Article published October 31, 2008
SIGNS THAT U.S. IS IN RECESSION INTENSIFY
In Toledo talk, economist says question is downturn's duration
By LARRY P. VELLEQUETTE
BLADE BUSINESS WRITER
A respected economist who specializes in tracking trends in the Midwest told local business leaders yesterday that the nation's economy is definitely in recession, but it's not likely to last as long as most people might think.
Ken Mayland, who was chief economist for the former KeyCorp (new KeyBank) before venturing out on his own to form ClearView Economics LLC, laid out the fundamentals yesterday at an economic forecast breakfast sponsored by his former employer.
"The economy has entered a recession," Mr. Mayland declared after detailing how weekly initial unemployment claims have shot up to an average of 483,000, when 400,000 is a sign of tremendous economic stress.
"Now, the question becomes: How long and how deep?"
In an hour-long breakfast speech at Central Park West, Mr. Mayland said he believes the current recession will remain at least through the spring, but said much of the trouble remains concentrated within the financial sector.
"I always tell people that crises always end," Mr. Mayland said. "When you're in trouble, it's hard to see the path out of the trouble. But that path is there."He said it is difficult to see how widespread the recession will be, and that there are indications that although inflation should not be a problem in coming months, certain sectors such as nonresidential construction may decline.
National unemployment will rise to "at least 7.5 percent" from the current 6.1 percent, he said, and consumer spending will fall, despite price decreases for gasoline.
"When recessions start, they take on a life of their own," Mr. Mayland said. "These are truly extraordinary times. Hopefully, it's once-in-a-lifetime times for us."
Mr. Mayland detailed the depths of the financial markets' recent troubles, noting that for a short time in September, so much money was fleeing from the market and into the safety of Treasury bills that the interest rates on those instruments fell to zero percent.
"There is no mattress big enough for the amount of money that was being taken out of the market at that point," the economist said.
Mr. Mayland identified a number of familiar culprits in the recent credit crisis - politicians, borrowers, mortgage bankers, credit rating agencies - and an unfamiliar one: China.
By refusing to float its currency and by running up a huge trading surplus with the United States, China used its financial reserves to "absorb almost all the new Treasury securities," driving rates down so low that usual buyers of those securities sought higher yields elsewhere. They ended up on Wall Street, he said, buying complicated securitized mortgage instruments, Mr. Mayland said.
As for the wave of foreclosures that rocked Wall Street, Mr. Mayland pointed out that just four states, California, Florida, Nevada, and Arizona, account for more than half of foreclosure filings, and that California accounts for one of every three foreclosures nationwide.
He said he believes that the economic bailout measures now being undertaken "will work," but lamented that the plans weren't better thought out.
"You like to think there was some game plan [as to how to respond] as the problems unfolded," Mr. Mayland said.
"But there was no game plan. They're making it up as they go along."
Mr. Mayland, recognized last year as one of the most accurate economic forecasters between 2003 and 2006, said after his speech that retrenchment within the automobile industry will continue for some time.
Contact Larry P. Vellequette at:
lvellequette@theblade.com
or 419-724-6091.
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