Economic Forecast Luncheon panelists address industry trends, innovation, market forces

A group of panelists provided insights on various topics during the Corridor Business Journal’s Economic Forecast Luncheon Jan. 25 at the DoubleTree by Hilton in downtown Cedar Rapids. Panelists included Barbara Wilson, president of the University of Iowa; Jim Buie, president and chief executive officer of Involta; Stephen Timm, president of Collins Aerospace; Kevin Leidwinger, president and CEO of UFG Insurance; and Caroline Ruhl, CEO and co-owner of Ruhl & Ruhl Realtors. Jack Evans, chairman of the Hall-Perrine Foundation, moderated the discussion. Here’s a summary of the responses to questions posed to the panelists, in lightly edited form. Mr. Evans: Steve, Collins Aerospace has seven big strategies. Could you please outline them? Mr. Timm: One of the things that I’m so proud of, related to Collins, is that pioneering spirit that created what was Rockwell Collins and those other 17 businesses, (that spirit of) innovation. We have 300 locations around the world. We're about 50% engineers, and we invest about $3 billion a year in engineering. So when the economy grows, we hire engineers. We hired about 12,000 people last year. So these big seven initiatives are actually areas in the aerospace market and how we position our businesses in ways that we can differentiate ourselves. There are several dynamics that make an aircraft more efficient, but also more sustainable. If you think about something like a more electric airplane, (we could) stop burning fossil fuels, have more electricity driving on the aircraft and taking off hydraulics. We just (demonstrated) a 1-megawatt motor with de Havilland and Pratt and Whitney, one of our sister companies. It’s a hybrid solution to become more electric and help create more sustainable flight. Another example is investing in automation that helps make an aircraft more safe. Pilots take on a very complex task of getting us from point A to point B in the commercial markets. That complexity of a cockpit becoming more simple is a key part of our autonomy investments. Every airplane is really a node on a very sophisticated air network. And if you can help that aircraft fly more efficiently, you save fuel, you make your landing and your arrival times more predictable, and of course passengers have a better experience. ----------- Related story -- Villamil: Debt ceiling crisis could lead to economic ‘tailspin’ ----------- Mr. Evans: Barbara, in spite of COVID, the UI (recently) received a very prestigious award in terms of writing. Ms. Wilson: US News and World Report has been doing a ranking for the last few years called “writing across the disciplines,” looking at which universities embed writing and communication skills across disciplines, meaning it's available no matter what your major is, no matter what you're pursuing. This year, we were ranked second in the country in “writing across the disciplines,” behind this institution called Brown and tied with Yale. We're the only public university in the top 10. Most of them are small Ivy League schools. I think it's something for us to really be proud of. What we say to students who come to the University of Iowa is, no matter what you study, we're going to make sure you have writing and communication skills infused in your curriculum, because we know that you as employers want to make sure students know how to write and how to communicate, how to work in groups with diverse teams. And those are the kinds of skills that we can assure students that we've got. We have a writing center in the Tippie College of Business, we've got one in the College of Engineering, we've got one in the College of Liberal Arts and Sciences. We tell students, if you're going to come to Iowa, you're going to get those skills no matter what you pursue. And the country is recognizing that. Mr. Evans: Caroline, what is your projection for mortgage rates? Ms. Ruhl: First, I want you to know mortgage rates right now are really, really good. The national media, I swear, scares people away. But 15-year fixed rates are at 5%, 30-year at 5.75% conventional, and FHA, VA fixed rates are 5.375%. So if you've come from a history of when rates used to be at 18% or 12%, this great period that we've had for the past 10 years of below 5% really is not normal, and we're just getting back to normal. As far as projections go, Freddie Mac, Fannie Mae (and) MBA are all forecasting different mortgage rates, but on average, 6% for 2023 and 5.4% for 2024. That means today's rates are really better than 2023’s forecasted future rate. So it's a great time to buy. Mr. Evans: Kevin, could you comment a little bit about the current economic environment and how that impacts USG as well as the property and casualty industry? Mr. Leidwinger: The property and casualty industry and UFG are not immune from the underlying issues that we’ve talked about today. Inflation, supply chain issues, worker shortages – all of those things translate into increased claims costs. Certainly, the materials to repair and replace are more expensive today than they were just a couple of years ago, and the length of time it takes to repair and replace, to get a business back in the position it was before its loss, are also far more expensive today than they were just a couple of years ago. One of the other issues that’s not talked a lot about is this notion of social inflation. The rising value of jury awards certainly has an effect on UFG as well as the property casualty insurance industry, and this underlying negative tone or perspective around juries is translating into increased awards. If we look at things like interest rates, certainly the cost of capital is more expensive today. But if there's a silver lining in all of this, as you might expect, the insurance company has a very large investment portfolio. And so we are benefiting from increased yields on the portfolio as a result of higher interest rates. Mr. Evans: Jim, you talked a little bit about the workforce. It seems like every day, particularly in the tech world, the reductions in force are huge. Will you be hiring those people? Mr. Buie: Yes. Bring them to us. If you look at IT spending globally, it's projected to be about 2.4% year over year, which is down from an historical 5%. You can rationalize that a lot of the decreased spending will be around holding on to laptops longer, holding on to servers longer. That's where the decrease is. As far as software spending, that'll run 9%. As far as our business, IT services, 5.5%. In our markets, we operate a little bit higher than that. We don't work with a lot of SMBs; we work with middle market and enterprise clients. And everyone's planning and budgeting for slower growth. They're not planning for COVID again, or a deep recession. So I think we're very fortunate. I don't want to jinx it, but because IT services are cost-saving, we've been recession resistant. People still need IT projects. They still need automation. They need that skilled workforce to outsource. If you have an IT budget, maybe you outsource to somebody, and Involta can bring that expertise and scale to a lot of those services. I think it's a great opportunity in this labor market. You can never hire enough cybersecurity people or enterprise architects. So sometimes rather than fighting the internal battle, outsourcing is a good option. Companies like ours are a good outsource option, because we bring scale to those companies that are facing a tight labor market.

-- Compiled by Richard Pratt