Business Columns & Blogs

The banking industry appears to be in good shape. What’s that mean for a possible recession?

The Columbia Bank building in downtown Tacoma. The bank reported record first quarter net income this year.
The Columbia Bank building in downtown Tacoma. The bank reported record first quarter net income this year. News Tribune file photo

Here’s an economic factoid to brighten your day: There were no bank failures in the United States last year.

Haven’t been any so far this year, either.

That’s impressive given that, consolidation and winnowing notwithstanding, there are still about 4,900 FDIC-insured commercial banks in the United States. From sheer numbers alone you’d guess that somewhere out there was a bank or two whose financial condition was so perilous, from bad lending decisions, a bad local economy, lack of diversification, the wrong diversification or even criminal conduct, as to warrant the government shutting it down.

For comparison purposes, at the recession’s peak in 2010 there were 157 bank failures.

That there haven’t been any for going on a year and a half means that the last recession did a thorough job of cleaning out weak, mismanaged or poorly prepared institutions, or that for the rest the economy has recovered to the point banks can make some money, keeping themselves and the industry out of trouble now and better positioned for the next downturn.

Which should be coming along any day … all right, any month … geez, any year now.

Not that we are in the business of cheering for the next recession — that would be against the interests of our readers, our advertisers and ultimately ourselves — but we professional worriers have been so hypervigilant for signs of the start and trigger of the next recession that we appear to be putting into practice the stopped-clock approach to prognostication.

That is, even a stopped clock tells the correct time twice a day, and by sticking to our prediction we’ll eventually be right.

Basic economic history tells us we’ll be right — some day. Economies don’t maintain steady state for very long. The business cycle is a real thing. Downturns come along to wring out the excesses and mistakes accumulated and papered over during the growth phase, then reset the economy for the next growth phase.

It’s not difficult to build a case that a recession is gathering itself just over the horizon and will loom like thunderheads in our skies soon. (One reason not on the list is the length of the recovery, which is on the long side of averages. Business cycles don’t come in standard lengths. The calendar alone isn’t enough to prompt a recession.)

Energy prices are climbing. Trade disputes threaten to cut off markets for some, drive up prices for others. Retailing is still going through massive consolidation and restructuring. Of particular note to this region, who knows how Boeing’s current mess will play out? Maybe the tech-centric towns won’t notice, but a significant shaving of orders or postponement of the next plane will definitely be felt in the aerospace belt.

But then, what to do with the accumulation of evidence that the economy will continue to perform well? Take, for instance, Columbia Banking System’s recent reporting of first-quarter earnings, in a release notable for the use of the word “record,” as in “record first quarter net income” and “record first quarter loan production.” If the economy were teetering on the edge of a slump, companies wouldn’t be in a mood to borrow, and banks wouldn’t be of a mind to lend. (Companies also wouldn’t be repaying existing loans at the rate they are; Columbia said its portfolio of problem loans amounted to less than half a percentage point of total assets.)

Or consider the report from truck manufacturer Paccar Inc., like banks another bellwether of the economy. If people aren’t buying houses, cars or other stuff, then trucks aren’t needed to get raw materials to factories and job sites or finished products to stores. But Paccar reported that U.S. freight tonnage was nearly 4 percent higher in the first quarter than the same period a year ago.

Paccar has raised its prediction for 2019 industrywide production of Class 8 trucks (what you and I would refer to as semis) in the United States and Canada to levels not seen since before the Great Recession. Its own factories, including Kenworth in Renton, are increasing production rates. It’s investing in capital projects at a rate that suggests the very opposite of a company hunkering down to wait out a recessionary storm.

“We’re going to continue to produce trucks,” Paccar Chief Executive Ron Armstrong said at a recent press briefing. “Full ahead for us.”

Do they know something the worrywarts don’t? History would suggest yes. Columbia was one of the banks the feds turned to during that industry’s great calamity to buy the remains of failed institutions. Paccar has earned a net profit for 80 consecutive years and has paid a dividend every year since 1941.

Businesses loathe being the illustrative case study for how not to prepare for bad times, but they’d just as soon not leave money on the table because they got scared away too soon. How they react to the signals, indicators, news and trends of the moment will depend on individual temperament and attitude, because every data point and news item can have several interpretations.

For example, make of this what you will. The last time we had two consecutive years of no bank failures? 2005 and 2006. How’d things go after that?

Bill Virgin is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at bill.virgin@yahoo.com.
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