Insight
Monday, February 13,1995 Page 3
Lincoln’s economy stays on strong course
Star City avoids
fallout from trends,
higher interest rates
By Neil Feldman
Staff Reporter
Amid forecasts of a national economic slow
down, Lincoln investment brokers show little
concern that a decline would penetrate
Nebraska’s capital.
Brokers point to a steady local economy as
a sign of strength amid several interest rate
increases. Lincoln’s economy was able to dodge
a heavy economic toll from the recession in the
early ’90s.
“It seems like the Lincoln economy should
begin to recede,” said Lynn Zabel, a broker
with Kirkpatrick Pettis, “but in fact it’s re
mained fairly steady over the last several years.”
Lincoln also has many characteristics that
could lead to a consistent economy, brokers,
said, including:
• The lowest unemployment rate of any
U.S. city, 2.4 percent.
• Being the home of the state government.
• Being the location of the University of
Nebraska-Lincoln.
• A mixture of large and small industrial
companies.
• A high number of real estate projects in
the works.
Zabel said investments in bonds, CD’s, and
the stock market — measuring devices for
local economies — haven’t declined either.
Jim Blumer, a broker with A G Edwards and
Sons Inc., said, “Lincoln’s economic base has
remained strong and virtually unscathed
through (the first) six hikes, so there is reason
10 oe opumisuc.
Though returns on the broad markets were
poor last year, Blumer said, “the very fact that
calls (from investors) kept coming in indicates
things are pretty strong here.”
Mick McConkey, a broker with Smith
Barney Shearson, said Lincoln residents hadn’t
pulled back their investing. But, he said, that
may not be the case on Wall Street if the interest
rate increases once again.
“If rates are pushed up further,” he said,
“then I’d be surprised if there’s not at least a
slight pullback among investors.”
McConkey said he would keep a close eye on
economic data to see what effect the Feb. 1
increase would have on the market.
Broker said investments in high-risk areas
like commodities and public research-based
corporations had lost local appeal in the last
several years. A more conservative approach
could result in fewer returns per dollar in
vested, while greatly lessening the risk of loss.
“In times of a volatile market,” Blumer said,
“we advise investors to stick with consistent
companies with a proven track record.”
He said some clients, particularly those
investing for a pension fund, held much of their
money in utility stocks, which rarely fluctuate
but offer high yields.
Zabel, who steers clear of high-risk invest
ments, said the large number of overqualified
Lincoln employees explained why some locals
invested conservatively.
Many Lincoln residents are well-educated
but underemployed, Zabel said. This means
many intelligent investors can’t delve into
volatile sectors of the market because they
don’t have the money.
Though confident that Lincoln's economy
would remain steady in the short term,
McConkey said there were reasons to act cau
tiously with the market.
“If the Fed continues to act aggressively,”
McConkey said, “I think we will see at least a
mild market correction. We have already seen
a slowdown in some sectors of the market.”
The drop would be at least 5 percent, but no
more than 10 percent, he said. McConkey said
that if the Dow Jones Industrial Average hit
4,000 and interest rates were still rising, the
probability of a drop would increase.
Kai Wilken/DN
Real estate projects could boost city’s economy in short term
By Neil Feldman
Staff Reporter
Dozens of real estate projects around Lin
coln could help buffer the city from a national
economic slump, say local bank representa
tives.
Anticipation of an economic slide that could
inpact banks does not stem just from concern
that the Federal Reserve’s seven recent inter
est-rate hikes will soon take their toll on con
sumers. As well, the prime rate—the cheapest
rate of interest on bank loans at a given time,
offered to preferred borrowers — could in
crease several more times this year.
The prime rate stands at 9 percent, and
experts suggest a possible increase of at least 1
percent by year’s end.
Gene Suhr, an executive at Martell State
Bank, said it would be reasonable to see a
double-digit prime rate by the fourth quarter of
1995.
“If the prime rate continues to go up,” Suhr
said, “we will probably see a slowdown in new
real estate projects.”
But Bill Waddell, managing agent with
Broe Real Estate Services of Nebraska, said
enough projects were in the works.
Those projects include Gateway Mall, strip
malls near 27th and Superior streets with chain
stores like Service Merchandise and Wal-Mart,
and stores that are popping up near 40th Street
and Old Cheney Road. In addition, he said,
small businesses are being built around the
city.
Lynette Nelson, loan officer at Havelock
Bank, said Lincoln’s real estate market was
proof that interest-rate hikes and market swings
hardly touched the city.
“As more people with small business ambi
tions settle in Lincoln,” Nelson said, “the need
for housing increases.”
She said real estate had been so strong in the
past few years that the market had trouble
keeping pace with demand,
Nelson said she expected to see a pullback
soon, but remains optimistic in the short term
because of the work in progress.
But a rise in the prime interest rate likely
would have a ripple effect, causing increases in
bank and bond rates and making it difficult to
start new businesses.
Because of that, a rise in interest rates in the
short term could lead to a rise in unemploy
ment in Lincoln, said Roger Lewis, spokesman
for Commercial Federal Bank. The rise could
hit Omaha and other cities too, he said.
Some economists and business representa
tives suggest a slowdown has begun. If that is
true, Lewis said, additional hikes could hit
Lincoln. He said it would take several quarters
to tell if that was true.
Some bank representatives say Lincoln’s
economy is difficult to measure because of
widespread underemployment, meaning over
qualified people work below their capacity.
Vem Spencer of FirsTier Bank said the state
government was notorious for underemploying,
but that some in business and education did it
as well.
Roy Odle, investment manager at National
Bank of Commerce, said Lincoln had one of the
highest underemployment rates in the country.
He said the city had too many minimum-wage
positions, which was why many well-educated
people moved elsewhere.