Business - Dave Gallagher

POSTED: Sunday, Aug. 16, 2009

Pondering the long road of economic recovery

We're past the bottom, but it's going to be a long, slow climb to get the economy back to pre-recession levels.

That's the outlook of Fred Dickson, chief market strategist for D.A. Davidson & Co. who analyzes the Pacific Northwest market. He was in Bellingham last week, discussing the economy and where things are going. Between appointments we talked about the reasons he expects economic growth to be flat for a while -- one of the biggest being the expectation of sluggish consumer spending.

"It was the consumer that bailed us out of the last recession, but they don't have the credit available this time around," Dickson said. "Consumers will spend, but not in the same way as in the past. In order to spend, consumers will have to earn it first."

As retail numbers have been showing, consumers made some major changes in spending habits last fall and haven't shown signs of changing, even as they attempt to clear out credit card debt and build up savings accounts.

So what is going to create at least some growth? Dickson believes there are a couple of indicators to watch for. One is inventory levels. He said companies drastically slashed production last winter, so even a little increase in spending will mean it's time to restock the shelves. The other thing to watch is India and China's economies, which appear ready to begin expanding at a pre-recession clip again.

In the longer term, Dickson indicated the U.S. economy may transition beyond the consume, consume, consume mentality into areas where we try to take better care of resources. How fresh water gets acquired, developed and distributed, for example, will be a growth industry, requiring new technology and creating jobs. The same could be said for food and energy. Along with resources, the U.S. will need to make major infrastructure upgrades.

There's going to be a need for job creation in those industries to make up for the jobs that have disappeared so far in 2009. Many employers cut positions they don't intend to bring back, so it's going to take some time for retraining and adjusting if new jobs emerge.

"I'm very concerned about the impact high unemployment will have locally and nationally," Dickson said. "The private sector has come to terms with the reality of the constraints they have, so job growth will take a long time."

One other key for the Pacific Northwest is real estate and construction, which Dickson believes is starting to show the first signs of stability. However, new construction will remain weak and he expects the foreclosure problems to take between 18 and 24 months to peak and then decline.

"Foreclosures will keep a cap on resale prices on homes," Dickson said. "We're still in the tough part of that cycle."

It's about what you would expect in a rebound: Companies have to be convinced it's time to re-stock inventory and unemployment will continue to be a pesky problem even after all the economists have declared the recession over.