Locals' optimism eroding slightly By Janel Watson MSNBC November 20, 2005

Neither hurricanes nor high fuel costs have put much of a damper on how Nashville's business community views the local economy.

According to Pinnacle Financial Partners Inc.'s third-quarter economic index report, more than four of five local business leaders say the local economy held steady or improved during the third quarter. About the same amount expects the fourth quarter to be the same.

But there were some signs of pessimism, or at least a holding pattern, in the study. One in eight - the highest level in the survey's two-year run - say they expect the fourth quarter to be moderately worse than the third. And 15 percent of respondents said the Nashville area fared slightly worse in the third quarter than in the second. In the spring, no respondent said the local economy was worse than the previous quarter.

Bruce Bittles, chief investment strategist at Robert W. Baird & Co., says the responses may be a little too negative.

"I can see why there was a big drop in their expectations, but my feeling is as long as energy prices continue to moderate, they will not have a huge impact on the economy going forward," he says.

The steep rise in fuel prices impacted 73 percent of respondents' businesses by either hiking expenses or forcing them to rise prices. Crude oil prices peaked at just over $70 per barrel in the third quarter but have since fallen to about $57.

"Every time, they hit $65 you'll see a slow down," Bittles says.

But not everyone in is Nashville was hit by the hike in energy cost. Cliff Duffey, president and CEO of Cybera, a network provider, says his company benefited because many of his customers are in the oil industry.

"We've had record sales, record performance across the board," Duffey says.

Bittles says the Nashville area's concerns in the quarters should focus on the impact of rising interest rates on the housing market.

"Nashville, like a lot of places, has experienced a (housing) boom," Bittles says. "And it's been a very large source of job formation."

Middle Tennessee's job growth has slowed somewhat during 2005, but still topped 11,000 jobs in September, which equates to about 1.5 percentage points year over year. Most of that growth has come in the retail and professional services sectors.

Nationally, Terry Turner, president and CEO of Pinnacle, says rising short-term rates are a sign of an improving economy.

"(The Fed's) feeling is probably that the economy is likely to overheat rather than underheat," he says.