WATERLOO - Perhaps the economy cut into the recent New Year's celebrations.

But, if economic analysts' predictions come true, next year's festivities could be a mite happier.

"I think economically, locally, it's going to be OK," said Brad Lee, principal of LPL Financial in Cedar Falls. "I think '09 will be a better year than '08."

But, Lee qualified that statement.

"I don't think it can be much worse," he said, chuckling.

For months, local financial consultants and banking officials have insisted that the Cedar Valley actually has eluded much of the pain of the current recession. Housing prices, which have collapsed on the East and West coasts, have remained relatively stable, as have sales trends, they have said. Banks continue to lend money. Retailers reported acceptable holiday sales traffic.

Their optimism is shared by others outside the area.

"I think that, in the Midwest, you have a lot more homegrown industries," said Laura DiDio, principal analyst for Boston-based Information Tech Intelligence Corp. "I think people there are more self-reliant. So, you have a greater proportion of local businesses and a greater diversification, and that really helps."

She pointed to automobile-manufacturing capital Detroit as the lone exception.

"They're tied one industry," she said. "You've got a lot of industries in Iowa, and that protects you."

Not that the Cedar Valley will be spared some of the pain and angst that grip the rest of the country, DiDio added.

Patience, she said, will be required.

"Generally, I think it's going to be bearish for awhile, but there's always room for innovation," she said. "You never know who the next Google is going to be."

Lee agreed that things would improve.

"We're probably going to see a little softening in the unemployment market but not nearly what we see nationally," Lee said. "Houses are still selling, if they're priced right."

There also is some economic growth, Lee added.

"We have some new busienssess coming to town, including the new Target (perishable food distribution) center," he said.

The 43-acre Cedar Valley TechWorks project is still in its embryonic stages, but it will be bringing in the University of Northern Iowa's National Ag-Based Lubricants program as its first tenant in the Tech 1 building in February. Cedar Rapids-based MCG BioComposites LLC has come onboard as a consultant and also will occupy space in the TechWorks complex.

"By mid-'09, I think you'll see many different areas start to see some improvement coming," said Casey McLaughlin, owner of McLaughlin Investments in Waterloo. "Whether it's homeowners or consumers, along with businesses and the financial sector, you'll see some vast improvement, simply because of the (anticipated) stimulus, interest rates and TARP (the federal government's $700 billion Trouble Assets Relief Program)."

Employment

The Cedar Valley's jobless rate developed some hiccups toward the end of the year, although unemployment actually dipped below 4 percent in November, while the national rate approached 7 percent.

Analysts say they expect similar trends in the job landscape in 2009.

"I believe the (national) unemployment rate will peak somewhere between 7.5 to 8 percent," McLaughlin said.

The Cedar Valley and Midwest jobless rates should continue to lag well behind the national level, he added.

But, he added, there are a few caveats.

"The national rate will be (higher), and people will be uneasy and will be more cautious about spending until we see additional jobs coming to the forefront," he said.

But, McLaughlin added, an 8-percent jobless rate is not as high as it has been in the not-too-distant past.

"You take a look at '80s, and you'll find our unemployment rate was around 10 percent at that time," he said.

DiDio said certain workers have less to fear than others.

"There are always some recession-proof industries: divorce lawyers, health-care professionals, tax lawyers, people that the rest of us think of as sort of vampiric," she said. "It's macabre, but there are people making money off other people's misery."

Cutting-edge companies also are likely to withstand downward economic pressures, DiDio noted.

"You have other businesses that are likely to do well," she said, pointing to high-tech firms and companies that deal in "clean" energy.

Gas prices

McLaughlin said gasoline prices, which hit their peak nationally, at $4.11, and locally, at $3.89, in July, before tumbling dramatically in the fall, should remain stable.

"I can see them around $1.70 a gallon, possibly reduced significantly," he said. "It depends if we can keep it (the price of oil) below $50 a barrel. In that case, you could see it below $1.60 a gallon."

All variables, including refining capacity, have to cooperate, however, he noted.

"Without the additional refining capabilities, it's going to be hard to keep gas prices low," he said.

Housing

McLaughlin said the housing market should remain volatile, at least nationally, and foreclosures may rise slightly.

"I believe that the information I've been gleaning is anticipation for foreclosures to be somewhere in that 3 percent range, from the traditional 1 percent range," he said. "I think we're still going to see that housing situation be a concern for the first half of '09 until we see that bottom out."

The supply of housing likely will rise, as foreclosures inch upward, McLaughlin said.

"The fact is, there's so much (federal) assistance being given to that area of concern, you'll see some improvement quickly in that regard," he said.

Reduced interest rates for first-time home buyers likely will help, McLaughlin said.

"I think that will have a couple of effects," he said. "One, the first time home buyer will be on more solid financial footing. They'll be looking for a 20-25 percent down payment. That may make those mortgage payments more manageable."

Lending practices will continue to adjust to the realities of the economy, McLaughlin said.

"I think folks have gone through a period where they realize they have to have a mortgage payment they can be comfortable with," he said. "You'll see more fixed rates and the traditional lending package come into play more seriously, especially with interest rates low. That's a good time to lock in, rather than going with ARMs (adjustable-rate mortgages)."

Cedar Valley housing likely will remain strong, compared to other markets in the U.S., McLaughlin noted.

"Actually, our real-estate market has not been hit as hard as coastal and southern states, and I believe that will continue," he said.

Stock market

Lee said 2009 will be a good time to jump into the market.

"Now, stocks are incredibly cheap," he said. "I think the economy will slowly start to stabilize. I don't think we'll see a recovery, per se, but we will see some stabilization."

He added that the Dow, which fell from a record volume of nearly 15,000 shares in October 2007 to around 7,000 a year later, likely will not show such wild fluctuations in 2009.

"I think the market will slowly rebound," he said. "You'll see higher highs and higher lows. In other words, I think we'll see a top side in the Dow of, maybe, 10,000, if everything goes right, and lows of about 8,500."

The Dow should bounce between those numbers all year, he said.

McLaughlin said also expects the market to stabilize.

"The stock market tends to be a forward-looking indicator, and we expect the real economy, unemployment and especially the credit markets to thaw a bit," he said.

However, he added, improvement will be slow in coming.

"We anticipate it will be the fourth quarter, possibly the first quarter of 2010, before we see significant improvement in the economy," he said.

Outlook

Don't expect the economy to even approach the "depression" level, the analysts say.

"I don't think we're heading to another depression, because the banking system is set up differently," Lee said. "The Great Depression, when you look at the numbers, was a pretty incredible phenomenon. The number of banks that failed. People standing around looking forlorn. I would say I don't think that's going to happen."

McLaughlin agreed.

"We're not even close to a depression situation," McLaughlin said. "There are certain parts of the country feeling a lot more pain than in the Midwest, taking it on the chin more intensely than here. On the other hand, it affects everyone's mental outlook. If unemployment remains high anywhere, people everywhere will remain concerned."

Contact Jim Offner at (319) 291-1598 or jim.offner@wcfcourier.com