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Round 2 of recession' No one's counting on it

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Thursday, Aug. 11, 2011
 

Scott Baker doesn't worry about another economic plunge in 2011 -- a repeat of the Great Recession that began in late 2007.

"When did we exit the recession?" asked Baker, president of 5 Generation Bakers, a McKees Rocks company that makes Jenny Lee breads.

Economists and local business leaders said on Wednesday that despite wild stock market fluctuations, fears that government won't curb spending and Standard & Poor's downgrade of the U.S. credit rating, there are stark differences in the economy from four years ago.

It could trudge along at a slow pace for the next year or more without another recession, the experts said.

"There is an increased risk of recession," said Richard Hoey, chief economist for BNY Mellon Corp., "but it's not clear to me that recession is more likely than a weak expansion."

While falling stock prices are a warning sign, "not all declines precede a recession," he said.

The Dow Jones industrial average has now lost more than 2,000 points in less than three weeks, and yesterday closed down 520 points, at 10,719.94, down 4.6 percent for the day.

Hoey and other experts pointed to several areas of concern: The European Community's financial troubles and how they're handled. China's economy, whether it continues to boom or slows. The cost to U.S. businesses and consumers as federal health care reforms take effect.

Current events have big distinctions from 2007. "The U.S. financial sector is much stronger than it was in the past crisis" when giant Wall Street firms Lehman Brothers and Bear Stearns toppled, and American International Group required a $185 billion bailout, Hoey said.

Even so, today's higher levels of regulation on banks and other businesses are a damper on commerce.

President Obama insisted in a speech this week that the United States remains a AAA country despite Standard & Poor's downgrade of its debt rating to AA+ last week.

Then the president talked about increasing fuel regulations on trucks, said Antony Davies, associate professor of economics at Duquesne University. "That tells me he doesn't understand the problem. The amount of regulatory burden on American business has caused this malaise," he said.

The end of the Great Recession technically came in June 2009.

"But Americans are still feeling this high unemployment. In a lot of ways, there is a real sense the recession never ended," Davies said.

Baker expects his 18-month-old company to turn its first profit in September, but he remains pessimistic about the economy.

After the mortgage and credit crisis hit in 2007, "the stimulus that Congress put through was the wrong stimulus," Baker said. Federal payouts should have focused on small businesses and individuals, who would have spent the money to get commerce churning again, he said.

Mike Rempel of Gorell Windows & Doors of Indiana, Pa., said window makers and others in the building industry have struggled for about three years, although Gorell has kept revenue fairly level by expanding its dealer network.

"It's media-driven and politically driven," Rempel, Gorell's vice president of administration, said of the current fiscal crisis and worries over spending controls.

"It won't correct itself until after the (presidential) election is over" because Democrats and Republicans are using it as a political football, he said.

Joseph Santelli, president of Santelli Tempered Glass Co. in Monessen, said consolidation in his industry has created increased demand for companies that remain, insulating them to a degree from the economic turmoil.

"I don't see anything out there that is going to affect or slow down our business," he said.

Matthew Steve, a senior associate at Strategic Advisors in Cecil, agreed the federal government "needs to get its act together," which is a different situation from 2007, when lenders making bad mortgages were the root cause of the crisis. Financial institutions are in better shape now with stricter lending standards and more cash on hand, Steve said.

What's worrisome now is that while political leaders cannot agree on how to control spending and cut debt, few monetary policy changes are left that could stimulate the economy, Carnegie Mellon University economist Robert Strauss said.

"Before, levers could be pulled to forestall something bad. Now there aren't many arrows left in the quiver," he said.

Forecasts of an improved economy this year have not panned out, but there still are too many moving parts to determine whether a recession is coming, said Erik Larson, president of the consumer resource website NextAdvisor.com.

Rates on mortgages and consumer credit could creep up, he said, so anyone thinking of refinancing a home or getting a new credit card might want to make a move soon.

Four years ago, everyone watched to see which financial institutions tumbled next. "Now it's which country is in trouble next," Larson said. "But that's a little more scary, right?"

 

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