Will Newton be able to weather Maytag’s departure?

Will Newton be able to weather Maytag’s departure?
 
Date September 20, 2005
Section(s) Local News
Brief  
 
By PETER HUSSMANN

Editor

With Maytag‘s future in Newton uncertain at best, the community faces a sobering question: Just how bad it will be?

The jeopardy could be large. If all of Maytag‘s more than 2,000 jobs went away, would the impact buckle the local economy, chill housing values and force local governments to cut services amid tumbling tax revenues? In a worst-case scenario, Newton might wind up flat on its back.

But that might not be the outcome. A number of factors suggest Newton may be in better shape to weather the blow than it appears on the surface.

Maytag‘s impact

Maytag‘s dominance in the local economy cannot be understated.

The company employs nearly 10 times as many people as the city’s next largest employer, and it’s the source of more than a quarter of the total wages paid countywide.

The numbers tell the story.

Early this year, the Newton Chamber of Commerce’s annual employment report showed 3,200 people employed at the Maytag headquarters and the production plant, down from more than 3,800 the year before. The breakout showed 1,800 jobs at headquarters and 1,400 at Plant 2, the first time corporate employment levels have exceeded production jobs.

Maytag will not release employment numbers, and the job levels, especially at the corporate site, may be lower now. But even so, state figures still show Maytag is by far the community’s largest employer.

Maytag towers above the rest. Skiff Medical Center ranks second at 375 jobs. Next are Wal-Mart and Iowa Telecom, each with 250 jobs.

That means Maytag paychecks are a huge factor in the local economy.

Local wages

In 2003 and 2004, manufacturing jobs accounted for nearly 28 percent of the county’s total employment of just over 14,000 people, according to Iowa Workforce Development statistics. And Maytag jobs accounted for nearly three-quarters of the manufacturing total, producing gross wages of nearly $137 million.

In 2003, the average manufacturing wage in the county was $970 per week, the highest in the state. Those paychecks produced a total of $195.2 million in gross total wages.

Now, according to data the state will release next month, the county’s average manufacturing wage has fallen to third highest in the state, at $965 per week, or $183.8 million in gross wages for the year.

In 2002, gross wages in the county’s manufacturing sector topped $205 million. So the total manufacturing payroll in Jasper County has fallen by $23 million — more than 10 percent — over the last three years.

Impact less severe?

Over that period, Newton has lost hundreds of Maytag jobs. But a number of indicators show that these large reductions have not had an equally large negative impact.

Population has grown, school enrollments have been stable and residential home sales have remained strong — an outcome that economists say runs contrary to expectations.

Officials with the UAW Local 997 count as many as 1,600 lost jobs at its production plant in Newton since peaking around 2,600 in 2002.

In May of 2004, Maytag announced a corporate restructuring aimed at reducing 20 percent of its salaried workforce — 1,100 jobs. Maytag won’t say how many of those positions were eliminated locally, but anecdotal evidence suggests it was at least several hundred.

With the loss of as many as 2,000 jobs locally in the last few years, it could be expected that Newton would be reeling. That does not appear to be the case.

Population estimates up

Newton and Jasper County show signs of population growth rather than stress. U.S. Census Bureau estimates say Jasper County saw an increase of 495 residents between 2000 and 2003, a 1.3 percent growth rate compared to 0.6 percent statewide. The City of Newton’s gain for the period was estimated at 213, almost half of the total.

Signals involving children, although less scientific, also point in the same direction.

Newton Community School District Superintendent Steve McDermott says the district’s enrollment trends for the past 10 years have been generally downward, from about 3,500 students in 1994 to about 3,300 students in preliminary counts this year.

But he notes that kindergarten classes have grown the past two years, requiring the addition of an extra section. Kindergarten levels have topped 300 students the past two years, well above the 220 to 240 levels seen in prior years.

“We are not seeing a direct proportional relationship between the number of lost jobs at Maytag and a decrease in student enrollment,” McDermott said. “One would think there would have to be a tie, but we’re not seeing it at the same rate.”

Birth rates at Skiff Medical Center also have run against the tide.

Eric Lothe, Skiff’s administrator, said the hospital is on pace to surpass its record in 1978, when 260 babies were delivered at the city’s hospital.

