Two economists predict recovery, question endurance

REGION

An economic recovery is coming, but its sustainability is open to question, two leading national economists told area businesspeople.

U.S. productivity is back on an upward trend after the worst economic disturbance since the Great Depression, PNCs Robert A. Dye told an authence of more than 100 at the York County Chamber of Commerce's Nov. 18 Economics Club breakfast.

A few days later, Anirban Basu, chairman and CEO of Sage Policy Group Inc. of Baltimore, offered a similar analysis to two dozen CEOs and invited guests gathered at a local chapter meeting of Vistage, an organization devoted to helping executives hone their leadership skills.

Dye, vice president and senior economist for The PNC Financial Services Group, said the recovery likely would be a gradual "U-shaped recovery," rather than a sharper "V-shaped" one. Basu, however, noted about onethird of economists are predicting a "double dip," a second downturn.

Government data indicates the recession ended in the third quarter of this year. Preliminary figures showed 3.5 percent annualized gross domestic product growth, since revised to 2.8 percent. PNC expects a return to normal economic growth in 2010, roughly 3 percent or a little more, Dye said.

Basu, whose firm recent�y established an affiliate in Harrisburg called Commonwealth Economics, forecast just 2.4 percent economic growth for 2010 and said there is considerable uncertainty after that.

"I just can't see through the fog," he said, and cautioned, "Don't presume 2011 will be better than 2010."

On employment, a lagging indicator, Dye predicted a peak of 10.5 percent. Basu predicted a peak between 10.7 percent and 11.4 percent.

Both men said the $787 billion economic stimulus had been effective in preventing a much deeper recession, but Basu said the money was badly misallocated. The government squandered billions on easy, "shovel-ready" road-repaving projects and tax breaks that it could have spent on long-term investments in infrastructure, he said.

"It's not a serious package," he said. "It fails to wrap itself around America's key shortcomings."

Fears of inflation are overblown in the near term, both indicated. Despite massive borrowing by the federal government, the recession has dampened demand too much for wages or prices to increase.

"It is very difficult to put together any kind of inflation story with this much slack in the economy," Dye said.

The risk of inflation in the long term hinges on whether the government can wind down its deficits as the private-sector economy heats back up, Basu said. It is too soon to tell how successful that transition will be, he said, but it will have to take place.

"The federal government cannot keep being the economy forever," he said.

[Author Affiliation]

BY TIM STUHLDREHER

tims@journalpub.com