Slow regional recovery likely into coming year

PHOTOGRAPHER: Ameerah Cetawayo

Two local experts’ predictions for the economy in 2010 are varied, just like the key indicators on which those predictions are based.

Hugh Johnson, chief investment officer for Johnson Illington Advisors, said the signs of an economic recovery are in place for 2010, but the state’s fiscal woes could slow the recovery set to occur at a faster rate elsewhere.

Johnson’s optimistic forecast for the upcoming year was the focus of a speech at the Hilton Garden Inn Wednesday morning.

Since early March, the stock market has risen 61.9 percent, the second strongest start for a bull market since 1932, as investors are showing more of a willingness to take on risk, migrating toward stocks in financial and basic material industries instead of more conservative staples like health care and food.

After more than 7 million jobs were lost his year, Johnson expects for 2010 to bring improving employment with a total expected gain of 1.2 million jobs — a 25,000 job boost in the first quarter alone, coinciding with gradual drops in the unemployment rate and subtle growth in gross domestic product.

Johnson said the recovery will be stronger than most expect and he doesn’t agree with federal economists who predict the employment situation of the first and second quarters of 2010 will remain dismal.

But he did say there will be an anemic recovery for consumer spending as households pay down debt and save following the borrowing binge that lasted from 2000 to 2006.

“The deleveraging process is happening faster than anticipated,” Johnson said.

The biggest risk to the recovery is inflation, which he expects to increase in 2010.

Banks are taking advantage of low interest rates by borrowing low, buying Treasury securities without taking as much loan risk — a move that will improve their own financial conditions, he said.

darker view

Citing high unemployment, low consumer confidence and an enduring credit crunch, Joe Ventura, financial adviser for Latham-based William Tell Financial Services, has a more conservative prediction for the economy: A rising stock market and other indications can create a false impression that the recession is over.

“What happens on Wall Street is not necessarily indicative of what will happen on Main Street,” Ventura said. “Though we’re starting to see the market increase, it has only increased from a really low in time. It’s just bouncing back from the bottom.”

Ventura said if the current economy is a bull market, the bull is not running in a straight direction, rather zigzagging around the pen while the rest of us scratch our heads, a scenario he expects through the first and second quarters of 2010.

The consumer confidence index is at 53.1, nowhere near positive territory considering the recession average of 72.4 or an index of 102 in times of economic expansion. The index has historically stood around 92 by the time the S&P 500 rebounds 60 percent from a low, Ventura also said.

Consumer spending, a major driver in the nation’s economy, remains hindered by lack of credit and fearful consumers.

“We’re seeing the average consumer saving twice as much money than they had in the past,” Ventura said. “Savings doesn’t translate into purchasing.”

He did point out bright spots among economic indicators, including low interest rates, energy prices far below the huge spikes of 2008, and U.S. manufacturing activity levels above 50 percent, which typically indicate expansion. New factory orders were also off slightly in September, after four monthly increases, he said.

“The economy moving forward will be unlike what we have gotten used to in the past 30 years in that what we have seen in the past is a strong middle class, which has helped fuel the economy as a whole, and in actuality what we may be seeing going forward is a division of the classes and a weakening middle class,” Ventura said.

The current state of the economy still provides opportunities for those in position to take advantage of the conditions, like solid companies with stable balance sheets and seasoned management. The dollar’s relative weakness may provide good prospects for overseas investment, he added.

“Those who have money in the market and who will continue to have money in the market along with entrepreneurs may be the ones who make up the majority of our gross national product,” Ventura said.

problems persist

He remains cautious, not confident enough to agree that the recession is over because too many of the factors that caused it remain unresolved. He expects any recovery to be a gradual one signaled by a more stabilized housing market and better employment numbers before a marked improvement in the economy is seen.

Meanwhile, a study released by the Brookings Institution showed signs of recovery are showing up in the Capital Region slower than other areas.

The nonprofit think tank’s MetroMonitor, which tracks the recent economic performance of the Albany-Schenectady-Troy area and 99 other metros, showed the Capital Region’s gross metropolitan product declined 0.2 percent in the third quarter, while the nation saw an improvement of 0.8 percent on average.

Economists at the Brookings Institution said that the recovery from one of the worst recessions on record is still fragile as 600,000 jobs vanished from employer payrolls during the third quarter and the unemployment rate rose to 9.8 percent nationally in September.

Temporary federal programs like the newly extended first-time homebuyer tax credit and the “Cash for Clunkers” program boosted the economy’s output along with “replenishment of manufacturing inventories,” but as those programs phase out the economy could see a slower recovery than expected, another recession, or a standstill, economists said.

The Brookings Institution also said while job losses are slowing, the economy is still a long way from job gains that could “meaningfully” lower unemployment and boost incomes.

In the Capital Region, the change in employment from the second quarter of 2008 — the peak — declined only 3 percent, while the U.S. average saw a decline of 4.6 percent.

The Capital Region’s better-than-average unemployment rate and housing market was also reflected in the Brookings profile, showing 7.1 percent unemployment while the U.S. average was 9.5 percent.

Housing prices in the Albany metro area saw a 1.4 percent increase over the year, while the largest 100 metros saw an average 3 percent decline.

For the full report, see “MetroMonitor” Tracking Economic Recession and Recovery in America’s Largest Metropolitan Areas” at www.brookings.edu/metromonitor.