Tennessee feels pain

The credit cutbacks spawned by the bursting of the real estate bubble are likely to hit Tennessee's economy harder than the previous recession in 2000-01 when the overheated technology industry hit hard times.

"Not all economic slowdowns or recessions are the same, and it looks like Tennessee is going to feel the effects of this downturn more than the 2001 recession, especially in our tax collections," said William Fox, director of the Center for Business and Economic Research at the University of Tennessee.

Nonetheless, Dr. Fox said the housing industry needs to adjust to the new market realities and borrowers need to be more cautious than in the past.

"In the housing area, we made way too many loans, and that needs to now be worked out," he said.

Jay Bell, president of Bell Engineering Co., Chattanooga's biggest residential developer, said his company is focused upon finishing its current projects and isn't taking on any new subdivisions.

"Everyone in the real estate industry is in a holding pattern," he said. "The local market does not need any new housing at the moment. People who want to take out a loan to build a house still can get credit, although credit is more scrutinized than it was 12 months ago or 18 months ago."

But Mr. Bell and area bankers contend Chattanooga should weather the economic storm from the credit cutback better than most communities.

While construction is likely to be hurt by a slowdown in building nationwide, construction in Southeast Tennessee should remain strong with plans for more than $4 billion of new projects in the area, including:

-- The $2.5 billion completion of the Watts Bar Nuclear Plant in Spring City;

-- The $1 billion auto plant by Volkswagen at Enteprise South industrial park;

-- A $320 million upgrade of the Chickamauga Lock;

-- A $300 million expansion of Memorial Hospital;

-- A $280 million addition to Alstom Power Co.

Mr. Butler, a 28-year veteran of the banking industry, said economic downturns "are never fun to get through, and they usually involve going back to stricter standards for lending."

But the SunTrust president said Chattanooga should not be hit as hard or as long by the slowdown as the rest of the country.

"Our economy tends to be more level through the cycles," he said. "We don't have as pronounced spikes or as big of downturns."

Staff writer Jason Reynolds and the Associated Press contributed to this report.

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