Economist sees recovery late in 2009

The economy will rebound in the third quarter and the nation will pull out of recession late this year as the federal stimulus package kicks in, a Wall Street economist told Lexington business leaders Thursday.

Richard Yamarone, chief economist at Argus Research in New York, told the 2009 Bluegrass Business Summit that he expects economic growth to be flat in the third quarter and up by less than 2 percent in the fourth as a very gradual recovery takes root.

In the meantime, a Lexington banker said, businesses that need money should take advantage of government loan-guarantee programs, like those offered by the Small Business Administration.

Bo Henry, president of Republic Bank & Trust Co. in Central Kentucky, said local banks have money to lend, but the rules have changed. Borrowers should not expect to get 100 percent of the amount they want and will need up-to-date financial statements.

"Just be prepared with good current information and to add capital to (the loan amount)," Henry said.

Bill James, president of First Federal Bank in Lexington, said businesses are more likely to get loans from Kentucky's community banks, which are in better shape than the larger banks that got federal bailouts.

University of Kentucky economist John Garen said Kentucky banks have been helped by the state's "more stable" economy, especially around Lexington and Louisville.

Lexington has been somewhat insulated by its universities and its high percentage of "educated people," Garen said. The Bluegrass also has strong service industries, including medical care, and fewer manufacturers that have been hard hit.

Nevertheless, "our fortunes will be tied to the fortunes of the rest of the economy," he said.

For example, when JPMorgan Chase & Co. recently cut its quarterly stock dividend to 5 cents from 38 cents, lots of Central Kentuckians suffered, said Laura Boison of E.S. Barr & Co., a Lexington money management firm.

Chase is the successor to Lexington-based First Security National Bank & Trust Co., which had many local stockholders before it was acquired and eventually became Chase, said Boison, a former Chase executive.

The dividend cut is "affecting people we thought were ironclad," she said.

Such setbacks are prompting people to cut spending and save money, Henry noted. "We are seeing an increase in savings at the banks," which creates money for loans.

The recession won't end until lending resumes and consumers begin spending again, Yamarone said.

One strong indicator is that housing prices are quickly falling back to the "pre-bubble" levels of 2003 and 2004, when prices began climbing to ridiculous levels.

In addition, Yamarone said four of his personal "Fab 5" economic indicators have turned upward from their 2008 lows. They are national spending for casino gambling, dining out, jewelry and watches, and women's clothing.

The fifth indicator, purchases of cosmetics and perfumes, is still declining.

Yamarone said another round of federal stimulus spending is being "debated and talked about" in Washington, because many economists and government officials feel not enough has been done to end the recession.

Another stimulus package might become a necessity, he added, if a major automaker goes under, energy and health care costs soar, consumers don't start spending, or too few jobs are created by the existing stimulus.