2021 Could Bring Good Economic News For Kansas — But Also A Long List Of 'Ifs'

Oct 8, 2020

The Wichita and Kansas economies are expected to grow slowly in 2021, but not enough to make up for all the losses suffered in 2020.

Jeremy Hill, director of the Center for Economic Development and Business Research at Wichita State University, gave his forecast for Wichita area and the state Thursday at the annual Economic Outlook Conference.

Hill says both the state and local economies could grow as much as 1.3 percent in 2021 if the national economy improves as well. If the national economy continues to struggle, growth locally could remain flat.

"So although we're expecting the state economy to grow over this next year, we have a really wide range of expectations from growing almost more than double than what our baseline forecast is to even to contracting this next year," Hill said. "And that just has do with all the underlying uncertainties in the economy and some of the things we can’t predict."

The obvious uncertainty is the coronavirus. Another major surge in cases followed by a partial or complete shutdown would stifle any growth.

Hill said there are other factors in play, including whether Congress passes another stimulus bill and who wins the November election.

Whatever happens in 2021, Hill said it will be a slow, lengthy climb to return to the economy the state enjoyed in 2019.

"So the expectation to get back to when the economy is running full steam is … a hard expectation to do in a one-year period, right?" Hill said. "We shouldn't have that expectation.

"So I can be positive about this next year. And I am being really positive about this next year, given all the uncertainties. It doesn't mean that we're going to be back where we were in January."

Credit Center for Economic Development and Business Research

Employment in 2020 for the Wichita-area is expected to finish 4.5 percent below 2019, roughly 14,000 less jobs. Hill expects Wichita to add back just more than 1,000 of those jobs in 2021.

For Kansas, unemployment will fall by nearly 60,000 jobs in 2020, about 4 percent. Hill expects the state to add about 7,000 jobs in 2021.

In both cases, the bulk of those job gains will come in retail and the leisure and hospitality sectors, which suffered greatly in 2020. But both sectors will remain below 2019 employment levels.

Hill said manufacturing, specifically aerospace manufacturing, will continue to drop in Wichita in 2021. The sector already has seen thousands of layoffs, first because of the grounding of Boeing’s 737 Max and then due to the reduction in air travel during the pandemic.

If the national economy performs at a high level, Hill said local aviation companies are in a position to take advantage of that. He said both major companies and smaller suppliers have made the tough decisions needed to get ready for next business cycle.

"We restructured. They're efficient, they're ready to go," Hill said.

"They still need that labor. And that's why they're holding onto them again. We can turn that button on and grow and expand and produce products. If the economy comes out faster, we're ready to move faster.

"We've gone through a whole new rebirth of aerospace, which is the biggest driver to our economy."

Credit Center for Economic Development and Business Research

Hill said the local and state economy would get a boost if Boeing’s 737 Max is certified to fly again in 2021. The plane was grounded in March 2019 following two fatal crashes.

Boeing has resumed production of the 737, but at much lower levels. The 737 Max normally accounts for more than 50 percent of Spirit AeroSystems’ revenue.

Spirit traditionally is the area’s largest employer, and the 737 program also supports smaller aviation supply companies.

"So having a recertification definitely gets the cash flowing again, it gets confidence," Hill said. "It helps bankers to know that they can float some more loans to help those smaller businesses stay alive long enough to get the whole inventory reprocessing and moving through the system and producing those planes again."

While employment in 2021 will remain below 2019 levels, Hill said retail sales in Wichita – which are expected to fall 2.3 percent in 2020 – will recover to nearly match 2019 levels.

He said that’s because as the national economy slowly recovers, consumer confidence will increase and people will start to feel more comfortable about spending.

"If you look at the consumption side over this last year, we've done a lot of savings, especially in the higher-income categories where you just built up your savings," Hill said. "You have all this pent up demand.

"As we move into this next year, and as we have more certainty and it looks like we have a vaccine to the COVID and we don't look like we're going to have another shutdown, that's going to loosen up some of that cash that we've been saving. And we'll probably reinject it in the economy."

One positive that Hill sees coming out of the whole coronavirus mess is that the pandemic may have stirred the city’s entrepreneurship DNA. He said there has been an increase in people applying to the state to form new companies.

"I think those business applications are just one indication where we're going to see new innovation, new things come into the market," Hill said. "We might not see it all today. It might take a year or two for this engine of being an entrepreneurial town to really come into play.

"But I think there's some of it happening. And I think we're already seeing it on the ground. And I think that could grow our economy much faster, five years down the road, where we can say this was a pivotal point."