Guest economist predicts ‘slow and painful recovery’
The shape of Nevada’s economic recovery resembles a sagging “U” rather than a sprightly “V,” economist Jim Rounds told a packed house at Carson Valley Inn on Tuesday.
But even with a deep, stretched-out bottom, that “U” still curves up.
“This recession has been twice as deep, twice as long, but we’re finally at the point where we’re creating jobs,” Rounds said.
Senior vice president and senior economist with Elliott D. Pollack and Company, Rounds was one of several speakers at The Business Council of Douglas County’s 16th annual Critical Issues Conference.
Coming on the heels of Karen Craig, who spearheaded Douglas County’s economic vitality plan, Rounds assured audience members that there’s little empirical evidence to support the claim of a double-dip recession, which would look like a “W” on the line graph.
“We’re not in a double-dip recession,” Rounds said. “It’s going to be a slow and painful economic recovery, but things aren’t going to be markedly worse than what you’re experiencing now.”
Rounds said home values slipping 5 percent after a slight rise does not constitute a double-dipper.
“Falling by 5 percent isn’t a double-dip. Falling by 50 percent was the dip,” he said. “You want to look at overall trends.”
Neither does growth of real gross domestic product, even at a minimal 1-2 percent, corroborate the charge of another recession. Rounds estimated real GDP at .5-1.5 percent for the third quarter of this year.
Furthermore, he said, industrial production is up from last year, retail sales are turning around, and consumer confidence is starting to move in the right direction, if timidly.
Despite positive indications, a full recovery is still years out, Rounds cautioned. Improvement is slight and slow at best.
“National unemployment is at 10 percent, and we’re going to see the rate at about this level for quite a while,” Rounds said. “Don’t expect a lot out of the stock market. I wouldn’t be surprised if in December we’re at where we are now.”
The problem, Rounds said, is the extraordinary output needed just to bring the economy back to pre-recession levels, especially in Nevada where unemployment remains close to 15 percent.
Rounds said several Western states are in the same boat. They relied heavily on construction and growth instead of sound economic development plans. When the bubble popped, so did their economies.
Case in point: Nevada was 50th in the nation in job growth in 2009, Rounds said. Employment levels in the Reno-Sparks area have now reached January 2000 levels, virtually voiding the last decade of growth.
“Recovery in terms of jobs is lagging just a bit in the region, about six months behind other Western states,” he said. “By the end of the year, the state will probably reach the point of adding jobs.”
But rebuilding pre-recession employment levels will probably take another 4-5 years, Rounds said, closer to the middle of the new decade. Taxable sales will follow suit, slowly climbing out of the trough “as catch-up.”
Rounds said that while the nation’s recession officially ended with positive GDP last year, Nevada’s recession will likely stretch to the end of this year or the beginning of next.
The solutions, he argued, are employment diversity and strong economic development policy.
“You need to add high-value, high-wage jobs for a decade or more before you see significant improvement,” he said. “It takes a long time to change the composition of a community.”
In economic development, he said the state places too much emphasis on its zero corporate income tax structure. He said a 3-4 percent corporate income tax will not hurt companies as much as people think. He said the state needs to better differentiate wage requirements for different places.
“It ends up being the last marginal thing that gives way to business expansion,” he said.
In a political season, Rounds urged policy makers to bridge the partisan divide.
“Try to work together,” he said. “I see a lot of potential here, and in a couple of years, I have no doubt that Nevada will be highly competitive.”