Area professionals forecast sunnier economic skies

It's the war, stupid.

That's the most ominous specter that's looming over the nation's economy -- like a money-hungry jaguar ready to pounce -- as the country stands on the brink of an attack against Iraq.

And it's begun already. The Dow Jones industrial average dropped below 7,600 last week, closing at a five-month low as investors continued to react to negative economic news and uncertainty about war.

February also froze out retail sales as winter storms delivered a major blow to the country's retailers, where business has already suffered amid the weak economy and -- yep, that again -- war worries.

Sounds glum, doesn't it? Don't fret. The economy is destined to get better, according to our nine-person panel of area businessmen and women and other experts who recently had the opportunity to make comments and predictions about the economy, retail prices, the stock market and other issues.

They also opined about how the country -- and our little slice of it -- will weather a war that looks more and more like a certainty. Our panelists have expertise in different areas, such as small business, banking, economics and city government.

Each, as you will soon read, brought their own perspective. What follows is an edited version, where quotes were not altered but only shortened for space considerations.

Southeast Missourian: We're still in a recession, gas prices are higher than they've been in a while and the president is looking at a big tax-cut package. Add to that merry mix the probability of war. How will Iraq make a difference to the economy?

Bruce Domazlicky: One thing that has been overlooked is the federal budget, which is forecast at more than a $300 billion deficit. That's without war expenditures factored in. That could increase the budget by another $100 billion. That could put pressure on interest rates, which would affect anybody who wants to borrow money for any reason -- buying a car, financing a home, financing a new business.

Mitch Robinson: I think the thing is the uncertainty. That's what's got a whole lot of people not willing to go out and spend. Companies are not willing to make investments until they can see in the next six to nine months where we're headed.

John Mehner: I agree with that. But to me, it's more than Iraq. We still have a war against terrorism going on. Look at what the whole terrorism thing has meant to the travel industry. If it's just Iraq, the situation wouldn't be as bad for them.

Kathy Swan: I have a different sort of take. I asked an investment adviser a couple of weeks ago, and he thought it would improve. It certainly would improve for those who produce products to help the war effort. Motorola really got a boost in World War II with their two-way radios.

Laura McGinty: War has not necessarily been a deterrent to economic growth. Even though many of us are trying to maintain a positive outlook for our economic well-being and go about our lives business as usual, impending war can't help but make us a bit tentative and on-edge, preoccupied and waiting for the next shoe to drop.

Jim Roach: I think Jackson will mirror what happens nationally. If we go to war, though, that takes away the uncertainty. People right now are in a holding pattern. Once we know what's going to happen, people will start investing again.

Q: What about retail prices? Are costs going to go up for any of these reasons, and if they do, doesn't that mean consumers won't consume?

Jay Knudtson: We're terribly excited from a city standpoint in that the bleeding has stopped. We recently saw that there was a quarter's worth of a trend that retail sales have at least stopped flat-lining and started to increase. People are doing their best to kick-start the economy by going out there and spending a little money.

Tom Kiefner: I would not expect them to, any more than the normal inflationary adjustment. The cost of living will go up, but I don't think it will go up appreciably more than it did last years.

Willie Redmond: Surprisingly enough, inflation has stayed down. That seems to be somewhat under control. Gas prices and oil prices are going to take a hit, no question. But overall, it seems gas prices and oil prices are under control.

Swan: I think it's probably more about the economic stimulus package [which relies on tax cuts to reverse the nation's growing unemployment rate and restore investor confidence]. If it passes, it puts more dollars into the economy. That would make small business reluctant to raise prices. We're cautious at times like these anyway.

Q: We hear a lot of talk about the area being insulated from national economic trends. Tell me ways that it isn't insulated.

Robinson: People in the stock market here feel every day the effects of what's happening nationally. That's obviously an outside impact. Companies that sell outside the region obviously feel that too.

Domazlicky: We're seeing a little bit of that with the state budget, which has been bad for the last couple of years because of the economy. With the budget shortfalls, we're seeing funding for the university down, some social services are down. K through 12 [kindergarten through 12th grade] is looking to get cut finally. You have less state spending. Those sorts of things.

Knudtson: I've always felt Cape Girardeau was extremely vulnerable from a medical services area. Monumental decisions are made, like in the medical malpractice area, for example, that could have a huge impact.

McGinty: How fortunate we are, for a majority of us in this area to be somewhat insulated from the extremes of the economic picture. But, being the breadbasket of the world, if farmers are having a bad year, it affects us all. Our retirement packages, IRAs and health plans, are all out of the insulation of living in Southeast Missouri.

Q: Want to make predictions about the stock market for the rest of '03?

Redmond: It comes back to the war. Investors are not sure about what's going to happen with retail stocks and tech stocks and they're waiting to see what's going on. The war, which I hope doesn't happen, certainly could have a negative effect on the stock market.

Roach: I see people getting back in the market and reinvesting once the uncertainty of the war is over. I think this summer, you're going to see the stock market back up. Maybe it won't be setting any records, but it will be up.

