The U.S. economy might reach bottom this summer and modest growth is forecasted for 2010, according to a report released Wednesday by the Kyser Center for Economic Research of the Los Angeles County Economic Development Commission (LAEDC).
The report said the U.S. economy will shrink by 2.7 percent during 2009 and grow modestly by 1.7 percent in 2010.
Inflation is unlikely to be a problem in the near term, though higher energy prices are cause for concern, the report said.
Monetary policy makers acknowledge the inflation risk they are creating by their actions, the report said, but are focused on restoring the health of the nation's economic and the financial sector.
Thus, the report continued, they have pushed short-term rates to extremely low levels and poured extraordinary sums into bank reserves.
The outlook for long-term rates is more uncertain, according to the report. Given the Fed's current activist policy stance, they are unlikely to rise much until later in 2010.
"We think the economy is nearing bottom this summer, so the current economic news looks terrible," said LAEDC Chief Economist Nancy D. Sidhu.
"This recession officially began in December 2007 and looks like it will be the deepest downturn since the recession of 1981-1982," she added.
According to the report, several factors have put U.S. households under considerable stress. Employment has declined sharply since the recession began in December 2007. Some 6.5 million jobs have disappeared. Job losses likely will continue until mid 2010.
The unemployment rate in the U.S., currently 9.5 percent, will rise through the rest of 2009 and reach the "mid 10's" by midyear 2010, the report said.
The report indicated problems have deepened and will persist for the auto and housing industries, noting that conditions have driven two automakers and many suppliers to bankruptcy, while the U.S. housing sector has been shrinking for more than three years. However, the report said it appears the bottom is near for housing.
With business investment spending and U.S. exports also declining, the only sector that is growing is the federal government. U.S. economic recovery funds are beginning to appear in Southern California and their impact will grow through the rest of 2009 and 2010, the report found.
According to the report, the current forecast anticipates continued growth in federal purchases of goods and services during2009 and 2010.
The wars in Afghanistan and Iraq are costing well over 150 billion dollars per year. Aside from defense, spending is growing rapidly in all categories except interest, the report said.
Inflation adjusted, federal purchases of actual goods and services will increase by 3.7 percent in 2009 and by 3.4 percent in 2010, according to the report.
U.S. exports are shrinking after brisk growth in prior years. Total exports of goods and services grew by 6.2 percent during 2008. However exports collapsed in the fourth quarter and early 2009, as U.S. trading partners succumbed to the global recession, the report said.
Meanwhile, the California economy continued to weaken through mid 2009, the report predicted.
Problems that originated in housing and mortgage finance spread to the rest of the economy, leaving very few industries untouched, the report said.
Retail sales deteriorated sharply over the winter and spring, especially at the state's auto dealers. Tourism is down across the state, and the manufacturing and transportation sectors have been hard hit, according to the report.
Nonresidential and public works construction also have declined sharply. As employment, income and taxable sales shrank, state and local government revenues fell putting pressure on government spending plans for coming years, the report said.
According to the report, at mid 2009, California is in the depths of a severe recession. Unemployment has hit post World War II highs. Employment is declining across the state. Only a few industries are growing. The economic news in California will be mostly bad during 2009, with limited improvement likely in 2010.
"At mid-year 2009, California too is in a serious recession, and the economic news during 2009 has been dismal," Sidhu said.
California's economy should hit the bottom by the end of 2009 but the recovery will be moderate at best, the report said. The state's non-farm employment will fall by 694,100 jobs in 2009 and the unemployment rate will average a painful 11.6 percent.
While the state's housing sector remains in a very depressed state, the retail sector is also being hammered, with sales expected to decline by 12 percent in 2009, following sales declines in both 2007 and 2008, according to the report.
Jack Kyser, the founding economist of the Kyser Center for Economic Research, said the five Southern California counties will continue to suffer in 2009.
"Job losses will continue in construction, manufacturing, retailing and leisure and hospitality services," he said.
With retail stores of all types continuing to close, the impact is being felt in such other areas as the apparel industry, which is undergoing a change in its business model as store closings reduce the number of potential customers, Kyser noted.
The motion picture and TV production industry is negatively affected by eroding broadcast network audiences and a growing concern for cost containment. The region is also suffering from erosion of in-state feature film production.
"This is not good news for below-the-line workers or the multitude of small suppliers to the industry," Kyser said.
International trade activity at the region's ports and airports will continue to decline.
With defense spending set to slow and profit-starved airlines reducing orders for new planes, the Southern California aerospace industry will continue to face difficult challenges in 2009 and 2010, the report said.
Meanwhile, the White House has delayed until August the release of its mid-year budget review, which is likely to include a revised projection of the 2009 deficit.
The review is normally published in July, but officials said it had been rescheduled because of delays typical in years when a new president has taken office.
But Republicans accused the Obama administration of sidelining bad news on budget deficits until after lawmakers leave Washington for their August recess./.