Valley's diverse economy keeps unemployment low

by Calvin Trice
for Virginia Business
October 2005

Eugene Stoltzfus points with delight to a group of 3-by-5-inch photos taped to an office door at Fairfield Language Technologies in downtown Harrisonburg. The pictures show his late brother, Allen, running the language instruction company out of two rooms of a nearby bank building soon after Fairfield started in 1991. Eugene Stoltzfus notes the secondhand dining room tables in the photo that had been drafted into service as office furniture.

The photos are a reminder of how much Fairfield has grown. Today the company has 355 employees, and its Rosetta Stone software offers instruction in 29 languages to millions of customers in 150 countries. In recent years, Fairchild's revenue has increased at an 80 percent clip.

Despite its Silicon Valley profile, Fairfield hasn't lost its Harrisonburg roots. The company operates from a 50,000-square-foot converted feed warehouse that it is quickly outgrowing, but Stoltzfus, the chairman and president, has no plans to move away from his hometown. "Because of fax, e-mail and courier service, you can run an international company in a small town in Virginia," he says.

Fairfield exemplifies the Shenandoah Valley's economic adaptability. Long known as a rich agricultural area, it has become an industrial hub that is now home to a growing number of diverse companies, including high-technology firms.

Low unemployment
The increasing diversity of area employers has resulted in consistently low unemployment and a local economy that has hummed along in good times and bad. The Harrisonburg area, for example, recorded the second lowest unemployment rate, 2.8 percent, of any metropolitan area in the nation last spring. The jobless rate was just slightly higher, 3 percent, in July. "The Valley has prospered economically primarily because of its diversity," says Don "Robin" Sullenberger, executive director of the Shenandoah Valley Partnership. "It's important for us to maintain that."

The partnership is a nonprofit organization that promotes economic development in the region. It is funded partly by Rockingham, Augusta, Highland and Rockbridge counties along with the cities of Harrisonburg, Waynesboro, Staunton, Lexington and Buena Vista. Farming and agribusiness have been economic staples of the Valley since before the Civil War, when its reputation as the Confederacy's breadbasket made it the scene of constant fighting. While the poultry industry still thrives, local ownership nearly disappeared with two buyouts in 2001, when Texas-based Pilgrim's Pride Inc. acquired WLR Foods and Minnesota-based Cargill Inc. purchased Rocco Enterprises.

Last year, about 140 farmers reversed the trend by forming a cooperative to buy a turkey processing complex west of Harrisonburg that Pilgrim's Pride sought to jettison. The Virginia Poultry Growers Cooperative saved about 550 of the 1,300 jobs that would have been lost if the plant had closed. Most importantly, says co-op President Sonny Meyerhoeffer, the business keeps money in the Valley. "All the profits are spent right here in the Valley — not only in wages, but in payments to the growers who own the co-op." Pilgrim's Pride made the move as part of a nationwide switch away from selling fresh birds as commodities, says company spokesman Ray Atkinson. Instead the industry is moving toward selling processed and precooked poultry that's easier to prepare.

Outside of agribusiness, manufacturing plants from a variety of industries dot the region. Food packaging, plastics, metalworking, cold storage, candy-making and heating and air conditioning companies employ thousands from the Augusta County in the south to Winchester and Frederick County in the north.

Job losses and new investments
Reflecting nationwide trends, the region has nevertheless suffered job losses in manufacturing even amid hundreds of millions of dollars worth of new factory investment. In the Winchester area, closings and relocations by Rich's bakery products plant and the Lear Corp. automotive components factory will cost the area 200 good-paying jobs, says Patrick Barker, executive director of the Winchester-Frederick County Economic Development Commission.

The area has seen expansions elsewhere. MNH Plastic Co. established its first plant outside of Great Britain last year with a $12 million factory that will eventually employ 57 workers. H.P. Hood is undergoing a $43 million expansion of its 6-year-old extended shelf-life dairy products plant. The development is expected to create 65 jobs, Barker says.