Housing market

With the workforce reductions at Maytag over the past few years, it might seem that many displaced families would have sold their homes and moved away. In theory, this should mean more houses on the market, longer selling times and lower sale prices. But if this has happened, local real estate figures show the effects have been moderate.

Records of the Newton Board of Realtors do show more homes on the market — an average of 29 more each month this year than last year, 181 to 152. That’s a 19 percent increase. But over the same period, the average number of monthly sales has increased almost as much — 13 percent (25 a month in 2005 sales versus 22 in 2004). And the number of days on the market before sale is shorter this year, 122 compared to 131.

Average sales prices are up nearly 8 percent over last year, $108,395 compared to $100,469, and remain above the recently revalued assessments for residential properties in the city of $96,700. (This assessment includes land, buildings and the full value of abated properties. The city has more than $10.5 million worth of residential abatement currently on the books.)

New residential construction in Newton has not been strong in recent years (only eight new home starts last year and five to date this year), but Jasper County has seen record levels of residential development in rural areas.

From 2002 to 2004, 341 new residential construction permits were issued with a total value of $34.8 million. So far this year, 64 residential permits have been issued with a value of $5.6 million. The county does not offer tax abatement.

Impact of commuters

Iowa State University economics professor David Swensen, who tracks Iowa manufacturing data and employment statistics, points west to explain Newton’s relative stability despite the recent loss of thousands of Maytag jobs.

“You have a lot of workers who don’t live in Newton, and the flow into Des Moines is strong,” he said. “It has to be massive.”

Data from the Office of Social and Economic Trend Analysis at ISU confirm Swensen’s assumptions.

In 2000, SETA data show, nearly 3,500 Jasper County workers were employed in Polk County. Local economic officials say that number has grown significantly in the past two years.

The data also show that nearly 1,000 Polk County workers commuted to Jasper County for work. More than 1,000 more came from Marshall, Marion and Poweshiek counties.

Location, Location, Location

These factors — Newton’s easy access to the greater Des Moines labor market and the large number of employees in-commuting to the county — would reduce the impact on Newton and Jasper County if Maytag were to close, Swensen said.

“Newton’s location relative to the Des Moines metro region is important,” he said. “People are leaning toward Des Moines, and it has enabled Newton to stay stable. That’s important as Newton’s dependence on Maytag ebbs.

“Long term, Newton is looking at a transformation of its economy from Maytag to a modern economy where technology replaces workers in the manufacturing sector.

“It’s hard to escape that reality,” he said. “It’s like pretending the levee won’t break in New Orleans.”

From an economic impact standpoint, Swensen said, it appears Maytag does not have as many linkages to the community and the rest of its economy as people might think.

Lothe, the Newton hospital’s administrator, gives an example: Only 13 percent of Skiff Medical Center’s gross yearly revenues are generated through Maytag insurance.

While Maytag‘s departure may not cause the economic tidal wave some might expect, Swensen does foresee an impact on wage rates if the appliance manufacturer does ultimately close its doors.

“What it will get is a wage ripple, a household income ripple; primarily wages will be impacted,” he said.

Iowa State University economics professor Peter Orazem said Newton’s nearness to the Des Moines metro area has been a huge benefit in the face of declining Maytag employment. Even with gas prices high, he said, the commute is within the range that many workers are willing to make. This means many may stay in their homes in Newton even if they find jobs in Des Moines.

“Economically, Des Moines is doing well,” he said. “That’s what’s absorbed (Newton’s job losses.) That Newton has been able not to lose population bodes well for the future.”

Better scenarios?

All of this suggests a worst-case scenario at Maytag might produce something less than a full-scale disaster for Newton and Jasper County.

And a worst-case outcome at Maytag is still far from certain.

A big question, Orazem says, is what plans Whirlpool may have for the Newton facilities. While Maytag‘s headquarters might very well close under Whirlpool ownership, the production plant might stay open or even expand, he said.

“There’s worse things in the world than having someone with deeper pockets take over,” he said. “The potential of being 20 percent part of a stronger firm is better than being 100 percent part of a weaker firm.”

COMING SOON: The tax impact on Newton city government could be significant.

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