It’s been a crazy couple of weeks, with financial tremors continuing to shake-up the jagged economic landscape. National GDP barely went up, Congress made an 11th hour deal to raise the debt ceiling, S&P downgraded the US credit rating anyway, and the Federal Reserve decided to hold interest rates steady—at virtually nothing—for the next two years.
And that was just the beginning.
But what does all of this mean for the New Hampshire economy? It’s hard to say. With current events in mind, we talked with local economists and professional associations to get a perspective on what, exactly, New Hampshire’s economic landscape looks like now, and how it could change.
So what’s the story with New Hampshire banking? “It’s actually fairly good,” NH Bankers Association President Jerry Little says. “The [state’s] banking industry was extremely cautious in the late 2000’s…and has worked hard to protect the integrity of the institution. At the same time, they’re well-capitalized and highly liquid. There are plenty of deposits on hand and sources of funds to be making loans.”
But make no mistake, Little says, it’s still not a rosy picture, “The big problems they have are finding good loans to make, loans that will be highly likely to be repaid. And then dealing with general uncertainty in the market … so they’re a little leery about making long-term commitments.”
As for the Fed deciding this week to hold the interest rate steady, Little says it’s a mixed bag for the banking industry. On the one hand, FDIC-insured accounts are just as secure as Treasury bonds, so he expects at least a modest uptick in small investors moving their money from stocks back into savings, “But…consumers are getting a little bit frustrated with the low rate for return that they’re getting on their deposit accounts…Banks can’t increase those rates if the Fed is holding that rate down near zero. Then, that leaves us with the interesting problem of needing to find someplace to put those deposits to work, and…because of a great deal of uncertainty in both the global financial situation and the economy back here in the United States, a lot of businesses are standing still. They’re choosing not to expand, do new products, new projects, until they have a better idea of which direction the economy is taking. So while I am hearing that there is a net inflow of deposits into FDIC-insured banks, they’re then left with the problem of how to put those monies to work.”
Small Business And Exports
In New Hampshire, a respectable number of smaller firms are exporters. As Little says, “A lot of New Hampshire businesses now do have international exposure. They’re active in markets around the world, and it creates very peculiar risks for them.”
And here, as in banking, the picture is mixed.
“One of the bright spots [nationally] over the last year and a half has been the export sector. And one of the reasons for that is the price of the dollar has been drifting down,” said Michael Goldberg, a University of New Hampshire economics professor. “ The value of the dollar over the past year and a half has actually come down about 15 percent. And really, one of the main reasons why the US economy has actually grown at all over that period has been that the rest of the world has been buying up more of our goods and services.”
That’s been especially true for New Hampshire in the recent past. According to statistics from the New Hampshire International Trade Resource Center, the state’s exports went up by 44.1 percent during the first quarter of 2010 compared to the year before. That was the largest year-over-year growth in the entire Northeast.
Dennis Delay, an economist with the New Hampshire Center for Public Policy Studies, describes the state’s export economy this way, “New Hampshire doesn’t make the planes and the trains and the automobiles. We make all the stuff that goes into them. We’re a component manufacturer to the rest of the world.” That’s why, he says, exports went down in the months after the Japanese tsunami; major car manufacturers shut down, and weren’t buying parts from their New Hampshire suppliers. And, Delay says, that’s why what world markets are of particular economic interest to the state now.
“I’m more concerned…[about] what’s going to happen to NH in terms of what’s…happening in Europe, what’s happening in the Asian economies. And if those slow down, and it’s starting to look like they are, that’s probably going to have a bigger impact on NH exports than what happens to the dollar per se.”
In other words, if the European and Asian markets truly tank, there won’t be much of a demand for the New Hampshire components that go into their cars, factory equipment, or luxury electronic goods.
Incidentally, both Goldberg and Delay agree that if investors continue to seek shelter by buying US debt in the form of Treasury bonds, the dollar will become more secure, and continue to rise in value. And that’s never good news for the export sector.
All over the country, big questions remain about whether the housing market has actually bottomed-out yet. And that’s definitely affected New Hampshire’s market. A major player in the state’s real estate game is the New Hampshire Housing Finance Authority. Among other things it, helps low- and middle-income people get into affordable housing, whether that be through issuing home mortgages or tracking down reasonable rentals.
Communications Director Jane Law says the boom-time pricing has gotten back down to more reasonable levels, “We’re now probably about the same price level as where we were in 2003.” But, “during the housing boom, we would do, and this is just us, 12- 1,400 mortgages a year. And during these last several years, we’re about half that level.”
Law says there are a lot of things going on with the macroeconomic landscape that’s making the housing market tough–for both buyers and sellers. But she lays most of it at the door of that squishy idea of “consumer confidence.” This is the part of economics that’s basically a head game. Most people don’t fully understand the nitty-gritty details of how macroeconomic forces shape their lives. But when US credit gets downgraded and stocks start tumbling, they know it’s not good, they get scared, and they hold onto their cash. Banks (which do understand macroeconomics) do the same thing, because they don’t like uncertainty, either.
So, Law says, “The fact that the interest rates are being held down [by the Fed] is a good thing for someone who wants to get a new mortgage.” But, “unlike…before the housing market crashed, it’s much more difficult to get a mortgage than it used to be.
Meanwhile, she says foreclosures and housing market jitters have driven more people to rent their homes, making it harder for renters to find something they can afford, which could be more of a problem in the future. “We have not yet seen…cost increases, but seeing the curve for the vacancies going down, we would expect that, if that continues, seeing some increase in rental costs in future years.” While there’s a good stock of new and foreclosed homes on the market, at this point, it doesn’t look like it’s going anywhere. Meanwhile, Law says a lack of new rental construction could create even more problems down the road for renters needing a good deal on their monthly payments.
Ultimately, whether New Hampshire investors see good dividends, businesses maintain their healthy export economy, and the Housing Finance Authority can get less-than-wealthy residents the deed to a house affects the state government. Or, more accurately, its coffers.
Dan Barrick is Deputy Director of the New Hampshire Center for Public Policy Studies. He describes the overall effect this way: “Any factors that contribute to wider uncertainty in the market…will probably have downward pressure on business’ willingness to expand and hire, on personal consumer buying, people’s desire to go buy big purchases, and people’s interest in getting back into the housing market….And so much of New Hampshire’s tax base is reliant on a lot of those things.”
The state’s business tax revenue could also be shaky, depending on corporate spending and profits. “The Business Enterprise Tax is primarily a tax on wages that businesses pay. It’s also a tax on dividends and interest, so if companies don’t hire people, that impacts that tax, “ said Delay. “And probably…most importantly at the local level, the property tax is the main source that local governments and school districts use to raise money…If property markets aren’t expanding…that…affects the ability to fund not only municipal services, but also schools.”