Wednesday, October 28, 2009

Economy Improving, but Expect Slow Progress

The economic recession that has gripped the nation appears to be ending, but that doesn’t mean that conditions will improve dramatically anytime soon, University of West Georgia economist William “Joey” Smith said Tuesday.

“The good news is the bad news is close to being over,” Smith said. “We’re already seeing a turnaround at the local and probably at the state levels. By all measures at the national level we are starting to experience recovery.”

Smith, who spoke at UWG’s annual Economic Forecast Breakfast, said there remain several areas of concern, such as unemployment, home foreclosures and high vacancy rates in residential and commercial real estate.

In many counties of west Georgia, unemployment insurance claims are continuing to rise, but at a slower rate, Smith said. That’s a good sign, because unemployment insurance claims are a leading economic indicator, a predictor of future trends.

“The employment situation is starting to stabilize, but it might be a while before there is a significant drop in the unemployment rate, which is a lagging indicator, providing a look at how conditions have been,” Smith said.

Donald Ratajczak, Regents Professor Emeritus of economics at Georgia State University, also spoke at the breakfast, telling the audience that a lean job market will linger for a while.
“Georgia had the fifth-worst number of job losses in the nation. That’s not something you bounce back from overnight,” he said.

Ratajczak also said that air transportation appeared to be one of the few industries showing some employment growth recently in Georgia, thanks to the presence of Delta Air Lines and other carriers at Hartsfield-Jackson International Airport in Atlanta.

Ratajczak said the economic downturn has been brutal for businesses and consumers, but that cutbacks made by companies have helped many of them weather the storm.

“This has been the most remarkable recovery in terms of productivity. In past recessions, businesses have waited too long to cut workers. This time, they started doing it earlier, which actually helped raise productivity,” he said.

Smith talked about how the job losses have had a ripple effect on other sectors of the economy, especially real estate.

In the housing market, foreclosures have soared throughout west Georgia, Smith said, and have yet to show signs of stabilizing.

Early in the recession, foreclosures largely affected holders of subprime home loans and those who were on the margins of being able to afford homeownership, Smith said.

But as the recession has progressed, foreclosures have taken a huge toll on solidly middle class families that held traditional 15- or 30-year mortgages. Many of those households had two incomes but now have one or none, Smith said. Many of them also have had to depend on savings to pay the mortgage, and those savings are dwindling, putting them on the verge of foreclosure.

Vacancy rates, in residential and commercial real estate, also continue to be a problem.
Perhaps not surprisingly, building permits in west Georgia have plunged drastically and don’t show signs of rebounding. From 2007 to 2008, building permits for single family homes fell 56 percent in Carroll County, for example, and are projected to fall this year by 82 percent.
“The only reason we are starting to see some stabilization in housing permits really is that you can’t go below zero,” Smith said.

Despite the gloom that lingers, Smith said positive signs have clearly emerged.

“The recovery so far has been driven by optimism in the stock market and a bounce in consumer confidence,” he said.

In employment, Smith said health care and education remain the strongest sectors and that jobs in local governments will likely increase as the federal and state governments shift more responsibilities to localities.

Ratajczak said that at the national level, banks have not done a good job of making loans, which would help spur the economy. That has forced the federal government to extend more credit.
He also said that unlike the past two recessions, consumers won’t lead the recovery from this crisis, but rather businesses and government activity would.

Ratajczak said he believed the Troubled Asset Relief Program, or TARP, that bailed out a number of troubled banks, was absolutely necessary.

“You already lost about 6 or 7 million jobs in this recession. Without that, there would have been a multiplier effect that could have caused 14 or 15 million job losses.”

He also said that while a stimulus package was also necessary to shore up job losses, the one passed by the federal government was loaded with pet projects and earmarks that shouldn’t have been included.

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