Experts meet at ASU, agree recession will end in 2009
The current recession will end in 2009 without turning into a depression. That’s what top economic experts from the W. P. Carey School of Business and the Arizona Governor’s Office said May 20 at the annual Economic Outlook Luncheon sponsored by the Economic Club of Phoenix. About 200 people attended the event to hear midyear economic forecasts and learn more about Arizona’s state budget deficit.
“The current contraction in the U.S. economy will be the longest and deepest recession since the Great Depression,” says Professor Lee McPheters, director of the JPMorgan Chase Economic Outlook Center at the W. P. Carey School of Business and editor of Economy@W. P. Carey. “However, while the Great Depression was marked by four consecutive years of decreases in the Gross Domestic Product (GDP), the current recession will likely only bring four consecutive quarters of decreases in inflation-adjusted GDP.”
McPheters says a survey this month from the national Blue Chip Economic Indicators newsletter shows 96 percent of economists believe the recession will end by the fourth quarter of 2009. However, he adds Arizona still had the weakest labor market in the country in March. Phoenix was still the worst large metropolitan labor market in the nation. And McPheters cautions the return to positive growth in output will be so modest that unemployment will continue to rise, and the local economy is likely to continue to lose jobs into next year.
“The key to recovery will be consumers,” says McPheters. “Spending and borrowing have been down, but we’re seeing a bright spot with the advance report for the first quarter of 2009 GDP showing consumer spending up 2.2 percent.”
Professor Dennis Hoffman, director of the L. William Seidman Research Institute at the W. P. Carey School of Business, says both employment growth and tax revenues are down in Arizona since 2007. Arizona is dealing with one of the worst budget crises in the country, with almost a 16-percent shortfall in the state’s General Fund this fiscal year and close to a 30-percent shortfall for next fiscal year.
“Unless we make some changes, the state is likely to run out of money again as the federal stimulus winds down in 2011-2012,” says Hoffman. “We need to focus on more stable sources of revenue that aren’t tied solely to volatile sales and income taxes.”
Eileen Klein, director of the Arizona Governor’s Office of Strategic Planning and Budgeting, went over the Governor’s budget plan for dealing with the crisis. It includes cutting state spending by another $1 billion, implementing a temporary tax increase to bridge the gap in the current shortfall, reforming the budget process with a focus on long-term needs, and providing tax reform to attract businesses and more jobs to Arizona. Creating a more stable budget situation is a main goal.
The Economic Outlook Luncheon was held this year at the Arizona Biltmore Resort & Spa. The Economic Club of Phoenix hosts the event every May, as one of its many activities that offer opportunities for Valley business leaders and others to network and engage. The club was founded by a group of prominent business executives called the Dean’s Council of 100, in conjunction with the W. P. Carey School of Business at Arizona State University. More information about the club is available at wpcarey.asu.edu/ecp. Today’s presentations will be posted at knowledge.wpcarey.asu.edu.