As we say goodbye to November — another month when the U.S. Federal Reserve raised interest rates by three-quarters of a percentage point — and prepare to bid adieu to the 2022 calendar year, the bleak news is that a recession seems likely. The bright news is that local banking leaders expect the recession to be relatively mild and short.
“The paradigm has shifted dramatically in as few as three to four months,” said Martin K. Birmingham, president and CEO of Five Star Bank, which provides a wide range of consumer and commercial banking and lending services through a network of more than 45 offices throughout Western and Central New York and a commercial loan production office in Maryland. “The yield curve is showing a likelihood of a recession and it’s fast becoming a perfect storm in terms of expenses growing faster than revenue for many businesses.”
The yield curve — which can be flat or inverted — graphs the relationship between bond yields and bond maturity and has long been a reliable predictor of recession. Every recession since at least 1955 has been foreshadowed by an inverted yield curve and there has only been one false positive during that time. The yield curve is currently inverted in the United States – even more so than it was in the build-up to the 2008 recession.
Dan Burns, Rochester regional president at Buffalo-based M&T Bank, also believes we’re “in for a mild recession but hopefully a quick one,” in the year ahead. He’s optimistic the economy has many things going for it that will soften a recession, including voluminous job openings nationally and, locally, a strong regional business environment.
“2022 was one of our best years in Rochester — a lot of business owners are doing well,” said Burns, who noted a lot of larger companies are forecasting growth and expansion into larger markets.
Other positives Burns pointed out: demand for housing and affordable housing in the region remains strong, continued economic investment in the City of Rochester (such as Constellation Brands relocation downtown) and the recent pledge by Micron — the world’s fourth-largest producer of semiconductors — to invest $100 billion over the next two decades on a manufacturing facility in the Syracuse, which Burns expects will bring “a lot of positive spillover” into the region.
David J. Nasca, president & CEO of Evans Bank, a Buffalo-based full-service financial institution that provides community banking, insurance, and wealth management services and has locations in Fairport, Penfield, Perinton, and Irondequoit, is also cautiously optimistic about the year ahead.
“Opinion-wise, I do think we will have some recession in the next year,” said Nasca, pointing to the rising interest rate environment and the inverted yield curve. “But the strength of the economy indicates it will be a shorter impact. Right now, the underpinnings of the economy still have some good strength.” These strengths include a strong labor market, continued indicators of a solid economy in western New York, and an absence of credit issues for most businesses locally.
Still, there are issues for consumers, most notably inflation on the services side of the economy, as opposed to the goods side that was prevalent when the COVID-19 pandemic first hit, and supply inflation due to increased costs on labor, energy, food, and building.
When it comes to the uncertainty of the year ahead, local bank leaders stress that one of the ways consumers and business owners can get through it is by maintaining a strong relationship with their bank – and vice versa.
“Communication has always been important in the banking industry, but in times like this it becomes even more important,” Birmingham said.
At Evans Bank, “We are staying close to the customer,” said Nasca, who noted Federal Reserve Chair Jerome Powell indicated in August 2022 there will be “some pain” ahead as the central bank fights inflation via rising interest rates. “What it portends for banks is that we’re here to help our clients – in good times and bad, we’re here.”
Nasca notes that community banks were very successful in helping clients navigate the uncertainty of the COVID-19 pandemic by providing support with services like the Paycheck Protection Program (PPP) loans and forgiveness. He anticipates that same strong and guiding relationship in the year ahead.
Burns also stresses the openness and availability of his team at M&T Bank to support customers in 2023. His advice to businesses? “Keep your eye on the ball, pay attention to expenses and capital expenditures, and be smart with your decisions.” Additionally, he encourages businesses to have transparency, good communication, and a strong relationship with their bank, as it will lead to better outcomes for everyone.
Birmingham looks forward to remaining steadfast in taking care of customers and Five Star Bank and encourages businesses to be as proactive as possible. He also recommends businesses of all sizes have a strong command of their cash flow cycle and reach out to the bank if cash needs arise to help navigate their decision tree when it comes to borrowing.
“Keeping an eye on liquidity and cash is so important because at the end of the day it’s cash and liquidity that can help bridge getting through this economic cycle,” Birmingham said.
Caurie Putnam is a Rochester-area freelance writer.