EconSouth (Second Quarter 2009)

On Point

Taking the pulse

A year and a half into the recession, the U.S. and Southeastern economies are still working through a variety of serious economic hurdles, made stubbornly persistent by strains in the financial system.

One of the challenges we tackle in this issue of EconSouth is reporting about the stress on the banking system in general and the fallout from the housing market on Southeast banks specifically. An article written by Scott Hughes, a senior financial analyst in the Atlanta Fed's supervision and regulation division, contrasts the banking environment from the upbeat, high-growth period before 2007 with the more challenging operating environment banks face today.

Sifting through data for his story, Hughes said he was taken aback by how rapidly consumers snapped their wallets shut. "I remember an economist a few years ago telling the audience that they should never underestimate the 'hedonism' of the U.S. consumer and the capacity and willingness of lenders to enable this tendency," he said.

Since Hughes wrote his article, consumer credit fell by $15.7 billion in April from March, reflecting tightened underwriting and weak demand. "It will be interesting to see whether or not this trend proves to be a near- or long-term phenomenon," he said. "If long term, it will have substantial implications for the economy and banking."

The economic crisis has filtered into the operations of state and local governments as well. Government coffers in the Southeast have taken a hit as falling home prices and sales, reduced consumer spending, and rising unemployment translate into lower tax collections.

Staff writer Charles Davidson takes a look in this issue at the efforts of state and local governments, many bound by balanced-budget statutes, to adjust services to meet shrinking revenue. In researching his story, he saw the ripple effects of an economic downturn on governments. "Weak economic activity becomes government's problem because property, income, and sales tax revenues dry up," he said. "At the same time, however, the demand for many public services—jail cells, courtrooms, food assistance, and subsidized health care—increases. But providing those services doesn't make money; it costs money. So just when governments' revenues are shrinking, they must provide more services."

Finally, Atlanta Fed economist John Robertson and staff writer William Smith bring a national perspective to the stresses in the Southeastern economy. They write about five key factors at the core of the recession and provide an outlook for how each one will play a part in lifting the economy out of the doldrums.

We think you'll discover some new insights into the economy in this issue of EconSouth. As always, we welcome your feedback, which you can e-mail to EconSouth@atl.frb.org.

Here's hoping that we can include a more optimistic perspective on the economy in our next issue.

Lynne Anservitz
Editorial Director