Although an economic recession is not likely, the general perception of an economic downturn could cause consumers to curtail spending, and thus precipitate a real economic slowdown, according to Wells Fargo Bank vice president and senior economist Eugenio J. Alemán.
"It's not true that housing recessions cause national recessions," Alemán told members of the Northern Nevada Development Authority at their annual membership breakfast at Carson Valley Inn on Wednesday morning. "The consumer is what I'm worried about. If consumers believe a recession is coming, they will pull back. There is so much noise at the media level that consumers believe it."
Alemán told local business leaders that Northern Nevada has a better chance of recovering from the housing recession than other parts of the country, including Las Vegas.
"Other areas like Las Vegas, Phoenix and Miami overbuilt where they shouldn't have," he said. "Reno will come back stronger than Vegas. The per capita income in Reno is strong compared to the rest of Nevada and the U.S. population growth will remain strong in Nevada and should support recovery in the housing market."
But Alemán said not to assume that a slowdown in construction and real estate would cause downturns in other economic sectors.
"Thirty percent of our economy is manufacturing, and only 5 percent of that is housing. Seventy percent of our economy is in services. Ninety-five percent of our economy is doing fine."
Alemán said that home equity has nothing to do with consumption.
But Alemán did say that an unstable housing market could force lending agencies to restrict the amount of credit available to consumers.
"We've been having a party for 15 years. We've been consuming outside our boundaries," he said. "Consumers are 70 percent of the U.S. economy and are willing to continue to consume, but they have to be able to get credit."
Alemán said that some consumers who were able to get credit when interest rates were low will not be able to now. He said lower interest rates always bring in sectors of the population that can't make their payments when interest rates go back up.
"Those who thought the party was going on forever have to pay, and I'm not going to foot the bill," he said.
He stressed the normal fluctuation of business and said consumers shouldn't overreact to a slowdown in one sector of the economy.
"We have to bring back confidence," he said. "We have the best economy in the world."
