U.S. economy growing steadily, but small banks are at risk

If Federal Reserve head Janet Yellen called Stephen Wilson and asked his advice on monetary policy, he’d tell her to raise interest rates a quarter percent.

Business owners are flush with cash, but they are still uncertain about the economy, the Lebanon-based LCNB Corp. chairman and CEO told the Bolder Business group on May 20. If entrepreneurs thought interest rates were on the way up, though, they’d get motivated.

“We’ve got all kinds of pent-up demand on loans,” said Wilson, who addressed 25 business owners and leaders at a Firehouse Grill luncheon in Blue Ash. “Business owners are waiting. They don’t want to make a move if they think interest rates are stable. But if they think they’re on the way up, they’ll move.”

Wilson, who served for eight years as a board member with the Federal Reserve Bank in Cleveland and is former chairman of the American Bankers Association, loves monetary policy. And using economic statistics from both agencies, he provided attendees with information on the state of the U.S. economy.

While the economy is growing steadily and is still the healthiest in the world, we still have some problem areas, he told the group. Two problems are the national debt and the Federal Reserve balance sheet.

“The Fed has put a lot of money into junk bonds and has to unwind that to keep the economy moving,” he said.

Personal spending is the largest part the economy today, and it is driven by consumer confidence, he said. It has gone up steadily since 2014, and speaks well for the U.S. economy if confidence remains high. But he said he thinks housing growth and prices and are not sustainable.

“Housing starts drive employment, but we lost 8.7 million jobs during the recession,” he said. “We’ve recovered 11 million, but the problem is there a lot more people in the workforce now.”

He also said the national 5.7 percent unemployment rate from January of 2015 is inaccurate, because new rules with the Bureau of Labor Statistics don’t count people out of work for six months or longer. If joblessness were determined under pre-recession rules, he said, the U.S. would have an 11.3 percent unemployment rate.

The good news, though, is that unemployment is still lower than many European countries.

Another area of concern for business owners is excessive regulation. Wilson said the Consumer Protection Bureau has added regulations to the already-regulated side of the banking industry, which harms consumers more than protects them.

The effect is that excessive regulation squeezes small banks with small staffs, which forces banks across the nation to close or merge into larger banks, said Wilson.  More than 50 small banks in Ohio have closed since 2007, according to the American Bankers Association.

“I would submit to you that is it a travesty,” said Wilson. “It is moving economic power from rural to urban areas and we will end up with fewer banks in rural areas… the consolidation is real and it is significant.”

Wilson predicted that small banks would continue to struggle until interest rates rise.

Bolder Business is a group of business owners and leaders who meet the third Wednesday of each month. The May event was sponsored by Edoc Service and Rendigs, Fry, Kiely & Dennis, LLP.

Bolder Business events are listed on Eventbrite. For more information about the Bolder Business organization or to attend an event, contact Jim Mullaney of Edoc Service at jim@edocservice.com or call (513) 829-7101.