March 8, 2010: Chief economist shares U.S. outlook for 2010

By Karin Gelschus

Associate Editor

INDIANAPOLIS — “There’s some good, some not so good, some bad and some truly, truly ugly stuff coming down the line,” U.S. Chamber of Commerce Chief Economist Martin Regalia said in reference to the U.S. economy.

Regalia, who appeared at the Motorcycle Industry Council (MIC) breakfast during the recent Dealer Expo, said for 21 months the United States faced a collapse on Wall Street, significant job losses, a plummeted housing market, declined consumer consumption and reduced investment, which all resulted in the worst economic environment since the Great Depression.

“This was truly an economic debacle,” he said, addressing an audience of a couple hundred people.

On the bright side, “Free market economies have a tremendous resilience,” he said. “As we go through and look at the U.S. economy, we see an economy that’s starting to come out of the economic downturn, the recession.”

Economic growth

The United States will probably see a 3 percent growth average this year, said Regalia. That number, however, isn’t as great as it sounds.

“For an economist, the big deal is not whether you’re growing or you’re not growing,” he said, “it’s whether you’re growing at your potential, above your potential or below your potential.

“If you’re growing above your potential, you’re using up resources, and eventually you’re going to give rise to inflation. If you’re growing below your potential, you’re not going to use up all your resources, and you won’t fully employ your population. That’s not a good thing either.”

In order to recover from a recession, an economy needs to grow at or above its potential so it can compensate for the slack that occurred during the economic downturn, said Regalia.

“The good news is we’re coming out of the downturn,” he said. “We’re growing again, and it looks like we’re going to continue to grow throughout the forecast horizon. The not-so good news is that we’re not going to grow fast enough to re-employ all those people who were unemployed during the economic downturn.”


Employment rates

The effect on the labor market is really where the recession hit home to many people, said Regalia, who ticked off a number of alarming statistics:

•Almost 700,000 jobs were lost every month in the first quarter of 2009.

•About 425,000 jobs were lost every month in the second quarter.

•Roughly 250,000 jobs were lost per month in the third quarter.

•In the last quarter of 2009, about 70,000 jobs were lost each month.

•8.4 million jobs have been lost throughout the recession.

When one takes those numbers into account, the loss of 20,000 jobs in January isn’t all that bad.

“We’ll see continued improvement, through the course of this year,” said Regalia. “We’ll probably start to see positive job growth some time in the first quarter, perhaps February or March.”

To get employment to continue to climb, the country needs to reach the point where it’s creating about 150,000 jobs per month, noted Regalia.

Looking back to previous economic downturns, the nation had a much greater growth rate, which reduced unemployment at a faster pace. For instance, in the mid-1970s, the GDP growth rate was 7.7 percent for the first year. The country was able to re-employ all of its unemployed workers in a span of nine months, said Regalia.

Coming out of the recession in the early ’80s, the growth rate was at 6.8 percent, and it took a full year to get people re-employed.

In 1991, the United States grew at about a 2.2 percent rate and it took 23 months to re-employ the people who were displaced during the economic downturn.

“We’ve had a 2.2 percent growth rate,” Regalia said. “If we don’t grow a whole lot faster than our long-run potential, we could be dealing with the high levels of unemployment for six, seven, eight years. The president’s budget didn’t call for the unemployment rate to drop below 5.2 percent any time during the 10-year forecast horizon. We started off this recession with a 4.7, 4.8 percent unemployment rate. The forecast says we never get back to that level.”


Due to the number of lost jobs, consumer consumption took a huge hit during the economic recession. When broken down, consumption makes up two-thirds of the economy, said Regalia.

“It’s what drives everything else,” he said. “The consumer got clobbered in this economic downturn — income, job loss, household wealth. We’ve now seen those markets start to stabilize, so we expect to see those consumers come back to the stores and start spending a little bit. They’re going to do so more judiciously than in the past. We’re not going to see the consumer borrowing to maintain excessively high spending.”

What it all means

When breaking down the GDP, about 70 percent of it is in consumption, another 15 percent is in investment. Both of these areas are headed in the right direction, albeit slowly, said Regalia.

“The combination gives us the GDP factor, right around 3 percent, maybe a tad over. It doesn’t give us a whole lot of momentum,” he added. “What that means is the unemployment rate will probably stay elevated, the jobs we create will probably be somewhat less than we’d like to receive.

“The good news is we’re out of the recession,” he said. “The bad news is we’re not growing fast enough, and the ugly news is we’re very dependent on the Federal Reserve to get its exit strategy right. We’re woefully inundated by the federal government spending program that will never get the long-term deficit right. The good, the bad and the ugly, ladies and gentlemen.”

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