Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, January 24, 1993 TAG: 9301260411
SECTION: NEW RIVER VALLEY ECONOMY PAGE: 23 EDITION: NEW RIVER VALLEY
SOURCE: DANNY HARDY
DATELINE: LENGTH: Long
ECONOMIC RECOVERY OR MORE OF SAME?
As we look ahead to 1993, we need to look back and see where we have been. We also need to examine what may affect our local economy on both the international and national economic arenas.The past year has seen inflation drop to levels where it was no longer a factor. Interest rates are nearing a 20-year low. Unemployment is a major news maker with layoffs making the news almost daily. All industries and financial sectors have been affected by these factors.
The end of the Cold War should allow for cuts in the defense budgets. However, a major portion of the gross national product is heavily geared to supplying the United States with material to wage wars.
The international marketplace and the American public are eagerly awaiting the new presidential administration. President-elect Clinton has promised major cuts in defense spending and other programs, while he tries to reduce the federal deficit estimated to be increasing at a pace exceeding $360 billion per year.
Public confidence is up.
Consumer spending for the holiday season was greater than expected. This has been done at the same time consumers have been reducing and restructuring their personal debt.
Single-family home constructions are up nationwide. Industrial production also is up at a time when most inventories are at cyclical low points. Companies have been able to curtail debt largely because of low interest rate levels, and most companies will be able to take advantage of the expected economic recovery.
However, the United States economic recovery may come at a time when our foreign economic partners are suffering. Japan and Europe (especially Germany and the former Iron Curtain countries) are suffering economic ills that have rivaled or surpassed our problems.
In addition, the bank bust of 1992 that was predicted to occur at the end of the year did not occur. Instead, the banking industry has benefited from the low interest rates and should be a major factor in the economic recovery when it occurs.
Year-end figures for 1992 should show that the banking industry has reached record levels of profitability. These profits will recapitalize the FDIC insurance fund without any taxpayer aid.
Meanwhile, the commonwealth of Virginia continues to suffer from the overspending and poor fiscal planning of prior governors.
The state suffers from decreased tax revenues, some of which goes back to the Desert Storm conflict.
The overvaluation of real estate and overbuilding in the major metropolitan areas of Virginia compounded the problems. This problem promoted the acquisition of two multibillion-dollar banking institutions by out-of-state banks. It also led to the failure and purchase of some multibillion-dollar savings and loan associations.
All areas of the commonwealth have suffered. Education was not immune from these ills as Gov. Douglas Wilder mandated harsh reductions in budgets by all state higher-education institutions. The impact of these cuts will have far-reaching and long-lasting effects.
Locally, the cuts from the higher-education institutions of Virginia Tech, Radford University and New River Community College; the closing of the AT&T plant three years ago; the large reduction in the Radford Army Ammunition Plant's work force; along with the many smaller announced layoffs by other businesses, have hurt the New River Valley economy.
Looking through my crystal ball, the future is somewhat cloudy. Many things can happen that will continue to affect what direction the economy will take in the New River Valley.
The positives, in my opinion, far outweigh the negatives. I believe that the people in the New River Valley have the will and determination to override any obstacle that may occur.
Continued layoffs in industries associated with defense will impact our community. These industries, however, recognizing their corporate and civic responsibilities, have provided those affected by layoffs with severance pay or retraining funds.
The Virginia bond issue that passed in 1992 will provide more than $70 million in needed construction for the higher-education schools in the area. Many of the construction workers will be provided by the subcontractors in the area. The impact should last for three to five years.
Various organizations are seeking to relocate new businesses into the New River Valley area.
The New River Economic Alliance and the Blue Ridge Commission are seeking companies to relocate in the New River Valley from all over the country. They are promoting the quality of life, the stable and dependable work force and other business aspects that would entice businesses to move here.
In summary, I would anticipate that the local economy will continue to grow slowly. There will be some momentary setbacks.
Interest rates should continue at low levels with some anticipated small increases later in the year. Loan demand should continue to be slow with the public cautiously looking to the future.
The financial markets will continue to consolidate with additional products and services being offered.
Unemployment may remain high, but more companies will seek to relocate to this area. If Clinton comes out with incentives, I see companies reinvesting in new equipment which should allow them to be more efficient.
Inflation may pick up slightly toward the end of the year, but not drastically.
If the state revenues pick up, more funding may be made available for education, with Virginia Tech, Radford University and New River Community College gaining back what they lost in prior years.
I do not see, however, a return to the go-go years of the '80s.
\ Julian D. "Danny" Hardy is executive vice president and chief administrative officer at First National Bank in Christiansburg.