The economy wasn't that great nationally or locally in the second quarter, but a panel of three business executives cited signs of recovery during The Commercial Appeal's second quarterly economic forum.

The session, held Thursday, started on an encouraging note: Fresh figures from the U.S. Commerce Department showed the economy grew 2.4 percent in the second quarter.

Most economists predicted 1.5 percent, but not Gene Huang, chief economist for FedEx Corp. in Memphis.

Huang celebrated when news flashing on his cell phone told him the rate was close to the 2.2 percent growth he had predicted.

After the session he would say that indicators of retail sales and business spending picked up steam at the end of June, persuading him to boost his forecast from 1.9 percent.

Positive, encouraging and cautiously optimistic were words Huang, Mary R. Singer, president of corporate real estate services firm Cresa Partners Memphis, and Charles G. Burkett, president of First Tennessee Bank-Memphis, used to describe their outlook for the second half of the year.

The second quarter, though, was one of sluggish growth, Huang said.

"If I have to give a grade to the condition of the economy, I would say the overall national economy is completing a transition from D to C," he said. "So is the (Memphis) area."

Although the recession ended in November 2001, according to the National Bureau of Economic Research, recovery has been uneven as industrial businesses and labor continue to lag.

That leaves transportation service businesses like FedEx with challenges related to demand for their services, he said.

Burkett said it was the banking side of First Tennessee's business where economic sluggishness showed up.

"There is very weak demand for consumer loans," he said.

Banks have asset quality issues, Burkett said, referring to the industry term for bad loans. Although the bank is paying a fraction of a percentage point in interest on many deposits, there is not a lot of use for that money, Burkett said.

A major factor: low consumer confidence, diminished in part by the war in Iraq, he said.

Growth in the amount of consumer loans the bank is making is good, but investors are still sitting on the sidelines, Burkett said.

Singer said she has never seen the amount of vacant space in industrial buildings as in the past two years.

And federal moves to increase state mandates without giving them the money to meet those requirements last year led to higher state and local taxes and budget cuts, including slashed allocations for economic development, she said.

"That's a major disconnect," she said.

The war in Iraq has affected the economy beyond consumer confidence, panelists said.

Transportation companies were indirectly affected by the drop in industrial production, giving them fewer goods to ship, Huang said.

"That has not been recovered," he said.

In turn, that has affected consumer incomes and businesses' bottom lines, he said.

Property and health insurance rates began climbing after the terrorist attacks of Sept. 11, Singer said. The war in Iraq "has contributed to anxiety and insecurity," as a result.

The war also affected the investment business, Burkett said.

Despite the weak spots, the panelists spot signs that the economy will improve by the end of the year.

Singer cited $1 billion in capital investment here last year and major economic development announcements this year by Thomson Technicolor and Hewlett-Packard. The firms are locating facilities in the Memphis area and adding more than 1,800 jobs.

Regionally, the location of a Toyota Bodine Aluminum plant in Jackson, Tenn., auto suppliers in Osceola, Ark., and rapid growth in DeSoto County are also encouraging, she said.

First Tennessee's mortgage and investment business have done well and showed signs of measurable growth, Burkett said.

The company reached all-time highs in new mortgages and refinancing because of low interest rates. The capital markets business - First Tennessee has business relationships with about 25 percent of U. S. financial institutions - has also performed well, he said.

The company is looking for 3 to 4 percent growth in the economy in the second half of the year, Burkett said.

Consumer confidence - and spending - should rise, including car and light truck sales; mortgage applications are continuing to go up and new claims for jobless benefits have dropped slightly, he said.

Local manufacturers have just about depleted inventories, meaning production increases could begin, Burkett said.

Continued efforts by the Federal Reserve to keep interest rates low and $109 billion in tax cuts will may also help, he said.

Signs of an improving economy began appearing at the end of June, said Huang.

Capital spending by businesses started upward, unemployment claims dropped and the stock market continued gains started in March - all positive signs, he said.

The last three years, though, we've seen a similar "midsummer night's dream," that turned into a nightmare by fall, Huang said.

"The odds are better now for growth," he said.

Reduced risk of international upheaval, low interest rates and four months of strength in the stock market contrast with the threat of war in Iraq and the market collapse of April to September last year, Huang said.

For Memphis, improvements may come slower than for other parts of the nation, he said.

"This area is heavily exposed to wholesale and manufacturing," he said.

The transportation services sector is also affected by the goods sector performance. As a result, it is likely that the area will continue to face tough conditions in payroll employment until the industrial sector turnaround gains noticeable traction.

- David Flaum: 529-2330