{"id":693,"date":"2011-08-12T12:35:37","date_gmt":"2011-08-12T16:35:37","guid":{"rendered":"http:\/\/stateimpact.npr.org\/new-hampshire\/?p=693"},"modified":"2011-09-12T10:35:56","modified_gmt":"2011-09-12T14:35:56","slug":"how-stock-market-jitters-treasury-bonds-and-fed-interest-rates-affect-the-states-economy","status":"publish","type":"post","link":"https:\/\/stateimpact.npr.org\/new-hampshire\/2011\/08\/12\/how-stock-market-jitters-treasury-bonds-and-fed-interest-rates-affect-the-states-economy\/","title":{"rendered":"How Stock Market Jitters, Treasury Bonds, And Fed Interest Rates Affect The State’s Economy"},"content":{"rendered":"

It\u2019s been a crazy couple of weeks, with financial tremors continuing to shake-up the jagged economic landscape. \u00a0National GDP barely went up<\/a>, Congress made an 11th hour deal<\/a> to raise the debt ceiling, S&P downgraded the US credit rating <\/a>anyway, and the Federal Reserve decided to hold interest rates steady<\/a>\u2014at virtually nothing\u2014for the next two years.<\/p>\n

And that was just the beginning.<\/p>\n

But what does all of this mean for the New Hampshire economy? \u00a0It\u2019s hard to say. \u00a0With current events in mind, we talked with local economists and professional associations to get a perspective on what, exactly, New Hampshire\u2019s economic landscape looks like now, and how it could change.<\/p>\n

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Spencer Platt \/ Getty Images<\/p>

Macroeconomic forces like Wall Street machinations and Federal Reserve decisions have a direct, although not always obvious, effect on New Hampshire's economy.<\/p><\/div>\n

Finance<\/strong><\/p>\n

So what\u2019s the story with New Hampshire banking<\/a>? \u00a0\u201cIt\u2019s actually fairly good,\u201d NH Bankers Association <\/a>President Jerry Little says. \u00a0\u201cThe [state\u2019s] banking industry was extremely cautious in the late 2000\u2019s\u2026and has worked hard to protect the integrity of the institution. \u00a0At the same time, they\u2019re well-capitalized and highly liquid. \u00a0There are plenty of deposits on hand and sources of funds to be making loans.\u201d<\/p>\n

But make no mistake, Little says, it\u2019s still not a rosy picture, \u201cThe big problems they have are finding good loans to make, loans that will be highly likely to be repaid. \u00a0And then dealing with general uncertainty in the market \u2026 so they\u2019re a little leery about making long-term commitments.\u201d<\/p>\n

As for the Fed deciding this week to hold the interest rate steady, Little says it\u2019s a mixed bag for the banking industry. \u00a0On 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, \u201cBut\u2026consumers are getting a little bit frustrated with the low rate for return that they\u2019re getting on their deposit accounts\u2026Banks can\u2019t 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\u2026because 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. \u00a0They\u2019re 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\u2019re then left with the problem of how to put those monies to work.\u201d<\/p>\n

Small Business And Exports<\/strong><\/p>\n

In New Hampshire, a respectable number of smaller firms <\/a>are exporters. \u00a0As Little says, \u201cA lot of New Hampshire businesses now do have international exposure. \u00a0They\u2019re active in markets around the world, and it creates very peculiar risks for them.\u201d<\/p>\n

And here, as in banking, the picture is mixed.<\/p>\n

\u201cOne of the bright spots [nationally] over the last year and a half has been the export sector. \u00a0And one of the reasons for that is the price of the dollar has been drifting down,\u201d said Michael Goldberg, \u00a0a University of New Hampshire <\/a>economics professor. \u00a0\u201c The value of the dollar over the past year and a half has actually come down about 15 percent. \u00a0And 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.\u201d<\/p>\n

That\u2019s been especially true for New Hampshire in the recent past. \u00a0According to statistics from the New Hampshire International Trade Resource Center, the state’s exports went up by 44.1 percent <\/a>during the first quarter of 2010 compared to the year before. \u00a0That was the largest year-over-year growth in the entire Northeast<\/a>.<\/p>\n

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Attila Kisbenedek \/ AFP\/Getty Images<\/p>

The lower the dollar goes, the better news it is for New Hampshire exporters. But with more investors moving their money into Treasury bonds, the dollar could gain in value, taking some of the steam out of New Hampshire's export sector.<\/p><\/div>\n

Dennis Delay, an economist with the New Hampshire Center for Public Policy Studies<\/a>, describes the state\u2019s export economy this way, \u201cNew Hampshire doesn\u2019t make the planes and the trains and the automobiles. \u00a0We make all the stuff that goes into them. \u00a0We\u2019re a component manufacturer<\/a> to the rest of the world.\u201d \u00a0That\u2019s why, he says, exports went down in the months after the Japanese tsunami; major car manufacturers shut down, and weren\u2019t buying parts from their New Hampshire suppliers. \u00a0And, Delay says, that\u2019s why what world markets are of particular economic interest to the state now.<\/p>\n

\u201cI\u2019m more concerned\u2026[about] what\u2019s going to happen to NH in terms of what\u2019s\u2026happening in Europe, what\u2019s happening in the Asian economies. \u00a0And if those slow down, and it\u2019s starting to look like they are, that\u2019s probably going to have a bigger impact on NH exports than what happens to the dollar per se.\u201d<\/p>\n