Knudtson: I make a prediction, that just like in previous wars, the American public will once again become galvanized and rally behind our president and the troops. That will include spending and that will boost the economic significantly.

Domazlicky: Once war is resolved, I think we'll see some recovery.

McGinty: I think it's going to level off after the decision regarding the war is finally made. We need to get in and get out fast.

Q: Downtown Cape Girardeau is reverberating with talk of a renaissance thanks to the new bridge, the River Campus, the renovated Marquette Hotel and the new federal courthouse. Let me be a skeptic. Why will those things draw people to a downtown with the same business atmosphere?

McGinty [the downtown representative in the panel]: I love the whole of Cape Girardeau, from its east to its west. But I am so thankful and so excited about the enthusiasm for our community roots. When a downtown area in a community is healthy, so is the rest of the town. Investment activity will create more awareness for the potential for other investors, which could potentially increase the retail mix, which is so much needed.

Mehner: Downtown is important, in that it is the older sector of Cape and where it all began. The improvements are important, but here's the deal: The downtown is not going to be our retail center. Those days are over. What it will be is an excellent mixed-use historic area, with residences, professionals, retail, commercial and then some historic aspects.

Kiefner: It certainly won't hurt the local economy, and it looks like it will bring in some tourist dollars.

Robinson: I think those changes will have people seeing the downtown as a different area. Those positive changes will help the downtown merchants feel more positive about themselves.

Q: Several new banks have come into Cape Girardeau and Jackson over the past year. They are tending to be smaller banks, like the one Mayor Knudtson just joined. Is the banking climate changing?

Knudtson: The mega-banks have established a delivery system that allows them to be consistent internationally. But I believe the resurgence of small community banks is because they have identified a kink in the armor. They think they can apply a system that works in St. Louis to Cape Girardeau.

Kiefner: The small business owner has gotten away from wanting to be a number. We want to do business with somebody face to face.

Roach: It does seem like it's changing a bit. Banks were becoming consolidated, bigger and bigger. Less customer-oriented and more profit-driven. I don't know what changed, but there is a focus on smaller, more intimate banks.

Mehner: We have a great system called capitalism. If there is a need for smaller banks, the market will determine it. The market will decide who does well and who doesn't. It's really as simple as that.

Any predictions about which businesses will struggle this year?

Swan: The travel industry is still going to struggle quite a bit. Not only due to terrorism, though. People don't want to spend money to travel.

McGinty: Businesses that are undercapitalized will struggle. I'd like to think that in a small business environment, those who are creative, trying to fill a niche, work hard and provide excellent service without expecting to grow too fast, will stay steady and secure.

Redmond: The retail industry could certainly take a hit. Again, because of investments being down and consumer confidence being down. One report I read recently said it's lower than it's been since 1993.

Robinson: It sounds flip, but the answer is the ones that are poorly capitalized and poorly managed. Even in times like this, it goes back to solid management. Those that are watching their costs and are reacting to the changing climate are going to be fine. Those that don't won't do so well.

Final predictions on the economy anyone?

McGinty: We will be talking about a recovery, as long as the war doesn't drag on too long.

Domazlicky: I think once we get through the war, assuming we do have one, we'll see some recovery. I predict the growth rate will be an annual rate of 3 percent or so.

Robinson: I feel the positive changes that are going on in Washington and Jefferson City will help lead us out of recession.

Mehner: We need to keep in mind that war doesn't necessarily mean recession. Success of any kind will bolster pride, confidence, spending, all the things that make up a good economy. I'm not saying war is a good thing, but if you're asking me to predict, it's a factor.

Kiefner: I'm an optimist. I think it's going to get better. The Iraq thing has us in a bit of a stranglehold and snake-bitten. But once it's resolved, we'll get back to the norm.

Knudtson: I don't know whether we'll be saying the recession is over, but the conversation will have a much brighter tone to it.

Redmond: I say it depends on one thing: How short the war is.

Roach: By summer, we'll be in a recovery. That's what we're all hoping anyway.

smoyers@semissourian.com

335-6611, extension 137

OUR PANEL

Bruce Domazlicky: Professor of economics since 1986 and director of Center for Economic and Business Research.

Mitch Robinson: Executive director of the Cape Girardeau Area Industrial Recruitment Association. Has held the position for nearly 10 years.

John Mehner: President and CEO of the Cape Girardeau Chamber of Commerce. He has had that job for almost 10 years.

Kathy Swan: Co-owner of JCS/Tel-Link, a wireless communication business that has been in Cape Girardeau since 1959.

Laura McGinty: Co-owner of C.P. McGinty's Jewelers, a long-time downtown business in Cape Girardeau.

Jim Roach: Jackson's city administrator. He has held the job for two years. Before that, he was the public works director for four years.

Jay Knudtson: Mayor of Cape Girardeau and local banker for 13 years.

Tom Kiefner: Co-owner of Kiefner Bros. Inc., a construction company that has been in Cape Girardeau for 19 years.

Willie Redmond: Assistant professor of economics for five years.