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Dr. Bruce Domazlicky: Southeast's economic guru
Dr. Bruce Domazlicky has been teaching economics at Southeast Missouri State University since 1986. Before joining the faculty at Southeast, he taught at MacMurray College in Jacksonville, Ill. In addition to teaching, he is the adviser for Omicron Delta Epsilon, an international honor society of economics, also one of the world's largest academic honor societies. Domazlicky has also been published several times in national peer-reviewed journals and publishes the quarterly "Southeast Missouri Business Indicators." When he's not busy researching and tracking economic activity in the region, he likes to work on antique radios. He's collected about 50 that he's found at antique stores or flea markets and sometimes they work, sometimes they don't, he says. The economics professor recently sat down with us to discuss the state of the market and why it's in the shape it's in.
Business Today: Over the past year, how did Southeast Missouri do economically?
Dr. Domazlicky: Overall it was a decent year. Employment was up and unemployment was relatively low. There were no real problems as far as employment goes. Retail sales were pretty strong and held up well. That's Cape Girardeau compared to national numbers. Looking at the numbers, the value of construction stayed about the same. We may still see a slow down, we just haven't seen it yet.
BT: What are your predictions for the coming year?
Domazlicky: It's tough right now to say. The last two quarters have been strong, but looking forward there could be real problems. It's going to be hard to maintain. National growth has only been about 1 to 2 percent and the region tends to follow along with that. Next year will be challenging. Employment may not grow at all. Unemployment might increase just a little bit.
BT: What factors contribute to a growing economy?
Domazlicky: What drives the economy is consumer spending and that is kind of wavering. Home prices are down nationally. Energy prices are rising which sucks away spending. The banks have pulled back and made it more difficult to get funding or loans for a house and other big ticket items. People are all together cautious of spending. My impression is that the housing market is slowing down, if it hasn't already started. It's difficult to predict how it will play out, but it makes everyone a little cautious. I will say this, the Cape economy has momentum. Health care and education aren't affected as much. As the economy slows down people are still going to go to the doctor and still go to school. These types of things insulate Cape's economy. Even P&G produces items -- people are still going to buy diapers. It has enough momentum, there aren't serious problems. Though it might slow down a little.
BT: So, what's going on with the housing market?
Domazlicky: Oh yeah. At the peak, the beginning of 2006, the country was producing 2.1 million new homes per year. That was the annual average. Now it's down to 1.3 million new homes a year and it may go lower. If you think about it, we're producing a million less homes in a year. That's a big chunk out of the economy. It's a serious drag on our economy and part of the reason a slow down is expected. I'd be surprised to completely avoid it. On the national scale you probably see some slow down, how much is difficult to formulate. The banks and lending are pulling back. Now if you don't have 10 percent down they won't even talk to you.
BT: What affects consumer spending?
Domazlicky: There is lots to contribute to a slow down; the loans, the housing costs, energy. The rising cost of energy -- all that is going to affect spending. So there's those kinds of things and as far as the actual declining, there's still question. Consumers are more cautious. This Christmas spending season might not be great.
BT: OK, so what is going to stop this?
Domazlicky: Part of it is the bigger banks need to get their loans, their write-off sheets, in order. It will take a while for all that to shake out. Then they can fix their balance sheets and take charges from those. Once that happens, work on improving the balance sheets. There's also a huge over supply of houses on the market. It takes time for the supply to get worked off. It will take a while to even show strength and get momentum. Over the next six to 12 months it's hard to see a tremendous improvement in the economy, nationally. Locally, I think we'll still feel some slow down.
BT: Is there anything else you'd like to add?
Domazlicky: One other thing I'd like to mention is the falling value of the dollar. And I may worry more than others on this, but there is a concern. It takes almost a dollar and a half to get one euro. Part of the problem is that we've run a foreign trade deficit for so long with the rest of the world. It's flooded with U.S. dollars. The supply is so great. Our interest rates are low compared with other countries. It makes it more expensive for the U.S. to import items and easier to export more cheaply. That can contribute to problems down the road, including inflation. The falling value of the dollar is something we need to be more concerned about.