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Sunday, September 5, 2010 |
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| Any recovery will be slow, 2 UA economists predict |
By Dan Sorenson |
ARIZONA DAILY STAR |
June 10, 2010
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The Great Recession is definitely over here, but don't expect to just walk it off.
Some economic pain remains. There is serious risk still ahead. And tax increases seem an inevitable part of a lasting recovery, two veteran University of Arizona economists said Wednesday in their annual midyear forecast.
Despite insistence that the recession ended locally late in 2009 and that there are positive signs, nearly every bright spot or glimmer of economic hope was followed by a shadow of doubt as Marshall Vest and Gerald Swanson looked at the local and national economies. They spoke at the UA Eller College of Management's economic update at the Doubletree Hotel.
Neither Vest nor Swanson had much positive to say about federal stimulus programs, mentioning them mainly as being a drag on the economy when they end.
Vest said the slight recovery in local home sales over the last three months has started to fade, due largely to the end of the federal program to encourage first-time home buyers.
And both predicted the end of the federal stimulus package late in this year will further stress the already-strapped state government. In turn, Vest said, look for the state to let more responsibility for services trickle down to the cities and counties.
Swanson said the slight recovery in the U.S. gross domestic product starting in late 2009 was fueled in part by "Cash for Clunkers," the mid-2009 federal program that helped owners of less-efficient older cars and trucks buy fuel-efficient vehicles. "As the stimulus wanes," Swanson said, "we're expecting the economy to drop down again to somewhere between 2.5 to 2.8" percent GDP growth, from the current 3 percent. He said that was "still too slow to solve our unemployment problem."
As with most employment-sector predictions throughout the recession, Vest projected the largest job gains locally will be in health care. Jobs in education, but primarily in private-sector schools rather than public, are expected to follow health care.
While the economists predicted modest, increasing job growth locally, Vest warned that we should not look at unemployment figures to gauge the local recovery. He said unemployment claims are a trailing, rather than a leading, indicator and could continue to rise, even as the local economy rebounds.
That is due in part to the record depths of this recession's unemployment figures. Not since the Great Depression of the 1930s have so many people remained unemployed for so long.
Despite record unemployment-benefit extensions, some people still have not found jobs. Some of those people are what Swanson and Vest called "the unemployable man" - ages 24 to 54, with no more than a high school diploma and who not only is out of work but who has quit looking for a job.
Besides reappearing as unemployed job seekers when they hear the economy is picking up and there might be jobs available - and swelling the unemployment numbers when the resume job hunts - these men will have to settle for lower pay and fewer benefits when they are rehired, Swanson predicted. He pointed to an expansion of an Illinois Ford plant where he said 12,000 people were being hired at roughly half the pay of existing workers, and with fewer benefits.
Meanwhile, there still are downward pressures on the recovering economy, both economists said. "The biggest risk is Congress will do nothing (and) allow the Bush tax cuts to expire at the end of this year," Vest said. "Taxes do need to go higher, but the timing is awful."
And Swanson said the refusal of many members of Congress to rule out a value-added tax - in effect, a national sales tax - suggested to him that the VAT may be something we'll soon hear proposed as a solution to the continuing federal budget deficit.
"My prediction: There is a value-added tax coming to a store near you soon. It's on their minds. Seventy percent of all spending in this economy is consumption."
More locally, Vest warned that "real estate and the public sector will continue to be drags on the overall economy and will moderate the rate of growth. This economy can't really start growing rapidly until we start building homes again."
Contact reporter Dan Sorenson at 573-4185 or dsorenson@azstarnet.com
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