Timothy Cahill
‘Significant challenges’
Massachusetts’ unemployment rate is creeping up, the Greater Boston population is shrinking and consumers’ spending – except on their primary residence – is expected to go down in the coming year.
Those were some of the bad-news highlights at Sovereign Bank’s eighth annual Economic Outlook breakfast, which highlighted the results of the bank’s fall 2007 survey of its customers and Greater Boston Chamber of Commerce members. The breakfast, cosponsored by the chamber, drew 500 business leaders to the Downtown Crossing Hyatt Regency on Tuesday.
Two Massachusetts cities also are ranked among the 10 worst for hospitality to small businesses of 75 ranked nationally last summer by bizjournals.com, according to state Treasurer Timothy Cahill, who spoke at the event.
“Outside of [Interstate] 495, we’ve got some significant challenges,” said Cahill.
The treasurer said the two cities that ranked so poorly were Springfield, which got the worst rating, and Worcester, which was in the top 10. The challenges will continue for at least another year or two, he predicted.
The message behind the numbers, according to Sovereign New England North Chief Executive Officer Patrick Sullivan, is that consumers are reaching out for “quality” and “protection.” The 500 consumers and chamber members who responded to the survey said they plan to put money into certificates of deposit, and other bank investments, this year (52 percent, compared with 49 percent last year) and will be taking it out of stocks or stock-based mutual funds (16 percent expected to do so this year, compared with 7 percent last year).
Decidedly fewer consumers plan to buy cars or major appliances in 2008, compared to last year, though the number of those who plan to spend more on home improvements or their primary residence has gone up.
The kind of bank loans being taken out by consumers also has shifted, with the number of those taking out lines of credit – which have fluctuating interest rates – up just 3 percent. The number of those who took out closed-end loans, with more stable interest rates, rose a staggering 35 percent.
“People want to lock in an interest rate, so they feel protected,” Sullivan said.
‘Out of Control’
Even as the survey showed that consumers are looking for safety and trying to reduce risk in the wake of the 2008 economic storm, the two business panelists Sovereign called in to dissect the state’s economy, from their industry’s perspective, had some positive thoughts.
“We needed to have a correction. Things were, frankly, out of control,” said John Fish, chief executive officer of Suffolk Construction Co., who added that Wall Street’s involvement in lending, in particular, was to blame for that problem.
But going forward, he said, if Massachusetts is able to leverage its emerging strength as a service- and intellectual capital-focused economy, “I think our future is very, very bright.”
Ellen Zane, president and chief executive officer of Tufts-New England Medical Center and the Floating Hospital for Children, admitted that the Bay State is facing serious health care challenges, including a physician shortage and what she described as a health care industry that has – to its detriment – been resting on its laurels.
But, she said, Massachusetts should be proud of new state policy, implemented last year, which required every resident to have health insurance as of July 1, 2007 – and required employers to offer it or face a surcharge. She said that the new policy will save money in the long run, because people without insurance tend to use emergency services more often, which are an ineffective and expensive form of care.
Zane said the health care industry’s fortunes run counter to those of the economy in general. In other words, she said, when the economy is not doing well, health care does better.
“It’s an industry we need to embrace,” Zane added, “because it’s really quite profitable.” Cahill later said that building up areas around Massachusetts hospitals and universities will be “the only way we can grow our economy.”
After the event, Sovereign Senior Vice President for Corporate Lending John Doucette offered his own view of Massachusetts’ economic future.
Doucette said employers will bear “significant” costs from the new health insurance law. He said that cost likely will be offset by the recent reductions in the federal funds rate – which has the effect of saving companies money when they borrow –but the same reductions devalue the U.S. dollar abroad, meaning companies that purchase goods or services from overseas will have to pay more.
