jobs, according to Chmura Economics & Analytics, a Richmond-based research firm. Construction and manufacturing lost the most jobs, about 39,000 combined, out of a total of 91,000 job losses statewide. Plus, Christine Chmura, the firm’s president, predicts the state will see more job losses this year and next. Still, the pace of those job cuts is slowing considerably, and most economists expect the national recession to end in the fourth quarter of this year or the first quarter of 2010.
Federal spending should help Virginia emerge slightly ahead of the national recovery, says Terry Rephann, a regional economist for the Weldon Cooper Center for Public Service, in Charlottesville. “Plus, we have a lot of professional and technical services [jobs] and they’re going to be faster coming out,” he says. “If the economy as a whole is expected to come out in the third quarter of this year, which is what most economists are saying, we might be starting to emerge right now.”
But again, how true that is depends on where you are. “Northern Virginia basically drives the state economy,” he says. “But how long does that take to trickle down to [places like] Danville or Roanoke? That’s part of the question.”
Here’s a glimpse at economic prospects for regions around Virginia:
This region has had an easier time than most other areas of the state in the recession, says Gilbert Yochum, a professor of economics with the Old Dominion University Economic Forecasting Project.
Still, unemployment in May hit 7 percent, up sharply from 3.8 percent in May 2008. Like many other places, the biggest job losses have been in retail and construction. But overall the dip in the number of jobs has been fairly shallow. Yochum says civilian employment in the region dropped 0.8 percent for the 12 months ending in April, while similar-size regions in the U.S. have had it far worse: Charlotte, N.C., for example, had a 6.1 percent drop in employment in the same period, and Jacksonville, Fla., had a 4.1 percent drop, he says. “So our numbers look pretty reasonable.”
As always, the huge military presence in the region (including Oceana Naval Air Station in Virginia Beach and Naval Station Norfolk) means major federal spending, which is rising 4.5 percent this year.
The nationwide drop in retail sales, however, is hurting activity at the massive Port of Virginia, where container volume is down 22 percent. Virginia International Terminals Inc. is offering early retirement to an undisclosed number of its 450 workers as a way to cut costs. It’s also freezing the pay for both management and hourly workers.
Some of the largest layoffs in the region this year have occurred at Smithfield Packing, which announced plans in February to cut 488 jobs, and Cox Auto Trader Inc., which laid off 153 workers starting in March.
When it comes to new construction, Harrisonburg and Rockingham County have done better than the state as a whole in the number of building permits, even though the trend was still downward in the past few years. Across Virginia building permits sank by more than a third for the 12 months ending in March, a sign of just how bad things were in the construction business. But in the Harrisonburg area they were down just 15 percent over the same period, according to Chmura data. And the latest figures suggest a brightening trend: the region’s moving average of building permits rose 2 percent in March from the previous month. Only a few metro regions in the state saw an increase.
The region has not seen many major layoffs, with the biggest so far being the loss of 45 jobs at Tyson Foods in December. And according to the most recent data, the region’s technology industry has been growing, with the number of jobs up 7 percent last year.
Up at the northern end of the valley, the retailers in the Winchester region have been hit hard. The region has had the worst year-over-year growth in retail sales among the state’s metro areas for 27 of the past 30 months, through this March, according to Chmura. During that period retail sales dropped 22.4 percent, more than twice as much as any other metro region in the state. Not surprisingly, retailers let go of 1,059 employees during that time. What’s more, Winchester’s unemployment rate hit 8.2 percent in May.
On the brighter side, building is predicted to improve next year. The Winchester region has seen huge losses in building permits the past few years, including a 48 percent decline in 2007, the largest among metro regions that year. Permits are expected to decline this year, too, another 18 percent, before rising 15 percent in 2010.
If Northern Virginia is the state’s economic engine then everybody should be glad it’s running as well as it is. The region has 1.3 million workers — more than a third of the state’s total number — and its 5.3 percent unemployment rate in May was the lowest in the state. In fact, the region is so far weathering this recession better than those in 1990 and 2001. Employment is down 1.6 percent, compared with 2.3 percent in 2001 and 4.4 percent in 1990.
In a region this big, though, that number still translates into a lot of unemployed people. In the 12 months ending in March, nearly 16,000 people lost their jobs. The only employment sectors that actually grew were business and professional services, which added 7,074 jobs, and government, which added 4,211, according to Chmura data.
Fairfax County is the region’s dominant player, with a population of about 1 million people and major employment centers such as Tysons Corner. But it has taken a hit, too — the county’s unemployment rate is about 4.5 percent, says Gerald Gordon, president and CEO of the Fairfax County Economic Development Authority. “Things are a little slow for us, but these are levels that people would love to have,” he says.
Fairfax County scored one of the bigger deals earlier this year when Hilton Hotels announced plans to move its headquarters from California to Fairfax, investing $17 million and bringing about 300 jobs during the next few years. The state and the county combined for a $4.6 million incentive package to help attract the company.
