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Slow-motion Recovery Plods into Headwinds

Register-Guard, The (Eugene, OR)-March 1, 2013
Author: Sherri Buri McDonald blue chip

        Almost four years after the recession officially ended, the local economy finally looks a bit better this year, according to The Register-Guard's Board of Economists.

        The panel of five economists won't deliver their annual economic forecast at the Hilton Eugene and Conference Center until March 20. But they agreed to share some of their insights in advance for this issue of blue chip.

        Here are some of their predictions for the coming year:

        "Light to moderate growth, with risk of recession at about 20 percent," said Bill Conerly, an economist based in Lake Oswego.

        "I think we're on a steady path for slow, but continued, growth in 2013," said Tom Potiowsky, director of the Northwest Economic Research Center at Portland State University and former state economist.

        "What we're looking for going into 2013 is for the housing sector to improve. That's been one of the drivers of the economy that's been lagging since the recession," said Brian Rooney, state Employment Department labor economist.

        "There's certainly some headwinds, but I think the most likely direction is still up unless we get some big policy mistake," said John Mitchell, a Portland-based economist.

        "It will get better over the course of the year, and compared to what we've gotten over the past couple of years, it's pretty robust," said Ed Whitelaw, founder of ECONorthwest and a professor emeritus in economics at the University of Oregon. "Compared to after previous recessions, (the recovery) is pretty wimpy."

        The term "better" is relative to where we've been, the economists agree. And where we've been was a horrifying place where unemployment peaked at 12.8 percent and 12,400 jobs vanished from Lane County from 2008 to 2009 - the rough equivalent of a packed Matthew Knight Arena, which seats 12,369.

        At 8.2 percent in December, the county's jobless rate remains higher than the national and state rates, and Lane County is still down 15,400 jobs from 2007, before the recession hit. But it's made up a little of the lost ground. Last year, the job count was down nearly 17,000 from 2007, according to state Employment Department figures.

        So a forecast calling for mild improvement this year is welcome. Unfortunately, it comes with a lot of fine print.

        For starters, look at the disclaimer included in the December 2012 State Economic Forecast, Whitelaw said:

        "Forecast risks include contagion of the European debt problems and financial market instability, prolonged housing market instability, commodity price inflation, loss of federal timber payments to Oregon counties, global spillovers both up and down, undoing the federal policy used to combat the financial crisis and recession, initiatives, referendums and referrals."

        "They should have put an ellipses on the end," he said. "This is not an exhaustive list. Any number of these risks could jeopardize the speed (of recovery) or even the recovery itself."

        That said, there are reasons for optimism - namely the stirrings of recovery in the national housing market.

        There were 780,000 housing starts in the United States last year, and various forecasters predict they'll top 900,000 this year.

        "I think we truly have turned the corner on housing," Potiowsky said. "We still have delinquent past-due payments on mortgages, but at least they seem to have settled down some and are declining. I don't think it's the risk it was before, but it's still out there."

        A resurgence in building activity drives demand for locally produced lumber and other wood products.

        "Housing is without a doubt the strongest sector right now, and that bodes very well for Oregon's wood products industry," Conerly said.

        National housing starts "will get back to something like normal in a year or two," he predicted.

        "It's worth remembering that the pace of construction we had in 2005 was not normal," Conerly said. "I'm not sure you'll see that again ... unless you live to be 103."

        Mortgage rates will drift up, but are still at historically low levels, several economists said. They said they didn't expect interest rates on a 30-year fixed mortgage to rise much higher than 4 percent this year.

        "Even in my grandparents' lifetime they did not see mortgage rates this low," Potiowsky said. "You've got a combination of prices have come down and low mortgage rates, so both of those are helpful."

        That comes with the caveat, however, that it's much tougher to qualify for a mortgage today - applicants have to meet much higher lending standards, Potiowsky said.

        Although recovery has been slow, it has been relatively broad-based across the county's private sector, Rooney said.

        "We've had small gain in almost all of the private sector," he said. "We're finally starting to see some growth in construction. Manufacturing hasn't been losing jobs. Professional and business services, which includes temporary services and call centers, has been doing pretty well. Retail has been rebounding from the recession pretty well. I would expect retail to continue to grow.

        "One of the lags, a sector that isn't doing well is local government," Rooney said. "We've heard about the (job) losses in the sheriff's department, and that's important, but it's a relatively small employment loss. Also over the past couple of years local education has had some pretty big losses."

        The 2009 federal stimulus package included support for local education. But that ran out, and budget cuts followed in 2011 and 2012, Rooney said.

        "The situation wasn't as bad for (local) education in 2012 as it was in 2011, so hopefully they're going to get their budgets in line and we won't be seeing many more cuts there," he said.

        But again, the improvement is relative to where we've been, the economists said.

        "The bar has been set so low that it's pretty easy for everyone to be gaining," Potiowsky said.

        "Overall it's pretty slow for everybody," he said. "Statewide, you may see (it get) a little bit better in retail. We've already seen leisure and hospitality pick up a bit with pent-up demand, and people may be feeling a little more secure that things will improve. Health care has done well and will continue to do well. Manufacturing will kind of muddle along. I think we'll see a little improvement in the forest industry, but not huge, and the financial sector should also be doing better given the housing market should be marginally better."

        In the public sector, "state and local tax revenues have bottomed out, and they're starting to come back a bit," Potiowsky said. "It will be relatively slow coming back. State and local will no longer be a drag on economic activity and will be a slight contributor to it," he predicted.

        Lest anyone get too cocky about where the economy is headed, it's worth remembering the risks.

        Conerly and Potiowsky put the risk of falling back into recession as high as 20 percent.

        "I think the biggest risk is from Europe," Conerly said. "We're still not quite sure how they're going to resolve their debt issues."

        "If we do have a recession in 2013 or 2014, it would almost certainly be export focused," Conerly predicted.

        A slowdown of China's economy remains a threat, as does the U.S. government's tendency to leap from one fiscal crisis to the next - such as the end-of-year fiscal cliff debate, followed this month by the threat of forced cuts, several economists said.

        "That's something the government could do is at least get some stability and some direction fiscally, so we don't have this lack of confidence from not knowing what's going to happen," Rooney said.

        "Probably the bigger risk, even bigger than Europe or China, is the federal government being able to make sure the federal government is open for business and providing a plan to bring down outstanding debt gradually over time," Potiowsky said.

        Economic Forecast 2013

        What: The Register-Guard Board of Economists; University of Oregon President Michael Gottfredson; Oregon State University President Edward Ray; and others will discuss the outlook for the coming months

        When: March 20, 2:30 p.m. to 5 p.m.

        Where: Hilton Eugene and Conference Center, 66 E. Sixth Ave.

        Contact: 541-484-1314 or www.eugenechamber.com
      Section: Business FocusPage: 20K
Index Terms: STATE, ECONOMIC, FORECAST, RECESSION, 2013, HOUSING, POTIOWSKY, RECOVERY, COUNTY, ECONOMISTSRecord Number: 21892933Copyright (c) 2013, The Register-Guard, Eugene, Ore.

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