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Things don't look so good for the national economy over the next two years, said a visiting economist at Lancaster County Chamber of Commerce's first economic forum on May 20.
Steve Rick, a Ph.D. candidate in economics at the University of Wisconsin-Madison, told the chamber's membership that times are tough and will get tougher. The group met over breakfast at the University of South Carolina at Lancaster's Bradley Building.
But a period of negative or slow growth can be a blessing in disguise, since it can purge the economy of bad practices, such as excesses and imbalances, the economist said.
That thought resonated with Builders Supply Co. owner Bubber Gregory, who has weathered a few recessions himself.
"One thing he said, and I've thought this before, is that a recession can be good," he said.
And while Gregory said this downturn is a bit different than others, business owners will still just have to suck it up.
"We'll just have to tighten our belts as business owners," Gregory said. "We'll have to be more conservative in how we spend."
Fewer jobs, higher inflation and higher debts are just the beginning of the story for the current United States economy. The falling dollar also causes a variety of problems, such as lower international investment in U.S. equities, Rick said.
The two major fears now are a "wrenching recession and spiraling inflation,' he said.
Rick said the former is not likely, and even though inflation has risen recently with increased fuel and food prices, it probably won't get out of control.
Rick said oil was selling for $20 a barrel in 2002, the same as in the 1970s, but it's risen sharply since then. Last week, oil was fetching $135 a barrel.
He said there's a correlation between rising oil prices and recessions, a pattern he pointed out on data charts.
For the first quarter of 2008, the economy grew only .6 percent. Most economists consider a 3.5 percent growth rate acceptable.
Experts are expecting negative growth this quarter, but not the next, which would ward off a recession, defined as two straight quarters of negative growth.
"If we aren't in a recession, it will be slow growth for two years," Rick said, however.
Growth has slowed because of falling home values, increased unemployment and higher individual debt. All this triggers less consumer spending, and in turn, less product output.
Most Americans' wealth is tied to their home values, and when the values drop, as they are in much of the country, the concept of the "negative downward spiral" takes hold in the American economy.
As it percolates through the economy, the end result of falling home values is lower income.
While the Charlotte housing market is not seeing negative growth, Rick said it has seen a significant reduction in new home construction and sales.
The national picture in the housing industry reflects a true "meltdown," he said.
One cause has been sub-prime lending – "giving loans to people who have lower credit scores," Rick said.
The mortgage crisis has had ripple effects in other credit markets, he said.
"Where did we get into this credit crisis, and how will it play out over the next two years?" Rick asked the audience.
The government has helped by infusing money into the financial markets to reverse the overall credit crisis. The $30 billion Bear Stearns bailout in March was a prime example of that, Rick said.
While it was a controversial move, it precipitated a changing of the tide in the crisis, though the country still hasn't bested it, he said.
The government bailout prevented a worse scenario, basically "unfreezing the credit markets," Rick said.
"It kept the economy moving," Rick said.
The Federal Reserve has also cut interest rates several times since last fall.
But while the government can help, lenders need to develop more prudent lending standards, Rick said.
He reminded the audience that society now has an additional group beside the haves and the have-nots – the have-not-paid-for-what-they-haves. Individual and family debt are at new highs, but experts believe that will fall in coming years, as new attitudes about paying down debt take hold.
Founders Federal Credit Union has sought Rick's advice for the last five years, said CEO Bruce Brumfield, and figured it would share him with the chamber for last week's forum.
Rick meets periodically with the credit union's board of directors in Lancaster to give economic outlooks pertinent to its industry.
"We figured we would just leverage with the chamber this time," Brumfield said.
Chamber Chairman Jay Rainey hoped the forum was helpful for all who attended.
"Hopefully, some of the information you receive here today will assist in your business decisions," Rainey said. "We all realize these are very difficult times in the economy."
Contact reporter Johnathan Ryan at email@example.com or (803) 416-8416