Fear looms of return to the bad old days

22 June 2001

Is New England facing a recession? That prospect appears ever more likely, and if so, it will pose challenges for area leaders that many have never before had to face.

For some time now, everyone from the Federal Reserve Bank down to individual economists has been promising that the economic slowdown - if any - would be short. Sure the stock markets have collapsed, but that was all rationalized away as mere paper losses. The economy as a whole, we've been assured, is still robust.

In fact, the Federal Reserve Bank's consensus forecast is that the national economy will turn around in the second half of this year. That begins just nine days from now.

Don't hold your breath. There are signs that instead of getting better, things may get worse.

In a speech this week before the Boston Municipal Research Bureau, the Boston Fed's chief Cathy Minehan painted a gloomy picture of New England's economy. To be sure, her closing sentences followed the party line, expressing confidence in the Fed's prediction that a recovery would happen soon. But her words for the previous 45 minutes were far less sanguine.

The curious thing about the slowdown we now think we're in is that conventional measures of economic well-being still seem good. Employment is strong, restaurants full, stores busy and families are still going on vacation.

But dig underneath the figures, talk to ordinary people and businesses, and you see the reason for concern.

Eight times a year the Federal Reserve issues an economic report called the Beige Book (oh-so-cleverly named after the color of its cover). Unlike most statistic-laden economic documents, the Beige Book is more anecdotal. It consists of reports on conversations with a wide array of businesses to find out what's going on in their world.

And, as this month's issue notes, things in New England are "decidedly more pessimistic."

Local real estate markets are beginning to soften. Where once downtown buildings had no room to spare, now they are looking to sublease unoccupied offices. Newspapers and online job services have seen the number of job listings from companies fall precipitously. Retail, manufacturing and high-tech businesses all find themselves under financial pressure: sales are slowing and profits are hard to maintain.

A few months ago, as the economy began to tighten, one almost could detect a weird sense of glee. Some cheered that the dot-com millionaires were finally getting their comeuppance. And it was nice that plumbers and electricians were now returning customers' calls.

But eventually silver linings such as these get overwhelmed by the truly ugly aspect of a recession: People start losing jobs. Even now, employers no longer aggressively solicit students coming out of colleges and business schools. Instead it's the students who are aggressively looking, and too frequently left disappointed. Those in the work force cling more tenaciously to what they have. Layoffs have hit hard in some areas - just ask anyone who used to run a Web site - and even if a new job is found, it's often for less pay.

Since the economic boom began in 1990, Boston in particular has prospered mightily. Crime dropped, people moved into the city and, most important, a city that frequently divided along racial or ethnic lines was remarkably at peace with itself.

Indeed, the boom has lasted so long that many of Boston's political leaders have never known anything else. The problems they now address are those of success, not failure. Consider, for instance, this year's two hottest public policy issues: development and housing.

A surfeit of development proposals has sparked squabbles over where, how big and who gets what. And middle-class housing costs over the last several years have risen quickly in response to strong demand from those who want to move into the city (or want bigger places in the city) and can pay for it.

Both are issues of wealth, brought about by the strong economy. And if a recession hits? It's hard to fight about development when there are no more developments on the table. And as demand for housing lessens - and there are signs that it's already begun to drop - housing costs will drop as well.

Neither would be good news. Problems of success are manageable. Problems of failure are vastly more difficult.

Recessions can have a corrosive effect on a society. Demands for social services and other assistance grow. Budgets, particularly for non-essential services, are strapped. Crime increases and, particularly worrisome for Boston, resentment grows. People look for someone to blame, and often the targets of their ire are those from other countries or those of other ethnicities or races.

Perhaps we'll be lucky and the economy will bounce back. Perhaps not. The last 11 years have been the good old days. The fear is that the bad old days are about to begin.