While Alan Greenspan has become the E.F. Hutton of the financial world ("When he talks, people listen"), local bankers in southeastern Wisconsin are optimistic for the economy in the coming half of 2002.
Greenspan, the Federal Reserve chairman, slashed the prime lending rate 11 times in 2001 in an effort to jumpstart the economy both before and after Sept. 11.
Because of the Fed’s unprecedented moves in 2001, some economists and market watchers were predicting that once the economy turned around, the Fed would start increasing the prime rate in an effort to curb the inflation rate.
Much to everyone’s chagrin, so far, 2002 has missed the mark. But there are signs pointing to the economy turning the corner. Local bankers are reporting that their customers – especially manufacturers – are doing markedly better than 2001.
"We think the worst of it, for our customer base, is over, and we think that will continue through the year and certainly through year-end," said Greg Fritsch, senior vice president of RidgeStone Bank in Brookfield.
Ron Stevens, vice president of commercial lending and business development for the Bank of Elmwood’s Kenosha office, agreed.
"As has been true for the past decade, Kenosha’s position pretty well is to be on the forefront of any recovery that the country experiences," Stevens said. "We’ll be recovering more quickly. … There’s a great deal of optimism, not just for Kenosha, but for the economy in general."
Stevens’ caveat to his optimistic outlook was that no other acts of terrorism or world-changing events happen over the next six months.
Since both men work at niche
or community banks that pride
their businesses on higher service levels, increases in loan losses and reserves have been minimized due
to their close working relationships with customers.
"If we have a customer that’s struggling, we have to work for them because we don’t have the financial wherewithal to move them along out of our bank," Fritsch said. "We have more invested in the customer; if they go under it causes a real problem for us on our financial statement, whereas it’s not even a rounding error at a large bank."
Both Stevens and Fritsch don’t expect the Fed to make any dramatic moves before year-end. Fritsch says there could be an increase in the fourth quarter; Stevens says that if the Fed moves at all, the increases would be small and spaced apart to gauge how the economy reacts.
Complicating the picture is the dollar’s weakening position against most foreign currencies, and the widening trade deficit. The dollar fell to a two-year low against the euro in June, and the trade deficit ballooned to a record $35.9 billion in April. Both factors have contributed to a significant slowing in foreign investment in the United States. Contributing to foreign investors’ anxiety is the threat of terrorism against the US and the uncertainty in the US financial markets started by the Enron/Arthur Andersen scandal.
But will the economy rebound by the end of the year? That’s the $64,000 question.
"There are so many things that can affect it," Stevens said. "It could be little things. A lot of it has to do with people’s mind set. … People’s attitude, mindset, security, and how they feel about the whole thing is going to be so important."
July 5 2002 Small Business Times, Milwaukee
