It’s New Year’s Eve here in the frozen sticks and mud of north central Ohio. Our economy, hard hit by the decline of the U.S. steel industry in the late 20th Century, more recently took a massive bodyshot because of the downsizing of U.S. auto manufacturing. There hasn’t been much sunshine here recently, either from the sky or in the form of good employment news.
No wonder that we don’t see a lot to cheer about in terms of prospects for our local economy for 2010. We have a few more months, almost certainly longer, before things begin looking rosier again in our neck of the woods. But things will improve; they have to.
Too big to fail
Accepting things as they are, we’re optimistic about the long-term prospects of our particular region and of the United States, in general. To borrow a phrase that’s almost become a joke — our economy is “too big to fail." With one caveat, however. We’re confident our price-coordinated market economy will rebound if allowed to do so by our government. That’s a big “if” in light of the ill-conceived government policies, instituted more for political than economically sound reasons, that helped get us into this fix in the first place. Regardless, this downturn is the market’s way of shedding inefficiencies and waste that accumulated this past generation, and of allowing excess inventories to be absorbed.
In other words, it’s not a question of if we’ll heal, but when.
In fact, many regions of the United States, those not so dependent on manufacturing, continue to do reasonably well in spite of the lack of major construction caused by tight credit for consumers. The construction and job meltdowns depressing our economy these past 18 months have not affected all regions of the country with the same force. This suggests that our national recovery will return region by region and industry by industry, as well. Some regions will lag behind and some industries will shrink or disappear, of course.
Here are several larger trends continuing through 2010.
As the recent Christmas shopping season showed, consumers are eager to resume spending. Traffic at malls and the major retailers was up from the 2008 season, and sales rose too. Not by a lot, but they rose; that's good. Even so, consumers remain wary. Yes, we’re no longer in shock as we were following the dire media warnings of a total banking collapse in the fall of 2008, but unemployment exceeding 10% nationally, persistent news of job losses and concerns over job security will continue to dampen demand for major purchases in 2010.
While home sales revived slightly as 2009 progressed, many of these sales were spurred by the home buyer tax credit. Also, investors and other bargain hunters snapped up foreclosures. Construction is slowly returning in some markets, but new homes and housing lots are smaller. New construction is still in the dumper, but many homeowners have decided to stay put (They can't sell their houses.) and are spending their money on improvements and renovations, both inside and on their properties.
Commercial real estate looks to be the wild card for 2010. There’s been a lot of talk about major defaults in that market, although analysts aren't being that specific yet of how this may play out, not yet. They probably don't know. The commercial market bears watching closely.
2010 the Test Year
This new year, 2010, will be the test year for the economic policies instituted in the wake of the the financial and housing meltdowns. We'll learn if the government’s expensive stimulus efforts are working or, indeed, if they will work. There’s a delayed reaction following every recessionary period. Of course, it’s our hope (as yours, we’re sure) that the delay is not too great and that any uptick is legitimate and not a teaser. — Ron Hall