Local firms told they need to take lead in recovery

Economic news from Main Street Tuesday was dismal.

But, delivered by nine people determined to see the Flathead stay in business, there was a touch of reasoned optimism.

"The outlook is pretty grim," Semitool Inc.'s Steven Thompson told 250 people at the Kalispell Chamber of Commerce monthly luncheon. "The thing now is survival The key is making your customers profitable. If you make them successful, you will be successful."

Business leaders told it like it is in their corners, but the packed house told the rest of the story: Misery loves confirmation.

Bob Herron, the Kalispell insurance company owner who sponsored Tuesday's session, pulled part of his introduction from the new U.S. president's inaugural address that morning.

"Our journey has never been one of short-cuts or settling for less," Barack Obama said at the National Mall on Tuesday. "It has not been the path for the faint-hearted Rather, it has been the risk-takers, the doers, the makers of things who have carried us up the long, rugged path towards prosperity and freedom."

Local businesses, Herron said, are those risk-takers, doers and makers of things, and must take the lead in local economic recovery.

Highlights from Tuesday's meeting:

n Agribusiness, Doug Manning for CHS: Volatile prices ? wheat was $4.50 a bushel 18 months ago, $18 last spring and $6 now ? are tough to work out in a business plan.

"It brings a lot of challenges to stay on top of those prices," Manning said. Good weather and good prices brought the chance to make good money, but soaring energy costs meant high inputs. Land values are staying conservative, and credit is still available.

n Construction, Charles Lapp for Flathead Building Association: All sectors of construction across Montana are down 18 percent from levels of 18 months ago, he said. Add commercial and highway construction into the mix and the figure nearly doubles.

In the Flathead, the industry is off by 35 percent. Overall, the county still is ahead of the rest of Montana's construction economy. Low mortgage rates ? at 4.5 percent now ? might inject some life into new construction.

n Finance, Bob Schneider for First Interstate Bank: Easy credit is gone, lenders are having trouble finding investors to buy their loan portfolios, and lenders are demanding credit scores well above 700 for consumer loans. Lenders want proof of cash flow and bigger down payments.

The market is flooded with lots and homes, and prices must come down, he said. Nearly all Flathead County mortgages now are for refinancing, not new purchases. In other areas 20 percent are for new purchases.

n Health care, Jim Oliverson for Kalispell Regional Medical Center: He's optimistic for 2009, but said belt-tightening is in order because bad debts will increase this year, "other income" will be lower on the balance sheet, and the federal balanced budget act took $179 billion from Medicare.

New technology and new staff at the hospital should boost patient numbers. Patients traveling to and staying in Kalispell for treatment bring $1 million a year into the local economy, he said.

n Real estate, Jim Kelley for Kelley Appraisal: For the first time in 30 years, Flathead Valley home prices dropped, the average price by 9.4 percent and the median price by 4.4 percent. It represents a loss of $1.3 billion total value. There's also a 28 percent drop in number of sales, with homeowners refusing to sell when prices are too low.

The Flathead has built up a 21-month residential home inventory, compared with Montana's 11-month inventory and the nation's 10 to 11 months.

Historically, the median home price has been 2.5 to 3 times the median household income here. Today it's 5.5 times the level.

"So I don't care if interest rates are zero," Kelley said. "It's going to be tough."

n Technology, timber, tourism and hospitality, and retail representatives also gave highlights.

- Technology, Steven Thompson for Semitool, Inc. ? The company?s global layoffs since November are due in part to what Thompson said was a 12 percent drop in its worldwide electronics shipments in November 2008. Huge drops in demand from ?the Intels of the world? are hurting chip manufacturers, Thompson said, prompting lower demand for the semiconductor capital equipment Semitool makes.

This quarter will bring to a halt the company?s six straight quarters of growth, he said. Its history of huge swings in growth and decline in the industry, however, has taught Semitool to downsize its workforce to match demand, manufacture lean by doing more with less, use its vertical integration to control costs by partnering with foreign customers, and develop new markets and small markets it has not pursued in the past.

Asia, with nearly 14 percent of its population using the Internet now ? and specifically Taiwan ? is a target market for the company, he said.

- Timber, Jim Lehner for Plum Creek Timber Co. ? The past five years are the most challenging Lehner has seen in 30 years. In the industry heavily geared to home construction, the drop from 2 million housing starts three or four years ago to only 600,000 last year was crippling.

The industry got a ?double whammy,? he said, from a 50 percent reduction in prices since 2005 and the reduced demand. Lehner expects a tough business environment into 2010. Plum Creek is aligning production with demand by closing the Ksanka mill near Fortine and slashing shifts and workers at its other plants.

He is encouraged that mortgage rates are dropping and that a slowly dropping inventory of homes on the market will encourage new construction.

- Tourism and hospitality, Lisa Brown for Red Lion Hotel Kalispell ? Montana tourism spawned 10.7 million visitors in 2007, $3 billion in their spending, and 44,830 jobs in 2007, Brown said. Glacier National Park is a major contributor and, although visitation was down 2.5 percent last year, bookings are on pace for July, August and September this year.

Glacier Park International Airport, Brown said, had 3 percent more paid travelers in 2008 but the fourth quarter dropped and is expected to be flat or drop 3 to 5 percent in the first quarter of 2009.

The bed tax, after growing every quarter since 2003, was down in the third quarter of 2008.

- Retail, Dave Harvey for Sportsman Ski Haus ? It was a year of highs and lows in 2008, with a new store that tripled their revenue expectations.

?We were spending money like we had it,? Harvey said. ?We slid into November feeling the same way.?

Then sales started slipping during weekdays but spiked from Friday afternoon through Sunday when, presumably, Canadians came to town, he said. It appeared an unfavorable exchange rate did not deter the more affluent Canadians.

Sales plummeted the first of December. People who planned six months ago to buy skis didn?t do it, he said, so Sportsman canceled orders and started buying close-outs and off-price merchandise. Like Semitool, he said, retailers need to align supply with demand.

The store also cut out operational costs, he said, and did some ?slash and burn ? We?d been spending money like we had it,? so they cut, he said.

?We will be a much more profitable, leaner company when we come out of this,? he said.