As the troubles of Wall Street trickle down to Main Street, Skagit County businesses and leaders are bracing to see how far the pain will reach.
“Skagit County is not immune to it,” Elise Cosgrove, vice president of Summit Bank in Burlington, said Tuesday. “People are getting hit on their 401(k)s. I’ve spoken to people who have lost one-quarter to one-third of their 401(k) in a week or week and a half. That’s unsettling.”
The inability of Congress to resolve differences over a proposed $700 billion bailout plan for the nation’s troubled financial sector has added to the erosion of confidence among taxpayers. Whether the damage comes in retirement funds, the housing market, lost jobs, a credit crunch or reduced consumer spending, the local economy is feeling the pinch.
“I can tell you that the credit crunch has basically slowed the building industry down,” said Wayne Crider, executive director of the Skagit and Island Counties Builders Association.
Crider said fewer builders are working in new home construction and are turning instead to smaller-scale remodeling work. Those still building homes are waiting for orders rather than building homes on speculation.
Brian Gentry, president of Burlington-based Landed Gentry Homes and Communities, said his company used to be about 50/50 — half custom projects for clients, and half spec projects. But it has cut the number of spec homes to about 20 percent.
“We have shifted our focus,” he said.
Some banks are turning down credit requests because they’ve already invested in so much unsold real estate.
“The majority of builders utilize lines of credit or other debt instruments to fund the construction of homes or the acquisition of properties,” Gentry said. “… So having a functional credit system is pretty key to that.”
Fewer homes built
Cosgrove acknowledged there is a tightening on credit, and banks are less interested in financing spec homes in this market.
“The bank is going to be cautious at this time with the applications that come in,” she said.
As for existing businesses renewing lines of credit, much will depend on how they’ve managed loans in the past.
“Banks want to see that that line of credit has been zeroed out for several days a year,” she said. The key is to show that the credit line is revolving. “That way we know that the person hasn’t just spent the money and is out of money for the next 11 months,” Cosgrove said.
Tighter control doesn’t mean that local banks don’t have money to lend.
“Community banks are in the business of making sensible loans,” said Jeremy McCullough, vice president of commercial lending at Business Bank of Skagit. “We did not swim at the (deep) end of the pool” as some of the larger banks and Wall Street firms did.
But while Skagit County is better off than a lot of places, credit isn’t as easy to get as it was even six months ago, McCullough acknowledged.
And the national financial crisis will ultimately cost everyone.
“Everybody is going to pay for it in regulation,” McCullough said. “It’s going to make it more costly to do business.”
Mitch Everton, Anacortes Chamber of Commerce executive director, said that lines of credit may not be the main problem for businesses.
“The biggest issue for Main Street is going to be consumer spending,” Everton said. “As consumers feel tightened, they think: Can I afford to be buying what I’m buying?”
Some pain, some gain
Dolly Wolfe, owner of the Toolbox Coffee Co. on Mount Vernon’s own Main Street, said she’s seen her business cut in half over the last two weeks.
She suspects her customers have started making coffee at home.
“People aren’t really talking. They aren’t saying it’s the reason,” Wolfe said. “But economically, it’s what’s happening.”
In some ways, Wolfe is better off than some business owners. She said she bought the business, which opened in July, completely out of pocket, and she has no loans right now.
But there is the matter of a profit. She cut her prices to increase sales in an effort to keep traffic flow going at a fledgling business.
“Don’t think I’m making a profit, because I’m not. We’re trying it, and if it works, it works,” she said.
Not all businesses are suffering.
Kristi Gabrielse, owner of Ana-Cross Stitch, said she’s not convinced that Wall Street is in the crisis it’s being made out to be.
“I think it’s a little bit of a tempest in a teapot and meant to scare people,” Gabrielse said, adding that she’s glad Congress decided to hold off on a bailout plan.
She said her own business on Commercial Avenue is going like “gang-busters.” And she’s had no trouble getting credit to purchase inventory.
Randy Longerich, Puget Sound Rope president, said that the business of selling high-performance ropes to utilities and marine businesses is recession proof. The business, located at the Port of Anacortes, doesn’t operate on a line of credit, he said. That offers additional protection from any potential trickle-down effects from Wall Street.
“We haven’t seen any problem,” Longerich said.
Money pros urge calm
Cosgrove of Summit Bank said the best thing the average person can do is try to avoid running up a credit card bill.
“I recommend that people really watch their use of credit cards and try to avoid getting in that downward spiral of credit card debt,” she said.
People should act conservatively, but they shouldn’t panic, Cosgrove said.
“We’ll swing back, but it will take a couple years,” she said.
Skagit County investment professionals tend to agree that clients should stay calm.
Some said they’ve been hearing from customers worried about their money. But they’re urging them to wait and see what the economy does.
Steve Daly, a broker for Edward Jones, told customers from his Anacortes office that selling now is the worst thing to do.
“The biggest gains often occur in the early stages of a market turnaround,” Daly said. “So we don’t want them to miss out on considerable growth potential if they’re sitting on the sidelines.”
Larry Clark of Ameriprise Financial Services in Mount Vernon said most of his clients understand the market’s ups and downs, but he has had more calls in the last two weeks from customers wanting to sell.
“The great majority of people just need a reminder of what this market is in perspective with similar markets,” he said.
Clark said investment planning is usually based on a long-term goal meant to weather ups and downs.
But for some, the downside is pretty frightening. And the tales of woe and worry have agitated everyone from the Wall Street to Capitol Hill to Burlington Boulevard.
Larsen touching home base
U.S. Rep. Rick Larsen even made a quick trip back home this week in an effort to speak directly with worried constituents. Many contacted him about the proposed bailout measure that he supported Monday even though it failed its first pass through the House.
The Senate intends to vote on the proposal today, and Larsen said House leaders will probably take another vote on the $700 billion package this week.
Larsen planned to meet with Skagit area business people this morning in Mount Vernon to hear their thoughts. He said he’s already heard some alarming stories from constituents who can’t get loans.
“An electrical contractor I’ve known for years was just turned down for a loan from a bank he’s done business with for years,” Larsen said.
In another case, a successful manufacturing business seeking financing for a planned expansion was turned down for a conventional business loan and had to seek less conventional financing.
The congressman said he has no doubt of the need for the bailout measure, and soon, before further damage is done to the economy.
“We need to act quickly,” he said. “People may not feel it now. But if we don’t pass it, they will feel it tomorrow.”
Meanwhile, Skagit County waits with the rest of the world to see what the next step will be.
“For now, it’s business as usual,” McCullough said “I’m still writing loans and doing the things that bankers do.
Staff Writers Aaron Burkhalter, Marta Murvosh and Elliott Wilson contributed to this report.
