I was recently lecturing to an MBA class at a large Texas university on the subject of leadership when a graduate student asked me what was the most difficult aspect of operating a business in this economy. I didn’t hesitate when I quickly responded, “Prediction.”
Our economy, by design, is an organic environment subject to personal perception and opinion that is sometimes both our blessing and curse. Add to this perception the interdependent economies of the world that are woven together today and you can recognize that the local church needs clarity more than ever on critical decisions regarding future expansion, relocation and the various financing vehicles that can affect congregations for years to come.
True, most seminaries don’t have courses and designations for “church economists,” but the need for solid counsel to explain and humanize the financial environment, and to instruct in areas of capital expenditure, is as important now as it has ever been. I don’t believe God necessarily wants us to suspend all decisions until there is absolute stability in the market, but neither do I believe that we take the attitude, ”I know God is in control so I don’t concern myself with all that stuff,” as one friend recently suggested.
In matters where we are investing, spending and potentially financing large sums of congregational trust funds, I suggest we look to the Old Testament at the numerous times that scripture starts off, “Consider this…. ” Christianity isn’t a thoughtless religion or relationship and, in fact, requires our minds to be engaged with the events around us to make decisions bathed in prayer, in parallel with scripture and in step with the counsel of wise advisors.
So, consider this present economy, how should it affect our present decisions and what are its implications for the longer-term decisions? Is there an available measurement for helping predict how this all works out? Well, yes…. and no. Obviously, no one can predict a free market. We do however have some historical idea of how this similar scenario has played out in years past.
Our closest economic cousin to the present post Recession era is the Great Depression beginning in 1929. The question we should ask ourselves is what happened to interest rates and recovery after 1929? Most economists will agree that the Depression lasted almost a decade. It took seven years before the economic engines revved up enough to move Gross Domestic Product (the official barometer of growth) past 3%. In response to this sluggishness, the Federal Reserve kept the Discount Rate (the rate at which the government lends to member banks) below 2% for almost 15 years to enable the economy to recover.
So consider these predictions:
• Long term rates could very well remain low for a very long time, which means lower risk for those borrowing
• Relative prices for construction and labor will remain at 20 year lows for several years to come
• Land prices have made their significant adjustments downward and very few markets will decrease further
Some consider this a great time for dusting off old renovation plans; a great time to negotiate historically low interest rates with exceptional terms for long term financing to those that have healthy balance sheets; the perfect storm for taking advantage of the lowest labor and commodity prices for construction, relatively speaking, in the past 25 years.