‘Recession over but still battles to fight’
It’s a lot easier for Wall Street to declare the economic recession over than it is for Main Street, especially in Nevada where the unemployment rate topped 13 percent in September.
But the recession is technically over, economist Jeff Thredgold told an audience at Carson Valley Inn today.
“We have additional battles to fight, and pain yet to endure, but the recession is effectively over,” he said.
Thredgold spoke at the annual joint membership breakfast of the Business Council of Douglas County, the Carson Valley Chamber of Commerce and the Northern Nevada Development Authority. His appearance was sponsored by Nevada State Bank.
“Statistically speaking, the U.S. economy is in growth mode again,” Thredgold said.
He pointed to the first quarter of 2009 when the U.S. economy shrank by 6.4 percent, the worse drop in the last 27 years. However, in the third quarter of this year, he said, the U.S. economy saw 3.5 percent growth in gross domestic product.
“It’s been the longest, deepest, most costly recession since the Great Depression,” he said. “We have significant battles to fight, but we’re moving in the right direction.”
Thredgold predicted the national unemployment rate would peak at about 10.5 percent sometime next year.
“It will probably reach 10.5 percent before there’s a sustained, moderate decline over the next few years,” he said.
Other areas of the economy may lag behind the recovery as well, including the housing market. Because of intervention by the Federal Reserve and Treasury Department, mortgage interest rates are at historical lows, Thredgold said, but they’ll probably shoot up next year when the Fed begins selling all the mortgage-backed securities the government purchased during the financial crisis.
“I always get asked the question when to refinance,” he said. “The answer is right now.”
Turning to the global economy, Thredgold said India, China and Indonesia saw economic declines during the recession, but never stopped growing. China, he said, fell from about 10 percent annual growth rate to about 5 percent, and is now back around 9 percent.
“The issue in China is social unrest when the economy isn’t growing strongly,” he said. “An average of 600,000 people a month leave the farms and go to factories for jobs. About 20 million people in China lost jobs last year.”
Thredgold said the Chinese own an enormous amount of U.S. debt securities, which he believes won’t be liquidated anytime soon, as a weakened U.S. economy would hurt Chinese interests.
“You don’t do things to upset your best customer,” he said. “The media would have you believe we only consume Chinese products, but really our exports to China have increased about 24 percent year after year.”
However, Thredgold said Americans should be worried about the growing federal deficit.
“A $1.4 trillion deficit (annual) is about $160 million of spending every 60 minutes,” he said. “In defense of the current administration, they did inherit this. If George W. Bush were still president, the deficit probably would be the same. There still would have been stimulus, but actual stimulus with tax cuts, not social engineering. The difference is that for the next nine years we’ll see about a trillion dollars a year, and we can’t afford annual trillion-dollar deficits.”
Thredgold said Democrats may find themselves in a difficult position in 2010 if unemployment hasn’t declined, despite aggressive government spending.
“If a year from now, unemployment is still over 10 percent, the Democrats will get killed at the polls,” he said. “People are scared to death of running for reelection with a trillion-dollar deficit.”
So what does this all mean for the state of Nevada? Thredgold asked.
“Two things have to happen for the Nevada economy to rebound,” he said. “There needs to be a return of U.S. economic growth, which is taking place, and there needs to be global economic growth, which is also taking place.”
Thredgold said the Las Vegas housing market may see further adjustments after its extraordinary run-up of prices, but that the Northern Nevada market seems to be leveling.
“Probably most adjustments in Northern Nevada have taken place,” he said. “Home prices nationwide are starting to stabilize.”
He also said the Silver State will once again be able to “cherry-pick” its Golden State neighbor, as budget woes and higher taxes there drive out businesses.
“California business leaders are scared to death of getting cherry-picked again,” he said.
He said Nevada should be recruiting all kinds of businesses, from technology companies to alternative energy producers. He said technological advancements have allowed small business owners to leave urban areas and set up shop in small towns like Minden and Gardnerville.
“Years ago, you had to be in a metropolitan area, but now you can do anything you want,” he said.
Thredgold reminded audience members, many small business owners themselves, that Nevada’s economic suffering is not unique.
“When it’s the worst U.S. recession in 70 years, and the worst global recession since World War II, everyone gets hit,” he said. “We’re at a transition point where the U.S. economy is moving back towards growth and state economies are bottoming out. By the middle of next year, I think you’ll start seeing better monthly numbers.”