The national economy has been placed in a medically induced coma by the unprecedented government response to the novel coronavirus, the chief investment officer for Washington Trust Bank told members of Spokane’s chamber of commerce Friday.
It may be several months before the full ramifications of that decision are known and felt in the Inland Northwest, Steve Scranton told a virtual audience of roughly 300 people gathered by Greater Spokane Incorporated on Zoom.
“Since it’s never been tried before, we don’t know what the ultimate result will be,” Scranton said. “But that’s the perspective I would give you.”
Other economic spectators and organizations have adopted similar language to refer to the patchwork of local, state, federal and international stay-home orders that have shuttered businesses and initially interrupted supply chains. That the government mandated the closures makes the current economic situation, which Scranton described as “a recession” even if official government indicators have not yet been released to make that determination, distinct from the 2008 economic downturn and its roots in home lending practices.
“That was a result of the regulations that Congress put in place after the financial crisis, the financial system as a whole have never had the opportunity to leverage themselves the way they did before or take on the risk that they did before,” said Scranton, who’s been with Washington Trust since 1998. “And as a result, I think that they are far better prepared to absorb the loan losses that will ultimately happen as businesses are being devastated with the closures that are happening there.”
Scranton gave the Federal Reserve high marks for enacting monetary policy to support lenders but said Congress likely will need to do more than its initial offering of $350 billion to support businesses that have been forced to close by government orders in an attempt to stop the spread of the virus.
There are potential bright spots for Spokane in the limited economic information available from the initial fallout of the closures, Scranton emphasized. Consumer confidence, as measured by the University of Michigan, has dipped from its sustained high marks during the economic expansion, but has not yet reached the depths of 2008.
That may lead to what Scranton called a “demand shock” to the economy when businesses reopen. But that will depend on whether consumers feel safe returning to retail stores, restaurants and entertainment venues, and if they spend their direct payments from the government or save it in anticipation of another emergency.
Scranton said there are two reasons people might not spend their direct payments on consumer goods. Either they will put it in a savings account or use it to pay off new debt on a credit card.
Scranton also joined a chorus of government and trade groups calling for Gov. Jay Inslee to lift the restriction on home construction as part of his stay-home order. Interest rate reductions were already encouraging home buying by lowering mortgage interest, but the full effect of that economic benefit will not be felt if there aren’t more homes to buy, Scranton said.
“The housing market itself is one of the best sectors of the economy because of their multiplier effect that when you buy a house, you don’t just buy a house. You’re doing the landscaping, you’re doing the furnishings, all those types of things,” Scranton said. “So there’s multiple businesses that benefit from housing.”
The Spokane County Commission, Mayor Nadine Woodward and Reps. Cathy McMorris Rodgers and Dan Newhouse have called in recent days for home construction to continue, to address an underlying housing shortage that they argue hasn’t gone away during the pandemic.
Another potential benefit for Spokane could be if the demand for commercial real estate nosedives as more businesses recognize their workers can be productive remotely, Scranton said. Larger companies may find it more cost-efficient to spend money on high-speed internet and house their workers in places where the cost of living and rent is lower, which could elevate the Inland Northwest as an attractive location for expansion or a relocation for remote workers.
“What we may well see, especially from the younger generation, both the millenials and Gen Z, that they discover, ‘Hey, I can actually work from home productively,’ ” Scranton said. “And we may see the paradigm change for them.”
Scranton encouraged workers at financial institutions, representatives of other chambers of commerce, and business and government leaders to look ahead for opportunities, rather than become mired in the statistics about to hit the economy.
“Fear is an important emotion,” Scranton said. “But fear is not a strategy. History has shown time over time, using decisions made when fear is driving the decision-making process are decisions that are regretted later.”
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