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2009-03-15 BACK
How Bad is it Going to Get in 2009?
How Bad is it Going to Get in 2009? This article originally appeared in the Texarkana Gazette on March 15, 2009 Dr. Larry Davis, Professor of Economics & Management, Texas A&M-Texarkana College of Business On February 27, the second annual Economic Forecast Luncheon sponsored by the College of Business, Texas A & M University-Texarkana occurred. Dr. John Duca, Vice President and Senior Policy Advisor, Federal Reserve Bank of Dallas was the keynote speaker who gave an overview of the current national economy. He provided a graphic explanation of the transition into its current condition and offered his economic predictions extending into 2010. My presentation of the economic outlook for the Texarkana area closed the event and provides the foundation of this article. As an introductory overview, I recently attended a governmental affairs conference in Washington, DC that included a long series of political and economic speeches. With reference to the bailout program that was launched late last year, two economists, Bill Hampel and Mike Schenk, reflected the mood of much of the country by saying that "members of congress are delusional or think we are exceedingly ignorant". While the terms, "bailout" and "stimulus package" are frequently used interchangeably, they are not. I believe that the national economic crisis occurred, in part, because of a lack of regulation of noncompetitive industries that stepped beyond reasonable standards of ethical business and personal conduct. Consider two professional football teams playing a game where there were no rules or those that existed were not enforced. The economy is similar and chaotic results have appeared. A widespread displeasure with the bailout that requires no fiscal and ethical accountability and the flaunted arrogance of some of the bailout recipients was sure to follow. The mood reminds me of Eddie Chiles' 1970's radio commentaries trade-mark sign-on and his bumper stickers that said, "I'm Eddie Chiles and I'm mad as hell". In a competitive economy, businesses sometimes fail, but we have been politically lectured as to how disastrous a few bankruptcies would be. Companies in distress would be required to reorganize, maybe to a greater operational efficiency. Looking back, I have not flown Trans-Texas Airlines/Texas International or Braniff International lately. Have any of you done business with E. F. Hutton & Company, or shopped at a Woolworth's or Kress store lately? Sometimes companies do not survive as we came to know them. The economy is demand driven with two components, the ability and the willingness to purchase. The ability comes primarily from earnings and borrowed funds. Restricted lending policies of financial institutions have limited the availability of borrowed funds and, therefore, the ability of consumers to purchase all that they otherwise might want to. Willingness to purchase has diminished by plummeted consumer confidence and consumer expectations. Rationally, why would one want to sign a mortgage for a house priced at $150,000 in any market where there is a fear that the same house might be valued at $130,000 within a year. Whether thinking about the national economy or the Texarkana economy, it seems that there must be some loosening of consumer credit and an improvement in consumer confidence for the economic climate to improve. It is noted that all states are not equally affected by the national economic crash. As a point of reference, the U.S. Congress passed a bill in 1948 that established a policy to target an unemployment rate that does not exceed 4%. While the latest reported U. S. unemployment rate is 7.6%, there are five states with unemployment rates below 4% and six others with rates exceeding 9%. Both our area states, Texas and Arkansas, are experiencing slightly elevated unemployment rates and some economic slow-down, but both seem to have weakened but not broken economies. Looking back to my presentation at the February 29, 2008 Economic Forecast Luncheon, I noted that the Texarkana area economy was experiencing a bursting housing bubble, credit disruptions, high food and energy costs, economic and political uncertainty, and an unemployment rate of 5.1%. Currently, a year later, those variables have not significantly changed for the area. Various segments of the Texarkana economy are dealing with the current area slow-down according to their uniqueness. National manufacturing firms with plants in this area include Cooper Tire, Alcoa, DOMTAR, International Paper Company, U. S. Steel, and others. The products that they produce are sold in national and international markets which make them vulnerable to broad market conditions. Significance to the local area is the susceptibility to fluctuating levels of employment in response to changes in the demand for their products. Area small business, including service providers, face belt tightening as consumers become more selective in their discretionary spending. That might mean that some choose to get less frequent haircuts, go to fewer movies, or eat out less frequently. Similarly, the local housing industry faces some bumps until consumer confidence and price expectations stabilize and until there is a determination of the outcome of the proposed "cram-down" legislation in Congress. Healthcare providers will likely face reductions in demand for medical/dental services in the near future. Unemployment often brings a loss of medical insurance coverage that forces consumers to forego annual check-ups or other non-emergency medical and dental services. Tightening incomes would likely have a similar influence. Economic conditions would also affect area churches if offerings diminish which, in turn, would require some discretionary program decisions. A windfall might be expected for the area colleges and universities where enrollments typically increase during economic slumps. If the proposed tuition incentives become allowable on IRS tax returns, a university education becomes less expensive and local enrollments should increase. In closing, while the United States is experiencing an economic storm, some areas of the country are having the misfortune of a center hit. Fortunately for the Texarkana area, it seems to be having a peripheral experience that should not cause major negative economic consequences. Serious and well thought out management decisions are in order to influence individual business survival and eventual prosperity.
