Economic forecast for Boston: Status Quo ... by Warren Kirshenbaum
The weather this summer has been alternately crisp and clear, but also uncharacteristically humid, rainy, and uncomfortably hot. Yet most of us would say we are having a wonderful summer -- I certainly would. It is hard to explain why, for New Englanders who suffer the vagaries of winter by holding onto the hope of a warm and not too rainy Summer, this 2010 version would bring a joy not felt in years. Tangentially, the broader public seems unfazed by current economic and political events that blow in opposite directions, offsetting any gains we achieve. The answer, I think is that we still have a positive outlook on the future despite current events. In other words, consumer and business sentiment is on the rise regardless of what we see, hear, or read.
News reports have characterized the downturn as a 2008/2009 event, suggesting that we have moved beyond the dark days of recession. However, with unemployment rates at around 10%, and underemployment adding another 6% to that total, almost 2 in 10 of our neighbors and friends are out of work, or working part-time. Professionally, I have seen that relatively few loan modifications have been approved by mortgage lenders, and of those that gained temporary approval many are not approved permanently, leaving borrowers to choose between foreclosure, deed-in-lieu of foreclosure, or a short sale. A Hobson's Choice indeed! Those folks that were at risk of defaulting on mortgages are still at risk, or in default. Moreover, many previously prime borrowers have defaulted on their financial obligations as they are now unemployed. In fact, GM's recent decision to purchase Americredit, a company that specializes in sub-prime borrowers is a prime example of these changing tides. The $3.5 billion GM acquisition was explained by CFO Chris Leddell as "good for our customers because it gives them more choice . . . ." CNBC reported that sub-prime auto financing represents between 10% and 25% of auto loans. That would suggest that up to 1 in 4 auto loans currently being made in the US are being made to sub-prime borrowers.
Not only is it hard to reconcile these facts with a news report that we are moving out of recession, it is hard to fathom how we will continue to have an economy if 1 in 5 of our neighbors is finding it difficult to afford a home, get a job, buy a car, or even buy groceries.
However, instead of crying in our clam chowder, we feel good, and are having a wonderful summer. The Red Sox could still possibly, maybe make the playoffs, the Celtics were within a few minutes of another championship, and the Pats have been assembling some off-season novelties to remain competitive. On the other hand, if you operate a BP gas station, are a home builder or general contractor, a furniture manufacturer or retailer, were reliant on seafood from the Gulf, are a regional commercial real estate lender, or a small business now faced with a 15% increase in health insurance premiums, or one of the many vendors or employees that operate in these sectors, things are not so rosy.
The Obama Administration spent much time and political capital to pass healthcare legislation, but we are still trying to enact meaningful financial reform despite the fact that this recession was triggered by a financial meltdown. So what is really going on?
My opinion is that, as business owners and consumers we realize that we in a tough environment, but we no longer feel that Armageddon is approaching; having lost confidence in our leaders, we have taken our futures into our own hands. In fact, I think there is a quiet confidence in the realization that, in the new economy, small businesses will be the larger generators of employment, growth, innovation, and, therefore, security. That is the way this country was built and that is the world we are returning to, and it feels comfortable. There will be an abundance of opportunity for small business in the coming years, just keep your eyes open and go for it.