Harlan Levy.: Where is the U.S. economy headed this year in the wake of the big growth in January jobs, fewer jobless claims, and better manufacturing data?
Fred Carstensen: We still are not confident we're going to see strong real growth of over 2.5 percent. You really want to get 3 to 3.5 percent growth, because that would really generate job creation.
This is a very odd recession, because officially the recession was over measured by national output, which is up over where we were in 2008. But of course if we measured it in terms of employment, we're still in a very, very deep recession. The simple unemployment numbers did drop from 8.5 percent to 8.3, but if you measure the numbers of people working part-time who want to work full-time, the unemployment rate has only dipped from 15.2 percent to 15.1.
So, we still have a tremendous amount of work to do. Even though we added a lot of jobs in January -- and they were quality jobs, not just numbers, with very significant income -- even at that pace, it would be seven years, until 2019, before we'd get back to the level of 2008.
So it would be premature to say we're really getting a modestly strong recovery. December and January together were encouraging, but we have an awful lot of headwinds. We have the public sector contracting, losing 17,.000 jobs in January. The federal government continues to plan significant reductions in expenditures. The House of Representatives continues to push very hard for a very significant contraction in federal spending. State and local governments continue to struggle financially. Europe is teetering on the edge of a recession. Chinese growth has weakened, as has Indian growth. The world economy looks to be sliding backward in terms of its performance, and if it slows down significantly -- and certainly all the trends look negative -- that will feed back on the U.S. in a damaging way, hurting our exports, which have been relatively robust.
At the same time we seem to be getting into a virtuous cycle. Consumer credit card debt has expanded by $19 billion, the largest expansion since 2008, and that means households feel more confident about the future and are loosening the purse strings, and that will be self-fulfilling. That new demand will result in additional production, which will mean more jobs, and there will be more money going into the economy. Also there are lots of small positive signs.
I no longer think we're going to go into a double dip recession. I. really feared we were going to slide back into recession in 2012, but now I think we will have modest expansion and modest job creation, but no prospect of robust growth for probably three to four years.
H.L.: Can housing recover this year?
F.C: No. In fact, the $26 million settlement announced last week between the banks and the government over mortgage misconduct might put 2 million houses in foreclosure and 6 million over the next five years. That's because while they were negotiating this deal, the banks were holding back on foreclosures until they got the deal's protection against other legal action. The anticipation is that the banks will really push forward on the foreclosures that have been essentially suspended. We'll have a massive amount of foreclosures, and there's no way the housing market can absorb this enormous influx of new inventory.
2011 was incredibly bad for the housing sector, and the sad thing is that there's no prospect of a housing recovery for at least two to three years. In the long run, the settlement will prevent the foreclosure of even more homes, and hopefully it will be the model for the 8 million mortgages that are not covered.
H.L.: What do you think of the gyrations of the stock market, rising so fast this year while large numbers of insiders are selling their company's stock?
F.C.: The upside potential is very small. The European markets are contracting. There's not much prospect that corporate earnings are going to continue on their very positive trend. The expectation is that we're at a cyclical peak, so insiders are taking their money out because they don't think they'll do a lot better by waiting. Hopefully they'll take that money and spend it, which would strengthen the economy.
H.L.: What does your Connecticut Center for Economic Analysis predict for the Connecticut economy over the next two years?
F.C.: 2011 was very good. Connecticut's growth rate - about 2.5 percent, was significantly higher than the national rate, and we added about 9,000 jobs. But in our baseline forecast, we would expect Connecticut to fall back below the national picture to about 1.7 or 1.8 percent growth in 2012.
However, that prediction does not incorporate the major capital projects that are coming on line - Jackson Labs, BioScience Connecticut, the governor's $860 million initiative to build UConn Medical Center into a major biomedical research center, and the New Britain-Hartford busway. Those three will generate a lot of construction jobs, and we think they will raise Connecticut's economic growth rate quite significantly -- by 40 percent or up to about 2.5 percent -- and will add 6,000 to 8,000 jobs over our baseline forecast.
Collectively, we're talking over the next couple of years of expenditures of $600 million to $800 million. That's quite a powerful impact, and it will continue into 2013 and may raise the growth rate in 2013 to about 2.1 or 2.2 percent. This is assuming that the spades get into the ground and that the construction process is well underway.