WISCONSIN BANKERS ASSOCIATION | 4721 SOUTH BILTMORE LANE | MADISON, WI 53718 | 608-441-1200 | www.wisbank.com WBA WISCONSIN ECONOMIC REPORT A compilation of sector forecasts from industry experts.

Wisconsin Bankers Association Banks Will Overcome Challenges, Continue Strength in 2019 By Rose Oswald Poels, WBA President and CEO

Wisconsin’s banking industry saw a bank’s funding source and one that have a clearer regulatory path to do steady growth throughout 2018, and I regulators expect to be a primary business with all groups involved with expect that trend to continue for most source. However, as Wisconsin’s this crop and its byproducts. of 2019. population continues to age and Technology will continue to Much of the strength of the last year competition from non-bank sources transform the way banks do business in can be attributed to greater national intensifies, banks are finding it 2019 as investment in this area remains certainty and legislative policies at increasingly challenging to grow core strong. Technology improvements the state and federal level that have deposits from local sources. As a result, are focused not only on streamlining improved the overall economy, banks look to other sources for funding internal operations but also on enhanc- providing consumers and business loans which often are more expensive, ing the customer experience with a owners with greater confidence to impacting a bank’s net interest margin. bank. This necessary expense also borrow money for purchases and On the loan side, regulators are focused impacts a bank’s net interest margin. to fund growth. Certainly federal on ag portfolios and concentrations Through the third quarter of tax reform has strengthened the of commercial real estate loans. 2018, the number of Wisconsin- balance sheet of both individuals Additionally, the competition to attract headquartered banks declined to 204, and businesses, including banks. In loan customers has been very strong and I expect that number to continue addition, the banking industry finally and regulators are closely watching to decline in 2019 by about 6-8%. saw the beginning of regulatory bank’s underwriting standards to Banking remains a relationship relief with the bi-partisan passage ensure they maintain discipline. business so even as acquisitions of S. 2155, the Economic Growth, The ag sector is understandably a continue, branch offices will exist in Regulatory Relief and Consumer concern as farmers have experienced communities where a headquarters Protection Act. There is a delay in the “perfect storm” of challenges for once was located to continue to meet realizing the benefits from this law too long. Ag lenders will continue to the financial needs of local customers. as regulators need to write rules to work closely with their farm customers Despite our shrinking numbers, the implement the law; however, much of to help them through these challenging size of Wisconsin banks will continue the industry will see some relief from times in 2019 but as more annual to grow because we are the engine overly burdensome rules. The industry operating loans are rolled over into of our state’s economy. While the will continue to work with the 116th longer term financing, the need for a outlook for much of 2019 is positive Congress to hopefully provide more positive turn-around in the health of for the industry, we are mindful that a meaningful relief for both banks and our state’s ag sector becomes increas- correction is coming and may start to their customers. ingly critical for banks and farmers materialize near the end of the year. Looking ahead to 2019, there alike. Industrial hemp is a potential Founded in 1892, the Wisconsin Bankers are several indicators bankers and new crop that could help provide Association is the state’s largest inancial regulators are watching that will impact some diversity to Wisconsin farmers. industry trade association, representing the banking industry: core deposits, Bankers are helping advocate for the nearly 250 commercial banks and savings the ag sector, and technology. Core 2018 Farm Bill to permanently legalize institutions, their nearly 2,300 branch deposits are an important component of hemp and hemp products so that banks offices and 23,000 employees. Wisconsin REALTORS® Association WBA Tight Supply and Strong Demand Keep WISCONSIN Home Sales Flat and Drive Up Prices By Michael Theo, WRA President and CEO ECONOMIC With insights from Dave Clark, economist with Marquette University REPORT