In other words, if the European and Asian markets truly tank, there won\u2019t be much of a demand for the New Hampshire components that go into their cars, factory equipment, or luxury electronic goods.<\/p>\n

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. \u00a0And that\u2019s never good news for the export sector.<\/p>\n

Housing<\/strong><\/p>\n

All over the country, big questions remain about whether the housing market has actually bottomed-out yet. \u00a0And that\u2019s definitely affected New Hampshire\u2019s market. \u00a0A major player in the state\u2019s real estate game is the New Hampshire Housing Finance Authority<\/a>. \u00a0Among 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.<\/p>\n

Communications Director Jane Law says the boom-time pricing has gotten back down to more reasonable levels, \u201cWe\u2019re now probably about the same price level as where we were in 2003.\u201d \u00a0But, \u201cduring the housing boom, we would do, and this is just us, 12- 1,400 mortgages a year. \u00a0And during these last several years, we\u2019re about half that level.\u201d<\/p>\n

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(V)oluntary (A)mputation \/ Flickr<\/p>

Although there are plenty of houses up for grabs, it's still tough to find people who are able--or willing--to become homeowners.<\/p><\/div>\n

Law says there are a lot of things going on with the macroeconomic landscape that\u2019s making the housing market tough–for both buyers and sellers. \u00a0But she lays most of it at the door of that squishy idea of \u201cconsumer confidence.\u201d \u00a0This is the part of economics that\u2019s basically a head game. \u00a0Most people don\u2019t fully understand the nitty-gritty details of how macroeconomic forces shape their lives. \u00a0But when US credit gets downgraded and stocks start tumbling, they know it\u2019s not good, they get scared, and they hold onto their cash. \u00a0Banks (which do understand macroeconomics) do the same thing, because they don\u2019t like uncertainty, either.<\/p>\n

So, Law says, \u201cThe 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.\u201d \u00a0But, \u201cunlike\u2026before the housing market crashed, it\u2019s much more difficult to get a mortgage than it used to be.<\/p>\n

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. \u201cWe have not yet seen\u2026cost 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.\u201d \u00a0While there\u2019s a good stock of new and foreclosed homes on the market, at this point, it doesn\u2019t look like it\u2019s going anywhere. \u00a0Meanwhile, 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.<\/p>\n

Government<\/strong><\/p>\n

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. \u00a0Or, more accurately, its coffers.<\/p>\n

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Art Poskanzer \/ Flickr<\/p>

Eventually, what's happening on Wall Street could have an even longer-lasting effect on the state's general fund.<\/p><\/div>\n

Dan Barrick is Deputy Director of the New Hampshire Center for Public Policy Studies. \u00a0He describes the overall effect this way: \u201cAny factors that contribute to wider uncertainty in the market\u2026will probably have downward pressure on business\u2019 willingness to expand and hire, on personal consumer buying, people\u2019s desire to go buy big purchases, and people\u2019s interest in getting back into the housing market\u2026.And so much of New Hampshire\u2019s tax base is reliant on a lot of those things.\u201d<\/p>\n

The state\u2019s business tax revenue could also be shaky, depending on corporate spending and profits. \u201cThe Business Enterprise Tax is primarily a tax on wages that businesses pay. \u00a0It\u2019s also a tax on dividends and interest, so if companies don\u2019t hire people, that impacts that tax, \u201c said Delay. \u201cAnd probably\u2026most importantly at the local level, the property tax is the main source that local governments and school districts use to raise money\u2026If property markets aren\u2019t expanding\u2026that\u2026affects the ability to fund not only municipal services, but also schools.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

It\u2019s been a crazy couple of weeks, with financial tremors continuing to shake-up the jagged economic landscape. \u00a0National 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\u2014at virtually nothing\u2014for the next two […]<\/p>\n","protected":false},"author":28,"featured_media":1596,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[51],"tags":[505,35,107,114,121,109,106,90,95,517,108,116,527,503,98,516,502,364,124,113],"acf":[],"_links":{"self":[{"href":"https:\/\/stateimpact.npr.org\/new-hampshire\/wp-json\/wp\/v2\/posts\/693"}],"collection":[{"href":"https:\/\/stateimpact.npr.org\/new-hampshire\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/stateimpact.npr.org\/new-hampshire\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/stateimpact.npr.org\/new-hampshire\/wp-json\/wp\/v2\/users\/28"}],"replies":[{"embeddable":true,"href":"https:\/\/stateimpact.npr.org\/new-hampshire\/wp-json\/wp\/v2\/comments?post=693"}],"version-history":[{"count":15,"href":"https:\/\/stateimpact.npr.org\/new-hampshire\/wp-json\/wp\/v2\/posts\/693\/revisions"}],"predecessor-version":[{"id":1598,"href":"https:\/\/stateimpact.npr.org\/new-hampshire\/wp-json\/wp\/v2\/posts\/693\/revisions\/1598"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/stateimpact.npr.org\/new-hampshire\/wp-json\/wp\/v2\/media\/1596"}],"wp:attachment":[{"href":"https:\/\/stateimpact.npr.org\/new-hampshire\/wp-json\/wp\/v2\/media?parent=693"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/stateimpact.npr.org\/new-hampshire\/wp-json\/wp\/v2\/categories?post=693"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/stateimpact.npr.org\/new-hampshire\/wp-json\/wp\/v2\/tags?post=693"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}