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Climbing out of a recession

Confidence returning, but recovery still slow

BYGABRIEL VASQUEZ

The Las Cruces Bulletin

Federal Reserve Chairman Ben Bernanke said Tuesday, Sept. 15, that the economy is “very likely” out of the worst recession since the 1930s.

He also warned that unemployment would remain high for some time to come.

Tony Popp, department head and professor of economics at New Mexico State University, said for the most part, he agrees with Bernanke.

“The economy now is not getting any worse, but the question is, how fast until it gets better?” Popp said. “We’re at the bottom, at least, we hope we’re at the bottom. But we didn’t enter into a local recession for about six months after the national economy, so we’re going to lag in getting out.”

How long until the “average Joe” notices the effects of the recession’s end is anyone’s guess, said NMSU business professor Chris Erickson.

“There will be little obvious change to the average Joe,” he said. “We will begin to notice that bad economic news will become less and good news more common. Over time, the recovery will pick up steam and good economic news will come to dominate. Within six months, we should start to see a definite return to job growth.”

Economic indicators

Erickson said Bernanke and the Federal Reserve look for several economic indicators to determine the end of a recession, such as a decline in new unemployment insurance claims, corporate earning reports, stock market activity and consumer spending. Ultimately, however, it’s the National Bureau of Economic Research (NBER), a private think tank, that determines the dates of a recession. The NBER works under contract with the U.S. Department of Commerce.

“Their job is not to provide real time information, so they can wait until the date has been revised and declare an end to the recession with considerable certainty,” Erickson said.

The NBER has yet to declare the recession’s end, and Erickson said he doesn’t expect it to come until next year.

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Recession

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For many unemployed workers, news of the recession’s end will mean little, Popp said.

And for those who have built their career in the construction and manufacturing industries, the declaration will probably mean nothing – at least for some time to come.

“We’ve lost jobs here,people are underemployed and some businesses have shut down because of the small amount of spending,” Popp said. “A lot of that, in our area, has been because of the construction industry.”

For those who consider themselves to be underemployed, news of an ending recession may give them optimism that their education will reap its benefits to secure a high paying job, while investors and big businesses may regain the confidence to invest in new projects or expand their portfolios.

“Both of the last two recoveries were characterized by slow job growth, however, the current recession is quite different ... it is associated with a financial panic. It is much deeper and longer,” Erickson said. “It is a global recession, while the last two were more local.

“Looking at recent history for lessons about the current recession could be dangerous. We may see a sharper recovery this time with decent job recovery, or we might not. We have little precedent to look to.”

Rick Stoes, qualifying broker for Grubb & Ellis New Mexico, a commercial real estate company, said in a report last week that international trade was the latest indicator to signal an economic recovery is at hand.

“Exports increased by 2.2 percent in July, while imports, fueled by vehicle demand from the Cash for Clunkers program, soared by a record 4.7 percent,” he said. “The global economy is growing again.”

The U.S. Department of Commerce reported the biggest jump for retail sales in more than three years on Tuesday, Sept. 15.

Closings and openings

Although Las Cruces, like the rest of the nation, has seen many businesses close, jobs lost and industries stagnate, it’s also seeing a fair amount of growth.

Buffalo Wild Wings, which opened last month, has seentremendous success at its Mall Drive location.

“I can tell you that we have been pleasantly surprised to have done as well as we have,” said the restaurant’s owner, Brian Padilla. “We’re doing very good as compared to stores in bigger markets.”

Business at Dickey’s Barbecue Pit, which opened in August at its Valley Drive location next to Wal-Mart, has also been on the up-tick.

“Business has been very well,” said general manager Geraldo Aguilar. “We’ve been having a really good turnout and everybody is loving the food. They tell me ‘It’s about time we have good barbecue.’” News that a new Wal-Mart, Walgreen’s, Pro’s Ranch Market, Olive Garden, a local restaurant named De La Vega’s and a Las Cruces Convention Center are planned to open along with the expansion of companies such as Cyracom, General Dynamics and Sapphire Energy are topped only by bigger investments in the Las Cruces area, such as Spaceport America and companies relocating to the Las Cruces International Airport and Arrowhead Center Research Complex.

“Eventually, there will be gains in employment, the exact timing is the question,” Popp said. “Part of the problem is that we’re not sure all the banks are lending out as much as they could. They’re still questioning the viability of making those loans. As things get better, that probably will ease out a bit.”

But a short drive around town will quickly remind residents that at large number of retail vacancies still exist.

Pat Goff’s, Risotto’s, Super China Buffet, Savino’s, RedMountain Caf�, Rio Yamaha, Sportsman’s Warehouse, Shoe Pavillion, Jude’s Birkenstocks, Bennigan’s, the Choicepoint Call center and several fast food restaurants have closed in the past two years; jobs that will never return, but could be replaced by incoming retailers that offer similarpositions.

A lesson learned?

It’s not enough that the deepest recession since the 1930s sucked millions out of investors’ pockets, deeply scarred the national economy and caused a global crisis, Popp said. To prevent it from happening again, comprehensive financial reform is a must, he added.

“We need regulation,” he said. “The market created lots of financial instruments that nobody understood. For a market to work, you need to understand the products that you’re buying and selling, and nobody knew what those things were. Private markets work on information, and if people don’t have the right information, those markets will not work.”

Erickson, too, said reform is imperative.

“I’m an advocate of financial reforms,” he said. “A banking regulation bill is currently working its way through the Senate. Key provisions include a new federal consumer agency to oversee financial products, expanded authority for the Federal Reserve to monitor the economy for systemic risks and streamlining the system of banking regulation.

“This regulatory package doesn’t go far enough, in my opinion. I would argue that ‘too big to fail’ should mean ‘too big to exist.’ We should reign in large firms.”

A large number of jobs have been lost locally in the construction industry, said NMSU professor Tony Popp. Above, White Construction Co. workers labor Monday, Sept. 21, at the Federal Courthouse.

STEVE MACINTYRE | The Las Cruces Bulletin

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