Construction has been the hardest-hit employment sector. It lost almost 8,000 jobs in the 12 months ending in March. Gordon says it’s going to take time to recover, especially on the commercial side. The county has 111.2 million square feet of office space but 12 million of that is vacant. “So until it gets down to 5 or 6 percent there’s no real demand for new construction,” he says. Plus, because of the credit crisis of the past year, the capital just isn’t available. Gordon says that’s why the recovery will be tougher everywhere for sectors that need credit. “There’s nobody there to finance growth,” he says. “You can’t build if you don’t have the financial backing.”
This has been a tougher recession for the localities in this region when compared with recessions in 1990 and 2001, according to Chmura data. Employment is down 4 percent from the peak in August 2007, and retail sales are down 7.6 percent. The number of building permits is down a whopping 75 percent from the prerecession peak in January 2006.
The region — especially its manufacturing sector — took a big hit in May when DuPont Co. announced plans to cut 450 jobs at its Spruance plant in Chesterfield County. In June, Tennessee-based Manchester Tank closed its plant in Dinwiddie County and laid off 66 workers. Also in June, Reynolds Packaging Group said it would cut 158 jobs at its Richmond plant. The city of Richmond has the region’s worst unemployment, reaching 10.2 percent in May. These layoffs follow the thousands of local job losses that occurred earlier in the year with the liquidation of Circuit City Stores Inc., selloff of LandAmerica Financial Group’s assets and the closing of a Qimonda’s computer chip plant.
It doesn’t look like the region will come charging out of this recession. Chmura predicts employment will keep dropping, 3 percent this year and 1.5 percent in 2010. Retail sales, too, will keep sliding, she predicts, 4.9 percent this year and 1.6 percent next year. In those categories and one more — building permits — Chmura expects the Richmond region to perform worse than the state in 2009 and 2010. One job sector, however, is doing well in the region. Education and health services added 4,775 jobs in the 12 months ending in March.
In some key areas, this recession has been tougher on the Roanoke economy than the recession of 2001, according to Chmura data. Building permits are down 79 percent from prerecession levels, compared with an 18 percent drop during the 2001 recession. And yet, the region’s employment has fared better — dropping just 2.5 percent, less than half of the percentage drop in the 2001 recession.
Rephann of the Weldon Cooper Center says metro Roanoke’s economy is doing about as well as the state’s economy. Roanoke still has some strong job sectors, such as health care, with the Carilion Clinic being a major employer. South toward Montgomery County and Radford, the local economy has been hit by job losses in the auto and trucking industries, such as the 650 layoffs at the Volvo truck plant in Dublin last spring. Recent major job losses include Freightcar America, which cut 120 jobs, and O’Neal Steel, one of its suppliers, which laid off 114 employees.
Blacksburg has a different story when it comes to jobs. While employment statewide dropped 2.4 percent in the 12 months ending in March, Blacksburg’s employment total rose 1.5 percent, according to Chmura data.
The region’s residential building sector is struggling. In the 12 months ending in March, the number of single-family building permits dropped 60 percent in Roanoke area, the largest decline of any metro region in the state.
Even in years when the state’s economy was strong, the Danville region has lagged behind, hurt by major job losses in sectors such as textile manufacturing. The current recession is no different: Danville’s May unemployment rate was 14.7 percent, compared with 7 percent for the state. Surrounding Pittsylvania County reached 11.8 percent.
The Danville area is in the middle of a band of high unemployment. Of 16 Virginia localities that border on North Carolina, nine have unemployment rates higher than 9 percent, according to the Virginia Employment Commission.
The number of jobs in the region is down just 2.1 percent in the current recession, though, far less than the 8.6 percent drop in 2001, according to Chmura data. But that’s likely just a sign of how bad the local job market had become before the current recession began. Plus, Rephann says the changes in the kinds of jobs available in the region are largely irreversible. “A lot of those jobs that are disappearing in furniture manufacturing, in automobile parts, those jobs are not necessarily coming back,” Rephann says. “So training, and encouraging people to move to where the jobs are, is going to be very important.”
The bright spots: the Danville region did add 342 retail jobs and 141 construction jobs in the 12 months ending September 2008, the most recent data available for this area. It did so even though those job sectors were shrinking statewide, according to Chmura data. Plus, education and health services added 232 job during the same period, and the region added 140 high-tech jobs — an increase of nearly 11 percent.
At the Vaughan-Bassett plant in Galax, though, it’s summer and business is slow. Summers are always the worst quarter of the year. Sales will pick up as fall’s cool weather arrives, says Doug Bassett, but he won’t take that as a sign of better times, not yet. “We read about these ‘green shoots’ “ [that are] supposed to signal an economic recovery,” he says. “The furniture industry has no green shoots.” It needs the housing and credit markets to fix their problems. “Six months to a year behind that, you will typically see the furniture industry do better,” he says.
The company’s leaders are just glad their house is still standing, and they’re willing to wait it out. “It’s not fun to be the sales manager, like I am, when sales are down 11 percent,” he says. “But it depends on how you want to look at it.”