Business Columns & Blogs

2010 recovery will hinge on confidence

Some questions posed to a panel of prognosticators at a recent meeting in Bellevue of the National Association of Purchasing Management – Western Washington chapter, and the paraphrased responses of one panelist (your business columnist):

What will get the economy going in 2010?

Conditions would seem to be ideal for a decent recovery, if not a sharp snapback. Interest rates are low. Energy prices are comparatively low. Deferred spending and depleted inventories mean pent-up demand. A weak dollar against other currencies ought to make our exports more attractively priced and our products more competitively priced here at home.

What’s missing is an intangible – confidence. Lots of companies report increased activity in the form of requests for quotes. But everyone’s waiting for everyone else to make the first move to translate those queries into actual orders and purchases. They all want to be convinced the worst is over and the rebound will be real – and they’re waiting for proof in the form of someone else taking the lead. Get confidence back, you’ll get your recovery.

What ‘thing’ will have the biggest impact on the Northwest economy this year?

Beyond confidence, the big issue will be availability of credit. The banking industry is still dealing with bad mortgages, bad housing-development loans, bad credit-card lending, bad commercial real estate loans. The regulators aren’t done with the task of resolving ailing banks. Those that are healthy and in a position to lend will have regulators peering over their shoulder and second-guessing every decision.

What will the Fed do with interest rates in 2010?

The conventional wisdom is that inflation becomes a worry if the economy rebounds too swiftly; raising interest rates helps moderate growth.

But the Fed is as much a political animal as it is an economic one, and that’s even more true now with its very existence and its contribution to creating the recession under scrutiny. Ask average American workers, homeowners and consumers what their primary worries are; inflation isn’t likely to figure anywhere on the list (with the possible exception of energy prices). The electorate is not going to be happy with any move that has even the suggestion of dampening economic growth, after the contraction we’ve had. And oh, by the way, this happens to be an election year. The consensus guess – maybe no move on interest rates at all in 2010.

What stocks would you recommend purchasing now?

We’re not in the business of touting stocks, so instead we’ll provide some recommendations of what NOT to buy – one company and one sector.

We will know that we have not only cleared the recession but returned to a frothy, “irrational exuberance” sort of market if Twitter goes public. Here is a company that not only appears to have no sustainable model for making money but which, to read interviews and stories about it, doesn’t seem terribly bothered by that, or is leaving that to others to figure it out.

We’ve seen this movie before. It was called the dot-com boom – or it was before it was called the dot-com bust.

The sector to steer clear of is anything purporting to be capitalizing on the move to green energy and clean technology, or clean energy and green technology. There will be winners in that sector, although not nearly as many as its boosters would like to believe. And at least some of those winners will be well-established companies that already know a thing or two about finding and distributing energy. We’ve already seen considerable wealth burned in ethanol and biofuels. As we progress through wind, solar and more exotic sources, we’ll see still more evaporated.

When did you personally sense the recession had started?

The easy answer (one alluding to the old joke about a recession being when your neighbor loses his job, a depression is when you lose yours) would be the day your columnist’s former employer went kaput as a print newspaper. It might be fairer to say that writing stories about Washington Mutual’s growing portfolio of bad loans and its successive quarters of billion-dollar losses was as good an indicator as any.

But in taking a step back and a longer-range view of our recent economic history, it’s striking what a bumpy ride we’ve had in the last decade. There was the aforementioned dot-com bust which hit this region, with its concentration in the tech industry, especially hard. That was followed by 9/11 and the subsequent layoff of tens of thousands of Boeing workers.

We were just starting to recover from those events when the great recession hit, first in housing finance and construction, eventually spreading to just about every corner of the economy.

Economists can tell you by statistical measures when recessions start and stop. But recessions are defined not just by economic data but by attitudes and perceptions (there’s that notion of confidence again) about employment, debt, spending, savings and prospects for growth.

By those criteria, the question isn’t so much a matter of when the recession started but more a case of when were we ever really out of one?

Bill Virgin’s column on business and economics appears Sunday in The News Tribune. He 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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