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More Bad Economic News Predicted for 2009

November 12, 2008

Note to Editors: Dr. Mike Walden's North Carolina Economic Outlook is available in its entirety at http://www.ag-econ.ncsu.edu/faculty/walden/walden.htm

Media Contact: Dr. Mike Walden, William Neal Reynolds Professor and North Carolina Cooperative Extension Economist, North Carolina State University, 919.515.4671 or michael_walden@ncsu.edu

The drumbeat of bad economic news is likely to continue well into 2009.

That is the prediction of Dr. Mike Walden, William Neal Reynolds Professor and North Carolina Cooperative Extension economist at North Carolina State University.

In a recently prepared North Carolina Economic Outlook for Winter 2008-2009, Walden writes that most economists "think the recession of 2008-2009 will be one of the worst in depth and duration since World War II. In addition to household finances needing to be mended, the banking system must be repaired and restored. This will take time."

How much time?

"Our current forecasts reflect the expectation that positive trends in the economy won't return in a significant way until the second half of 2009," Walden writes.

The economy will begin to turn around when consumer and business confidence, which is now low, begins to rise. And consumer and business confidence will rise when unsold homes begin to sell and home prices stabilize. It would also be helpful, Walden points out, if so-called contrarian investors were to begin buying various assets.

Even when economic activity begins to rebound, the recovery will be slow, according to Walden. He writes, "the recovery will be held back as a result of the deleveraging by households caused by the tremendous loss of wealth (approaching $3 trillion) in the housing and stock markets. Households will be motivated to reduce debt and increase saving in order to rebuild net worth. Consequently, even when job growth returns, consumer spending will increase at much slower rates than in previous recoveries, and this will put a damper on overall economic growth."

North Carolina has fared better than many other parts of the country, Walden points out. Home prices have held up better than in the national market, yet because North Carolina's housing market declined later than the national market, the state's rebound may lag behind that of the nation.

Looking to 2009, Walden sees fewer jobs and higher unemployment in North Carolina. The number of North Carolina jobs declined by almost 2 percent in 2008; Walden sees this number dropping another 1.2 percent in 2009. At the same time, the unemployment rate will rise. Unemployment averaged 6.1 percent in 2008.

"By the end of 2009, the statewide unemployment rate could be close to 8 percent," Walden writes.

Other economic indicators will be down as well, Walden predicts. Real (inflation-adjusted) retail sales are projected to be down what Walden calls "a staggering 8.2 percent" for 2008. He predicts they'll drop another 2.5 percent in 2009.

"Likewise, there will be disappointments in the real (inflation-adjusted) wages earned by workers. These wages will be off by over 3 percent in 2008 and another 2.5 percent in 2009," Walden writes.

Walden sees a glimmer of hope in the housing market. He writes, "After double-digit percentage declines in both 2007 and 2008, the housing market is expected to bottom out in 2009 and register an upswing in sales. Such a turnaround will set the stage for positive economic growth in late 2009 and into 2010."

Walden's North Carolina Economic Outlook, which includes forecasts for each of the state's seven economic development regions, is available in its entirety on line at: http://www.ag-econ.ncsu.edu/faculty/walden/walden.htm

Walden also writes a column on economic topics called You Decide. It's available at http://www.ncsu.edu/project/calscommblogs/news/. Related audio material is available at http://www.ncsu.edu/waldenradio/.

Written by:
Dave Caldwell, 919.513.3127 or dave_caldwell@ncsu.edu

Posted by Dave at November 12, 2008 02:53 PM