BusinessReport.com

Performing his best imitation of Johnny Carson’s psychic character Carnac the Magnificent, economist Loren Scott’s levity eased a crowded auditorium. The comical illusion of Scott pulling his forecast out of a hat seemed appropriate considering the unprecedented global credit freeze.

“Things are not really totally in the tank,” Scott says. “If it had not been for the credit meltdown problem, we would have been having an extremely positive report for Baton Rouge. It’s almost across-the-board good news for the city.”

Scott anticipates $6.5 billion in new construction and anticipated permanent jobs should offset a short and shallow recession. The figure, up from last year’s projected $5.1 billion, would jump another $989 million if voters approve Mayor Kip Holden’s bond proposal on Nov. 4.

But will any of these projects become caught in the credit freeze?

“I still feel confident about the largest part of it,” Scott says. “All the industrial ones will happen, the hotels are already under construction, road work is not impacted or the chemical plant expansions. Coca-Cola [plant] is happening. Many of these [projects], we’re well into.”

James Richardson, LSU economics professor and the forecast’s co-author, agrees some projects might be delayed because of the credit freeze. Scott says he’s watching R.W. Day’s $100 million film studio project on Interstate 12 near O’Neal Lane and Pan American Capital Group’s refurbishing of the Tembec paper mill near St. Francisville.

“We are seeing the new construction remaining stable as Scott anticipates,” says Adam Knapp, president and CEO of the Baton Rouge Area Chamber. “If you call the construction firms, they’re experiencing one of the greatest booms in terms of construction projects in the area and Gulf Coast, largely driven by oil and gas business, as well as GO Zone.”

Scott’s report lists a dozen petrochemical plant projects, including Shintech’s $1.9 million expansion, ExxonMobil’s $554 million expansion, Placid Refinery’s $300 million upgrade, Cemus’ $280 million project at the former Kaiser Aluminum site and Coca-Cola’s $178 million production facility.

Knapp says he hasn’t seen any projects affected by a lack of capital. But he says the availability of taxable bonds has become limited, so people are putting deals together with hopes that relief will come soon. Area banks are saying the region is insolated from what’s happening nationally, and they’re continuing to make loans to existing business clients. This is especially important, he says, as companies are doing their 2009 capital expansion planning “so they need to know the banks will still be there for them when the time comes.”

BRAC’s major priority is providing the skilled workers to keep the boom going, Knapp says. Additionally, the chamber remains focused on marketing Baton Rouge to continue job growth and economic diversification. Digital media and nuclear markets also are expected to take off in the next couple of years, which will further grow the Louisiana economy.

Another major economic driver in the metro area economy is the permanent jobs that are paired with incoming companies and expansions. The Shaw Group is adding 150 jobs a year through 2018, Direct General Corp.’s new center could employ as many as 2,000 people and Superior Homes’ $3 million plant in Clinton will provide 150 jobs.

Diversifying the economic base by luring corporate headquarters [Albemarle announced it would relocate its headquarters from Richmond, Va., to Baton Rouge, and The Shaw Group committed to keeping its headquarters here] and new industry such as paper manufacturing also is paying off.

How long will the credit freeze last? And how long will consumer confidence remain in a panic? Scott says those are uncertainties with any forecast.

The “negative wealth effect” is why he pared back 2009 job growth projections for the state by one-third. “A lot of wealth is disappearing,” he says. For every trillion dollars created, people spend about $6 billion, which means less retail sales can stall the nation’s spending-driven economy.

Despite the national aversion to the “R” word, Scott says the U.S. has been in a recession since the second quarter of this year. “Our worst quarter will probably be the first quarter of 2009,” he says. Some financial analysts are projecting a longer recession, but he recalls the same outlook in two recent recessions that were actually short and shallow. Historically, recessions were longer and deeper because businesses didn’t track them as well as they do today.

Scott says they’ll know the recovery is coming when four indicators—employment, industrial production, manufacturing and retail sales and personal income [minus payments like Social Security]—turn upward.

While the public has questioned the government’s $700 billion rescue plan of Wall Street, Scott says it became clear it also saved Main Street after people saw their 401[k] retirements disappearing. Richardson says it’s important the government actively stabilize the economy to quell panic and avoid a deep recession.

“There will be stumbles along the way,” Richardson says. “I think, in the end, the very important thing is people having confidence the economy will ride this out. We’ll have a couple of quarters, but we’ll come back strongly. On top of this, we’ll have a transition in presidents and administration. Whoever wins better have a reputable financial team ready to go by Nov. 5 because the spotlight will be on that person.”

WHAT’S GOING UP?

A list of new construction projects in the Capital Region, according to economist Loren Scott:

Industrial

Project -- Cost

Shintech $1.9 billion

ExxonMobil $554 million

Placid Refinery $300 million

Cemus LLC $280 million

Coca-Cola $178 million

Dynamic Fuels $150 million

Pioneer Chemical $142 million

Formosa Plastics $100 million

Huntsman Corporation $100 million

Dupont $66 million

Stupp Corporation $60 million

Bercen Chemicals $5 million

Commercial

Woman’s Hospital $350 million

Pinnacle casino resort $250 million

Our Lady of the Lake Children’s Hospital $150 million

RiverPlace hotel/condominiums $135 million

LSU Union $77 million

CityPlaza II $75 million

Apartment Development Services $70 million

Marriott Renaissance Hotel $64 million

Our Lady of the Lake Livingston $50 million

Alex Box Stadium $37 million

North Oaks Hospital Diagnostic Center $25 million

Infrastructure

State highway projects 2008-11 $524.9 million

John James Audubon Bridge $347.9 million

I-12 [O’Neal Lane to La. 16] $100 million

I-10 [I-12 split to Siegen Lane] $84 million

Mississippi River bridge $68 million