'Slow growth' theme of economic forecast

Dr. Nicholas Perna forecasts continued slow growth for the national and state economies at the ERCCA Economic Outlook Breakfast on Jan. 26. Photos by Steve Smith.

At the East of the River Chamber of Commerce Association's 2012 Regional Economic Outlook Breakfast on Jan. 26, Dr. Nicholas Perna said the state and national economies will see continued, slow growth. Perna is an economic advisor to Webster Bank, and head of the Perna Associates economic analysis, forecasting and strategy firm.

An economist at General Electric, the Federal Reserve Bank of New York and the President's council of economic advisors in Washington, D.C., Perna also teaches a seminar on the U.S. banking system at Yale University.

Perna said the recession officially ended in 2009 – defined by the point at which the Gross Domestic Product stopped falling and began to rise – but the recovery has been slower and more uneven than any recovery since the 1930s. Unemployment, Perna said, went from 10 percent to 8.5 percent in 2.5 years, and is still far from the pre-recession levels of 4.5 percent. The last similar recovery was in the early '80s, after the recession of the late '70s when the GDP was almost as low; the GDP climbed about twice as fast in the recovery, and similarly, the unemployment rate fell by three points in a two-year span.

“[Comparing] apples to apples,” he said, “this is very slow and very uneven. If you look at something like the stock market, the Dow Jones has regained about 80 percent. More than fully-recovered is the compensation of CEOs in the S&P 500, and more than fully-recovered is the earnings-per-share in the S&P 500. But, nowhere near recovered are things that are probably dearer to our hearts. What I mean by that is, if you look at jobs, we've only gained not even one in three of the 8.5 million jobs that were lost in the recession.”

The second thing, Perna said, is that housing prices that have fallen more than 30 percent wiped out more than $7 trillion of home equity – half of the equity that existed in 2006.

“What's still far from repair is household finances,” Perna said. “Even if you still have a job, your wealth, if you will, is relatively depleted from where it was.”

Reasons why the recovery has been slow include the fact that the housing market was not one of the first things to rebound. What pulled the country out of other recessions was construction activity, appliance sales and things like carpeting that went along with an increase in the housing market. “We’ve had a small improvement in housing, compared to the lowest point,” Perna said, “but we are now about one-third of normal. We are about one-fifth of where we were before the peak. Housing, if not dead in the water, is still very sluggish.”

Perna said the country had a near-miss with a second, or “double-dip,” recession in the second half of last year (which could have been called an “aftershock,” in a manner of speaking) but the economy has since gained some momentum.

“Some of the slowdown in the economy in the first half of last year was brought to you by oil prices which had risen to $115 a barrel, and today they are under $100,” Perna said. “The other thing is the Japanese earthquake had a temporary impact on us, because it meant that many firms in the United States that were dependent on Japanese components couldn’t complete [their operations].”

In the world-wide picture, the U.S. economy is the only one that is picking up, while there is great uncertainty about what is happening in Europe, and China’s is slowing down, but that uncertainty is another thing applying friction to U.S. growth.

As for the state of Connecticut, Perna said the recession caused about as much damage as the national average, and the recovery is equally as sluggish, or perhaps slightly behind.

“Over the last 12 months,” Perna said, “the country is up over 1 percent in terms of jobs. We’re up about a half a percent in Connecticut. Are we lagging? Yes. Are we lagging seriously behind? No. We’re more or less in the same boat.”

Perna added that other outside predictors say that the jobs will continue to grow slowly in Connecticut, but the GDP forecast is not bad. A better indication, he said, is the projected growth of productivity.

“Something like two-thirds of future growth in Connecticut comes not from employment growth,” he said, “but from value-added, or productivity growth.”

Perna said there are no clear favorites as far as which sectors will pick up faster within the state. He said that years ago, while he was on an unpaid council that advised the legislature and the governor, Michael Porter from the Harvard School of Business was invited down. “He was the guru on competitiveness,” Perna said. “He talked about sectors. His main point was that the role of government was not to pick winners and losers, but to create a winning environment that fosters winners.”