Economic forecast? It’s partly cloudy with sunshine possible
Posted June 27, 2010
Editor’s note: Dr. Mike Walden is a William Neal Reynolds Professor and North Carolina Cooperative Extension economist in the Department of Agricultural and Resource Economics of N.C. State University's College of Agriculture and Life Sciences. He teaches and writes on personal finance, economic outlook and public policy.
By Dr. MICHAEL WALDEN, NCSU economist
RALEIGH, N.C. - From my experience traveling around the state, constantly reading numerous publications and just talking to people, I've reached one definite conclusion: there's widespread belief the economy is in trouble. The concern is focused on two areas, jobs and debt. So let me try to give you two for one in this article. Let me address these two big concerns, and let you decide where they should be on the "worry meter."
First and foremost are jobs. Since December 2007 -- the official beginning of the recession -- the nation has lost over 8 million jobs, and North Carolina has shed more than 250,000 jobs. The big question is, when will those jobs begin to come back? The good news is, they already are. Since the beginning of this year for the nation -- and the end of last year for North Carolina -- the number of jobs has been increasing. So far, the gains have been a trickle, but at least the direction is up rather than down.
Economists are divided (as usual) on whether job openings will accelerate. Some say yes. They say employers overcompensated in cutting jobs when there was talk of a second Great Depression. As it becomes more evident that a second depression won't occur, these economists see the job picture brightening considerably in coming months.
Other economists are less optimistic. They see the overhang of debt keeping consumers from spending the way they did prior to the recession. Since consumer spending accounts for 70 percent of all economic activity, any slowdown in consumer spending will result in slower sales for businesses and less job creation.
There's one other major jobs issue. As jobs do come back, what kinds of jobs will they be? Will they be the same jobs that were lost, or will they be new types of jobs?
There's overwhelming evidence the mix of jobs will be different. Even without a recession, jobs change over time. A hundred years ago, the majority of jobs were on the farm. Now about 1 percent of the workforce is farmers, yet today's farmers produce more farm output than their predecessors could ever dream of. The reason is modern machinery and technology.
The same is now happening with manufacturing. Our factories are producing more, but they're using technology and machinery -- rather than workers -- to do it. Jobs are, therefore, flowing into the professions (the fastest growing job category), technology-related occupations, heath care and positions providing services directly to customers. These will be the jobs of the future.
Now let me turn to today's second major economic worry -- debt. It seems like everywhere we look, there's debt. Households have high debts. The federal government has high debt. And now, we read about the high debts of some foreign governments, causing concerns about default and another recession. Is it just a matter of time before our entire economy collapses under the weight of debt?
My assessment is there isn't an imminent possibility of such a collapse, but there is reason for long-run worries. Household debt did rise during the last three decades, mainly because the tremendous increase in the value of household investments (stocks, homes) allowed folks to borrow more. Now, with the recession reducing those investment values, households are being forced to curtail their debt. Indeed, total household debt has fallen in the last three years. Many economists expect this trend to continue.
Federal government debt typically rises during recessions as increased government spending is used to replace lower consumer spending, and the recent recession is no exception. During the last two years, the federal government added over $2 trillion to the national debt. However, because households have been reducing their debt, total debt (private and public) in the country as a percent of national income has changed only modestly.
Many experts think the debt challenge won't come from the borrowing that was done to fight the recession, but will come from another more fundamental source. The so'called "big three" government spending programs -- Social Security, Medicare and Medicaid -- are projected to grow at increasing rates and consume ever bigger shares of the federal budget and national income. This is not a new issue -- it's been known for a long time -- and it's an issue unrelated to the recession. But it is the budget buster that could crowd out other government spending and slow overall economic growth.
What can be done? Although there are many possible solutions, I think compromise will force a two-pronged approach. Taxes will be increased, and benefits will be curtailed by making the big three programs less generous.
Borrowing from my meteorological friends, I would call our economic future partly cloudy with the possibility of sunshine if the correct conditions prevail. You - and time -- will decide the accuracy of this forecast.
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