The worst of the recession is over, according to economists from the University, think tanks and government organizations who spoke at a two-day conference held at Rackham late last week.
Economists expressed a modest yet hopeful outlook on the economy at the University of Michigan’s 58th Annual Economic Outlook Conference sponsored by the Research Seminar in Quantitative Economics. The conference took place all day Thursday and Friday morning and attracted dozens of attendees from various industries and sectors.
Economists Joan Crary, Daniil Manaenkov and Stanley Sedo — all assistant research scientists at the RSQE — presented The U.S. Economic Outlook for 2011-2012. In their report, the economists predicted that the U.S. economy would add 900,000 jobs by the end of 2010 and another 1.5 million jobs in 2011 — along with 2.4 million jobs in 2012. Nearly all forecasts at the conference predicted job growth in the next few years, but experts said the gains still wouldn’t offset the 8 million jobs lost between the end of 2007 and the end of 2009.
In their presentation, Crary, Manaenkov and Sedo explained that the U.S. economy is not rebounding with the same vigor that characterized other post-WWII recessions. The economists predicted that the country’s unemployment rate will average 9.6 percent in 2011, 9.3 in 2012 and not dip below 9 percent until early 2013.
While what has been dubbed the “Great Recession” is now over, low consumer confidence levels, fiscal problems at both the state and the federal levels and lingering troubles in the housing market are still hindering recovery efforts, the experts said.
Crary and fellow researchers expect the economic impact of the stimulus package to plateau and expect the actions of the U.S. Federal Reserve System to eventually boost the economy. Crary and colleagues predict that the Federal Reserve will wait until the economy picks up in 2012 to reduce its balance sheet and begin to increase short-term interest rates in 2013.
Plans for decreasing the government’s deficit and forming new fiscal policy remain uncertain, but the researchers at the conference predicted that not extending the tax cuts made by George W. Bush’s administration could damage the economy.
Though the recession ended more than a year ago, a common sentiment among presenters at the conference was that Americans still feel like they’re in a recession because of the relatively weak job market.
In summing up the prediction for the U.S. economy for 2011 and 2012, Crary said Americans can expect “short-term hesitation, followed by muted growth.”
The outlook for the Michigan economy mirrored that of the nation, according to panelists at the conference who said that the recession only compounded the loss of 850,000 jobs in the state over the last decade.
George Fulton, director of the RSQE, predicted that Michigan’s economy would see job growth next year, which would be the first time in more than a decade.
Fulton, along with Crary and Donald Grimes, senior research area specialist at the University’s Institute for Research on Labor, Employment and the Economy, estimated that the state would add 24,500 jobs in 2011 and 63,000 during 2012. However, these modest gains would not offset the 247,000 jobs lost in 2009 and 2010. They added that unemployment is expected to decline but still remain at a high level — averaging 12.4 percent in 2011 and 11.5 percent in 2012.
Fulton and his colleagues said the service industry will have the most job gains in the next few years with business services, private education and health care making up expected additions. While other Michigan industries have been in decline, the increasing number of elderly citizens has driven growth in the health care industry.
One expected bright spot of the Michigan economy is the stabilization of the manufacturing sector and, more specifically, the automotive industry. Fulton stressed that a prerequisite for economic growth in Michigan is the health of the big three Detroit automakers.
Despite recent stabilization of the domestic auto market and the effect that could have on the entire Michigan economy, Fulton and his colleagues were careful to not give false hope, even though the worst is over.
“Many residents will feel that the recovery has yet to arrive,” Fulton said.
While other industries are expected to grow, panelists at the event said they expect the state government to cut jobs during the next two years.
Gary Olson, director of the Senate Fiscal Agency for the state of Michigan, said it would be a challenge in the next few years to balance the budget at the state level. As federal assistance ends, tough fiscal decisions that were pushed back will have to be made, he explained.
“2011-2012 is the year of reckoning,” Olsen said. “Government can not be sustained without tax increases.”