Economic recovery continues to be moderate, economist says.
- June 25, 2010
Virginia’s economy is slowly bouncing back from the recession and at a slightly better pace than the national economy. But headwinds in the form of tight credit, lingering unemployment, home foreclosures and depressed consumer spending are dampening recovery here and across the nation, one of the state’s top economists said Friday.
“Coming out of a deep recession, you’d think we’d have 3.5 to 4 percent growth in real GDP (gross domestic product). Our projection that is that we’ll see 2.9 percent in 2010 and 3.2 percent in 2011,” Chris Chmura said during an annual economic forecast done in conjunction with the nonprofit Thomas Jefferson Institute for Public Policy in Springfield. However, despite such constraints, she’s not expecting a double dip recession.
Chmura, of Chmura Economics & Analytics in Richmond, noted that lower housing values continue to dampen the rebound. “Five years ago, people were refinancing their homes, taking the equity out and spending money. Now houses aren’t worth as much, and they can’t take the equity out. So they feel poor, and they’re not spending as much,” she said.
In Virginia, on an annual average basis, retail sales dipped 5.4 percent in 2008 and 5.4 percent in 2009. However, they are expected to improve 1.3 percent in 2010 and to expand to 5.1 percent by 2011, according to Chumura’s 2010-11 forecast.
Another drag on the rebound — and one that portends the most damage going forward — is a high unemployment rate and the slow recovery of jobs. When people don’t have jobs or feel uncertain about employment, they pull back on consumer spending, which represents two thirds of the country’s GDP, Chmura said.
From December 2007 through January 2010, 8.4 million people lost their jobs in America. If employment expands at a moderate rate of 200,000 jobs a month, it will take 3.5 years to reach pre-recession employment levels, she noted.
The picture is a little better in Virginia. From April 2008 to February 2010, employment dropped by 197,000 jobs, a 5.2 percent drop compared with a 6.1 percent decline in the nation. In May, employment ticked up in Virginia by .1 percent. Growth is expected to accelerate to 0.4 percent in 2010 after receding 3.2 percent in 2009, with a bigger bump, 1.9 percent, in 2011.
By sectors, education and health care continue to add jobs along with the professional business services industry, primarily in Northern Virginia.
Chmura’s report also touched on transportation. She noted that Virginia’s transportation woes, at least in terms of congestion, are mostly limited to the Washington metro area (which includes Northern Virginia), Hampton Roads and Richmond. In 2007, based on a travel time index (from the Texas Transportation Institute and Reason Foundation), motorists experienced 62 hours of traffic delays in the Washington area, 29 hours in Hampton Roads, and 20 hours in Richmond.
From an economists’ point of view, possible financing solutions to improve Virginia’s transportation network include reducing the number of motorists on the roads by investing more in mass transit or by building more highways with the help of private dollars in public/private partnerships.
Gov. Bob McDonnell, elected on a platform of not raising any new taxes, is expected to address transportation in 2011. Michael W. Thompson, president of the Thomas Jefferson Institute, said everything should be on the table when it comes to resolving the long simmering funding issue. “Taxes shouldn’t be off the table, but they shouldn’t be the first thing people turn to,” he said. To see the complete forecast, go to http://www.thomasjeffersoninst.org/files/3/Economic_Forecast_2010.pdf