Economist: Downturn is coming to an end
BAXTER - The recession is coming to an end but the recovery is likely to be lackluster, arriving in the lakes area a little later than other parts of the nation.
Those were some of the thoughts from economist Martin Regalia during a speech Wednesday in Baxter. Regalia is senior vice president for economic and tax policy and chief economist at the United States Chamber of Commerce, which represents the interests of business. In 2008, Regalia was listed as one of the top 10 economists by USA Today based on previous forecasts.
"We are coming out of the absolute worst economic downturn this country has seen since the Great Depression," Regalia said, noting when he first heard that a year ago he thought the dire prediction was overstated. "But it's true. When you actually look at the statistics, it's true. ... We are clearly looking at a broad-based serious economic downturn. Fortunately it's I believe coming to an end."
Martin Regalia
The recession has had its grip since December 2007. Regalia illustrated the recent economic experience with sobering bar graphs and charts. Dramatic drops in retail sales, disposable income and expenditures, and home starts/sales/prices on one side; increases in unemployment, mortgage delinquency, foreclosure rates and housing affordability on another.
Minnesota went into the recession a little later than most areas of the county, Regalia said, and it will probably come out of it a little later as well. Minnesota's agricultural base helped in this downturn because it was not hit heavily during this recession.
"With the recovery being somewhat subpar it is conceivable that discretionary purchases will be a lagging indicator of the economic recovery," Regalia said, noting it may take a little longer before the tourism industry picks up although there are always exceptions.
Regalia said he sees subpar economic growth continuing through the first part of 2010. Consumption accounts for 70 percent of the economy, Regalia said, and that spending is driven by income and wealth. In this economy, Regalia said people lost $13 trillion in household wealth and it will take time to get it back. But the country is going to see it going in the right direction, he said, as the housing market is stabilizing and stock market rebounding. He noted real income growth is expected next year but it won't be strong.
The downturn has created a pent-up demand for consumer spending and there have been programs that worked - such as Cash for Clunkers - or are beginning to work - such as the $8,000 tax rebate for new home buyers.
Regalia said the U.S. Chamber of Commerce supports the use of tax credits. Without government intervention the recession would have been deeper and lasted longer, Regalia said
"We've lost 7 million jobs since the beginning of the recession," Regalia said. "We've lost 3.8 million jobs since the beginning of this year. We are still losing jobs. Last month we lost 216,000. That's an improvement. That's a dramatic improvement. You know how bad things are when somebody can stand up here and justifiably say, losing 216,000 jobs in a month is a dramatic improvement."
In the next 10 years, Regalia thinks more than 20 million jobs will be needed to replace lost jobs, help those underemployed and those workers so discouraged they are no longer looking as well as those fresh faces just entering the job market.
Regalia said there is a 10 percent to 15 percent chance the economy will sink back into a downturn as the slow recovery makes it more vulnerable.
He was concerned with how the government would extricate itself from its unprecedented involvement in business.
"We have to put the rabbit back into the hat and we've got to do it without killing the rabbit," he said.
He said the government's enormous debt loads are concerning because of generating inflation, raising costs and shifting America's wealth to other nations that are lending us money.
For consumers, the challenge may be finding the right balance between spending and a newfound appreciation for a healthy savings account and getting out of debt. As for loosening of credit, Regalia said things are moving in the right direction. He expects significant improvement in the next two to three months and even more in six months because the Fed will make it more expensive for banks to sit on that liquidity.
"It is moving in the right direction, but this was a horrible lock up in the financial markets, I mean truly unprecedented," Regalia said after his presentation. "We were so close to the abyss that people that aren't involved in it will never know. I mean the average American has no idea at how close we came to a total meltdown in the financial market ... A total complete meltdown. And we have backed away significantly but a lot of people are still breathing heavily over the experience and as a result are not willing to jump right back in."
Greg Bergman, Small Business Development Center director at Central Lakes College in Brainerd, was struck by Regalia's comments on the overall economic picture and the effect of debt on a national scale, noting news of a recovery, even a slow one, was positive.
Regalia spoke Wednesday at The Lodge at Brainerd Lakes in Baxter as part of a Brainerd Lakes Chamber Before Hours event hosted by its Lakes Vybe group.
RENEE RICHARDSON may be reached at renee.richardson@brainerddispatch.com or 855-5852.