Continued slow growth for state and national economies, says expert
By Steve Smith - Staff Writer
Statewide - posted Thu., Jan. 31, 2013
Continued slow growth was the theme, as Dr. Nick Perna gave his thoughts on the economic outlook of Connecticut and the country, at a breakfast event by the East of the River Chambers of Commerce Association (ERCCA) on Jan. 29, at Maneeley's in South Windsor.
Perna is an economic advisor to Webster Bank, and head of the Perna Associates economic analysis, forecasting and strategy firm. Also an economist at General Electric, the Federal Reserve Bank of New York and the President's Council of Economic Advisers in Washington, D.C., Perna teaches a seminar on the U.S. banking system at Yale University.
Perna said the nation's economic growth has gotten “a little bit better than 'crummy,' where it was before.”
“We had the not-so-great recovery from the great recession,” Perna said. “If it had been a normal recovery, we would have knocked off maybe twice as many points of the unemployment rate as we have.”
Perna said housing is looking better, but is still not where it was, pre-recession. Prices are starting to increase, but that only means the downside of housing is decreasing.
What's interesting, Perna said, is how uneven the recovery has been. While jobs are only creeping back, the Dow Jones is close to its record high. “The Dow Jones, as of yesterday, is within a hair of when it peaked in 2007,” Perna said. “It's gained almost all of what it has lost, but we've only gotten back about half of the jobs we've gotten nationally.”
Perna said that partially has to do with the fact that it takes longer to recover after a financial collapse is coupled with a recession.
“It takes a long time to de-lever or reduce the debt that was built up during the boom,” he said. “The other thing is that when something like housing gets hit real hard, you end up with people underwater. Normally, housing is the first to bring you out of recession, but when you have so many people on the cusp of foreclosure, housing couldn't, despite low interest rates, perform the task it has done in the past.”
Perna said that although President Obama's stimulus package was probably the best it could have been, it wasn't large enough, in his opinion. “Given the depth of the recession, it should have been larger,” he said. “Today, it's basically all petered out. While we've avoided the fiscal cliff, we've gotten ourselves in a fiscal pothole. There's not enough stimulation out there right now.”
The stock market, Perna said, is reacting well to the positive things going on in the U.S. legislature, but will be disappointed if Congress doesn't come through on the debt ceiling issue, and if across-the-board spending cuts take place.
Perna said not extending the debt ceiling is “the nuclear option,” because it would throw the world into “financial chaos that would be at least as bad as 2008-2009.”
“It's not an option,” he said, adding that if the government defaults on its debt, the value of the dollar would decrease, causing severe trouble, internationally.
Perna said the economy should grow between 2 and 2.5 percent this year, and 3 to 3.5 percent next year, and the unemployment rate should come down by at least another percentage point in the next year.
As for Connecticut, Perna said he's actually puzzled as to why the state's unemployment numbers have only come down slightly from their peak. “Everything was looking good until about a year ago,” he said. “We were keeping up with the rest of the country. While unemployment isn't coming down, new claims for unemployment insurance have.”
Perna said that when the Department of Labor folds in all of its data, it should find about 10,000 new jobs were created last year.
“That's not a lot,” he said, “but if you look at the forecast for this year, there should be another 5,000 to 7,000 jobs this year. Next year, though, things start picking up. We'll be pulled by the national economy. Next year should be a decent year for jobs.”
One thing that may hinder Connecticut's progress, Perna said, is rising college tuition rates. “How do you get people to stay in the state, and how do you get kids to go on and get degrees, if you make it increasingly expensive for them to do that?” he asked. “I would tackle this immediately. We've already been raising tuitions and we can't keep doing that.”
U.S. Rep. Joe Courtney (D-2) also attended the event and spoke about a new sense of cooperation in Washington. He said there is reason for optimism as far as better cooperation between the two parties, especially when it came to hurricane Sandy measures and avoiding the “fiscal cliff.”
“One thing that was nice was to see that the markets actually reacted very favorably to the fact that people came together,” Courtney said, calling the more-open dialogue across party lines a “thaw” in Washington.
Courtney also tried to instill in the business leaders that they need to keep contacting their representatives and asking them to keep in mind that they while a vigorous democracy is valuable, they also have to act. “We've got to encourage this kind of behavior,” Courtney said.