No boom, no bust: How Maine might dodge recession’s blows

BANGOR – December was a puzzling month for business owner Christine Towne.

Towne, owner of Virtues Hair and Skin Salon at 220 Union St., usually sees clients flock to her salon throughout the month for pre-holiday primping.

But this past December, appointments and gift purchases were down, Towne said.

“I think people were spending more on oil than getting expensive shampoos and cosmetics. But I think people need to come in now more than ever to make themselves feel better,” Towne said Thursday.

Towne acknowledged that slow business may have been a result of her salon being under renovation, but oddly enough, January sales have been up. She is grateful but remains slightly confused, she said.

To help steady her business, Towne has been researching new advertising methods and offering discounts to customers who refer newcomers to the salon. And in an effort to reduce heating costs, the salon is now closed on Mondays.

Virtues is one of many businesses statewide that are forced to cut costs and find creative ways to keep revenues coming despite a decline in consumer spending. And while many experts say the country is in or headed for a recession, several Maine economists say the state will likely not experience the economic lows that other states are braced for.

“Maine has not had the kind of big economic expansion, the kind of fast growth over the last years that would normally lead to a significant hit. The rule is ‘not much boom, not much bust,'” said Charles Colgan, chairman of the state Consensus Economic Forecasting Commission.

Colgan listed Florida, California, the Midwest and the mid-Atlantic region from New York to Washington, D.C., as places that had seen a sharp increase in housing prices in recent years and then been hard-hit by the subprime mortgage crisis. Those are the areas that will be most affected by a recession, he said Thursday.

To back his assertion, Colgan noted that the Maine economy took a blow during the 1990-91 recession because it had experienced a great deal of employment, housing and retail growth in the late 1980s.

“There was a lot more boom and therefore Maine got hit with a lot more bust,” Colgan said.

A recession is commonly defined as a period when the country’s gross domestic product declines for two consecutive quarters. The federal government relies on the National Bureau of Economic Research in Cambridge, Mass., to declare a recession. Often, the NBER will take months, if not a year, to analyze data and decide whether the country entered a recession.

“We will probably be in a recession and out before we have the data to know if we were in one,” said James Breece, vice chancellor for academic and student affairs for the University of Maine System and a member of the Maine Revenue Forecasting Committee.

Breece agreed with Colgan, noting that recessions affect not only different states, but also different income groups.

“The highest and lowest [income groups] won’t feel the recession,” Breece said.

Breece said he sees at least one way for Mainers to capitalize on the current market conditions. According to his observations, when there is a downturn in the economy and the U.S. dollar is weak, wealthy New Englanders who usually spend summer vacations overseas often head to Maine instead.

“We tend to see an increase in certain high-end markets of the tourism industry” during a recession, Breece said. “My suggestion is to begin marketing now for high-end resort vacations in Maine.”

Adrienne Kearney, an economics professor at the University of Maine, said she, too, sees one benefit to the decreased value of U.S. currency.

“The low dollar has stimulated our exports,” Kearney said Thursday. “And Canadian shoppers are coming into Maine because they’re right across the border.”

Kearney attributed the decline in U.S. consumer spending to the “credit crunch” caused by banks reluctant to lend, the rising price of oil and declines in consumer confidence and home and stock prices.

Because households purchase approximately 70 percent of all goods and services in the U.S., the drop in spending has significant repercussions, Kearney said.

“It will be important to get money to households that are liquidity-restrained, that aren’t spending like they used to,” Kearney said, referring to the federal economic stimulus package. On Thursday, congressional leaders announced a deal with the White House that would give most tax filers refunds of up to $1,200, and more if they have children.

Despite the suggestions of a stable Maine economy, the Consensus Economic Forecasting Commission reduced its October prediction for 2008 job growth from 0.3 percent to zero and dropped its anticipated personal income growth estimate for 2008 from 4.4 percent to 3.5 percent.

“The recession could come and go by the summer, but the growth coming out of the recession isn’t going to be stellar,” Breece said.