'We can only hope that it gets better'

Economy weighs heavy here, even as reports see hope elsewhere

Economy weighs heavy here, even as reports see hope elsewhere

November 14, 2009|By ARNOLD S. PLATOU

Tight lending market complicates business

WASHINGTON COUNTY -- The news from the latest national survey of business lenders looks great.

"Is the recession truly over?" begins the press release from the National Association of Credit Management. "Most of the evidence says 'yes' ..."

Not yet in Washington County, however.

"I'm reading the national reports as well," said Tim Henry, president and chief executive officer of Centra Bank in Washington County. "But I also know that foreclosures are continuing at a high rate on a month-to-month basis. The Cash for Clunkers (program) appears, at least locally, to have been a shot in the arm, but now that it's over, you have not seen car sales continue at any kind of brisk pace."

And, he said, for "appraised values, we are not seeing any increase in home or commercial properties. They are still well off their highs of '06 and '07."


"I can't say we're seeing any strong -- or even weak -- signs of recovery in our area at this moment," he said.

Many companies are restructuring their operations in-house to cut costs and try to balance budgets in an economy where business still is slow, Henry and other observers said.

"I'm now seeing more existing businesses who are challenged," said Alice Growden, business consultant at the Western Maryland Small Business Development Center in Hagerstown. "It is difficult for people who want to start a business or who are in business often to get funding. I see that more now than before."

'The right direction'

Among the many gauges of the nation's economy, the survey done by the National Association of Credit Management (NACM) would seem to be no lightweight.

More than 18,000 companies are members of NACM, which is headquartered in Columbia, Md. About half of its members are in manufacturing and the others are what are called service providers -- selling cars, software and other products.

All are lenders in that they extend credit to companies or people buying their products, NACM spokeswoman Caroline Zimmerman said.

"We have everything from your small businesses to your major corporations," she said.

Every month, the association surveys its members on about 10 economic indicators, "like amounts sent to collections, and filings for bankruptcy," Zimmerman said. "We ask whether each of these is higher than a month ago, lower than or same as."

From this, an index rating is computed. A weight of 50 means the economy is stagnant, below 50 means it is shrinking and above 50 means it's growing.

Based on surveys returned in late October from more than 1,000 companies, the association's combined index for service and manufacturing rose above 50 -- to 51 -- this month for the first time in more than a year, Zimmerman said. The service sector alone moved just above 50 in September, and manufacturing followed it in October, she said.

"The significance of these findings is hard to overestimate given the kind of analysis taking place around the improved GDP (gross domestic product) numbers," NACM said in its press release.

America's latest GDP -- essentially, the market value of all of the goods and services produced -- shows the economy in the July, August and September quarter began growing again after four straight quarters of contraction.

"The dominant theme is that four factors were at work with the third quarter GDP -- the impact of the stimulus package, the 'Cash for Clunkers' program, the $8,000 new home-buyer credit and the Fed keeping interest rates low," NACM said.

"Not only has there been some expansion in terms of credit availability, but there continues to be evidence that companies are catching up on their debt," said Chris Kuehl, NACM's economic analyst. "... The numbers are still far from robust, but the trend is clearly headed in the right direction."

Increased lending

In Maryland, lending increased 8 percent in April, May and June compared to the same quarter a year ago at the 90 banks headquartered in the state, a top official said.

"I think that's a hopeful sign," said Kathleen Murphy, president and chief executive officer of the Maryland Bankers Association. Figures for the July, August and September quarter should be ready soon, she said.

Yet, that's only part of the picture.

Murphy said traditional banks such as those her association represents have become a more minor player in the nation's lending market.

"In 1960, traditional banks held 50 percent of the total credit market debt outstanding," Murphy said. "In 2007, as we went into this recession, banks held 30 percent" as independent mortgage lenders and others took larger shares.

"The important thing is that the volume of credit just sort of exploded over the last 10 years," she said. "It was $40 trillion as we went into this recession" versus about $24 trillion in 1999.

The 138 banks operating in Maryland "are continuing to lend, however, we do expect 2010 to be another difficult year for the economy," Murphy said.

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