Rebound at the end of 2001, early 2002
One of the big questions in the economic recovery is how and when the Federal Reserve rate cuts will take effect. With earnings reports coming in at or below predictions on what seems like a daily basis adding to the stock market woes, Federal Reserve Chairman Alan Greenspan and his board have tried to bolster the economy by altering their monetary policy.
Some economic experts have said repeatedly that by early fall, the economy will start to come back. Mark Reinemann, president and CEO of First Business Bank, agrees.
“Six to nine months is the typical cycle for rate cuts to start to have an effect,” Reinemann says. “The rate cuts first started in early January, so it wouldn’t be a big surprise to see the rebound first starting to occur in the late third to early fourth quarter and then continuing.
“I think the tax rebate will help, and the combination of those two is what’s driving people to say the fourth quarter of ’01 and the first quarter of ’02 ought to see a significant improvement,” Reinemann adds.
But there are other indicators that are pointing to a light at the end of this economic downturn, much of it coming from the sector hit the hardest: manufacturing.
“Manufacturing is off, so that sector’s off a bit and has been off probably for the last six months in talking to our customers out there,” says Tom Peterson, first vice president of Ozaukee Bank. “And they’re in the realm right now where they’re re-tooling, re-designing their schedules, their workforce, but they’re optimistic that things have reached a stable level.
“You’re going to see a steady, slower pace,” Peterson adds. “But certainly there is no doom and gloom from any sector, which is good news.”
Peterson notes that manufacturing clients say that they’re starting to see more orders being quoted — an indication that activity in the marketplace is picking up. The Federal Reserve’s rate-cutting strategy has also helped the construction industry stay strong.
The banking industry isn’t showing signs of clamping down on its lending policies at this point either.
“You want to maintain good quality throughout, but certainly the industry hasn’t come back saying we should tighten credit controls at this point,” Peterson says.
In fact, business over at First Business Bank is booming, according to Reinemann, suggesting that companies are confident in the economy’s comeback. That’s not to say that some companies — mainly manufacturers — aren’t feeling the affects of the worst recession since the early 1980s.
“In 1990-1991, looking at national statistics, the Midwest fared pretty well,” Reinemann said, referring to the last nationwide recession. “That was more of a real-estate-driven, East Coast-West Coast issue.”
Reinemann has visited with manufacturing clients over the past six months and most say the same thing, that business is behind last year, customers are ordering less, shipments are being delayed — or just the opposite — lead times are slashed as more customers wait to the last second to order parts.
“Everybody’s trying to manage inventories down to the bare minimum,” Reinemann says, “and certainly that effects businesses in our target market because they are principally buying from and selling to larger companies, so they can get whipsawed a little bit in times like this.”
July 20, 2001 Small Business Times, Milwaukee
