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UT economist says recession easing but don’t expect strong growth

By Jeff Keeling
Press Business Writer
jkeeling@johnsoncitypress.com

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When it comes to the U.S. economy, the drunken spree is history and the miserable night in the drunk tank appears to be over, but the hangover is set to be long and painful and the consequences permanent.

That was the gist of economist Matt Murray’s message to several hundred people gathered at the Millennium Centre for the Johnson City metro area’s seventh annual Economic Summit Tuesday.

“The economy looks to be on the mend, but it will be a very different economy than what we’ve been accustomed to,” Murray, the director of the University of Tennessee’s Center for Business and Economic Research, said in a morning keynote address.

“It’s not going to be the same type of strong growth we’ve been accustomed to (between recessions) in the 1980s, ‘90s and 2000s.”

He outlined the likely future of the economy’s key drivers — employment, consumer spending, housing and manufacturing — and suggested that none is likely to reach pre-recession levels until at least 2012. It’s mainly a consequence, he said, of Americans’ willingness to spend beyond their means thanks to the housing bubble, which helped create easy credit.

Because of the consumer spree that has come grinding to a halt, Murray said, commercial real estate is likely to be the next shoe to drop.

“The real weakness in the economy now is the commercial real estate sector, and 2010 is going to be another bad year with maybe a 15 percent decline,” Murray said. He mentioned the struggles of car dealers, and empty Circuit City and Goody’s stores as a few examples.

“We’ve got a glut of commercial capacity. That commercial capacity was a bit of a Ponzi scheme. We were on a spending spree and we had all this capacity built to meet our demand, which was built on easy credit.”

In the wake of last year’s financial and credit crisis — which Murray said was “really scary” — that credit availability has evaporated for many folks, and those who still have good credit are in no mood to splurge but are looking to rebuild wealth that took a hit with falling stock and home prices.

Despite all that grim news, Murray repeated several times that the economy seems to have “found a bottom,” though he echoed predictions that the labor market will continue to suffer double-digit unemployment well into 2010. His department has a research assistant position open, Murray said, and instead of six or eight applicants, there are 50, many of them “people who have lost good jobs and are desperate for anything.

“There’s virtually no country that’s been untouched by this economic downturn, and here we all know somebody who’s lost a job. We’re going to struggle to deal with the labor market issue for many quarters, many years to come.”

One worrisome risk as certain job sectors, such as manufacturing, continue to decay, is something Murray called “structural unemployment.” Some of the eight million jobs already lost in the recession won’t be coming back, which will result in a “difference between the skills unemployed workers have and the skills employers need.”

No magic bullets for the local economy

Murray didn’t have any surefire suggestions for how the Tri-Cities economy could somehow vault ahead of everywhere else and grow rapidly while everywhere else is creeping ahead, but he hinted at one thing.

A self-proclaimed “strong zealot for education,” Murray said a focus on education “can make the fundamentals of your community much stronger.”

At the same time, though, he predicted very rough sailing for K-12 and higher education in Tennessee when federal stimulus dollars go away in 2012.

And if unemployment stays high, Murray said, the Federal Reserve and Treasury Department will feel pressure to keep interest rates low and use other methods to prop up consumer demand even if that risks inflation. Eventually, though, he said the federal government is going to have to both raise taxes and cut spending to get rein in historic deficits.

“The long-term deficits are simply too large, but I don’t know how Congress is going to do it,” Murray said. If the political will isn’t forthcoming, he said, “someday the Chinese are going to wake up and say, ‘we don’t want to keep buying your bonds, we don’t trust your ability to pay it off.’

The bottom line, Murray said, is that Americans are going to need to save more, which will decrease the consumption upon which our economy has relied, and that some of “the wealth we thought we had” is gone.

“It’s hard to find a real upside that will cause the economy to spring forward at a rapid rate.”