Worcester Business Journal

12 Worcester Business Journal | September 16, 2019 | wbjournal.com Recession warning signs Indicators of a slowing economy are popping up, but they might not add up to a looming recession B A N K I N G & F I N A N C E BY GRANT WELKER Worcester Business Journal News Editor FOCUS E mployment declined across the Worcester metropolitan area in the first half of the year, and an index compiled by Assumption College calls for a rebound in the months ahead. If that picture seems muddy, that can be the nature of economic predictions. Unemployment rates remain at or near the lowest levels in generations, and stocks generally continue rising. But con- cerning forecasts on consumer spend- ing, job growth, debt and investments ramped up amid ominous signs and a lingering trade war with China. "ere's more clouds on the horizon than there used to be, definitely," said John Brown, an economist at Clark Uni- versity in Worcester. Recession talk hit a tipping point of sorts in August when a typically reliable sign of a looming recession – the invert- ed yield curve – took place: Yields for two-year U.S. Treasury bonds exceeded 10-year bonds, a threshold preceding every recession since 1955. Since then, American markets have fluctuated based on the latest news – good and bad – on the trade war, including a sharp rise simply on reports about American and Chinese officials meeting sometime in October. Eric Rosengren, the president of the Federal Reserve Bank of Boston, portrayed conditional confidence in September based on strong consump- tion making up for other weaknesses. "If the consumer continues to spend, and global conditions do not deteriorate further," Rosengren said at a business event at Stonehill College, "the econo- my is likely to grow around 2%, in part because the underpinnings of consumer growth – household income growth and household wealth – remain strong, and consumption accounts for about 70% of GDP in the U.S." Local signs In Central Massachusetts, indicators give reasons for optimism and worry. e unemployment rate for the Worcester metropolitan area was 3.3% in July, in the top quarter of all metro areas. But U.S. Bureau of Labor Statistics estimates for the second quarter show the Greater Worcester labor force U.S. consumer confidence shrinking by nearly 1,500 workers. e Worcester Economic Index, as compiled by Assumption College eco- nomics professor omas White, shows Greater Worcester's economy contract- ing by a 0.3% annualized rate in the first quarter of the year and a 0.9% rate in the second quarter. Still, White projects 1.3% to 1.5% growth in the next six months, based on consumer confidence, new business incorporations and other factors. Manufacturing is a closely watched economic indicator, and in the Worces- ter area, such jobs have been slowing. e local industry exceeded national growth aer the Great Recession but since late 2017 has lagged, according to data from Washington, D.C. think tank Brookings Institution. In that time, Greater Worcester's manufacturing employment has grown 1.2%. Nationally, it grew 2.1%. Advanced manufacturing in Greater Worcester – higher-technology op- erations making up a greater share of Greater Worcester's manufacturing in- dustry and potentially more susceptible to a trade war and overseas economic struggles – grew by 0.3% from 2010 to 2018, compared to 1.3% nationally. But local banking leaders are still largely optimistic. Ed Manzi, the CEO and chairman of Leominster-based Fidelity Bank, said he finds through meetings with clients, realtors and accountants confidence is still up. A call in September with other area commu- nity bank executives found no local signs foretelling a recession, he said. "Right now, everyone's feeling good," Manzi said. Others find it hard to know exactly what factors are best at predicting a recession. Many economic concerns can even be traced simply to the length of the current expansion, which at 10 years is the longest on record, said Robert Baumann, economics professor at the College of the Holy Cross in Worcester. Among data sets Baumann said he looks at are housing prices and employment. Consumer debt is up – it hit nearly $4.1 trillion in July, an all-time high, even adjusting for inflation – though that could be a sign of confidence just as much as it may be an indicator that people are striving to keep up economically. Either way, it's a number to keep an eye on, he said. "It was exactly this kind of problem that got us into the last recession in the first place," Baumann said. Workers assemble furniture at AIS in Leominster, which expanded in 2017. Employment in the manufacturing industry is a key economic indiator. 0 20 40 60 80 100 Consumer confidence 2016 2017 2018 2019 Consumer confidence is at the lowest level in nearly three years, and in August, a month-to-month drop in confidence was the greatest since December 2012. Tariffs were cited as a major reason. Source: University of Michigan

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