By Bruce Spence Print Article
RISMEDIA, February 16, 2009- (MCT)-The current recession is only three months away from the 17th consecutive month of economic decline that will mark it as the second-longest-running U.S. slump behind the Great Depression, which had a 43-month downturn.
Regardless, this recession will take a place as a generation-shaping event in U.S. history alongside the likes of the Great Depression, the attack on Pearl Harbor and the Sept. 11, 2001, terrorist attacks, Portland, Ore.-based economist John W. Mitchell said during the 20th annual Bank of Agriculture & Commerce Economic Forecast on Thursday morning.
Certainly, the 2008-09 recession is changing how people behave long term, just as those other events did, Mitchell said during an hourlong presentation attended by more than 100 community leaders, bank customers and employees at the Brookside Country Club in Stockton.
People are switching to smaller vehicles, using public transportation, saving more and spending less, said Mitchell, a regular forecast speaker at the annual event.
The current generation won’t likely believe that housing prices always rise, he said. If they are staying somewhere less than two years, he said, they will probably just rent instead of buying a home.
And people these days are actually considering the risks of investments instead of assuming positive earnings, he said
“Maybe what we’re seeing is the end of ‘The Way We Were,’ ” he said, referring to the Barbra Streisand movie.
Mitchell admitted, to laughter from the audience, that this is an amazing time for an economist, who gets up every day to another major round of economic news. “It doesn’t get any better than this.”
He went through a long list of economic characteristics of this recession: a global downturn and not just a U.S. recession, ubiquitous economic packages put into place by governments around the globe, a fourth year of a residential downturn, net worth that has been declining significantly over all types of assets and a federal government that can now be thought of as a mutual fund of sorts because it owns stock in some major financial institutions.
He noted that U.S. unemployment worsened dramatically in the second half of 2008. In contrast to 70,000 jobs lost in January 2008, hundreds of thousands of jobs were being lost each month by year’s end, he said.
“Housing and credit are at the center of this cycle,” he said.
Mitchell did find a few potentially positive notes. He remarked that Thursday’s national retail sales report for January showed a sales increase after six consecutive declining months.
He added, though: “You have to wonder if that’s a dead-cat bounce” — a figurative term in the finance industry to describe a hard fall followed by a short-lived rise before resuming its fall.
Plus, he said, interventions to stabilize financial institutions may be starting to show up as glimmers of easing in the credit market.
Mitchell also outlined how we got into this mess. That included interest rates held too low for too long beginning in 2001. That set off a housing boom that led to lending designed to get people into homes with new types of loans and “loose underwriting — that’s a polite way to put it,” he said.
“Once it’s there, lots of people want to use that kind of product,” he said, adding that compensation at the front end of real estate deals meant that many in the real estate and financial sectors were making a lot of money, regardless of whether homeowners could really handle the loans.
“People were getting rich,” Mitchell said. “That’s a tough thing to stop.”
The current housing downturn is not only extreme, it’s a rarity, he said. Not since the Great Depression has the country seen such a down cycle, he said.
“Falling house prices are weapons of mass destruction,” Mitchell said.
He predicted that gross domestic product will sink between 1 percent and 2 percent this year while commodity prices, for everything from cars to hotel services to housing, could slide as much as 1 percent.
He expects unemployment to grow by as much as 2 percent statewide while income will rise more slowly.
“Not a fun time — that’s what we are in for in 2009.”
The one thing he said he could predict with assurance is that the recession will end someday, just as have the 32 recessions in this country since such downturns began being counted in the late 1800s.
“The end is certain,” he said, “but the timing is not.”
Among those in the audience, Trygve Mikkelsen, president of Western Square Industries in Stockton, said he was pleased to hear Mitchell cite farming as one of the few bright spots in the local economy.
That’s good news for his company, which makes niche steel products, such as racks for wine casks, gates and corrals.
But based on Mitchell’s presentation, Mikkelsen also fears he’s facing up to three years of challenging business conditions ahead.
“That’s difficult to manage,” he said. “That’s a long time for a for-profit business.”
Commercial real estate appraiser Bill Bambas of Stockton said he appreciated even the few positive aspects of Mitchell’s forecast.
These are interesting times, he said, and there definitely will be some shakeouts this year.
“We’re looking for any signs of hope at this point in time,” he said.
Copyright © 2009, The Record, Stockton, Calif.
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