BY ANDREA HOLECEK, Times of Northwest Indiana
holecek@nwitimes.com
From restaurants to home builders to banks, almost every sector of the nation's economy is reporting distressing financial news.
There are some signs that Northwest Indiana is weathering the current financial crisis better than in other places. Its steel industry is healthy; commercial and industrial construction is booming; and its real estate market isn't falling into a wide abyss of foreclosures under way in the Sun Belt states.
Yet the region hasn't completely escaped.
Cabela's has cut jobs. The Chicago Ford Assembly Plant is dropping one shift and an unknown number of workers. East Chicago's Union Tank Car has downsized more than 200 job. Restaurant visits are dropping as menu prices climb to meet soaring costs, including energy, eggs, milk, bread and meat.
Housing starts nearly have stopped, and the sale of existing homes has slipped. Retail sales are slowing as consumers are beginning to watch their paychecks flow into their gas tanks.
Bankruptcies are on the rise, homes are losing value, residential foreclosures are skyrocketing. Commercial credit is drying up and personal debt is at an all-time high. Only industrial, commercial and public works construction is thriving, but for how long?
The economic cycle of peaks and troughs is slipping to the downside, and recession -- and talk of it -- looms in every financial sector.
Some contend the country is in, or will be in, a recession soon. Others, including investor and billionaire Warren Buffet, former treasury secretary Larry Summers, Nucor CEO Daniel DiMicco, Harris Bank Chief Investment Officer Jack Ablin, and many Wall Street economists, say a recession is reality.
"All arrows point back to housing ... In 2006, prices were about 15 percent too high. Too many people were able to buy homes who shouldn't have,' Ablin said during an economic outlook speech in Hobart Thursday.
Ablin said the recession will last through the second quarter this year but should start declining in the third quarter and be over in the fourth.
Although Indiana University Northwest associate professor of economics Donald Coffin contends one never really knows if the country is in recession until it's over, he believes a recession has hit.
"I do," he said Wednesday. "We've had two straight months of declines in payroll employment, and there's still obviously a lot of turmoil in the financial sector. The Fed has been cutting the interest rates they control, but banks are not particularly willing to expand their lending.
"There's a lot of caution in the financial sector and probably for good reason," Coffin said. "If you look at things like the auto industry cutting back production and its production plans, there's a lot of evidence that we we'll see another month or two of declines in employment, so in my mind the recession has begun."
Consumer spending, which was driven by people using their home equity as a source for consumption, has dropped because of slipping housing values, Coffin said.
"They came to an abrupt halt when housing values started to fall," he said. "That put downward pressure on consumption spending. Retail sales have been weak for past three or four months. If stores aren't selling, they're not buying goods from manufacturers."
Crown Point is among communities affected by the building stall. Single-family residential construction has dropped more than 50 percent between the first two months of 2007 and first two months of 2008, statistics show. Curt Graves, the city's director of community development, said he hopes that the slowdown is a result of the increase in snow this year over previous years.
"Let's just hope it's the weather," Graves said. "It's not most conducive time to be digging holes."
Business conditions for industries closely connected to the housing market, as well as consumer purchases, particularly durable goods purchases -- wood products, furniture, nonmetalic minerals, textile products, and motor vehicles -- will deteriorate in 2008, said David Huether, chief economist for the National Association of Manufacturing.
More jobs and better-paying jobs, are needed to restore household fortunes.
"Many people have larger debts than their incomes can service," Coffin said. "Ultimately, we've got to get enough confidence into the financial markets so they become more willing to lend and we have to get household balance sheets in line."
More good-paying jobs, less debt and rising housing prices all would help, he said. Plus, the government rebate checks coming in May will be a major factor in moving the economy forward, Coffin said.
The federal government's response to recessionary fears will put millions of dollars into consumers hands and into the economy, he said
"My guess is that by the middle of the year, things will start picking up," he said. "We're in a moderate downturn that won't last too long -- just like the ones in the past 20 years."
Times Staff Writer Marisa Kwiatkowski contributed to this report.