The national economy is effectively of housing affordability in the state. and new construction of single-family at full employment with very low Specifically, the Wisconsin Housing units, are not likely to change quickly. unemployment rates, core inflation Affordability Index, which shows the Health circumstances will eventually in check, and an influential index of fraction of the median-priced home cause Baby Boomers to transition out consumer confidence which is at an 18- that a borrower with median family of single-family housing, and some year high. Although mortgage rates have income can afford to purchase, assuming of those in the Gen-X generation may drifted upward as the Federal Reserve 20% down and the remainder financed choose to right-size and hence put has pushed up short term interest rates to at current rates with a 30-year fixed their homes on the market, but these control inflationary pressures, mortgage rate mortgage. The October indicator demographic changes are likely to rates remain below 5% as of October suggests that a typical buyer can afford evolve gradually. 2018. The Wisconsin job market paints to purchase 196% of the typical home, The Fed’s policy focus needs to an even stronger economic picture, with which is down from 219% in October of maintain low inflation without slowing historically low unemployment rates last year. the economy too quickly. Likewise, at or below 3% between February and So what does the future hold for federal policymakers have removed October of 2018, and solid job growth housing in Wisconsin? Much depends some of the regulatory burden that throughout the year. In short, demand on the future path of the economy. The hindered the competitiveness of U.S. conditions are very strong which should last recession ended in June 2009, which firms. The president and congress need support robust growth in home sales, puts the current expansion just shy of 10 to avoid negating some of those gains yet sales through October lag behind years. The typical post-war expansion by pushing for permanent increases in the totals for the first 10 months of 2017 is 58.4 months but the last three have tariffs that ultimately raise input costs, by 2.2%. The challenge for the housing averaged 95 months and the expansion slow economic growth, and generate market is on the supply side, and indeed, during the 1990’s was exactly 10 years inflation. Likewise, state and local the state has been in a strong seller’s in length. Thus, it may seem as though policymakers should consider reforms market throughout 2018. a recession is on the horizon. However, that maintain the favorable business There are three fundamental sources the fundamentals of the economy remain climate in the state. They should reduce of housing supply and none of these solid, including steady improvements in the regulatory burden on developers sources has improved over the past employment which pushed the national and homebuilders, if new construction 12 months. Total listings of existing unemployment rate down to 3.7% in is to help close the supply gap. The homes in the state have remained October. With the Fed keeping core Wisconsin economy has outperformed below the levels of 2017 throughout the inflation near its target rate of 2%, and our neighbors to the south as they year with October total listings 13.2% with annualized Real GDP growth at struggle to get their fiscal house in lower than the level 12 months earlier. 2.3% in 2017, and ranging between order. While currently an advantage for New construction is essentially flat. 2.2% and 4.2% for each of the first three Wisconsin, this is a playing field we do Comparing the first three quarters of quarters of 2018, there are no immediate not want to level by endorsing strategies 2018 with that same period last year, alarm bells suggesting a recession that ultimately hinder future growth. Wisconsin’s single-family home permits is imminent. Indeed, the Survey of were up just 0.3%. Finally, single-family Professional Forecasters conducted Founded in 1909, the Wisconsin REALTORS® foreclosures for the first nine months each quarter by the Philadelphia Federal Association (WRA) is one of the largest trade associations in Wisconsin. It represents of the year are at the lowest levels in Reserve Bank puts the risk of a negative and provides services to more than 15,000 18 years. The combination of strong quarter of GDP growth at no more than members statewide. WRA’s goal is to demand and very tight supply has kept 20% through third quarter of 2019. promote the advancement of real estate in Wisconsin sales lower than last year and The supply side of the market is Wisconsin and provide cutting-edge tools to has pushed median home prices up 6.9% likely to improve only slightly over the help REALTORS® enjoy a successful career year-to-date, more than twice the rate of next year, since the two primary sources and be competitive in their market. inflation. This has eroded a key indicator of supply, listings of existing homes

18 | WISCONSIN BANKERS ASSOCIATION | JANUARY 2019 Wisconsin Farm Bureau Federation WBA Wisconsin Agriculture in Crisis WISCONSIN By Dale M. Beaty, WFBF Chief Administrative Officer ECONOMIC REPORT

