“Do you feel better?” joked Mitchell, a graduate of William & Mary with a Ph.D. from the University of Oregon. A former professor of economics at Boise State University, Mitchell was Chief Economist of U.S. Bancorp and Western Regional economist for US Bank. He brought his 38 years of analytical expertise to Brentwood last week for the 22nd Annual Economic Forecast presented by ECC Bank/Bank of Agriculture and Commerce.
Mixing humor with sometimes less-than-humorous data, Mitchell told a rapt audience that although “It’s been hard to be an economist the last couple of years,” the signs are there for 2011 to be better, especially in the first months.
One key indicator of the recovery, he said, is that business inventories are low. As sales stayed relatively strong following the holidays, retailers must replenish those inventories this year.
“We’re likely to get pretty strong growth in the first part of 2011,” Mitchell said.
Stabilizing the economy will mean getting the 7.5 million out-of-work Americans back on the job. According to the Bureau of Labor statistics, employment figures are down in every major classification except health care, which has seen continual growth. Five million workers in the still-struggling construction and manufacturing industries are still unemployed, posing a “skill set problem” for the American workforce.
“The problem is making the transition,” Mitchell said. “How do you turn a farmer into a nurse?”
According to Mitchell, the data should nevertheless inspire optimism. For example, in December of 2009, none of the 50 states of the union posted growth in jobs (California ranked 41st in jobs created.) A year later, 42 states showed job growth (California ranked 30th.)
In an effort to help spur the economy, the Federal Reserve last year announced plans to purchase hundreds of billion of dollars in United States securities. Known as “quantitative easing,” the strategy – which was also used in 2008 – has been dubbed QE2.
The Wall Street Journal reported that “Debate is raging inside and outside the Fed about how much good it will do, if any. Proponents say purchasing hundreds of billions of dollars more in Treasury bonds will provide only modest support for the economy. Foes warn that it could backfire by pushing up commodity prices, sowing seeds of unwelcome inflation in the future, or by undermining confidence in the Fed’s ability to manage – and eventually reduce – its holdings.”
Mitchell said one reason QE2 could help is by driving investors to seek higher return from dividend-paying stocks rather than the safer-but-lower yield from interest-bearing investments. The recent surge in stock prices, he said, can be partly attributed to QE2.
The big thing to worry about, Mitchell said, was the country’s debt. For every dollar the United States spends, it borrows 37.4 cents. Interest now consumes about 6 percent of the budget, and that’s expected to grow to 17 percent by 2020.
“I don’t care if you’re a Republican or a Democrat or what industry you’re in,” he said. “In the dark of night, you have to admit that that’s not sustainable.”
Although foreign investors are currently buying up U.S. debt, it won’t last forever. As happened in Greece, which was forced last year to get massive international assistance to stave off complete collapse, foreign investors will eventually lose interest in buying U.S. debt.
“If we want to see how long it will last,” Mitchell said, “we can check with the Greeks.”
Another sobering fact can be gleaned from history. International economists Carmen and Vincent Reinhardt recently conducted a study of 15 economic crises around the world over the last 20 years that showed it could take the United States another six years to completely shake off the recession.