One chicken-and-egg question she’s currently pondering involves bank lending trends and consumer demand: Are banks making fewer loans these days because there are fewer credit-worthy customers, or are customers reluctant to borrow because of banks’ demands for additional equity investment from prospective borrowers?

“It’s not like credit-worthy customers are beating down doors at the banks,” Kelton said of the lingering credit freeze. “You need a willing borrower and a willing lender, and right now, we have neither.”

The way that credit standoff is resolved may determine how healthy an economic recovery the Kansas City region experiences in 2010. As various economic indicators continue to show signs of growth under way, bank lending practices—as well as changes in the regulatory climate affecting those practices—will play a key role in any economic renaissance.

So, too, will consumer choices. Which brings us back to Kelton, and the alligators. She took note recently of a televised report on hard times befalling the domestic alligator industry in Louisiana. Gators on farms there put their skins on the line, literally, for such high-end items at shoes, clothing accessories, briefcases and more. But a lot more of them are hanging onto their hides these days because demand has fallen into the swamp, and not just in the U.S.

“They’re taking a real hit because they cater to high-income earners globally,” Kelton said. “In past recessions, they hardly felt it because their clientele hardly felt it. Now, they’re down 60–80 percent in sales volume, and if it’s happening to the very top, maybe we’re seeing something fundamentally changed at the lower and middle levels.”

That’s a vitally important piece of the recovery puzzle, because consumer spending has traditionally accounted for two-thirds of economic activity in the United States. Changes in those spending patterns, then, could redefine the American economy as it moves past the Great Recession toward either full recovery, or a potential double-dip decline.

SOME LOCAL HISTORY

When it comes to weathering the blows of a downturn, the Kansas City region historically stands apart from most other areas of the country. According to a recent study by the Federal Reserve Bank of Kansas City, the Fed’s 10th District fell into recession later than the rest of the country five times in the eight recessions between 1957 and 2003, and never entered earlier than the U.S. as a whole.

Getting out of economic trouble is also one of this region’s strengths: In those eight recessions, the 10th District exited earlier than the country as a whole six times. Only once did it emerge from a downturn later.

The downside of that late-in/early-out pattern is our regional economic stability itself: In our tendency to sidestep the worst of things, we also usually lag other Fed districts that, having suffered steeper declines, experience sharper rebounds.

Will this region show the same resiliency this time around? Marc Maun, CEO of the Bank of Kansas City, believes we’re on an identical track to one he lived through in the 1980s in Oklahoma, which is also part of the 10th Fed District.

“It was the exact same recession,” Maun says, comparing the trends involved. “The recovery so far here has been a mirror image of that. The tragedy there happened in ’86–’87, with a U-shape in ’88–’89 and 1990 being the start of the real recovery. It looks so similar, feels so similar to that. That doesn’t mean it’s fun, but that’s why I’m looking forward to 2011. I think 2010 might be the last year of the ‘U.’ ”

THE CONSUMER’S ROLE

Kelton, the UMKC professor, is less than optimistic about the long-term view, based on what she sees as troubling historic trends.

“Something has fundamentally changed,” she said. “The biggest is that real wages for the majority of working Americans stopped increasing after 1973. They just flat-lined. Now, for the first time, we didn’t have that rising standard of living, in real terms. Then all of these people began turning to credit cards and other ways to leverage the consumption pattern they had been accustomed to. But with the stock market and real estate, the collapse in both, I don’t know where consumers are going to find the financial wherewithal to finance the kind of consumption we’ve seen.”

On the other hand, Kelton observed, “the American consumer is a real funny character. Never underestimate the willingness of the consumer to invent new ways to continue consuming.”

That is exactly the perspective that custom-home builder E. L. “Dobbe” Dobberstine has from his company in Liberty, Mo. A 25-year veteran of his trade, Dobberstine has not seen people scaling back on their ideas of a dream home. For sure, far fewer of them placed orders in 2009, but the essential dream remains undaunted: Big homes, with all the goodies.

“What I’ve seen and what we’re seeing into 2010 are people, in the market that I build in, building the same houses with the same amenities they did prior to 2009,” Dobberstine said. “I am prepared for people to do something different from what we’re doing, but in talking with people who want to build, I think they’re going to build what they want to build.”

 

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