Feeling the credit crunch?

Recessions usually hit some states harder than others. Here in Montana, we have been lucky that both the current recession and the last two (in 2001-02 and 1990-91) have been milder than the national average. The reason for this is that the U.S. industries most impacted by these recessions are relatively unimportant in Montana's economy. For example, the 2001-02 recession was particularly severe for high-tech industries, and high-tech is relatively unimportant here in Montana. We do have some high-tech firms, and they surely felt the impacts, but high-tech is a smaller share of Montana's economy than of the U.S. economy.

The impacts of the current credit crisis will be different. Instead of depending on where you live or the industry in which you work, the effects of the crisis will depend on the degree to which you, your family, or the business you own or for which you work depends on the borrowing or lending of money.

For both businesses and individuals, the basic problem is that banks (and other lending entities) are not very confident that borrowers will be able to repay the loans. The banks may worry that business revenues may be flat or down due to the poor economic conditions. If real estate is put up as collateral, they may distrust its value in light of the bursting price bubbles. These reasons plus a few others mean that banks (and other lenders) are reluctant to extend credit, which makes it harder for businesses to pay wages or buy inventory and for individuals to buy items such as autos or remodel their homes.

Many Montanans will say, "What credit crisis?" while others are already in tough shape. Also, it is not as simple as being approved for a loan yesterday but turned down today. You may still be able to find a loan, but it may cost more, have a shorter term, or include other restrictions. Following are some examples of Montanans (and others) who may feel the credit crunch.

* Farm equipment and automotive dealers often rely on credit to finance their inventories of new cars, combines and tractors. They may find these loans harder to find and/or available only at higher interest rates. This may be particularly acute in eastern Montana as grain growers attempt to effectively invest their recent increases in crop receipts.

* Almost all businesses where receipts do not coincide with expenditures rely on some form of credit. This includes farmers and ranchers who plant in the spring but sell in the fall.

* Have a credit card? You may be paying higher interest on your outstanding balance, have lower credit limits or higher delinquency fees.

* Want to take advantage of the auto makers' current travails and buy a new car? The 0 percent financing deals still exist, and the loan rates for new and used cars haven't changed much. But unless your FICO (Fair Isaac Corporation, which is the best-known and most widely used credit score in the U.S.) score is more than 700, you will probably not receive these deals. Last year, FICO scores of 620 would have qualified you.

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Paul E. Polzin retired as director of the Bureau of Business and Economic Research on June 30. He continues as a research associate.

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