During the darkest days of World War their way of life has led to increased have grown significantly and thanks II with Britain on the verge of defeat, depression among farmers. to a pilot program, farmers are once Winston Churchill said, “When you are Many farmers support President again dabbling with the crop. There are going through hell, keep going.” Donald Trump’s attempts to open thousands of uses and a $700 million foreign markets because they recognize domestic market waiting to be filled 2018 will be engrained in the free trade is very favorable to the by farmers. Whether it’s a different mind of Wisconsin farmers as the year agricultural economy in the long-term. crop, an on-farm store, agri-tourism to persevere. Many farmers are at a However, in the short-term, farmers are or diversifying, our farmers are doing financial and mental breaking point bearing the brunt of trade disagreements the best they can to navigate their because of a confluence of challenges because of retaliatory tariffs. It is businesses. which include four continuous years unlikely China will agree to lower We all eat. Therefore, we all need to of declining farm income, anxiety over their tariffs anytime soon. The Trump care about our farmers and agribusiness foreign trade negotiations, the lack of administration is offering $12 billion in owners. What can you do during this a workable federal immigration policy, farm aid to help ease the pain; however, difficult time for them? and the absence of Mother Nature’s those payments won’t avert the current 1. Add more dairy and locally grown cooperation. Few signs of improvement farm crisis. Farmers want trade, not farm products to your family’s diet. are predicted for 2019, especially for our government aid. 2. Take part in the “10-gallon state’s dairy industry. Wisconsin farmers need federal challenge” which benefits both dairy immigration reform to maintain a farmers and needy families. Call your consistent and reliable workforce. local food pantry to see if they accept Sadly, Wisconsin leads the Farmers want the Federal government perishable items, then head to your local nation in Chapter 12 farm bank- to create an immigration system which grocery store, buy ten gallons of milk allows them to legally employ foreign and drop it off. “ruptcy filings with 47 in 2018. workers. This is important because there 3. Consider becoming a Farm Bureau Financial struggles and the is a shortage of workers in Wisconsin, member. Farm Bureau is a non-profit and very few Americans are willing organization of, by, and for farmers. prospect of losing their way of life to consistently do the manual labor Wisconsin Farm Bureau advocates has led to increased depression required on farms. on behalf of farmers at the county, state, and national levels. To become a among farmers. In addition to the financial stress and anxiety over trade negotiations, farmers member, visit wfbf.com/membership. had to persevere through challenging The agricultural industry is cyclical. ” weather this year to complete their With agriculture contributing more than The average farmer’s income has harvest. During the summer, many $88 billion to our state’s economy, we declined nearly 35 percent since 2013 farmers were gifted too much rain need the cycle to head upward soon. according to the U.S. Department of through severe storms, causing flooding Agriculture. While farmer income and damaged crops. Mother Nature dealt WFBF is the state’s largest general farm organization, representing farms of all declines, input costs such as labor, farmers long stretches of windy, wet, sizes, commodities, and management energy, insurance, equipment, and and cold weather this fall which reduced styles. There are nearly 47,000 members maintenance continue to rise. Farmers crop quality and made it hard for that belong to the Wisconsin Farm Bureau. continue to lose money and burn through farmers to get the crop out of the fields. Voting Farm Bureau members (farmers) their equity. Sadly, Wisconsin leads the Wisconsin farmers are trying to annually set the policy the organization nation in Chapter 12 farm bankruptcy pilot through this low-price time by follows, and are involved in local, state filings with 47 in 2018. Financial investigating alternative revenues. Over and national affairs, making it a true struggles and the prospect of losing the years, the uses of industrial hemp grassroots organization.

JANUARY 2019 | WISCONSIN BANKERS ASSOCIATION | 19 WBA Wisconsin Grocers Association WISCONSIN Competition. Change. Challenge. ECONOMIC By Brandon Scholz, WGA President and CEO REPORT

