An Economic Marcellus Miracle?

June 22, 2012
dsp By PETER HOLLOWAY , shaleplayohiovalley.com

Editor's note: Peter Holloway of Wheeling, W.Va., is a financial adviser and senior vice president at Hazlett Burt and Watson.

By PETER HOLLOWAY

Hazlett, Burt & Watson, Wheeling, W.Va.

Article Photos

Following graduation in the early 1970s, while so many classmates elected to leave the area, I chose to remain in Wheeling and witnessed the steel, coal and glass industries fade away, leading to a 40-year economic downturn. Is there any hope for a recovery?

I believe that a very strong case can be made that this area has hit an inflection point and that the local economy will be rapidly gaining strength as a result of Marcellus Shale.

The state with the lowest unemployment rate in the nation (around 1 percent) is North Dakota because of the activity in the Bakken Oil Shale Field. North Dakota has now passed Alaska and is ranked as the number two producer of oil in the United States.

Below are some observations made at a meeting of the North Dakota Sheriffs and Deputies Association about the effects of the new jobs and new workers on Williston, N.D., population 30,000. These were cited by Mark Perry, professor of Economics and Finance at the University of Michigan in his blog www.mjperry.blogspot.com.

-- Bad News: Monumental traffic jams and a higher crime rate as a result of the increased population due to new workers arriving.

-- Good News: Rents in Williston are between $2,000.00 for a one-bedroom apartment to $3,400.00 for a three-bedroom apartment.

-- Williston's Wal-Mart doesn't stock the shelves. Demand is so high that they just put out pallets and let the customers shop from them.

-- McDonald's in Williston is paying $15 per hour, plus a $500 signup bonus, plus full medical.

-- The Williston Motel 6 is charging $130 per night.

-- The number one seller of Corvettes in the entire Upper Midwest is located in -- you guessed it-- Williston, N.D.

Many readers are asking, "Why aren't we seeing this happening here?"

It is beginning. Here are some areas of the local economy that should be doing better as a result of the influx of workers:

1. The barbers -- there are a lot more heads in the area.

2. Laundromats -- Many workers such as those living in hotels do not have access to a washer and dryer.

3. Restaurants and food stores -- the workers have to eat, boosting the restaurant business at breakfast and dinner. The well sites are normally located far from a restaurant, so the employees must often pack a lunch purchased at a local store. Someone with an entrepreneurial mind might try to figure out how to get food out to the sites and make a profit.

4. We are all aware of people who are renting out rooms, apartments or campsites at $400 to $600 per month. There are a lot of property owners that are receiving that money. Much of it will be spent locally, boosting retailers. However, one unfortunate impact of the higher rent will be that people with lower income could be forced out as rents rise. On the other hand, people working at minimum or low wages may see a boost in pay as employers raise salaries to compete with the higher paying Marcellus jobs, as seen in the Williston McDonald's wages and benefits above.

5. Billions of dollars will be spent on already announced Marcellus related plants in Monacca, Pa., Scio, Ohio, Cadiz, Ohio and New Martinsville, W.Va., all within 70 miles of Wheeling. A good portion of those dollars will go into local pockets.

6. The multiplication factor is a number that estimates how far a dollar that is spent will go before it runs out of steam. If a dollar is spent at a store, it doesn't stop in the cash register. Part of it goes to wages, part to utilities, part to taxes, etc. The Regional Economic Development Partnership estimates the multiplier at three as a conservative figure for this area.

As an example, any apartment rented at $500 per month, becomes $1,500 in total spending or $18,000 per year ($1,500 times 12 months). If there are 10n apartments rented at that figure, it becomes $180,000 and 100 becomes $1.8 million of new spending. Of course, these numbers are based on estimates and assumptions, but you should get the idea that the dollars that are just beginning to circulate in the community can and will grow rapidly.

I expect this article will get some pushback from people with concerns about the potential for pollution, out of state workers taking local jobs, bad roads, etc. With any new endeavor, there is risk. Things can and will go wrong. However, the economic reward for this area in general could be huge. We are not selling our souls to the devil. Everyone is trying to achieve the best possible outcome.

Hopefully, the four-decade economic decline will be quickly reversed and that in just a few years a new and prosperous Upper Ohio Valley will emerge -- and most importantly, our children will begin to move back or stay in the area.

 
 

 

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