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VOL. 126 | NO. 236 | Monday, December 5, 2011

Forecasters Expect Recovery 'With a Lag'

By Andy Meek

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Over the past several days, eerily similar messages have come from a pair of economic forecasters who spoke at the Thursday, Dec. 1, meeting of the Economic Club of Memphis, the most recent forecast from a local investment firm and the latest economic snapshot from the Federal Reserve.

Their common theme: The rough ride isn’t over yet.

William Emmons, an economist with the Federal Reserve Bank of St. Louis, and Bill Fox, director of the Center for Business and Economic Research at the University of Tennessee-Knoxville, gave back-to-back presentations to the economic club’s audience of businessmen, bankers and civic leaders.

About Memphis, Emmons said “the Memphis economy may track the national recovery – but perhaps with a lag.”

Not exactly inspiring stuff. But he was followed by Fox, who agreed the downturn has been longer in Memphis than in the rest of the state.

Zooming his lens out to look at the rest of Tennessee, Fox said one bit of positive news is that since the recovery began, Tennessee has added back about a quarter of the jobs it lost. At the same time, Fox said, the fastest-growing counties in the state are now suburban counties such as Tipton, Fayette and the ring of counties around Nashville.

The state’s rural counties are hardly growing at all, and its urban counties are growing slowly, he said.

“And this is the chart that ought to scare you to death,” Fox warned when his slide presentation displayed a chart showing per-capita income in Tennessee compared with the rest of the U.S.

He said the trend was growth from the mid-1980s through the 1990s but that the pattern has been a downward slope ever since.

The points of both presentations were perhaps best encapsulated in what Fox said is the theme of an article being written by a Wall Street Journal reporter who recently interviewed him. Namely, that “our ability to invest in ourselves” is getting supplanted by the need to deal with problems from the past, referring to everything from high public debt to entitlement spending.

Among other forecasts that have come out in recent days that have given the economically minded something to chew over, the principals of Memphis-based IronHorse Capital Management take a grim view of the way the economy could turn at any moment.

“Daily volatility in 2011, while harrowing, is running about half the level observed in 2008 and is now roughly in between the levels observed in 2007 and 2009, the bookends of the 2008 phase of the secular bear market that’s been in place for a decade,” they wrote in IronHorse’s latest update letter to shareholders, released a few days ago. “In other words, as bad as things have seemed since the dog days of summer, we may not even be to the crazy part. The ride can get bumpier.

“This type of market action has often been a precursor to bigger events. … Events take a long time to develop. The backdrop becomes more and more confusing as policymakers and market participants propose and rush solutions out the door each week. We outlined our position on global markets and economies in the last letter, namely that this follow-on phase of this crisis resembled the ’37-’38 follow-on phase during the depression years. In short, we view this as a potentially dangerous economic and market environment.”

Also in recent days, the Federal Reserve released its so-called Beige Book, which depicts economic conditions in Fed districts around the country.

The Fed survey shows conditions improving in every Fed district – except the St. Louis district, which encompasses Memphis.

“The economy of the Eighth District has slowed since our previous report,” the Fed report reads. “Manufacturing activity has declined, while reports of activity in the services sector have continued to be mixed. Retail sales in September and October declined slightly over year-earlier levels, and auto sales increased over the same period. Residential real estate market activity has continued to decline, while commercial real estate market conditions have been mixed. Overall lending at a sample of large District banks was unchanged during the three-month period ending in October.”

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