If competition was just about the lanes were full with checkers? It’s a These three simple words fully capture grocer down the block, one could say rare sight these days because grocers, what happened in the retail grocery that’s relatively manageable. When like most other employers, can’t find business in Wisconsin during 2018. And an entirely new force comes into the enough people to fill the available jobs not surprisingly, they are the foundations universe, just about everything changes. that are open. And we’re not just talking for what grocers and food industry Online shopping isn’t coming; it’s here. about checkers and baggers. Department retailers will be going through in 2019. And it is a change for the good. managers, dietitians, HR, pricing, store Most all businesses can lay claim Granted, the majority of grocery managers… positions at every level. to the competitive factor in their shopping still takes place in traditional Add into the mix changes coming to respective industries, but few can match brick-and-mortar grocery stores. But the grocery industry like online ordering, the competitive nature of the grocery with more and more retailers bringing store pickup, and home delivery and more industry because of the razor thin online shopping, pick-up, and delivery positions are created and when that margins that grocers are forced to deal into their business model, online growth volume doubles, stores will need more with. Not only do retailers, large and will accelerate. employees to fill these positions. There small, single or multiple store operators Statista notes, “In total, U.S. online are more than 3,500 job openings in have to compete with the store down the grocery sales amounted to about 17.5 Wisconsin for grocery stores. That street, but they have to compete with billion U.S. dollars in 2018 and are number changes daily and will only go up other non-grocery retailers who want to expected to rise to nearly 30 billion U.S. as the industry and competition grows. sell select groceries and products. dollars by 2021.” The grocery industry stands ready Convenience stores and pharmacies In this age of smart phones and near and willing to work with Governor-Elect have expanded their product lines with constant internet access, many grocery Tony Evers and the State Legislature fresh food, beer and wine, beverages retailers are integrating a range of new to be a part of the effort to grow and and more. Pharmacies especially have and exciting services into online grocery expand Wisconsin’s workforce. While cut deeply into home and beauty care shopping using mobile apps, click-and- there are many priorities on political product sales. Big box hardware stores collect, and home delivery. agendas, expanding the workforce has to selling groceries and specialty stores for More than half of the grocers offer a be one of the top efforts. pets have reduced these categories in the variety of mobile apps offering exclusive Without a sufficient workforce, grocery store. e-coupons, online ordering, or loyalty employers and employees will suffer as There’s an old story about a New card programs and more. In a few short businesses will not be able to compete York City electronics dealers who years, this will be standard in the industry. and that will begin to change the undercut every single competitor with There are some impediments to the dynamic of the brick-and-mortar, mom- the absolute lowest prices in the city. growth of online found mostly in the and-pop grocery stores in Wisconsin. When asked how he could do that, his ability to offer home delivery or pick up Competition. Change. Challenge. answer was simple—volume. The man at the store and prohibitions on home Three words that demonstrate the could have been a grocer. delivery of alcohol, but that continues to current retail industry and three words With skimpy margins, grocers have change as customers demand that service. that exemplify the industry that is to laser focus on bringing back the Change creates challenges. While it’s constantly challenged and changing to customer and really can’t afford to lose critical to offer online grocery shopping, meet competition. them or let them troll other competitors. somebody has to go through the store, The Wisconsin Grocers Association rep- Competition is great for consumers. pick and process the order, bag it, and resents nearly 1,000 independent grocers, Groceries are some of the best priced get it set for pickup and delivery. That retail grocery chain stores, warehouses bargains around. Trading Economics creates new duties and likely new jobs. and distributors, convenience stores, food reports, “(The) cost of food in the I recently saw a store manager power brokers and suppliers. Wisconsin grocers United States increased 1.2 percent in shopping for an online order—clearly employ over 50,000 people with $815 mil- October of 2018 over the same month more manpower is needed! lion in payroll and generate more than $6 in the previous year. Food Inflation in When was the last time you went billion in annual sales in Wisconsin result- the United States averaged 3.41 percent grocery shopping and all the checkout ing in approximately $250,000,000 in state from 1914 until 2018.” sales tax revenue.

20 | WISCONSIN BANKERS ASSOCIATION | JANUARY 2019 Wisconsin Hospital Association Wisconsin Health Care Leads WBA as Cost Pressures Grow WISCONSIN By Eric Borgerding, WHA President and CEO ECONOMIC REPORT

