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November 19, 2010
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Economic Forecast: Despite Clouds, Michigan to Gain Jobs in 2011
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Dr. George Fulton is Director of the Center for Labor Market Research.at the University of Michigan.
Although Michigan is expected to gain about 24,500 jobs next year --first growth in 10 years -- the Great Recession is far from over, say University of Michigan economists.
As the 58th Annual Economic Outlook Conference was underway Thursday and today in Ann Arbor, a leading expert on economic sentiments said consumer attitudes and expectations remain at such historically low levels.
Today, U-M economist George Fulton, speaking at the conference, predicted the state will add 24,500 jobs this year, -- the first gain in 10 years.
Prof. Fulton also said that Michigan will gain about 63,000 jobs in 2012.
The final total for this year is expected to be a loss of 17,000 jobs, economists said.
"With high rates of unemployment and home foreclosures persisting, for many among us the economic distress will continue," Fulton warned.
According to Fulton, the unemployment rate will remain above 12 percent next year before falling to the 11 percent range the year after.
Consumer sentiment has barely changed in two years, comparable to the 1974-75 and 1981-82 recessions, said Prof. Richard Curtin at Thursday's conference opening.
Unlike the 1990-91 and 2001 recessions, the 2008-09 "Great Recession" changed consumer spending patterns and lowered confidence so much that it will hold down GDP growth, said Mr. Curtin, a University of Michigan Economics professor and director of the Reuters/U-M Surveys of Consumers at the U-M Institute for Social Research.
"The Great Recession is not over," he told an audience of economists and officials at the U-M Research Seminar in Quantitative Economics. "We're not out of this woods yet, and it's going to be a long time before we get out of it."
Mr. Curtin said consumers are in a retrenching position. They want to know when unemployment will fall below 5 percent, when robust personal income growth will return and when the values of their pensions and homes will be restored, he said.
Consumers are more optimistic about the economy as a whole than their own personal financial situation, Mr. Curtin said. The vast majority of respondents in U-M's surveys of consumers report they are still worse off than the previous year.
For 23 consecutive months, a majority of households have said they expect no improvement in their personal finances.
"We haven't seen a bit of improvement in that series, not a bit," he said.
Just 23 percent of those surveyed in November said they expect their personal financial situation to improve, near the record low of 20 percent in the early 1980s. And there's a steep decline in faith that President Barack Obama's policies will help.
"It's not that consumers do not expect the economy to improve in the year ahead," Mr. Curtin said. "But they expect that improvement to be so slow that it will not immediately affect their own financial situation."
"It's no surprise that the Democrats 'took a shellacking' in the midterm elections," said Mr. Fulton in his economic forecast. "As the party in power, they were held responsible for the electorate's dissatisfaction with current economic conditions. The number one problem, according to the campaign rhetoric, is jobs, jobs, jobs.
"And no wonder: from the end of 2007 through the end of 2009, the national economy lost more than 8 million payroll jobs." In more than 50 years, no two-year job loss has ever come anywhere near 8 million (or its corresponding relative job loss of 6 percent).
Employment did begin to edge higher at the start of this year, but new jobs have still been hard to come by. Through October, payroll employment has risen by 874,000 jobs, or less than 100,000 jobs per month.
Private sector job growth was a bit stronger, but government downsizing at the state and local levels offset part of these gains. The unemployment rate, which got as high as 10.1 percent last year, has been stuck above 9½ percent for most of this year.
Historically, recoveries after financial crises have been less vigorous for a number of reasons. It takes time to restore a fully functioning financial system, especially while many economic players are de-leveraging.
"In addition, the imbalances in the housing market had to be corrected, and that has proven to be a very intractable problem," according to the executive summary to the forecast. Thus far, the current economic recovery has been uneven. After increasing at an annualized pace of 4.4 percent during late 2009 and early 2010, output grew at only a 1.9 percent rate in the spring and summer quarters.
Part of the strength around the turn of the year came from rebuilding inventories that had been depleted during the recession. The additions to output growth from inventories have since moderated.
Consumer spending has risen at a steady but sub-par pace as households work on paring down their debt. The home buyer tax credit pulled activity forward into the first half of the year, but that was followed by a payback period for both homebuilding and sales of existing homes in the third quarter. A surge in imports in the spring and summer has weakened output relative to domestic demand.
"In light of the midterm elections, the fiscal policy outlook is particularly uncertain, Mr. Fulton said, adding: "The Bush era tax cuts, as well as the 'making work pay' credit from last year's stimulus package (ARRA), are due to expire at the end of the year.
"We have assumed they will be extended for the next two years since allowing all the cuts to expire would have a wrenching effect on an already fragile economy, and crafting a compromise that maintains selected cuts while allowing others to lapse seems politically problematic. There appears to be little appetite for any further broad fiscal stimulus."
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