Economic Storm Gathering Experts Say
GRAND RAPIDS — A year ago economists were foreseeing what they said was a much-needed slowing of the U.S. economy.
Now that it has arrived, forecasters are trying to analyze just how far the economy will slow, how long it will last and whether we'll even dip into an economic recession for the first time in a decade.
In weighing the future, the first thing one area economist believes you need to remember about the present state of the economy is where it's been: On a roll like the nation has never seen.
That's why Joe Keating of Lyon Street Asset Management Co. believes a slowdown isn't a bad thing. After all, economists and the Federal Reserve have warned for some time that the torrential economic growth of the late 1990s was unsustainable and that moderation was needed.
Keating, Lyon Street's president and chief investment officer, seemingly welcomes the slowdown that has the economy "going from about 60 mph in a 35 mph speed zone to 20 mph in a 35 mph speed zone.
"We had to cool it down and that's what happened," he said. "I would put it under the heading of a pause that refreshes."
Refreshing, Keating said, because it will result in a more sustainable moderate growth rate.
The slowdown that kicked in late in the third quarter of 2000 also provides a brief adjustment period for manufacturing — a sector he believes has fallen into a recession, particularly among automotive manufacturers. It will enable manufacturers to reduce swollen inventories by temporarily curtailing production, thus avoiding prolonged problems down the road.
Keating does not believe the overall economy will follow manufacturing into a recession. He sees the present slowdown ending during the latter half of 2001.
"It's going to be a dip, it's going to be shallow, it's going to be brief and it's going to move up during the second half of the year," Keating said. "If it technically is a recession, it's going to be an awfully mild one.
"We'll be back on a long-run growth rate by the second half of the year," he said.
James Coons, chief economist for Huntington Banks, differs somewhat. He sees a "pervasive and pronounced" slowdown from the recent economic heights lasting throughout the year.
Coons, however, remains among those who doubts we'll see a recession, mainly because economic indicators such as unemployment and inflation — which traditionally take off as a recession nears — remain in check, although they will creep up during the year. By definition, a recession is two consecutive quarters of negative economic growth.
"Some of the dogs that usually bark as we go into a recession are silent," Coons said.
Overall, he added, "The wolf is at the door, but he won't come in."
Even if he tries, the Federal Reserve has shown its willingness to cut interest rates as needed to ward off a recession. There's also President Bush's tax-cut plan that could add stimulus to the economy, Coons said.
"The cavalry's on the way and there's reinforcements on the way," he said.
Despite these optimistic outlooks, there's no denying the present conditions or the speed at which the slowdown commenced.
New orders, production and employment in the Grand Rapids area all fell sharply during December, according to the National Association of Purchasing Managers. The association's December report was the weakest it has filed for Grand Rapids since the 1990-91 recession, said Brian Long, a Kalamazoo economist who chairs the business survey committee for the association's local chapter.
While seasonal trends and heavy snows may have been a factor, the Grand Rapids economy "took a hit" in December, Long wrote in his January report.
"We've hit an air pocket here," Long said. "We aren't necessarily going into recession, but we're in a slowdown and we have some problems to work through."
Automotive suppliers in West Michigan will feel the worst of it, as vehicle sales fall from record highs the past few years and automakers cut production levels, Long said.
Long puts the chances of a recession at "50-50," with Michigan's automotive-dependant economy potentially feeling a regional recession even if the national economy doesn't.
"There's a storm coming. All you can see right now are just the clouds on the horizon. We're waiting to see just how big of a storm this is going to be," he said.
That approaching storm clearly took a toll on how business leaders across West Michigan view the future, according to an economic confidence forecast by Grand Valley State University's Seidman School of Business.
The 2001 forecast — based on surveys of 100 chief executives in Kent, Ottawa, Allegan and Muskegon counties — registered a 77 percent confidence index as of December, down from 86 percent the previous January and the lowest level recorded since the survey began seven years ago.
The survey is based on 100 percent index being complete confidence in the economy.
The decline in confidence reflects CEOs' concerns about the slowing economy, said Hari Singh, chairman of GVSU's Economics Department. The survey also found lower expectations for sales and employment growth, he said.