It’s becoming a bit redundant to begin This assures growing utilization of health this annual column by noting the care services and increasing demands on of insurers offering coverage on the outstanding performance of Wisconsin’s and for the health care workforce. exchange. Even more promising, health care system, but excellence in any Despite advances in technology, health premiums in Wisconsin are actually Wisconsin industry is good for all of care is still a very labor intensive busi- projected to DROP in 2019 by 4.2%—a Wisconsin. Once again the Agency for ness. In 2017 Wisconsin hospital labor 40 point swing in one year, in part due to Health Care Quality, the gold standard costs totaled nearly $8.8 billion, up 7.3% some fixes adopted by Wisconsin. in national quality ranking, has ranked in two years, and hospital supply costs Government Health Care Pro- Wisconsin health care as some of the (including drugs) totaled $9.4 billion grams: Payment from Medicaid (state) very best in the country. According the in 2017—up 16% in two years. It’s not and Medicare (federal) continue to fall AHRQ, in 2018 our state has the fourth getting cheaper to deliver health care. far below what it actually costs hospitals best health care in the country, and first Health Insurance Coverage: to provide care. Critics of health care in the Midwest. Uncertainty is the bane of health care costs will often point to other elements Since AHRQ began issuing rankings, leaders, and no aspect of health care of the economy and ask, for example, Wisconsin has been in the top four 10 of has been less certain recently as health “Why is buying health care so much 12 years. Quality care delivers superior insurance, due largely to ongoing different than buying a car?” The simple outcomes for patients and ultimately Obamacare battles in Washington, DC answer is, auto dealers are not required better value for employers. That’s and Madison. For the past two years by law to sell cars at 35% below their good news as WBA launches its new I’ve speculated in this column that own cost (Medicaid), or for some association health plan. repealing Obamacare would prove customers, 100% below cost (see While Wisconsin hospital finances extremely difficult for Congress. I was “uncompensated care” above). The have remained relatively stable over wrong … it’s been impossible. In fact, difference between hospital cost and the past few years, a snapshot of certain aspects of repealing Obamacare payment in Medicaid alone was $1.1 the data flashes “caution ahead” became a pivotal issue in Wisconsin’s billion last year, the equivalent of adding (comparing FY2015 to FY2017 for Governor’s race and others. We’ve all another 13% to hospital labor costs Wisconsin hospitals): heard the saying “If you break it you (keep that in mind when Wisconsin » Experienced a 21% decline in own it.” When it comes to Obamacare, if debates expanding Medicaid in 2019). operating margins; you break it, or don’t fix it, you own it. Compounding this situation is the fact » More than half saw a decline in Political ramifications aside, the that the “payer mix” at many Wisconsin both operating and total margins; inability to either repeal and replace hospitals can be as high as 75% Medicaid/ » 38 had a negative operating margin; or just fix Obamacare has contributed Medicare. Throw into that equation the » 33 had a negative total margin, in- to an upward spike in health insurance unfortunate reality that these unpaid cluding 13 rural Critical Access Hospitals. costs (Obamacare premiums +36% costs have to be shifted to everyone else Wisconsin’s health system leaders in 2018) and a commensurate uptick and you can see why “selling” health point to three issues that most directly in Wisconsin’s uninsured rate. In the care isn’t quite like selling a car. impact those finances and pose the “business” of health care, when people greatest challenge to sustaining become uninsured, the care they still Established in 1920, WHA’s mission is Wisconsin’s superior quality care: receive from Wisconsin’s hospitals advocating for the ability of its members Workforce: Like most industries, becomes “uncompensated.” In 2017 to lead in the provision of high quality, health care is grappling with serious hospital uncompensated care rose 11% affordable, and accessible health care services, resulting in healthier Wisconsin shortages in key areas. Unlike most to $417 million—hundreds of millions communities. WHA is committed to serving industries, demand for health care’s in unpaid costs that must be shifted to member needs, keeping members informed “product” is largely a function of Wisconsin employers and families. of important local and national legislative demographics rather than typical The good news here is the Obamacare issues, interpreting clinical and quality issues economic cycles. Wisconsin’s population insurance market is showing signs of for members, providing up-to-date educa- is aging; our over 65 population is stabilizing. For the first time since 2014 tional information and encouraging member expected to double in the next 10 years. there will be a net increase in the number participation in Association activities.

