Our view: Evidence abounds of economic turnaround

It’s good news that Chapman University’s economic team forecasts an imminent end to the longest recession since World War II. Even so, many more Californians can expect to lose their jobs before employment numbers turn positive next year, according to the school’s A. Gary Anderson Center for Economic Research midyear forecast.

Chapman was ahead of most when it saw the recession coming with its December 2007 annual economic outlook. We hope university President Jim Doti and his band of experts are right again in seeing light at the end of this long, dark tunnel.

Last December, Chapman was one of few forecasting an economic turnaround by mid-2009. In a midyear update Wednesday, Doti said evidence abounds that the turnaround has begun.

Early indicators include improved lending conditions, a recovering stock market, rising consumer confidence, declining initial jobless benefits claims and “a growing gap between rising new orders as compared to depleted inventory levels,”  Doti told several hundred attendees at the Hilton of Orange County in Costa Mesa.

Treasury Department and Federal Reserve aid to banking and financial services firms is “working, at least in the short run,” according to the forecast, resulting in loosened lending standards “during the current quarter.”

Moreover, the $782 billion federal stimulus is “definitely propping up consumer spending.” Even wage and salary declines are more than offset by sharp increases in unemployment benefits, Social Security payments and other transfer payments, the forecast says.

There are caveats. Unlike previous “deep recessions,” consumer spending won’t recover strongly this time, which will delay overall recovery because, Doti said, consumers are doing what they should have done for a long time – saving. The previous near-zero personal savings rate has increased to almost 6 percent.

Gloomy consumers cutting back on spending adversely affect retail, food and leisure sector employment, which depresses wholesale, transportation and manufacturing employment, the forecast said. Lackluster consumer spending also stems from a $10 trillion decline in household wealth from stock market losses and declining home prices.

Doti told the Orange County Register he disagrees with a UCLA economic forecast this week predicting the loss of 60,000 government jobs statewide that rely on state spending.

“I don’t believe it,” he said. “When you look at the stimulus and all the money flowing in to support a vastly larger government infrastructure, it’s the one area you can still get a job.”

We believe money channeled into unproductive government jobs would be better spent creating more productive private jobs and be better at stimulating the economy. Burgeoning government saps private sector capital, while government meddling in finance and housing exacerbated the downturn nationwide.

The Chapman forecast credits federal bailouts and stimulus with some of the turnaround, but only “in the short run.” Doti conceded the possibility of another downturn once stimulus effects recede, but believes the graphic shape of the recovery will be not a “W” or a “V” or a “U” shape, but more of a Nike “swish” – up, then modestly forward. Our hope would be the government would let the recovery move forward on its own and withhold plans for any more stimulus spending.