Economic expert: a slow recovery ahead
Member of UCLA Anderson Forecasting Team says recovery is sluggish
Good news, kids: The Great Recession is over. At least by the way economists measure such things. But while the economy may be in the early stages of expansion, that pesky unemployment rate remains relatively high, and American consumers remain skeptical and not quite ready to buy that new car, refrigerator or washing machine.
That was the root message delivered at Chico State last week (Feb. 4) by economist Julia Thornton Snider, who was in town at the invitation of the school’s Economics Club. She is a member of the UCLA Anderson Forecasting Team, which Chico State econ professor Frederica Shockley heralded as the oldest and most prestigious economic forecasting group in California.
Snider touched on economic conditions and forecasts for both California and the nation during her PowerPoint-aided talk, which actually came off as though she were talking to a close friend over a glass of wine.
“So,” she began with a single clap of her hands, “this recovery. Funny that we call it that, right? It looks like a recovery in some ways, but not so much in others.”
She brought up a graph showing the nation’s monthly initial claims for unemployment measured against the size of the labor force. It showed the many periods of recession that have occurred in the past 44 years, and in each case, without exception, the initial monthly unemployment claims spiked late in the economic slump before coming back down.
This, she said, is because of the way a recession is defined, which is primarily based on whether the total value of goods and services produced is growing.
The unemployment rate, she explained, is what economists call a lagging indicator; it tends to keep rising even during a recovery. Actually, she said, the current unemployment rate did not spike as high, relatively speaking, as those of the recessions in the mid-1970s and early ’80s.
This time around, while unemployment isn’t as high, those who are out of work are hurting in the long term. Snider noted that the index for residential construction in the past recessions fell greatly but came back fairly quickly. In this case the index remains bottomed out. “There’s really not much building going on in the nation as a whole,” she said.
The same holds true for the state.
Next she showed what she called “another somewhat depressing graph”—the accumulative payroll job losses surrounding the last several recessions. The depressing part about it was that the payroll job losses in past recessions, including 1970, ’75, ’80, ’82 and March 1991, showed quick recovery.
“Each recession has a different nature of what’s going on,” she said. “In the early ’90s in California, when the Cold War ended, we lost a lot of aerospace jobs, and those are jobs that are not coming back,” she said. “It’s one thing to have a 1970s stagflation-type of recession where the factories say there is no demand right now and when it does pick up the same people will come back to the jobs.
“But with the defense industry or the tech bust, whole industries were overbuilt, and those jobs aren’t coming back. Those people can’t just wait the recession out. They have to move to something different, which is a longer and more painful process.”
And people were concerned with the 2008 bailout and the way it was sold in Congress.
“The way that was sold was: ‘Please give us this bailout or we might have another Great Depression.’ That scares the living daylights out of people. You get consumers in a really frightened state when they start hearing this sort of thing. And consumer expectations are really important to a recovery.
“If you don’t feel very good about where the economy is or where it is going, you probably don’t think it’s a very good time to buy a house or buy a car or even a new dishwasher or microwave oven.”
She also said politicians should resist the pressure to tinker with the perceived trade imbalance, where America is importing more than it is exporting. Buying products from China does not provide as much bang for the buck as does buying domestically made products, but placing tariffs on imports will only anger trading partners who will do the same in return.
As far as Sacramento goes, last year’s election, she said, shows that the California legislature can be functional.
A lot of the institutional barriers, like a minority budget veto, are gone due to some of the propositions passed last year.
“The tools are potentially there for the state to create a history of budgets passed on time in balance and without smoke and mirrors,” she said. “If that happens, of course, it creates confidence in California’s government, reduces uncertainty, lowers borrowing costs, and that would be great for California’s economy.”
As a final forecast, she predicted state unemployment will not cross into the single digits until late in 2012.