One of the region's best examples of the new investment is the $200 million being spent by Coors Brewing Co. at its Elkton plant. The project will convert the bottling plant into a brewery — the company's third in the United States. Another area project involves pharmaceutical giant Merck & Co. It is working on a $40 million expansion at its east Rockingham County plant to produce a new vaccine.

Neither project, however, will produce a lot of jobs. Coors brewery is expected to add no more than 10 workers beyond the 470 already employed. Merck's expansion will create no new jobs, only retraining for 30 to 40 existing employees.

Merck has had a plant in Elkton for 64 years. Jim Russell, the plant's developer of capital engineering, says the company's decision to expand there reflects the benefits it gets from a high-quality work force and the Valley's well-developed transportation network. "We do most of our shipping by rail or by truck," says Russell, who is also director of waste treatment utilities and information services. "We have a rail line right in front of the plant and a major highway right in front of the plant. Those are the types of things that help us keep our costs down."

Retail growth
Low unemployment throughout the region means laid-off employees usually are not out of work for long, officials say. They point out that brisk growth in retail and services around Waynesboro, Staunton, Harrisonburg and Winchester have absorbed some displaced manufacturing workers, although wages at such jobs tend to be lower.

Waynesboro, for example, lost 1,100 plant jobs in recent years because of cutbacks at Invista, Virginia Metalcrafters and Wayne-Tex. Offsetting those lost jobs were Hershey Foods' $48 million expansion of its Augusta County plant that created 110 positions last year, and a sudden boom in retail stores and restaurants on Waynesboro's southern end that has added 1,300 jobs, says Brent Frank, the city's director of economic development.

The region's retail growth has been reflected in its retail sales. Waynesboro's taxable sales rose 28 percent from 2000 to 2004. Harrisonburg and Winchester are the region's leaders in taxable sales, which climbed 25 percent during that same time, according to the state Department of Taxation. Harrisonburg recently added a Home Depot and Kohl's. In Winchester, a Wal-Mart Supercenter set to open this year will be the area's second, Barker said.

The Valley's reputation for low unemployment can be a double-edged sword. Some industry prospects avoid areas with low jobless rates because they fear they will have difficulty hiring dozens of workers for new positions. But Valley officials say many workers with jobs are "underemployed," toiling in low-paying service jobs. These workers swell the ranks of potential employees when a new industry appears.

Hiring in a low-unemployment area can be challenging but not impossible, says Holly Combs, the quality assurance and team development manager for Southeastern Container Inc. in Winchester. "You have to get creative in how you recruit people," Combs said. "But we've never come to a point where we can't place someone."

The company built the plastic bottle manufacturing plant 13 years ago in Winchester, and it now employs about 200. It chose the area in part for access to Interstate 81 and proximity to major cities, Combs says.

The interstate has grown in importance as a primary commercial shipping corridor between the Northeastern cities and growth areas in the South and Southwest. The increase in commercial trucking on the highway has spurred plans to expand I-81 in a project that would be partially funded by tolls.

While most agree that the highway needs extra lanes, local business and government leaders say they would object if the toll structure — yet to be developed — placed a heavy burden on local traffic.

Influence of JMU
Besides the interstate, a major factor in the growth of the Harrisonburg area economy has been the transformation of James Madison University from a college of 5,000 students to a sprawling institution of more than 15,000 students. The city has adopted a downtown technology zone plan developed in an applied science class last year. The centerpiece is a technology center in a downtown building that Harrisonburg bought for $1.5 million. The center expects to begin attracting businesses next year, says Brian Shull, the city's economic development director.

Officials would like to see more high technology successes like that of SEI Technology Inc., a company founded by a JMU graduate who provided records management and software application support for the Department of Homeland Security. This year, Reston-based SI International Inc., bought the company for $75 million.

Further enhancing the connection between JMU and local businesses is the school's recently established technology transfer program. Director Mary Lou Bourne is charged with obtaining patents to protect university-developed technology and with getting some of those ideas to market, she says.

Stoltzfus of Fairfield Language Technologies says his company is proof that the Valley is fertile ground for high-technology companies. "When we moved in here [in June 2002] we thought we'd be here for five to 10 years," he says, speaking of his converted feed warehouse. "We're already filling up the building."