Expert predictions call for gradual improvement

This year is about recovery.


At the beginning of 2009, economists forecast that the recession would end in the fall. They stand behind that prediction today, saying the recession is technically over and probably ended a few months ago, though all the data to prove that aren't out yet.

"It is probably over just about everywhere," said Mark Vitner, the senior economist for Wells Fargo Securities. "There is a lot of trepidation about this recovery. The perception is that we're still in (recession)."

Recovery from the Great Recession is being described as sluggish and difficult. There are even worries this is a false recovery and the recession could start again.

"Locally, it has been a tough year. In some aspects, we've been sheltered from some of the worst consequences of the national recession," said Simon Medcalfe, an economics professor at Augusta State University.

It is hard to see that things are getting better in the early stages of recovery, Mr. Vitner explained, because the unemployment rate doesn't drop right away.

The number of unemployed in the Augusta metro area peaked at 26,500 in 2009 -- 9,000 more than its high in 2008. Augusta-Aiken's unemployment rate was 9.2 percent in November, the latest month available.

"Some people are thinking it may take five years to get back down to 5 percent," Mr. Medcalfe said.

But both economists are predicting job growth in Augusta this year, though that reversal of job losses won't be evident until the spring and summer.

More jobs anticipated

"You should see 3,000 net new jobs created over the next year," Mr. Vitner said.

He is predicting job growth of 1.5 percent to 2 percent for 2010.

Fewer companies are laying off workers, and more companies are increasing their spending.

"When companies need to pay overtime, that's a good sign," he said.

Why won't it be evident for another six months? Well, that's because employers are going to make sure their sales have recovered before they start adding people, said Michael Toma, the director of Armstrong Atlantic State University's Center for Regional Analysis in Savannah, Ga.

"Adding employees costs money. Firms want to be confident about their outlook before they begin to hire new employees," Mr. Toma said.

The unemployment rate could tick upward again before it starts to decline, Mr. Medcalfe said. "It will go up a little in the new year. It may be down 1 or 2 percentage points by the end of the year from where it is now," he explained.

That's because of the nature of the rate. Half of it is based on the number of people looking for a job. When unemployed people give up on a job search, they aren't counted as part of the active labor force.

"When things pick up, they get surveyed as unemployed when they start to look again. The rate lags behind the economy for that fact. Even if recovery begins, the rate may still be three to six months behind," Mr. Medcalfe said.

Mr. Vitner said manufacturing could drive some of that job growth.

"Inventories have been drawn down for such a long period of time that even a modest rebound is going to cause manufacturing activity to come back solidly," he said.

Housing permits are up 61 percent from a year ago, so maybe construction provides some new jobs in the new year, Mr. Medcalfe said.

"It won't be a rip-roaring ride, but we probably don't want that anyway considering the bust we had after the last one," he said.

Stable housing

Most of the housing bubble burst missed Augusta. With little house flipping and few subprime mortgages, there wasn't a period of skyrocketing prices and a glut of people holding bad mortgages.

"Georgia still has struggles, but that is in the Atlanta area due to the housing bust," Mr. Vitner said. "A lot of small community banks participated in the housing boom, and that has led to a rash of bank failures. Haven't seen those problems in the Augusta area. The nation is getting back to basics. Augusta is as basic as you can get."

Housing prices and construction will remain steady in 2010.

The concern: There are still a lot of people out there with negative equity in their houses.

In Georgia, about 24 percent owe more on a house than it is worth, Mr. Medcalfe said.

"Oh, dear, we might have to live in our houses for a while instead of using them as investment vehicles to turn a profit. But it does drag the economy in terms of people's spending power," Mr. Medcalfe said.

It also affects people's ability to move to better jobs.

Cautious spending

Consumer spending will signal how fast the economy recovers.

"People have been bitten by this recession. People are saving more and paying down debt. And I don't think that is going to change quickly," Mr. Medcalfe said.

People are saving more because there's a worry about becoming unemployed.

Therefore, Mr. Medcalfe doesn't foresee an increase in consumer spending until the middle of the year.

"There is an irony here. Part of the problem we had going into the recession was huge amounts of consumer spending taking on so much debt and causing bubbles," Mr. Medcalfe said. "The way we're going to get out of it is to encourage people to spend more, take on more debt. Have we not learned anything from the past? I think consumers have."

In the short term, that is going to mean the economy doesn't recover quickly. Long term, it means a stronger economy with a build-up of savings, he said.

Another recession?

It is called a double-dip recession: One recession ends, the economy starts to trend upward and then recedes again.

"I don't feel there will be a double-dip recession," Mr. Toma said.

He said a recession in 2010 would require an unforeseen, major trigger to send the stock markets and consumer confidence tumbling.

By major, he means something like the sudden collapse of a company that was thought to be in good financial shape.

"A jobs report that isn't favorable is not going to make a substantial difference in consumer confidence," Mr. Toma said.

It will also take another pull-back in consumer spending to cause another recession.

Reach Tim Rausch at (706) 823-3352 or

The 2010 Crystal Ball

Employment: A net gain of 3,000 jobs in Augusta by the end of the year; hiring won't be evident until the middle of the year

Unemployment rate: Increases initially and then tapers off to be 1 or 2 percentage points below its current level of 9.2 percent

Housing: Prices and sales and new house construction permits remain steady

Foreclosures: Though never as bad here as in other parts of the nation, will remain a concern for the first half of the year

Consumer spending: Will remain cautious and practical; people are paying down debt and saving more in case of unemployment