JANUARY 2019 | WISCONSIN BANKERS ASSOCIATION | 21 Wisconsin Technology Council WBA Dusting Off a Dirty White Hat, WISCONSIN Tech Stands to Rebound in 2019 ECONOMIC By Tom Still, WTC President REPORT

business is lower, especially compared After years of wearing nothing but white to the Silicon Valley, and employees can In 2016 and 2017, more than hats, Big Tech added gray and even a bit find affordable places to live without of black to its wardrobe in 2018. spending much of their lives in the car. $500 million in angel and venture Leaders of social media giants found Some of Wisconsin’s most iconic “capital found its way into young themselves apologizing to Congress over tech companies enjoyed strong years state companies. Based on a re- the infiltration of their platforms by foreign in 2018 and show no signs of slowing hackers bent on spreading “fake news.” down. Verona-based Epic remains the cord second quarter in 2018, that The markets fell amid fears the party nation’s market leader in electronic pace is likely to be as strong once was over for major tech stocks after years health records and is venturing into of run-up. People began to question if global markets with success. Promega the year’s books are closed. trends such as autonomous vehicles and is expanding its U.S. and global business next-generation robotics were as close to in biotechnology assays, reagents, ” reality as advertised. Cyber-security and DNA analysis, among other raising money in other ways, such as the threats grew in number and sophistication. products, and adding to its Fitchburg $150-million commitment to SHINE As 2019 opens, those trends and campus. Companies such as Rockwell Medical Technologies by Deerfield more will continue to garner headlines Automation are poised to become Management Co. late in the year. nationally as the technology sector goes leaders in Industry 4.0 as use of data Much work remains to be done. Tech through a natural maturation process. and artificial intelligence transform companies can be found outside the From its market lows of 2009 through manufacturing. Spun off from its parent state’s largest metropolitan areas but not much of 2018, tech was a rambunctious in mid-2018, GE Healthcare has enough. Better broadband connections youngster that romped through one retained a strong Wisconsin presence will help retain and attract people and success story after another. The swift with 6,000 employees in Milwaukee, companies to rural Wisconsin. Attracting sell-off of late 2018 turned tech— Waukesha, and Madison. It plans to and retaining workers is a priority. especially Big Tech—into more of a transition some work from a Maryland Early-stage investments could still moody adolescent, but one eager to learn facility to Wisconsin. Madison’s Exact benefit from state programs that could from its mistakes. Sciences is also expanding after having give them a lift. Many analysts predict the general landed in Wisconsin as a two-person One priority for the Wisconsin decline in the value of tech stocks will company a decade ago. It has about Technology Council in 2019 will be correct itself in 2019 as buyers turned 1,000 workers today. helping young companies get in front back to companies such as Amazon, While it was a point of debate during of investors and potential customers Apple, Alibaba, Adobe, Salesforce, the campaign for governor, Foxconn through its conferences and events, Twitter, and even Facebook. Meanwhile, Technology Group is well on its way as well as through the Wisconsin a host of younger companies are poised to building a state-of-the-art campus Healthcare Business Forum, a to crack into the club as the pace in Racine County and has announced partnership with the Wisconsin Hospital of innovation quickens outside the satellites statewide. Its long-term effect Association and others. traditional strongholds of Boston, New on technology in Wisconsin stands Tech took some lumps in 2018, and York, and California’s Silicon Valley. to be significant. 2019 remains sketchy for the economy Wisconsin is one such hotspot, Angel and venture capitalists remain at large if trade wars continue and two of thanks to a combination of factors. The intrigued by what Wisconsin offers. In Wisconsin’s strongest historic sectors— academic research and development 2016 and 2017, more than $500 million manufacturing and agriculture—are landscape remains strong, with more in angel and venture capital found caught in the crossfire. The foundation is than $1.5 billion spent in 2017 alone. its way into young state companies. there, however, for continued growth. Talented workers can be found among Based on a record second quarter in The Wisconsin Technology Council includes the graduates of Wisconsin’s public 2018, that pace is likely to be at least the Wisconsin Innovation Network, the and private colleges, universities, and as strong once the year’s books are Wisconsin Angel Network, and the annual technical colleges. The cost of doing closed. Maturing state companies are Governor’s Business Plan Contest.

