It might not feel like it yet, but we’re actually better off today than we were a year ago, and next year will be a little better, the state’s chief economic forecaster said Thursday.“I think we are coming out of the Great Recession.” Arun Raha, executive director of the Washington State Economic and Revenue Forecast Council, said Thursday during a public lecture in Johnson Hall. Raha, who earned his doctoral degree in economics from WSU in 1990, said the recovery will be slow, but the economic indicators are encouraging.
Using myriad charts and graphs tracking everything from equity returns, yield curve spreads, new housing construction and old cars on the road, Raha illustrated not only the depth of the economic morass we’ve been struggling through, but also his reasons for believing a recovery is in the works.
“Make no mistake, this is actually the worst recession we’ve had since 1931,” he said. “It’s a truncated version of the Great Depression.”
Some people have said this recession is similar to the one in 1981-82, but that’s not true, he said. In that instance, he said, the economy gained back most of the job losses within a year. In this case, he said, “We will not get back to where we fell off from until at least 2012, and there are many slips along the way.”
According to Raha, state revenues for the 2011-2013 biennium will be $32.2 billion, up from $28.7 billion forecast for the 2009-2011 biennium. That’s still down from what Raha’s predecessor had originally forecast for 2009-2011, which was $34 billion.
In fact, Raha took over his current position in late 2008, just when the severity of the economic crisis was starting to emerge. Raha said the first thing he had to do was tell the governor’s cabinet and legislature that the revenue figures for the biennial budget were too optimistic, and state tax collections would actually be $2.4 billion lower than expected.
“The worst part of it was, I was hoping it was (only) $2.5 billion,” he said, “but it wasn’t.”
When all was said and done, Raha predicted state revenues would be down by nearly $6 billion, creating a $9 billion budget deficit.
When all was said and done, Raha predicted state revenues would be down by nearly $6 billion, creating a $9 billion budget deficit.
“That didn’t make me many friends, I can tell you,” he said.
He’s more optimistic now, but warns that the recovery will take time, in part because consumer confidence is still down.
“The good news is, it’s not getting any worse,” he said. “You have to remember thissideways is the new up.”
Raha said he believes that exports, particularly exports from Microsoft and Boeing, will help Washington State recover from the economic downturn faster than the rest of the nation. But, he said, in other ways Washington State’s recovery is facing some challenges because its revenues are so dependent on sales taxes.
“If people don’t spend money,” he said, “revenues are down.”
Consumer spending is closely tied to consumer confidence, he said, and consumer confidence is tied to unemployment rates and the price of gas.
No one expects gas prices to fall significantly, he said, and unemployment rates typically improve well after other indicators. That’s a bit of a catch-22, and in fact Raha said that construction, which accounts for nearly 20 percent of retail sales, continues to be down and bouncing along at the bottom.
Economic recovery is normally driven by consumer spending, particularly residential construction, but that’s not happening this time. Now there has been a lot of government spending, which is intended to drive business spending.
“The hope is that government spending will give way to business spending,” and there are indications that is happening, Raha said.