BANGOR – For many months, the state has been teetering between a possible recession and an economic rebound. Last week’s terrorist attacks, according to analysts, are likely to be the turning point that will tip the balance either way.

It’s all up to consumers in which direction the economy will head, they say.

“We often talk, when we are projecting, that it’s extremely difficult to predict a turning point,” said state economist Laurie Lachance on Monday. “This is a turning point.”

In the meantime, the state was investing money Monday, but sticking with blue chip companies that have a track record of sustaining national catastrophes.

Maine’s economy has been “right on the edge” of a recession for about a year, Lachance said. How people perceive their economic future – whether based on actual numbers or on how they feel psychologically – “could be enough to tip the scales” toward recession if they are insecure about what comes next for them.

“Realistically, we won’t know for a little while how this plays out,” Lachance said. “The personal financial situation of a lot of Mainers is that they’re strapped. If the economy starts to stumble, they’re trapped.”

Over the last year, big-ticket purchases such as automobiles and furniture have declined. Consumer confidence has dropped and unemployment is increasing at a slow pace, Lachance said. Nationally, leading economic indicators had been showing strain.

That was before the attacks on the heart of the nation’s financial markets in New York City.

“Maine on its own will likely not go into a recession unless the nation does,” Lachance said. “We go up to the brink, we go back.”

The state’s last four recessions started because of what Lachance called “shocks” or increases in oil prices. She said that recently she was wondering what possible shock could hit Maine’s economy.

“When I was thinking about a shock that would put the economy in a tailspin, I was thinking of an oil price shock or a stock market shock. [The attacks are] not the kind of shock I would have expected.”

Before last week’s terrorist attacks, the state was hoping people who received their income tax rebate checks starting in July would spend them and jump-start an economy that has been slow for more than a year. Sales on everything from automobiles to building products to food have been down compared to the same time last year.

Early July retail sales figures suggest continued minuscule growth, said Michael Allen, a retail sales analyst with Maine Revenue Services, on Monday.

“They were OK,” he said. “They were nothing great. They were nothing bad.”

August was better, but merchants do not have to report their sales tax figures until later this month, he said.

For September and the coming month, the state is taking a wait-and-see approach to what shoppers are going to do.

“I suspect that consumers are going to pull back on big-ticket sales right now – automobiles, furniture, refrigerators,” Allen said. “My feeling is uncertainty is not a good thing.”

State invests millions

While personal investors and corporations were watching the dramatic stock sell-off on markets Monday, the state wasn’t second-guessing whether it should invest in national corporations.

Instead, it moved forward and invested $37 million in commercial loans in American Honda, All America Finance, Nestle’s and Governmental Securities Fund on Monday, said State Treasurer Dale McCormick. That follows a $7.5 million investment in a loan to Kraft Corp. on Thursday, which eventually was received by the company on Friday. The one-day delay came because of the destruction in wire-transfer equipment at the Bank of New York during the attacks, she said.

Citigroup, which announced Monday it expected third-quarter earnings to be short $500 million, also sought money from the state. McCormick said she turned it down because the return rates weren’t high enough.

McCormick said she invests money every day in fixed income sectors only, such as U.S. Treasury agencies such as Fannie Mae, and in commercial paper or loans. She hears about companies that are looking for loans, and then talks to two brokers who suggest which ones are offering the better return. The next step is to pick “the best rates for the day” and invest in those, she said.

The Maine treasurer is obligated by law to invest in companies with the highest ratings – A1 on Moody’s and P1 on Standard & Poor. Some other states, she said, are split, and can invest in lower-rated companies.

But on Monday, an analyst who works with state treasurers nationwide advised them to stick with the best-rated companies only.

“The consensus was for everybody to go with the more secure names,” McCormick said. “The real blue chip, secure companies that aren’t going to find this a financial challenge they can’t handle.”

For consumers, McCormick said she believes Federal Reserve Chairman Alan Greenspan’s interest rate cut Monday, and the likelihood of another one soon, will have “a moderating effect on any kind of [economic] downturn.”

Consumers, she said, will re-examine whether now is the right time to take out mortgages and loans, and they may not be able to resist that the cost of money is low right now.

“It’s pretty rock-bottom,” McCormick said.

The treasurer said an analyst told her Monday that with the rebuilding of New York and the Pentagon the nation’s economy should turn around by January.

In the short run, however, the state should expect to make a little less from interest paid on commercial loans because of the Fed’s interest rate cuts, she said. For the fiscal year that started in July, McCormick said she predicted the state would earn just $15 million in interest.

