Slow economic recovery predicted
DURHAM — North Carolina’s economy, like the country’s, appears to have bottomed out and is poised for what’s likely to be a slow recovery from the recession, an N.C. State University economist said Wednesday.
Employment should starting picking up soon, but the state “will be lucky” to add 40,000 jobs in 2010, economics professor Michael Walden told city and county managers from around the state in Durham Wednesday for an annual seminar.
The recovery of a consumer-driven economy is likely to be slow-paced because families will devote more of their money over the next couple years to paying down the debts they incurred while they could borrow against rising home values, Walden said.
Most forecasts suggest the recovery nationally will take three to four years, he said.
Walden nonetheless voiced optimism, predicting this state’s economy would grow faster than the national average as demand for manufactured goods returns.
“Looking at the state analytically, I would be hard pressed — hard pressed — to find a state that’s better positioned and has better prospects for future economic growth than North Carolina,” he said. “All states are facing the same issues, but we have a great ability to tackle those issues and deal with whatever the future economy is going to throw at us.”
Walden followed Gov. Beverly Perdue to the podium at Wednesday’s conference.
Like the economist, Perdue stressed it will take time to get unemployment, incomes and facets of the economy back to what they were before the recession took hold in 2008.
“This recovery is going to be slow. It’s going to be very hard,” Perdue said. “You at the local level are going to have to understand, just like we do at the state level, that things are not over yet. The challenges have only just begun.”
Walden has become one of the go-to people for local government administrators who, budgeting in mind, are eager to get a handle on economic trends.
Durham City Manager Tom Bonfield called him in a year ago to address the City Council at a budget planning retreat, and he offered a briefing elected officials said afterward heavily influenced their thinking.
Walden is also well regarded by the state’s conservatives. He has penned numerous articles for the John Locke Foundation, a Raleigh think tank linked to former Republican legislator Art Pope.
Regardless of that tie, Walden said he thought the federal government had acted appropriately in 2008 and 2009 to cushion the economy.
He noted that the Bush administration was responsible for some $950 billion in tax cuts and bailouts, to go with close to another $800 billion in economic stimulus from the Obama administration.
The Federal Reserve has matched them, pumping up the money supply by some $2 trillion.
Comparatively, “more resources have been spent fighting this recession than were spent during the [1930s],” during the Roosevelt administration’s efforts to combat the Great Depression, Walden said.
But the collapse of the housing market and other problems that caused a 20 percent, $11 trillion reduction in the citizenry’s on-paper wealth demanded such an aggressive counter, he said.
“I agree with the view we were at the edge, we were right there, and were going to fall off,” Walden said, referring to the crisis that unfolded in 2008. “The combined efforts of both administrations pulled us off the edge.”
The problem federal officials face now is deciding when to pull back some of their efforts to stimulate the economy, lest it trigger a round of inflation, he said.
Walden expects the Federal Reserve to take the lead on that, and believes the country has a two- to three-year window before inflation might assert itself.
Repeating what he told the Durham council a year ago, Walden said the Federal Reserve’s attempts to quell an unprecedented housing bubble by raising interest rates helped trigger the crash.
Economists there and on Wall Street didn’t anticipate that bubble-busting measures would cause housing prices nationally to retreat, he said. Rather, they saw price increases continuing, but at moderate, historic rates of 2 to 3 percent annually.
The housing collapse “is why this recession has been so different from other recessions,” as it has undermined bank and family balance sheets alike, he said.
By Ray Gronberg
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