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Huntsville BUSINESS JOURNAL
ECONOMY
How Will the Threat of Recession Impact Huntsville Businesses? Experts Chime In Shoppers these days are feeling the crunch every time they pull out their wallets—prices of consumer goods and services are rising ever higher from the grocery store to the housing market. At the same time, businesses both large and small are dealing with the fallout from consumers who are becoming more selective in their spending behavior. This phenomenon isn’t unique to the US—it’s happening around the globe. The World Bank’s latest global economic forecast, released on May 31, forecasts that global economic growth will likely slow down before the end of the year. “For many countries, recession will be hard to avoid,” stated World Bank president David Malpass.
“We were fortunate in the previous cycles to have gone a pretty long time without a recession. But actually, you know, recessions happening has been the norm throughout most of economic history.” Many experts, such as Harvard economist Jason Furman, argue that there is no guarantee that a recession will occur. Even if it does, most economists agree that the likelihood of a repeat of an all-out collapse such as that of 2008 is slim. In a Fortune magazine interview, Stephen Miran, cofounder of Amberwave Partners and a former senior advisor at the U.S. Department of the Treasury, stated that recessions are an unavoidable fact of economic life. “We were fortunate in the previous cycles to have gone a pretty long time without a recession. But actually, you know, recessions happening has been the norm throughout most of economic history.” Instead, Miran believes it’s more likely that the U.S. economy will fall into what he refers to as a “garden variety recession” in which the economy “overheats,” causing inflation to rise. Miran pointed out a notable difference between then and now: “The big
By Dawn Suiter
“While I will never say we are recession proof, I do feel like our community is positioned as well as any community in the nation to weather an economic slowdown.”
thing in 2008, remember, what happened was really borderline fraud in the economy because you had all these people that were borrowing money [to buy homes] that really couldn’t afford it.” In a recent economic discussion sponsored by the Huntsville-Madison County Chamber of Commerce, Oakworth Capital Bank Managing Director and Chief Economist John Norris noted some other major differences: “business to business activity remains reasonably strong. The economy is creating a lot of new consumers. We have a very tight labor market, so it’d be very interesting to go into a major recession with the banking industry as strong as it is. Norris argues that any coming recession will not be anything like that of 2008, citing the Federal Reserve Bank’s weekly H.8 report, which tracks the assets and liabilities of commercial banks in the United States. At the end of 2007 the loan to deposit ratio rose to 107%, meaning that banks were overextended. “They made more loans than their ability to finance the loan portfolios,” Norris said, noting that while it isn’t a big deal for one bank, this ratio encompassed the entire U.S. banking industry. “In hindsight, it wasn’t whether or not something bad was gonna happen, it was a question of when it would happen and just how bad it would be.” Changes to the banking system, such as the Dodd-Frank Wall Street
“Small business owners remain very pessimistic about the second half of the year as supply chain disruptions, inflation, and the labor shortage are not easing.” Reform and Consumer Protection Act of 2010 corrected this, and although some of the Dodd-Frank Act was rolled back under former President Donald Trump, protections continue to remain more robust than they were in 2008. Norris observed that the loan to deposit ratio is currently at 62.5%, meaning the banking system has “a ton of excess liquidity” and is very anxious to make loans. “There has never been in my studies a period of time where the banking industry is flush with liquidity and actively trying to make loans and actively trying to extend credit where all of a sudden the U.S. economy just collapses.” As a result, he argues that if there is a recession, it won’t be as bad because the banking sector is “super strong.” In the US, the Federal Reserve has raised interest rates again in its biggest rate hike since 1994 in an attempt to tame inflation. While this is an effective way to cool the red-hot market, small business owners are not optimistic about the future. According to a recent study by the National Federation of Independent
Business (NFIB), the percentage of small business owners expecting better business conditions over the next six months decreased four points to a net negative 54%, the lowest level recorded in the 48-year-old survey’s history. Expectations for better business conditions have deteriorated every month since January. Twenty-eight percent of owners reported inflation was their single most important problem in operating their business, down four points from April. The net percent of owners raising average selling prices increased two points to a net 72% (seasonally adjusted), back to the highest reading in the survey’s history last reached in March and 32 points higher than May 2021. “Inflation continues to outpace compensation which has reduced real incomes across the nation,” said NFIB Chief Economist Bill Dunkelberg. “Small business owners remain very pessimistic about the second half of the year as supply chain disruptions, inflation, and the labor shortage are not easing.” On a more local basis, a February report from Area Development Magazine noted that Alabama is faring better than its neighboring states. CNN named Alabama “Best Southeastern State in Keeping People Employed During an Economic Crisis,” while Forbes magazine named Huntsville the “Best Place to Live During Recession.” Madison Mayor Paul Finley remains optimistic about the future of the area: “While I will never say we are recession proof, I do feel like our community is positioned as well as any community in the nation to weather an economic slowdown.” w