“That was before the national disaster,” McCormick said. “We’ll have to watch things to see if we have to ratchet this down, and I expect we’re going to have to.”

Analysts

On Monday, analysts continued spending time comforting nervous investors unsure about what the future holds for their money, as they have done every day since Sept. 11. Many investment firms are distributing literature that explains how soon the markets rebounded after major historical events.

The 684.81 point drop on the New York Stock Exchange, though, “is deeper than I would have liked it to be,” said Harry Moses, an analyst with AG Edwards in Bangor. “Until we get all the nervous people out of the market, we can expect this.”

“People need to be assured that the economy is going to remain intact,” said Scott Thomas, a financial planner with Thomas Tax and Financial Services in Bangor. “That means going to the movies, going out to dinner, buying furniture.”

The terrorist attacks may have panicked people, especially those who are financially overextended because of debts, Thomas said. These consumers may be holding back on their spending, and that is causing companies to panic about what is in store for them in the future.

“The biggest problem America has right now is credit card debt,” Thomas said. “People haven’t saved for the future. In these public tragedies, they’re re-evaluating what they have for the future, if they have cash for the future. And in most cases, the answer is no.

“Don’t let this terrorist act interfere with your day-to-day living,” Thomas advised. “And at the same time, we’re encouraging people to get out of credit card debt. You’re making yourself more financially sound if you do that.”

Retail sales

Over the last few days, area consumers surprised merchants by going to the stores. Most wanted to get away from the nonstop coverage of the terrorist attacks and the possibility of the United States going to war, and return to some sort of a normal life.

At Rebecca’s in Bangor, more people than were expected shopped the gift shop last weekend, said owner Rick Vigue. With soft piano music playing over a speaker system and scented candles burning, shoppers, he said, started to open up about their feelings concerning last week’s terrorist attacks.

“I think a lot of people were so wrapped up that they needed a diversion,” Vigue said.

“They’re turning off the TV and tuning in to something else,” said Kevin Kelly, general manager of Down East Toyota in Brewer.

Yet merchants wonder about what happens if the United States does go to war. Will people still shop?

“I think people are going to watch their money… people have been watching their money the last few months,” Vigue said. “People hear the word ‘war’ and that frightens us. The economy was soft anyway. The whole country is facing some problems right now and this compounds things.”

Robert Dunnett, vice president of Dunnett Inc. Appliances, TV and Furniture in Bangor, said he hasn’t seen a change in people’s spending habits yet. He said he knows, though, that consumers will be “taking a deep breath” before deciding how much they are going to spend in the future, especially for appliances, automobiles and other big-ticket items.

“I don’t know if we can predict that at this point,” he said.

Kelly said sales have been steady, even the day after the attacks.

“Even Wednesday morning, we expected a lot of cancellations of appointments, but people still came in,” he said.

Jack Quirk Sr., who was in Washington, D.C., when the Pentagon was struck by a terrorist-diverted plane, said people might slow down their purchases, but only for a short time. Quirk said he had to purchase a car to get back to Bangor.

“I definitely feel there’s going to be a letdown in house purchases or car purchases,” Quirk said. “They’ll go up again around November or so. Barring any repeated actions by the terrorists, we’ll gradually work out of this.”

Consumers

The wait-and-see feeling being experienced by state officials and area merchants is being felt by consumers, too.

“I do feel we are cutting back on our expenses,” said Margaret Finch on Monday. “We are being a little bit more conscious about our expenses.”

With a daughter, Lily, Finch said she’s already thinking about the holidays, and how much she will be willing to spend this year, and “feels guilty” if she even considers buying gifts for family and friends.

So does her husband, Brad.

“The thing about the holidays is right now there’s more important things at stake,” Brad Finch said.

Brad Guimond of Glenburn said he is not going to change his spending habits. The federal government, he said, is doing what it takes to keep the economy going, including Greenspan’s interest rate cuts Monday.

If the country goes to war, though, New England perseverance will prevail.

“We’ll button down and do what we have to do,” Guimond said. “What’s another potato in the pot when there’s another person to feed?”

For Kate Jans of Whiting, the economy is not so much of a concern as whether her husband, Tony, will be called for duty. Tony Jans is a member of the Maine Army National Guard’s 112th Medical Company, and so far he has not received the call.

Kate Jans said life is continuing without any changes in the family budget. She said she’s heard the calls from President Bush to New York Mayor Rudy Giuliani and others to continue living and continue spending money. Their calls, although heard, won’t make her go out and spend more, Jans said.

“I’m an individual citizen and I’m going to assess my needs, my lifestyle, my assets regardless of what a politician says,” Jans said.