The economic recovery will grind slowly forward next year, extending this year’s modest improvements but not breaking out strongly enough to significantly affect unemployment and household income, economists John Mitchell and Grant Forsyth said Tuesday.
Speaking at a Greater Spokane Incorporated forecast breakfast, Mitchell said businesses are delaying investment decisions because of uncertainty regarding future tax policy, health care reform and environmental regulation.
Paralysis on Capitol Hill has put the levers of economic stimulus in the hands of the Federal Reserve, which is keeping interest rates low and expanding the money supply in an effort to fuel more investment and consumer demand, he said.
Meanwhile, Mitchell said, consumers are repairing personal balance sheets by backing off on the use of credit.
Household wealth has plunged by $11 trillion since peaking in 2007, and housing prices, the foundation for much of that wealth, will continue to erode in 2011, he predicted.
“This isn’t over,” said Mitchell, an independent consultant and former chief economist for US Bank.
Significant improvement awaits resolution of tax issues, implementation of some sort of hiring incentive, a reset of priorities by states facing deficits, and addressing entitlements, he said.
The fundamental question, Mitchell said, is “What are we leaving our grandkids?”
Eastern Washington University professor Grant Forsyth said successful efforts to balance budgets have included tax increases, but relied more heavily on spending reductions, including cuts in entitlements.
Austerity, if it comes, will have a disproportionate effect on rural counties that depend more than cities on government jobs and transfer payments like Social Security and Medicare, he said.
Some areas outside Spokane and Kootenai counties are already losing population, he said, and that trend will accelerate if residents drawing unemployment have to uproot their families as those benefits run out.
Forsyth said he expects some job growth in Spokane and Kootenai counties next year, but unemployment will remain above 8 percent.
Per capita income may increase slightly, but home prices will continue to fall by around 4 percent, he said, adding that public projects are propping up commercial construction activity.
Forsyth said the economy needs a 12- to 24-month period without a new crisis – European debt woes, for example – to find its footing.
Although the Federal Reserve’s decision to further ease credit and expand the money supply has been controversial, he said, “I think the Fed needed to send a signal this recovery is not going very well.”