Saturday, September 16, 2000

Tristate headed for “soft landing?”

        Cincinnati is giving Alan Greenspan and the Federal Reserve Board exactly what they want.

        The Tristate appears to be part of the “soft landing” in the economy that the Fed has been trying to engineer — a slower, more sustainable rate of growth with stable unemployment and inflation.

        Most area workers and consumers won't even notice the slowdown. “We're seeing small changes here. That's what we want to see to achieve a soft landing,” said Richard Stevie, an economist and general manager of market analysis for Cinergy Corp.

        Local manufacturers, for instance, are still growing and adding jobs — but more slowly than a year ago.

        “It's healthy, it's good, but there are still people being conservative in adding new equipment, expanding the plant, buying somebody

        else,” said Jim Stahl, CEO of Cincinnati Belting & Transmission Co., which supplies local factories with everything from leather drive belts to factory automation software.

        Because the Fed has raised interest rates by 1.75 percentage points in six moves since June 1999, the cost of borrowing money for expansion is higher. “That's exactly what (Greenspan) wants,” Mr. Stahl said. “He wants you to really make damn sure that when you build that new facility, it's going to cost more to build it and you're going to have to get a better return than you did four or five years ago.”

        For a snapshot of the local economy, The Enquirer collected data on jobs, production, construction, even sales tax collections, as a reflection of retail sales.

        Some findings:

        • The number of jobs in the 13-county area is still growing, up 1.9 percent in July from a year ago, to 1.02 million. That's a hair slower than a year ago.

        • Manufacturing remains strong. The number of manufacturing jobs is growing — the opposite of the trend nationally. Other indicators such as industrial electricity sales are stable, and the number of hours the average factory worker works is rising slightly, as are his wages.

        • New housing starts are down about 8 percent from a year earlier, and commercial construction is down as well.

        • Sales tax receipts indicate a few rough spots for retailers this year — particularly in April, following the drop on Wall Street and the collapse of Procter & Gamble Co.'s stock price. Still, combined sales for Hamilton, Butler, Clermont and Warren counties are up more than 8 percent for the year through June.

        “All the evidence I've seen says we're doing pretty well,” said Cinergy's Mr. Stevie. He also chairs the Greater Cincinnati Chamber of Commerce's economic advisory committee, which will release its 2001 forecast on Tuesday. “Locally, we tend to track the nation fairly well. The Fed has done the right thing and has moved the economy in the right direction.”

        Whether this is a “soft landing,” however, won't be known until it's over.

        First, there's no precise definition. Ed McKelvey, senior economist for investment banker Goldman Sachs in New York, said he considers a soft landing to be a period of slower economic growth brought about by monetary tightening, with stable unemployment and stable inflation. Second, the period should last about a year — to prove the level of growth is sustainable, he said.

        Following the Fed's rate hikes, economic growth nationally has slowed from 1999, unemployment has leveled off this summer at about 4 percent, and the core rate of inflation — including prices on everything but food and energy — has been level for almost a year.

        The numbers suggest a soft landing, “but it's too early to tell,” Mr. McKelvey said. The risk is that the economy slows too much, producing a “hard landing” — a recession. Most economists today don't expect that to happen, but it's still early.

No recession looms
        And while some indicators of the Cincinnati economy show more moderate growth, nothing suggests a recession.

        Only the commercial construction indicators are showing weakness. Housing starts are down from 1999 but still above levels seen 1996-98, which at the time were considered strong.

        “There's an abundance of jobs and not enough workers,” said Brian Snyder, career consultant leader for Belcan Staffing Services' Eastgate office. His office is getting more workers from farther away — deeper in Clermont County, as well as Adams and Brown counties. And some wages are rising. “I've noticed lately some companies are willing to pay a little more,” he said.

        If 1999 was a very good year for the Cincinnati economy, “I would characterize late winter/early spring to be "good,'” said Steve Schrantz, executive vice president at Fifth Third Bancorp, who oversees commercial lending. “If last year was an eight, this year is a seven-and-a-half.”

        Speaking about the industries he deals with, Mr. Schrantz said commercial real estate is down, and while the number of new homes being built is down, prices are up. Auto dealers “are doing OK. Sales have been choppy.” Professional services firms — accountants, lawyers, engineers — are doing well. Trucking is weak, he said, squeezed by high fuel prices and overcapacity.

        One sign of a slower economy is a drop in mergers. Mr. Schrantz said Fifth Third's lending for mergers and acquisitions is down from a year ago.

        Companies seem to be transferring fewer workers, said Dawn Rish, a real estate broker for Century 21 Signa ture Champions in Sharonville who deals mainly with relocations. “It's been slower this year than last year,” she said. That may be related to the tight job market: With more alternatives, workers don't feel compelled to accept transfers.

        “The operative word here is "soft,'” meaning the drop in economic activity has been slight, said Sophia Koropeckyj, an economist at Regional Financial Associates in West Chester, Pa., who follows the Ohio Valley economy.

Factories thrive here
        The brightest spot might be manufacturing.

        While the number of factory jobs has been falling nationally for two years, in Cincinnati it has been growing. In August, manufacturing here posted its seventh consecutive gain in jobs, up 1,400 from a year earlier.

        That manufacturing is strong here “certainly bodes well,” said Ms. Koropeckyj. “The mix of what's made in Cincinnati is less vulnerable to softening of demand for durable goods. It's not as dependent on the steel industry, it's not as dependent on the auto industry.”

        Cincinnati Belting's Mr. Stahl sees a real split between “old economy” manufacturers and technology-oriented “new economy” companies. “This high-tech economy, it's just cooking,” he said, adding his strongest growth is in selling factory automation equipment.

        On the other hand, he said “some of these traditional old-economy businesses, they're growing but they're only growing at 2 or 3 percent. Historically they grew at 10-15 percent.”

        As for 2001, economists expect slower growth.

        Today kicks off The Enquirer's Cincinnati Economic Watch, a monthly snapshot of the Tristate economy based on indicators compiled by staff writer John Byczkowski. Email comments to him at

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