Economic analysts agree that the recession is over, with no sign of an imminent return. The bad news is, however, that ongoing recovery will likely remain turbulent and drawn out, at least until the housing market stabilizes.
That is the overall take on the nation’s economy as gauged by Anirban Basu, local economic guru and CEO of the Sage Policy Group of Baltimore. Speaking in turn to both the Baltimore Washington Corridor Chamber and the Howard County Chamber of Commerce at the end of the year, he tempered the miasma of global uncertainty with some cautious optimism.
“The global economy expanded 5.1% last year, above the typical average of 4%, or $75 trillion in global output,” Basu said, noting that the International Monetary Fund (IMF) is projecting global expansion of 4% for both 2011 and 2012.
Meanwhile, the emergence of China and India as economic engines is not necessarily bad news. “The minting of hundreds of millions of new middle class residents [there] creates opportunity for us,” Basu said.
Nevertheless, many Americans are still smarting from the loss of roughly a third of their investment wealth during the economic shakeup. Minute comfort can be taken from the perspective of viewing it as a corrective action.
Extrapolating the pre-existing market trend line beginning in 1995, “We are roughly where you think we would have been from a 1995 perspective,” Basu said, “but look at [the volatility] we had to go through to get there.”
More recently, global jitters have helped to strengthen the U.S. dollar.
“When the world gets nervous and seeks out capital preservation, disproportionally it sends its money here,” Basu said. “Where capital flows, ultimately jobs and economic opportunity follow. I suspect that sometime in the future things will get quite good around here, much better than many people might expect.”
Domestic Growth
Domestically, the United States has seen nine consecutive quarters of economic growth.
“No one is suggesting that we have [fully] recovered,” Basu said, although manufacturing states are getting a jump on states with service sector, government-led economies like Maryland and Virginia.
Of course, jobs constitute the biggest worry in the land at the moment. Adding new ones at the rate of 100,000 every month, it will take the country until at least 2017 to return to 2007 employment levels, Basu said.
“The big game changer and the No. 1 job losing sector in America is government,” he observed, specifically local government, with many of the losses coming from public school teachers.
“This was supposed to be a good year for job growth in Maryland, 30,000 would have been a good guess, but we added less than 10,000 jobs in the last year, and that’s with BRAC,” Basu noted. In fact, the state’s 0.4% job growth figure comes in at one-third the pace of the rest of the country.
An equally poor showing in the Washington, D.C., metropolitan area also will continue to hurt housing market performance, he said. By comparison, Virginia’s unemployment rate registers 0.9 percentage points higher than Maryland’s.
The major difference?
“Job climate,” Basu said. “It’s up to chambers like this to do something about it. We have done a very bad job as a business community in defining the business climate for policymakers.”
Housing Lags
The housing market continues to struggle, with few homeowners willing to sell their current home at a loss.
“In 2005 this nation produced 2 million housing starts,” Basu said. “That’s too many; 1.25 million is probably a rough equilibrium. This year we’ll do 575,000. Housing inventory, by and large, is a story of gradual process.”
Until the housing market participates in the recovery, the U.S. economy will be limited in its recovery capacity.
“I think the housing market is positioned for another rough year,” he said.
Consumer confidence remains at recession lows, although it hasn’t kept many people from shopping or buying big ticket items. “We had a soft patch in the summer, people were pulling back and there were some supply chain interruptions, but the last couple of months have been better,” Basu said. “The consumer is coming back.”
Seasonal companies were reporting good outlooks for the holiday season, he said. “You could see a soft patch emerge again early [in 2012] after consumers get their credit card bills in January.”
In 2012
The question everybody on the street is asking is: “What’s ahead?”
“More volatility,” Basu said, with the context of a $1.3 trillion federal budget deficit for fiscal 2011 portending serious consequences for Maryland and the Washington, D.C., metropolitan area.
“What if the nation recovered and Maryland and D.C. failed to participate?” he queried. “It’s possible. That’s what happens when your No. 1 industry — government — is shrinking. We’ve got an issue.”
As for the Gross Domestic Product forecast, the nation should add about 1.3 million jobs this calendar year, and the U.S. unemployment rate should hover around 9%, Basu said.
Moreover, both the Organization for Economic Co-operation and Development and the IMF are forecasting that the U.S. economy will grow 1.8%, while the National Association of Business Economists paints a rosier picture at 2.3%.
“In every case, somewhat below average, but not recessionary,” Basu said. “To me, those are eminently reasonable forecasts.”
Finally, Basu provided his own thoughts on the most effective way to stimulate jobs at the federal, state and local levels.
“I think massive infrastructure investment would be the key,” he said. “American infrastructure is no longer world class, broadband speeds are not among the fastest in the world, and it hurts innovation. We have almost no high-speed rail in this country. Fix the air traffic control system. That will create jobs in the short-term and the long-term.”
