Date posted: 2-21-01

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Businesses don't feel rate cut yet

By Veronica Thomas

DeKalb News Service

ST. CHARLES -- Some area businesses, which hoped the lowering of interest rates on Jan 31 would improve the slowing economy, say they haven't seen an improvement in business since the Federal Reserve Board announced the cut.

For the second time in less than a month, the Fed, voted to lower short-term interest rates, the rate banks charge each other to borrow money, by half a percentage point.

Earlier in the month, Fed Chairman Alan Greenspan testified that economic growth had "slipped very dramatically." He said the economy has gone from a growth of 5.6 percent in the second quarter of last year to virtually no growth. Greenspan said the cuts are necessary to keep the country out of a recession.

Bernice Bunker, a real estate agent at Century 21 in St. Charles, said she hopes the rate cut will improve business, but so far hasn't seen a change.

"A lot of people are talking about it, but they think the rates will go down further and so they want to wait," she said.

W. Scott Bauman, a finance professor at Northern Illinois University in DeKalb, said that while he agrees with the rate cut, it will take six to eight months before the cut will affect the economy. Capital goods, consumer durable goods and construction industries will benefit, he said.

Tony Chan, a sales associate at Sears in St. Charles, said he hasn't seen an increase in business at his store since the January rate cuts were announced.

"We're happy when the Federal Reserve cuts interest rates," he said. "Because hopefully people will have more money in their pockets and then they'll be more inclined to spend it, but I haven't seen any changes yet."

"We were busy when the Fed made the first rate cut in January," said Dustin Nates, an investment banker trainee at Bank One in St. Charles. Nates saw an immediate change in the amount of people refinancing their homes, but didn't see a change in applications for other types of loans, such as car loans.

"Many people don't realize that on a 15-year mortgage, half a percentage point doesn't really save them much money, said Nates." If we call customers to tell them we're lowering our rates, we don't see any change in business, but when the government makes an announcement like that, people just flock in."

Bunker said she spoke with three real estate agents in other offices in the area and they report business is slow. "There's still a general worry about the economy," she said. "We're not seeing the enthusiasm we thought we'd see."

Source list:
· W. Scott Bauman, Finance Professor at NIU. (815) 753-1354
· Bernice Bunker, Realtor, Century 21, St. Charles. (630) 377-6100
· Tony Chan, Sales Associate at Sears in St. Charles. (630) 513-3257
· Dustin Nates, Investment Banker Trainee, Bank One, St. Charles. (630) 377-0904