Return to good times will be slow |
BYLINE: Michael E. Kanell
DATE: August 8, 2009
PUBLICATION: Atlanta Journal-Constitution, The (GA)
The data hints -- and the talking heads say -- that within months, we will see the start of economic recovery.
But many Atlanta-area businesses do not expect the recession's end to mean full-throttle growth, wholesale hiring and a return to good times.
"This recovery is going to be different," said Kristy McCarley, vice president at BigCrumbs.com, a discount shopping portal.
If she is right, the next year holds the more modest hope of sluggish business improvement while consumers struggle to regain their financial footing.
Often in the past, the economy accelerated out of a downturn with a surge of growth. Demand swelled as consumers went back to spending, spurred by rising incomes, more job security and easy credit. With demand rising, companies hired. This time, maybe not so much.
"I see this recession as a game-changer," said David Findley, vice president at MDI Group in Norcross. "I think we are looking at lower growth. For the next 10 years -- or 20 years -- you may see lower consumer spending."
Georgia's jobless rate hit 10.1 percent in June, up from 4.7 percent two years ago. Job-seekers outnumber openings by more than five to one, economists estimate.
While the national unemployment rate ticked down slightly last month, that calculation doesn't count the swelling pool of people who have stopped looking for work.
Unemployment typically doesn't fall much until after a recession ends. The weaker the recovery, the slower the decline. After the 2001 recession, for example, job growth did not start for more than a year. The fuel was an unprecedented burst of home purchases, refinancing and borrowing.
"That won't happen again," McCarley said. "In the past, recovery was driven by access to credit which led to spending. Spending is going to be modulated accordingly this time."
The real estate slump and tighter lending mean homeowners can't use equity lines or refinancings to turn houses into bank machines. Credit card companies aren't handling out plastic as freely -- and those with cards face higher rates and lower limits.
Moreover, millions of American households have been financially crippled by layoffs, foreclosures and bankruptcies.
Ty Barnes, 36, of Ellenwood was among those who racked up huge debts during the good times that -- for a time -- she was able to handle. But Barnes, a real estate agent, saw her income evaporate as the housing market collapsed.
Then, with her husband out of work for a time, she lost her home to foreclosure and tumbled into bankruptcy. Now, her husband is working, her debts are vastly reduced and she has a revised attitude -- recovery or not.
"If I go to Wal-Mart and see something I like, I think, 'No, I can't, that's a spending leak,'" she said. "Even if things change, I will never be the same person I was."
Even many households with decent balance sheets have been scared into caution.
"I'm a cigar smoker, and I think if you were smoking $20 cigars before, you're probably smoking $10 cigars now," said Fred Perpall, managing principal at the Atlanta-based Beck Group, an international design, construction and management company. "I think thrift is cool again."
Millions of individual decisions to spend less add up to less spending overall. That undermines demand throughout the economy, from retail to commercial real estate, Perpall said.
"We see this as something that will continue over the next two or three quarters," he said. "We think it be another tough year in 2010. This recovery is going to be slow for us."
A slow recovery forces start-ups to be meticulous about risk-taking, said John Alston, chief executive of one-year-old ClubDrive Systems in Atlanta, which offers technology services to small businesses.
"We have definitely scaled back our spending on marketing," he said. "We spend every dollar like it's our last. We cannot afford to make a mistake in this economy."
Yet optimism lives.
Frank Fenello managing director of UHY Advisors, a tax and finance consulting firm in Dunwoody, rejects timidity -- at least in his own finances. He recently bought a Mercedes SUV for himself and a Lexus SUV for his wife.
"We are acting as if things are going to be good," he said. "I believe in a mindset of success. You do things expecting good things to happen and everything works out."
UHY is optimistic enough about its chances to be hiring for five financial positions.
Dan Limerick is more cautious about both the economy and his own spending, but he agrees that attitude is critical.
Companies and consumers are struggling partly because they are so unsure about the near future, said Limerick, CEO of Ball Ground-based American Trade Products, which makes Earth Plastic recyclables. "I think uncertainty is one of biggest problems right now. The biggest enemy is not having the knowledge. It all boils down to consumer confidence," he said.
Confidence is also crucial for entrepreneurs -- especially if they do not expect quick relief from the harsh economy of the past year.
Dolvett Quince, owner of Body Sculptor in Buckhead, was surprised at how dramatically spending fell -- even among his high-end clients. "It hit me about the second quarter. Even some of the wealthier ones were suddenly looking for price breaks."
Quince said it takes about 90 days to reshape someone's body for the better, and he understands that it will take a lot longer to work the economy into good condition.
"I have been planning to stay afloat," he said."If I can meet my overhead, I don't necessarily have to turn a profit. I just have to stay in business until this is over."
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