Economic upswing seen continuing/The Record

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Economist John Mitchell tells an audience Thursday at the Bank of Agriculture and Commerce's economic presentation at the Stockton Hilton that the recovery should continue.
By Reed Fujii
Record Staff Writer
February 03, 2012 12:00 AMSTOCKTON - The slow economic recovery should continue in California and the rest of the nation this year, but there are potential threats to keep in mind, an economist told a breakfast gathering Thursday.

"Continued expansion is the most likely scenario," said John Mitchell, a Portland, Ore., economist and consultant.

Growth in U.S. gross domestic product is likely to range around 2.5 percent this year, up from 1.7 percent in 2011, and inflation looks to remain under control, even as the Federal Reserve promises to hold short-term interest rates at record low levels for the next two years.

But he also provided a laundry list of factors that could slow or even derail the recovery, in particular the European debt crisis, conflicts in the Middle East and Washington political gridlock.

The Great Recession officially ended in mid-2009, Mitchell noted.

"We're in the third year of the upturn, but it doesn't feel like it," he said. "You have to feel uneasy."

Mitchell, who presented his forecast at an annual event sponsored by the Bank of Agriculture and Commerce, admitted his prediction last year was a bit too rosy.

But those expectations had been based on economic indicators that had shown an upward trend - but later revisions showed a definite slowdown.

In addition, the Japanese earthquake and tsunami, as well as flooding in Thailand, had sizable impacts on the U.S. economy. Inflation was higher than expected. And the financial markets were rattled by Washington's dysfunctional fiscal policies.

Christopher Weed, a Stockton accountant and financial adviser attending the breakfast, said Mitchell's forecast fits in with others he's heard as well as his own observations.

"Real estate seems to have stabilized, and things are turning around. It's just going to be a slow recovery coming out of the downturn," he said.

Mark Plovnick, the economic development director at University of the Pacific who also attended the speech, agreed the economy should see mild growth, but that gains remain fragile.

"There are so many things out there that could set us back," he said.

Mitchell's list of worries included the large number of Americans facing long-term unemployment, high rates of youth unemployment, Europe's debt crises and the struggle to maintain the Euro currency, and continuing housing woes, including about 20 percent of U.S. homeowners being underwater - or owing more on the mortgage than the home is worth - which affects 29 percent of the homeowners in California.

Also, Mitchell said, Washington's political gridlock is creating fiscal policy by calendar; that because politicians cannot agree to act, major policy changes occur when deadlines or sunset dates are reached.

Both the current payroll tax cut (assuming it is extended through this year) and the Bush tax cuts are due to expire Dec. 31. And because the so-called congressional supercommittee failed to reach agreement last year on a budget-balancing measure, automatic cuts will take effect Jan. 1.

He cited former Republican Sen. Pete Domenici of New Mexico, who in testimony before the supercommittee Nov. 1 criticized legislators who refuse to make changes in safety net programs, such as Medicare, and those who refuse to accept tax increases.

"They are both complicit in letting America destroy itself," Domenici said.

Contact reporter Reed Fujii at (209) 546-8253 or rfujii@recordnet.com.