TOP
How Bad is it Going to Get in 2009?
How Bad is it Going to Get in 2009? This article originally appeared in the Texarkana Gazette on March 15, 2009 Dr. Larry Davis, Professor of Economics & Management, Texas A&M-Texarkana College of Business On February 27, the second annual Economic Forecast Luncheon sponsored by the College of Business, Texas A & M University-Texarkana occurred. Dr. John Duca, Vice President and Senior Policy Advisor, Federal Reserve Bank of Dallas was the keynote speaker who gave an overview of the current national economy. He provided a graphic explanation of the transition into its current condition and offered his economic predictions extending into 2010. My presentation of the economic outlook for the Texarkana area closed the event and provides the foundation of this article. As an introductory overview, I recently attended a governmental affairs conference in Washington, DC that included a long series of political and economic speeches. With reference to the bailout program that was launched late last year, two economists, Bill Hampel and Mike Schenk, reflected the mood of much of the country by saying that "members of congress are delusional or think we are exceedingly ignorant". While the terms, "bailout" and "stimulus package" are frequently used interchangeably, they are not. I believe that the national economic crisis occurred, in part, because of a lack of regulation of noncompetitive industries that stepped beyond reasonable standards of ethical business and personal conduct. Consider two professional football teams playing a game where there were no rules or those that existed were not enforced. The economy is similar and chaotic results have appeared. A widespread displeasure with the bailout that requires no fiscal and ethical accountability and the flaunted arrogance of some of the bailout recipients was sure to follow. The mood reminds me of Eddie Chiles' 1970's radio commentaries trade-mark sign-on and his bumper stickers that said, "I'm Eddie Chiles and I'm mad as hell". In a competitive economy, businesses sometimes fail, but we have been politically lectured as to how disastrous a few bankruptcies would be. Companies in distress would be required to reorganize, maybe to a greater operational efficiency. Looking back, I have not flown Trans-Texas Airlines/Texas International or Braniff International lately. Have any of you done business with E. F. Hutton & Company, or shopped at a Woolworth's or Kress store lately? Sometimes companies do not survive as we came to know them. The economy is demand driven with two components, the ability and the willingness to purchase. The ability comes primarily from earnings and borrowed funds. Restricted lending policies of financial institutions have limited the availability of borrowed funds and, therefore, the ability of consumers to purchase all that they otherwise might want to. Willingness to purchase has diminished by plummeted consumer confidence and consumer expectations. Rationally, why would one want to sign a mortgage for a house priced at $150,000 in any market where there is a fear that the same house might be valued at $130,000 within a year. Whether thinking about the national economy or the Texarkana economy, it seems that there must be some loosening of consumer credit and an improvement in consumer confidence for the economic climate to improve. It is noted that all states are not equally affected by the national economic crash. As a point of reference, the U.S. Congress passed a bill in 1948 that established a policy to target an unemployment rate that does not exceed 4%. While the latest reported U. S. unemployment rate is 7.6%, there are five states with unemployment rates below 4% and six others with rates exceeding 9%. Both our area states, Texas and Arkansas, are experiencing slightly elevated unemployment rates and some economic slow-down, but both seem to have weakened but not broken economies. Looking back to my presentation at the February 29, 2008 Economic Forecast Luncheon, I noted that the Texarkana area economy was experiencing a bursting housing bubble, credit disruptions, high food and energy costs, economic and political uncertainty, and an unemployment rate of 5.1%. Currently, a year later, those variables have not significantly changed for the area. Various segments of the Texarkana economy are dealing with the current area slow-down according to their uniqueness. National manufacturing firms with plants in this area include Cooper Tire, Alcoa, DOMTAR, International Paper Company, U. S. Steel, and others. The products that they produce are sold in national and international markets which make them vulnerable to broad market conditions. Significance to the local area is the susceptibility to fluctuating levels of employment in response to changes in the demand for their products. Area small business, including service providers, face belt tightening as consumers become more selective in their discretionary spending. That might mean that some choose to get less frequent haircuts, go to fewer movies, or eat out less frequently. Similarly, the local housing industry faces some bumps until consumer confidence and price expectations stabilize and until there is a determination of the outcome of the proposed "cram-down" legislation in Congress. Healthcare providers will likely face reductions in demand for medical/dental services in the near future. Unemployment often brings a loss of medical insurance coverage that forces consumers to forego annual check-ups or other non-emergency medical and dental services. Tightening incomes would likely have a similar influence. Economic conditions would also affect area churches if offerings diminish which, in turn, would require some discretionary program decisions. A windfall might be expected for the area colleges and universities where enrollments typically increase during economic slumps. If the proposed tuition incentives become allowable on IRS tax returns, a university education becomes less expensive and local enrollments should increase. In closing, while the United States is experiencing an economic storm, some areas of the country are having the misfortune of a center hit. Fortunately for the Texarkana area, it seems to be having a peripheral experience that should not cause major negative economic consequences. Serious and well thought out management decisions are in order to influence individual business survival and eventual prosperity.
TOP