Economist predicts some

recovery by year’s end
By Jason Reagan

Although the economic tsunami may be subsiding, a return to business as usual will be slow, according to Wachovia Bank’s chief economist.

John Silvia told a crowded ballroom at the Broyhill Inn and Conference Center on Tuesday morning that the economy might show positive gain in the fourth quarter of this year even as the jobless rate could continue to rise slightly.

“The labor market will continue to struggle into 2010, but the worst may be behind us,” Silvia said, adding that jobless claims tend to lag behind other key economic indicators.

Silvia, a member of the state’s Economic Development Board, spoke as part of a breakfast presented by Wachovia, which merged with West Coast-based Wells-Fargo in December.

Before a crowd of about 125 — including business owners, county officials, Realtors, developers and leaders from Appalachian State University — Silvia said decision makers must ask questions revolving around five key factors when analyzing the economy: inflation, interest rates, profits, the value of the U.S. dollar and growth, which he said permeates the other four factors.

“The economy hit an air-pocket in [the fourth quarter of 2008] and will contract through the first three quarters of 2009,” he said.

“This recession is the longest and deepest downturn since World War II,” he said in his presentation, adding that many people now in key positions have never really experienced a deep recession like in the early 1970s and early 80s.

In terms of personal consumption — what and how much John and Jane Doe buy week in and week out — Silvia said people might be slow to change the trend in thriftiness.

“While the biggest declines in consumption may be behind us, we do not expect a robust rebound,” he said.
Silvia had good and bad news for a county that depends so much on real-estate and vacation-home development.

“The majority of declines in construction are behind us, but recovery will not be quick,” he said, adding that western North Carolina mountain counties may have to take a look at how much they want to develop the limited amount of land before the very factor that draws new residents — breathtaking views — begins to deteriorate.

“How many houses can you build before you destroy the view?” he said.

He added, Watauga County faces a well-known challenge of sustaining an affordable community to avoid pricing people beyond their income range.

For corporations, Silvia predicted a rough road still ahead with modest profit gains starting to emerge by next year.

“Profit growth has turned negative and the declines will likely accelerate in the first half of this year,” he said.
“We expect the dollar to climb higher through 2009, but may give up some of the gains next year.”

On the job front, Silvia noted that, while a decline in jobless rates have started to show up, the economy has a lot of catching up to do.

“First-time jobless claims have retreated off their highs but remain extremely elevated, above 600,000. Claims would have to drop back towards 500,000 before payroll job losses diminish meaningfully,” he said.

Jobless rate reports are released each Thursday at 8:30 a.m. for the previous week.

“Rising M2 would indicate support for future economic growth and the potential for a coming recovery,” Silvia noted. “Loose monetary policy will continue to push M2 higher.”

In introducing Silvia, Wachovia’s Watauga and Wilkes counties market president Jason Triplett predicted the merger between Wachovia and Wells-Fargo could help local business owners and residents make it through the tough quarters to come.

“We’ll be even stronger,” he said, adding customers will not see any real changes in the bank’s operation except an expected logo change in the fall of 2010.