Washington economist expects mid-year rebound

Raha says he’s ‘guardedly optimistic’ about 2010

By Libby Clark, Columbian Web Editor

Published:

Updated: January 22, 2010, 9:17 PM

 
Video

Economic Forecast Keynote

Dr. Arun Raha, Washington State's chief economist, says he is guardedly optimistic about economic recovery in the state in 2010. He was the keynote speaker at The Columbian's Economic Forecast Breakfast in Vancouver.

Dr. Arun Raha, Washington State's chief economist, says he is guardedly optimistic about economic recovery in the state in 2010. He was the keynote speaker at The Columbian's Economic Forecast Breakfast in Vancouver.

Washington’s economy is back from the “brink” and the “precipice” but it’s still at the bottom of a hole, state economist Arun Raha told Clark County business leaders in his opening remarks Friday at The Columbian’s 2010 Economic Forecast Breakfast.

“I don’t know how many more metaphors I can use,” Raha said, spurring laughter from the crowd.

More than 400 local business leaders, elected officials and students gathered to hear Raha’s predictions — sprinkled often with lively jokes — at the annual event, sponsored by First Independent Bank, MacKay and Sposito Inc. and The Management Group.

The economy will see slow growth this quarter, gain traction midyear and mark the greatest growth toward the end of the year, Raha said. But a full recovery largely depends on increased consumer spending and better credit for small businesses.

“I’m guardedly optimistic about 2010,” Raha said. “It will be a year of transition from recession to recovery.”

Relief for the state’s unemployed is also still a few months away. Statewide unemployment will continue to climb from 9.5 percent in December until this spring when Raha predicts the rate will peak at 9.8 percent statewide, before hiring finally picks up again. Clark County’s jobless rate last month of 14.3 percent also is expected to increase before improving.

Raha's PowerPoint

If you would like to see a copy of Dr. Arun Raha's Economic Forecast 2010 PowerPoint presentation, click here.

“Jobs lag the recovery,” Raha said.

Raha gave several reasons for his prediction that the economy will slowly improve.

The U.S. Gross Domestic Product grew 2.2 percent in the third quarter after four consecutive quarters of negative growth for the first time in its history. Raha predicts GDP grew another 4 percent in the fourth quarter and says he’s “confident” that incremental growth will continue.

Reasons for optimism

• The U.S. Gross Domestic Product started growing again in the third quarter.

• The spread between short- and long-term interest rates is steeper since September, indicating that bond market participants are betting on a recovery.

• Stock markets are up 60 percent since March.

• Car sales have increased.

• Exports grew in the third quarter.

• Personal income in Washington grew 0.6 percent in the third quarter, the fifth highest increase in the nation.

Reasons for caution

• Washington faces a $6 billion revenue shortfall.

• Consumer confidence hasn’t fully returned.

• Community banks still aren’t lending to small businesses.

• The housing recovery is still dependent on federal stimulus dollars.

The yield spread between short- and long-term interest rates is also steeper since September, indicating that bond market participants are betting on a recovery.

And stock markets have increased 60 percent since last March, as companies’ earnings estimates improve and investor confidence returns.

Raha also noted that car sales have increased, exports grew in the third quarter and personal income in Washington grew 0.6 percent in the third quarter, the fifth-highest increase in the nation.

But Raha is also concerned that consumer confidence has remained flat for the past four months even as personal income rose 0.6 percent in the state in 2009.

Consumers are saving money and paying down debt instead of spending it on goods and services, he said. And that means businesses have a harder time recovering.

“People are still worried about their economic prospects with unemployment numbers still high,” said Raha.

Low levels of lending among community banks exacerbates the problem for small businesses.

Credit levels are mostly back to normal among the nation’s 84 largest banks, said Raha. But lending among state-chartered banks, which had a disproportionate exposure to real-estate loans, hasn’t yet returned, he said.

Small businesses aren’t getting the credit they need to grow and that’s a problem for Washington, where 64 percent of jobs are created by small businesses, Raha said.

“There are still headwinds (to the economy) because credit is still tight to an important sector of the economy,” Raha said.

For The Columbian’s 2010 Economic Forecast special section, see the insert in Sunday’s paper.