Economic and investment professionals serving Northeastern Pennsylvania aren’t convinced the United States is headed into recession. But they agree that the Federal Reserve’s dramatic cut in interest rates should be good for an economy that is showing signs of distress.
They also expect the region to be spared the worst effects of any contraction.
“I do believe we’re in a small slowdown,” said John Sumansky, chief information and finance officer at Misericordia University. Sumansky, who holds a Ph.D. in economics, said the rest of the world economy is doing fine, but the United States has suffered a number of financial shocks, principally from subprime lending and the sale of low-quality debt to investors.
Sumansky said the subprime fallout does not threaten the core of the nation’s economic system, and is unlikely by itself to trigger recession.
“Now we’re in a situation where employment and those kinds of things seem to be headed in a downward direction,” which he said is more threatening. At the same time inflation is rising, and the combination could discourage consumers from spending if they fear losing a job.
Sumansky is heartened that the White House and Federal Reserve appear to be coordinating their responses to the twin threats, something that hasn’t happened in the past.
“Lowering interest rates only works for so long,” he said. But the Bush administration and Congress also are working on a stimulus plan that likely would include putting cash in the hands of consumers.
Robert Dye, senior economist at PNC Financial Services Group, said Tuesday’s rate cut is unlikely to be the last.
“The key question is what’s the Fed going to do next week,” he said. The Federal Reserve is scheduled to meet Jan. 30 and again on March 18. Dye says a further .5 percentage point cut next week is not out of the question, and if it’s not made then, he expects it by mid February.
He praised Tuesday’s decisive action.
“I think the Fed needed to make a statement,” Dye said, in response to “what’s looking to be a rapid deterioration” in the economy. “We don’t want the medicine after we’ve recovered from the disease.”
Like Sumansky, Dye is worried about a consumer pullback.
“If consumption goes south, we’re already in recession,” he said, and consumer-led recessions tend to be longer and deeper than those triggered by cutbacks in business investment.
Both economists expect the Wilkes-Barre area to be spared the worst of any slowdown, in part because the region did not experience outsize growth driven by overbuilding of new homes.
“We should also be spared the deep cuts,” Dye said. He expects the job market to soften and a moderate increase in unemployment, but then “an economy that is starting to reaccelerate in the second half of the year.”
Sumansky agrees that Northeastern Pennsylvania will suffer less than most of the nation. The auto and homebuilding industries have been hit hard, but, “we don’t have a lot of that here,” he said. “For a change we’re probably situated better than a lot of regions to ride out this economic storm.”
The disruption in financial markets that helped trigger the Fed action may create opportunities for investors, said Robert Graham, president of Riggs Asset Management in Wilkes-Barre.
“Economies and markets are not linear,” going only in one direction, Graham said, so understanding the cycles can in spotting investment values.
With stocks gyrating Tuesday, he said calls to his office picked up some, mostly from clients simply looking for reassurance.
“If you’re looking for panic, there’s none here,” he said.