22 | WISCONSIN BANKERS ASSOCIATION | JANUARY 2019 WisPolitics.com/WisBusiness.com WBA The Post-Election Landscape WISCONSIN By Jeff Mayers, WisPolitics.com President ECONOMIC REPORT

Divided government has returned to Legislature. And if they don’t, they have Wisconsin for the first time since 2009. one of the most powerful veto pens in Milwaukee who managed the 2016 And that means the first the country. re-election campaign of Milwaukee gubernatorial transition since 2011. The Joint Finance Committee will County Executive Chris Abele. Eight years ago, Milwaukee County be led by two veteran co-chairs, state Also in the mix were a healthy Executive Scott Walker took over for Rep. John Nygren, R-Marinette, and number of ex-Doyle agency leaders. Democratic Gov. Jim Doyle, who left state Sen. Alberta Darling, R-River Aaron Olver, the managing director office voluntarily after two terms. Hills. And Republicans will once again of the University Research Park and Now it’s Tony Evers taking over for dominate the budget panel 12-4. a former Commerce secretary under Walker, defeated by the state school’s Republicans also hold wide Doyle, assisted Evers with personnel superintendent in an election that saw majorities in the two houses. In the recruitment. Democrats sweep all the statewide Senate, Republicans have 19 seats to the Olver led a 20-person Personnel races. U.S. Sen Tammy Baldwin easily Dems’ 14. In the Assembly, the GOP Advisory Council that will work with won another six-year term, dispatching holds a 63-36 majority. making sure the incoming administra- GOP state Sen. Leah Vukmir of Democrats will have the same two tion appointees reflect talent from Brookfield. Josh Kaul, a former federal leaders despite disappointing results around the state. prosecutor, upset Republican Attorney on Nov. 6: Senate Minority Leader Among the council members were General Brad Schimel after one term. Jennifer Shilling, D- La Crosse; and some former top Doyle appointees: Democrats also won the offices of Assembly Minority Leader Gordon » Frank Busalacchi, former Treasurer and Secretary of State. Hintz, D-Oshkosh. DOT secretary under Doyle. But Walker had a Legislature That means while Democrats in the » Sean Dilweg, former Wisconsin dominated by his own party after the Legislature can offer rhetorical help to Insurance commissioner, now senior 2010 elections and through the end Evers, he and his administration will vice president government relations of 2018. Evers will have to contend have to do the heavy lifting. for MGIC. with a Legislature dominated by After the Nov. 6 election, Evers » Roberta Gassman, former Republicans and led by two veteran got to work putting together a new Wisconsin Department of Workforce leaders: Assembly Speaker Robin administration. His transition team led Development secretary. Vos, R-Rochester and Senate Majority was led by women. » Donsia Hill, former Department Leader Scott Fitzgerald, R-Juneau. The He has named Maggie Gau, his of Regulation and Licensing secretary. previous Democratic governor, Doyle, campaign manager and a former » And Ruben Anthony Jr., head of enjoyed a Dem-controlled Legislature legislative aide, as his chief of staff. the Urban League of Greater Madison for his final two years in office. Originally of Wausau, Gau formerly and a former top Department of Evers’ collaborative style could served as chief of staff for state Rep. Transportation official under Doyle. come in handy when it comes to Chris Taylor, D-Madison, and state That doesn’t mean the new compromise on big issues like road Sen. Janis Ringhand, D-Evansville, administration will be Doyle 2.0. funding. But others worry that if Senate and previously worked for former state But insiders say it’s natural to tap the Republicans and Assembly Republicans Rep. Ann Hraychuck, D-Balsam knowledge of veterans of past admin- unite, the Legislature could continually Lake. Before that, Gau was deputy state istrations. Evers, a less partisan figure, frustrate Evers. political director on President Barack is seen as charting his own course. The two-year state budget will be Obama’s 2012 re-election campaign. a test. And Evers’ transition director Jeff Mayers is president of WisPolitics.com Evers gets to introduce his budget was JoAnne Anton, a top aide to and WisBusiness.com. The websites are soon, and he promised two-thirds ex-U.S. Sen. Herb Kohl. The deputy specialty online new organizations that funding of schools and a middle-class transition director was Tia Torhorst, provide subscriber services and organize tax cut. Typically, governors get 80 the director of Strategic Partnerships news events in Madison, Milwaukee, and Washington, D.C. percent of what they ask for from the for the Boys & Girls Club of Greater

