Using history as guide, recovery possible by this spring
by Betty Beard - Dec. 2, 2008 12:00 AM
The Arizona Republic
Now that we know we're a year into a recession, economists have a better chance of gauging when we might climb out.
No recession in the past 50 years has lasted more than 16 months. If history repeats itself, the U.S. economy could start to see recovery by spring or summer.
Then again, this recession could be deep enough to set its own standard. The National Bureau of Economic Research in Cambridge, Mass., on Monday reported it had determined the United States officially entered a recession last December. That means the economy in general stopped growing and began losing jobs and producing fewer goods.
That declaration appears to be a no-brainer, given the deluge of layoffs, the surge of business closings, deep retail discounts, manufacturing declines and other gloomy economic data. The stock markets plummeted Monday, with the Dow Jones industrial average falling 7.7 percent, or nearly 680 points.
But for economists, the announcement ends a largely academic discussion about whether we are in a recession and helps them better predict when the downturn might reverse itself.
"We're now a year into it, which is good," said Joel Naroff, a Philadelphia economist who was recognized last month by Arizona State University's W.P. Carey School of Business for being accurate in past forecasts.
"A long recession would be 18 months, which means by summer we could be coming out of it," he said.
Still, he and other economists say this recession appears unusually severe because it has hit so many sectors: housing, financial services, automobile sales and others. Recovery efforts haven't yet gotten frozen credit flowing. Another complicating factor: The U.S. economy is more interconnected, internationally and digitally, than in past recessions.
University of Arizona economist Marshall Vest said that the two longest national recessions since the Great Depression, in the early 1970s and '80s, each lasted 16 months.
But this one is already a longer recession than anyone who is 26 or younger has ever lived through.
"My guess is we are going to break that record," Vest said. "Probably somewhere between 18 and 21 months is what I am thinking and what I see other forecasters calling for."
• Why this recession is different: Economists have been saying that it was pretty clear that Arizona's economy had slowed enough by January to be in recession territory. Housing sales had fallen in 2007. And last December, the state began losing more jobs than it was gaining, especially in construction. Net job losses have continued through most of 2008.
But, earlier in the year, many expected the recession to be mild to moderate. Because the dollar was weak, exports were doing well.
Then, the September panic snowballed with the bankruptcy of Lehman Brothers investment bank, freezing credit throughout the financial system. Dennis Hoffman, an economist at the ASU Business School, said, "I was overly optimistic over the past few years that we could weather this storm. But almost every shred of optimism has been wrung out of me, I am afraid."
Naroff said, "It's a totally different recession than anything else we've seen basically since the Depression. . . . This is caused by a massive financial-structure meltdown and a financial panic."
Another difference, he said, is that businesses rely more on information technology and can be more responsive and quicker to lay off workers.
Scottsdale-based economist Elliott Pollack said Arizona still suffers from problems that are going to take years to resolve.
"People have too much debt. They don't have enough savings. Their asset values in their stock portfolios and the house are way down, so they feel poorer and will spend accordingly," he said. "The international economy is weakening, so exports aren't going to be as strong. Industrial markets will be weak. And the housing market again is still in decline because of all the foreclosures and the excess supply. So, there are a lot of things that have to be corrected."
• What kind of stimulus is needed: Economists mostly agree that if there is to be a stimulus program, it should not be a quick fix like the rebate checks that were sent out in the spring.
"People get the checks, and they spend the checks. It's here now, gone tomorrow. We need this to be here now and not gone for a long time," Naroff said.
He supports creation of jobs to build streets, bridges and other permanent projects because infrastructure would aid future economic growth.
Also, public works would have a multiplier effect as each paid worker bought groceries, clothes and other items.
The downside to such a stimulus program is that such projects can take time to build.
• Fearing the next bubble: Economists already are starting to look at what happens after the current recession ends and what the federal government should do to stop another asset bubble from ballooning and causing damage, Vest said.
It's now obvious that the wild real-estate market and the complex securities tied to it spurred the current recession.
Experts worry that federal actions being taken could create a similar challenge. The government has now theoretically loosened up a lot of money. Once people and companies recover their courage and resume lending and borrowing, another bubble could swell.
"The economy could be off like a rocket here within a year or two," Vest said.
In his opinion, the main factor stopping that from happening is fear. "I think we will get tired of being afraid before too much longer," Vest said. "You know, you kind of get worn out after awhile."
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