Friday, November 21, 2008

Confessions of a town economist 

I often refer to St. Cloud as the biggest small town in America. �Everyone knows everyone; I've been on the faculty of the local university for 24 years and been active in public speaking for about the last five. �So it was only natural that when the local economy began to go a little wobbly last winter that I would get calls asking about whether or not we're in a recession. �Long-time readers of this blog know I was reluctant to use that word last winter and spring, but over the summer and into fall I thought all the signs were there except one -- we still hadn't had the drop in employment that we would expect. �True, employment growth was anemic, but you'd expect a recession to be marked by a decline. �If you said we were in recession and someone said, "But Professor, isn't local area employment still up?", I'd have no real reply. �(We would of course have to have the discussion of seasonality of local employment statistics, but even based on that correction you wouldn't have seen it.) �By September, however, we started to get the decline we expected, and last month I said "we are most likely in recession now, but that it did not start until sometime in summer. July, if I have to pin a month. The more severe recessions, like this one probably will be, last about five quarters, putting the end sometime in the fourth quarter of 2009."�

A couple of weeks ago I repeated that line to a local Rotary Club as a breakfast speaker, and word spread. �The local paper's business editor called to ask about it, and I told her I was speaking again yesterday (managed to squeeze this in between fits of laryngitis and dizziness from my early winter cold.) �She and her managing editor came to hear the talk, and the report made it to the front page of this morning's paper. �My phone is ringing now with all other kinds of reporters. �(I understand comments to this effect that I made on WJON last week showed up in a public radio report, but I never heard it, only people saying they heard me -- I haven't spoken to a reporter from MPR or any other public radio station for several months.)

The reaction to my public comments confirms to me what I had felt about using "the R-word" all along: �that there is good reason to be cautious. �Writing for the local area as "the town economist" -- which is weird because there are plenty of others, not least of which is my QBR co-author Rich MacDonald, who's been doing this longer than me -- is only worth my time if in fact people are using this information for their planning at home and at work. �The managing editor, I was told, went back to the Times' office and in a meeting repeated my remarks. �And when he does, it changes how people behave. �Markets are subject to mood swings, after all. �Whether I like it or not, in a smaller market like St. Cloud, what I say about the local economy matters because people respond to the pronouncement. �Never more so, in fact, than in a period of such great uncertainty. �Such an effect is an honor, but humbling and not just a little bit fearful. �(When the RSS feed from the Times listed the entry as "Banaian: �Numbers say area in severe recession"*, I admit to a lump in my throat. �I was truly scared that would be the headline this morning in the print edition.)

I would think most people could have realized we were in a recession now without waiting for someone official to say it. �I suspect for most -- and this is true based on the people who've spoken to me in the last few weeks -- I am only confirming of what they believe to be true. �But that confirmation influences behavior by reducing uncertainty, which can influence planning for investment and hiring. �Which makes my public speaking more cautious.

*--Small correction to that header: �The 'severe' part isn't a numbers thing really; that's more my informed guess. �I think I said that yesterday, but the RSS headline writer obviously wasn't there.

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