JANUARY 2019 | WISCONSIN BANKERS ASSOCIATION | 23 WBA Wisconsin Manufacturers & Commerce WISCONSIN A Recession is Coming ECONOMIC By Kurt R. Bauer, WMC President and CEO REPORT

in Asia, where most of the world’s threaten a government shutdown. Don’t be too alarmed by my ominous economic growth will take place over But, it might not be all bad. As John headline. Economic downturns are the next three decades. Further, the O’Sullivan wrote in the mid-1840s, “the inevitable, and 2019 marks the tenth year tariffs are stressing pricing, upsetting best government is that which governs of the post-Great Recession expansion, customer relationships, and disrupting least.” The other good news is despite which makes it the longest economic supply chains. One of the many America’s political disharmony, the U.S. recovery since the end of World War II. unintended consequences of the steel is considered stable by global standards Many economists have been and aluminum tariffs are higher auto- and therefore an attractive place for predicting a recession for several years mobile insurance costs because replace- investment. now. But they keep pushing back when ment parts are now more expensive. Deficit/Entitlement Spending and the it will arrive because of the economy’s Health Care Costs: Health care National Debt: Trillion dollar federal strong performance as measured by quality in Wisconsin is among the best deficits have returned, and Democrats won GDP growth and low unemployment. in the nation, but it comes at a high the U.S. House (and the Wisconsin Some predict a mild recession in 2020, price. Health care costs in the Milwaukee governorship) by pledging to expand just in time for the presidential election. metro area are 17 percent above the government-financed health care benefits. Others say that the federal tax reforms national average and ranks fourth-highest The result is that the entitlement-fueled will act as a stimulus and delay a in the nation, according to the Health Care national debt, which is approaching $22 recession until 2021 or 2022. Cost Institute. Costs in Green Bay are 14 trillion, will grow largely unchecked. But a recession isn’t the only percent higher than the U.S. average. Strong Dollar: A strong dollar is looming threat to the economy, both The struggle to offer affordable health great if you are a tourist, but it creates nationally and in Wisconsin. Here are care coverage to employees has overtaken problems for U.S. manufacturers and other areas of concern as we enter 2019. taxes as the second biggest challenge other exporters when competitors have Worker Shortage: Nearly 80 percent facing Wisconsin businesses, according a currency value pricing advantage. of Wisconsin private sector employers to WMC’s semi-annual CEO Economic Compounding the strong dollar is a say they are having trouble finding Survey (finding workers is number one). weakening Chinese Yuan, which is workers. It is Wisconsin’s most profound Recession Risk: As mentioned, a offsetting the impact of U.S.-imposed economic challenge and likely will be recession is inevitable at some point in tariffs, most likely by design. beyond mid-century unless something the relatively near future. The question Creeping Socialism: A nationwide unforeseen occurs, like a baby boom or a is when will it occur, what will trigger poll taken last August showed that for significant influx of workers from other it, and how bad will it be? Trade could the first time Democrats have a more states and/or countries. be a cause, depending on how long positive image of socialism than of Trade War: President Trump’s the current disputes continue. Housing capitalism. A WMC-commissioned tariffs and the retaliation they provoked could also be a factor, given that sales poll in 2017 showed 44 percent of from other nations create confusion, have slowed due to rising interest rates Wisconsin millennials preferred frustration, and uncertainty. It has caused and the increased cost of materials for socialism. As someone who ardently steel and aluminum prices to spike in the new construction, which is another believes prosperity grows when there U.S., and domestic producers are simply consequence of the tariffs. is less government and more economic incapable of filling the void. Political Instability/Polarization: freedom, I find this trend alarming for The not-yet-ratified United States Democrats won control of the U.S. House the future of our economy and country. Mexico Canada Agreement (USMCA) of Representatives last November, albeit Founded in 1911, Wisconsin Manufacturers appears to be a Trump victory, as is the by a slim margin. The result is divided & Commerce (WMC) is the combined state deal with South Korea. But the U.S. still government in Washington (and Madison, chamber of commerce, state manufacturers’ for that matter) with the gridlock that must negotiate trade pacts with the United association and state safety council. With Kingdom (post Brexit), the European goes with it. A Democrat-led House nearly 3,800 members, WMC is Wisconsin’s Union, Japan, and of course, China. probably means partisan investigations largest business association representing The trade disputes also destabilize into Trump on Russia, tax returns, hush employers of all sizes and from every sector America’s geo-political relationships money payments, etc. It could also of the economy.

24 | WISCONSIN BANKERS ASSOCIATION | JANUARY 2019