Economist advises on crisis, offers signs to spot for end

By Don Shilling

This recession will be worse than the last two but won’t be horrible, a speaker says.

CANFIELD — Financial crises always end, and so will this one, an Ohio economist says.

The key is to not lose perspective and give up hope or get out of the stock market in the middle of the crisis, Ken Maryland said to a group of KeyBank customers Thursday at Tippecanoe Country Club.

Crises appear every once in a while, but policymakers eventually figure out a way to fix them, said Maryland, who is the president of Clear View Economics in suburban Cleveland. He added, however, that policymakers don’t know what will repair the current problems in financial and credit markets.

“They are just playing it by ear. They are throwing stuff against the wall to see what works,” he said.

Steps taken include the $700 billion bailout plan for financial institutions, the lowering of interest rates and the placing of the Fannie Mae and Freddie Mac mortgage companies into receivership.

Despite the uncertainty, Maryland said he thinks these steps will work to revive the economy.

“Many people are saying this will be a severe and long recession. I’m not sure that will be the case,” he said.

The current recession will be worse than the last two slowdowns, in 2001 and 1990, but it probably will not be one of the worst recessions either, he said.

Many of the declines that are normally associated with recessions already have occurred, he said.

Housing prices, for example, have dipped so low that housing affordability rates have seen large increases recently. These rates combine home prices, mortgage rates and personal income levels.

Perhaps in the next year, consumers will be spurred to buy homes because of the price drops, he said.

Auto sales also have posted large declines this year, particularly in October. The industry had been logging about 16 million sales a year for the past several years, but the annual rate dropped to 10.6 million units in October.

Maryland said the rate going forward probably will be between 11 million and 12 million auto sales a year, which means the economy will not suffer a big shock going forward overall.

Domestic automakers, however, will not be profitable at the lower sales rates, he said. They were barely making money when sales were 16 million a year, he said.

Going forward, he advised the business people in the audience to watch for several factors that point to the end of a recession.

Initial claims for unemployment will go down when a recession is ending, he said. A good sign is when claims fall under 400,000, he said. The normal amount is 350,000. Personal savings rates also decrease at the end of a recession, he said. As consumers gain confidence, they will begin to spend instead of save, he said.

The ends of recessions also are marked by rising stock prices as investors see signs that the economy is recovering, he said.

shilling@vindy.com