In his State Fiscal Policy Conference presentation (“Struggling to Hit Escape Velocity”) in D.C. yesterday, chief economist of Moody’s Analytics Mark Zandi stressed that the nation’s economic recovery has lost momentum over the last year. He noted that economic growth had reached 3.3% in second half of 2009, but had fallen to 2.7% in 1st half of 2010 and to 2% in second half of 2010. Such anemic growth won’t create enough jobs to forestall a return to double digit unemployment by spring 2011. He added that the greatest period of economic growth and private sector job creation was in June 2009, the apex of spending under the 2009 American Recovery and Reinvestment Act.
The economic slowdown coincided with the direct impact on the stock market from the European Sovereign Crisis epitomized by Greece’s debt situation. Private hiring hit 200,000 per month prior to the sovereignty crisis, dropped precipitously afterward and is now down to 75,000 per month. As Europe’s debt crisis has abated, the recovery has begun to rebound. Zandi emphasized that the recovery will remain fragile over the next 6-12 months. While he does not expect a double dip to the recession, Zandi rates the odds at 1 in 3.
Zandi cited several areas of concern. First, there must be significant improvement in small business job creation. He noted that small business accounts for half of all jobs in the economy and represented 2/3 of job losses in the last recession. Second, the foreclosure crisis remains a threat, especially in specific regions. In Florida, for example, 1 in 5 mortgages are at risk, 1 in 3 in Miami alone. Third, state and local government budget shortfalls and resulting job losses undercut gains in private sector hiring.
However, Zandi finds reason for optimism. He believes that a year from now we will have turned the corner and within two years we will once again be at 4-5% economic growth.
Zandi says the nation is “righting the wrongs that got us here.” As an example, he cites significant household debt reduction. Zandi also anticipates state revenue growth to exceed 5% in FY2011, though there will still be a $100 billion gap from what might have been expected with a vibrant, full employment economy.
Zandi’s prescription for the future includes a transition from a consumer spending-led economy to an export-driven economy. This has already begun in aircraft manufacturing, pharmaceuticals and quality services- all sectors that demand a highly skilled and educated workforce. To fully realize the benefits of this transition, we must “invest in people,” especially through education. Zandi specifically emphasized an increasing role for community colleges.
