A national housing meltdown that has roiled the markets and shaken consumer and investor confidence has a growing number of economists and businesses nervously contemplating the likelihood of a recession.
“I’m seeing all kinds of signs that point to a slowdown in the future,” said Jim Noon, president of Centennial Container Inc. in Denver.
Noon, who provides boxes used by other businesses, expects his all-important Christmas season to be “moderately dead” this year.
U.S. Bank regional economist Tucker Hart Adams, a perennial pessimist who forecast a recession a year ago, said the question for her isn’t whether there will be a recession, but whether it will be mild or severe.
“Problems in the housing market are not behind us,” she said. “I don’t see any way we can escape a recession in the next six months.”
Other local and national economists are more optimistic than Adams. With gross domestic product running at 4 percent in the second quarter, the economy would need to hit the brakes hard, argue economists who don’t support a near-term recession forecast.
Recessions are typically defined as two consecutive quarters of declining GDP, the Commerce Department’s main measure of U.S. economic output.
The local economists, including Adams, also see Colorado as better positioned than many other parts of the country to weather a downturn.
“If there is a recession, the local economy won’t be hurt as badly as in the last one (in 2001),” predicted Bill Kendall, president of the Center for Business & Economic Forecasting in Denver.
Mark Zandi, chief economist with Moody’s in Westchester, Pa., said consumer spending and business hiring are the two things to watch going forward when gauging the health of the U.S. economy.
“The economy will go into recession if businesses respond by pulling back on their job growth,” Zandi said.
He has raised his opinion on the chances for a recession from 15 percent just six weeks ago to 40 percent following a tightening in global credit markets last month.
The 2001 recession was relatively mild on a national level, but it hit Colorado, which relied heavily on hiring in technology and telecom, hard.
The state lost more than 95,000 jobs between December 2001 and December 2003, and it didn’t reach its old employment highs until late 2005 and 2006.
Some sectors of the economy are still trying to find a bottom. After peaking in February 2001 at 49,100 jobs, there were only 27,600 telecom jobs in the state in July.
Economists contend Colorado should weather a real estate-driven downturn better than the oil and gas bust of the 1980s and the technology and telecom bust earlier this decade.
“We haven’t had the speculative building in Colorado this time around that we had back in the 1980s. That doesn’t mean we don’t have problems,” Adams said.
Home values in metro Denver have risen only about 40 percent the past seven years, compared with a doubling in home values nationally and even higher gains in formerly hot housing markets such as San Diego, Miami and Las Vegas, according to the S&P/Case-Shiller Home Price Indices.
Nor does it appear that construction employment got out of hand in Colorado. Construction jobs never reached the peak of 176,100 positions hit in August 2001.
Kendall bases his optimism on continued strength in oil and gas production, which has fueled, directly or indirectly, many of the state’s job gains in recent years.
Petroleum producers are counting on oil holding above $45 to $50 a barrel to make their drilling efforts in the state worthwhile, Kendall said.
With oil above $70 a barrel, it would take a global recession to derail the sector, he said.
While the slump in homebuilding and related activities is shaving about 1 percent off economic growth, it can’t by itself tip the economy over, given the strength in corporate profit and balance sheets, the more- optimistic forecasters argue.
Also, rising foreclosures have always followed a recession, never triggered one, said Michael Swanson, an economist with regional bank Wells Fargo.
Rhonda Corman, a regional economist at the University of Northern Colorado in Greeley, said people complain to her all the time about how tough things are in Weld County, which led the country for several months last year with the highest foreclosure-filing rate of any metro area, according to RealtyTrac.
Despite that, Corman said restaurants and stores remain full, proving to her that consumers today are programmed to spend as long as they have a job.
Despite a 33 percent drop in new-home sales in the metro area, demand for home-entertainment centers hasn’t shifted, said Matt Kramer, manager at Big Picture TV Store in Denver.
For Adams, the problem is that the increases in real estate values and consumer spending have come at the cost of households getting deeper into debt.
Consumer-debt payments, including mortgages, now take up nearly 20 percent of household budgets, a historically high amount.
That debt will have to be unwound and repaid or written off – a key concern behind the credit crunch that rocked stock and bond markets in August.
As the mortgage market has tightened, consumers have shifted to credit cards and other more costly forms of borrowing. But they are starting to default on those payments at a higher rate.
Zandi said with credit getting tighter, people shouldn’t take anything for granted, including their employment.
The Federal Reserve has responded to the turmoil in markets by cutting the rate it charges banks to borrow money and injecting billions of dollars into the economy.
Fed Chairman Ben Bernanke on Friday reassured markets that the Fed would do what was “needed to limit the adverse effects on the broader economy that may arise from the disruptions in financial markets.”
Even President Bush weighed in on the mortgage crisis Friday, outlining a program to help out subprime borrowers falling behind on their mortgages.
The Federal Housing Administration will start providing guarantees on loans to delinquent borrowers in an effort to help them avoid foreclosure and refinance at more favorable rates.
Investors responded positively to the moves Friday, driving the Dow Jones industrial average up 119 points to 13,357.
