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Weathering the Recovery

Economists Discuss Outlook for the Future
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It’s been a long, slow recovery from the Great Recession but the end may soon be in sight, according to Cal State Fullerton economists Anil Puri and Mira Farka in their Oct. 29 Economic Outlook and Forecast presentation before an audience of approximately 800.

“The economy will improve and we see the next couple of years being better than the last six,” said Puri. However, the collapse in oil prices, strong dollar, international trade and global events have left the recovery vulnerable to a number of shocks. That’s why the economists are projecting a more temperate 2.5 percent growth over the next two years — up from 2 percent recorded during the past few years, but below 3 percent trend levels.

During the recovery there has been much progress, the duo reported: household debt is better than it has been in more than 30 years; output has expanded, housing has bounced back, “corporate profits as share of GDP have set record levels, and the financial sector is now much better capitalized, more stress-tested and less vulnerable than prior to the crisis,” according to the report.

A number of challenges make for more dour predictions: while employment is up, there are still challenges in the labor market, said Farka, who pointed to an uneven recovery as payrolls rise but the numbers of part-time workers, marginally attached, discouraged and unemployed continue to remain above historical levels. “The economy has added as many jobs in the “waiters and bartender” category as it has lost in manufacturing since 2007.”

Farka also pointed out how tough the recovery has been for the prime-aged — those in the 25-54 age group. “There are now around 3.1 million people in this age cohort who have disappeared from the labor markets,” she stressed. “I think the vast majority of them will no longer rejoin the labor force.”

Consumer spending, homebuilding and commercial construction are expected to power growth. On the downside, the economists see production, energy and manufacturing sectors, softer corporate profits and a more gloomy global outlook as factors that will temper growth. Still, Puri and Farka believe that despite the current headwinds, the U.S. economy will “muster a stronger showing over the next two years.”

Another uncertainty in the economy, said Puri, is when the Fed will raise interest rates.

“Hike the interest rates already! Seven long biblical years are enough,” agreed Farka, who went on to discuss the distortions imposed on the economy by a zero-interest rate policy: overvalued stock market, skewed business incentives and capital outflows from emerging markets.

The CSUF economists expect the Fed to move in December — a position they have maintained for more than two years — which also was shared by CSUF alumnus Richard Davis, CEO of U.S. Bancorp., in his presentation on the economy and cyber security during the forecast.

While consumer spending, homebuilding and commercial construction are expected to grow, the economists see production, inventory and the global outlook to temper growth to the country’s economy.

The economists also detailed expectations for Orange County and Southern California. The full forecast will be available at 4 p.m. today (Friday) on the Woods Center for Economic Analysis and Forecasting website.