No immediate remedy seen for economic malaise

For months, the economic data have been dizzying: Housing is up! Housing is down! The market is up! The market is down! Confidence is up! Confidence is down!

All of that "noise," as one local economist calls it, conceals an economic malaise that has set in like a low-grade fever. Despite President Obama's heightened attention to the middle class in his State of the Union address tonight, experts agree there is no immediate remedy for the crippling aftereffects of the recession, as long as the following remain in short supply:

Jobs. Money. And job security.

"We have double-digit unemployment," said Justin Wolfers, associate professor of business and public policy at the University of Pennsylvania's Wharton School. "The patient is very sick."

The 10 percent national unemployment rate is expected to reach 11 percent later this year, clouding talk of recovery and fomenting discontent in political discourse.

"Even though 90 percent of people are employed, when you see 10 percent of the others getting hit by it, it makes you wonder as an employee whether you're next, how secure your job is," said economist Lonnie Golden, a labor expert at Pennsylvania State University who is holding a talk on the topic tonight at the school's Abington campus.

While it is easy to focus on the negative, the fact is that Americans are in much better spirits than they were in February, March, and April of last year, when consumer confidence plummeted to record lows and the economy was purging hundreds of thousands of jobs a month.

The monthly Conference Board Consumer Confidence Index, released yesterday, was 55.9 in January - well above the record low of 25.3 set in February 2009, said Lynn Franco, director of the board's Consumer Research Center.

But it remains well below the level of a healthy economy - 90. And it is significantly lower than the July 2007 peak of 111.9, or the 144.7 reached in 2000, before the dot-com bubble burst and the 9/11 terrorist attacks occurred in 2001.

"It was a different world back then," Franco said.

People do not have faith things will be much better in the near future. More people believe their incomes will drop rather than increase six months from now, according to the Conference Board.

"The first thing we need to see is a turnaround in the labor market," Franco said. "Since jobs are the primary source of income, that will alleviate some of the concerns that consumers have regarding their earnings."

When will the confidence index manage, at least, to rise out of the 50s, where it has hovered for several months?

"That's the magical question," Franco said. "I think confidence is going to go as the labor market goes."

The true extent of today's unemployment problem is masked by the incredible shrinking workforce.

Since the start of the recession two years ago, 5.8 million people have left the workforce, even as the population of working-age people has increased. More college students are staying in graduate school, mothers are staying home, and many people who have lost their jobs are too discouraged to look.

Just to keep pace with the growing working-age population, the economy must create 120,000 to 150,000 jobs a month, according to many analysts. That means that in the two years since the recession began, the economy should have created 2.88 million to 3.6 million jobs.

Instead, it lost 7.24 million positions, which probably will rise to 8 million when the U.S. Labor Department revises its calculations next month.

Over the next year, the economy would have to create as many as 13.4 million jobs, or more than a million a month, to reach prerecession employment levels while also accommodating new workers.

Nobody is predicting that kind of growth.

"That's why it's important that we remember we have a very long road ahead of us. We may see a month or two of job growth this quarter, but that doesn't mean the economy has recovered," said Ryan Sweet, a senior economist with Moody's Economy.com in West Chester who specializes in the local economy.

Sweet predicts the unemployment rate will peak at about 11 percent nationally and about 9.6 percent regionally in the third quarter of this year. But unemployment won't return to "normal" until late 2013 or 2014.

Normal unemployment, which used to be 4.5 percent, will then be 5.5 to 6 percent. "A lot of the jobs lost in manufacturing and construction are never coming back," Sweet said.

With all the ups and downs of economic reports, employers seem to be taking a "wait-and-see attitude" before adding permanent jobs, focusing instead on temporary workers for now, said Golden of Penn State.

Indeed, hiring is on the back burner for a large majority of eastern Pennsylvania business leaders. Only a quarter of the 271 executives at companies with annual sales between $5 million and $200 million expect to add jobs this year, according to a survey released yesterday by First Niagara Bank of Buffalo, which is moving into the Philadelphia region with the purchase of Harleysville National Corp.

And while the retail industry expects consumers to come out of hiding a bit more this year, with a modest 2.5 percent projected increase in retail sales for 2010, the battered housing market remains in flux.

Housing prices are down by a third in major markets since their 2006 peak. And there is no clear sign of a sustained recovery, with historically low interest rates likely to rise by year's end.

A year ago, Obama pushed through the American Recovery and Reinvestment Act of 2009, which sought to stem job losses with federal spending.

But state-government woes have worsened. California is facing a 49 percent budget shortfall this year. Pennsylvania's projected revenue will fall 18 percent short of expenses, and New Jersey's, 30 percent short.

"It's no longer the case that all economists are confident that we've hit a trough," Wolfers said. "It may be a rocky bottom we've hit."

 


Timeline of a Recovery

Among its predictions, Moody's Economy.com expects a hopeful 2011:

2009

Jan. Home sales bottom.

March. Stock market hits a low.

April: Banking system stabilizes. New-home construction hits bottom.

May. Retailing stabilizes.

Aug. Economic downturn ends.

2010

Feb. Employment hits bottom.

May: Home prices bottom. Foreclosures peak.

Aug. Jobless rate peaks.

Dec. Fed raises rates.

2011

Jan.-Feb. Home prices resume rising. Self-

sustaining expansion begins.

June. Inflation accelerates.

Sept. Extraordinary bank failures end. Securities markets up and running.

Nov. Fiscal pressures intensify.

SOURCE: Moody's Economy.com


 

What is your take on the economic state of the union? Take our polls on how you've been faring during the recession, by going to http://go.philly.com/economy.


Contact staff writer Maria Panaritis at 215-854-2431 or mpanaritis@phillynews.com.

Inquirer staff writers Harold Brubaker, Jeff Gelles, and Alan J. Heavens contributed to this article.