Economy not out of the woods yet, economists say

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May 17, 2012

Economy not out of the woods yet, economists say

Dufrene warns of slowed economy, another recession

By DANIEL SUDDEATH daniel.suddeath@newsandtribune.com The News and Tribune Thu May 17, 2012, 06:37 AM EDT

NEW ALBANY — While he doesn’t believe the nation is currently in one, Uric Dufrene said Wednesday there’s “certainly a chance we could enter a recession later this year.”

Dufrene, Sanders Chair of the Indiana University Southeast School of Business, said the next three employment reports will be telling in terms of what direction the region and nation are heading.

He examined recent labor trends during the annual Mid-Year Economic Update at IU Southeast on Wednesday morning. The event is a follow up to the economic forecast made by Dufrene and professors from Indiana University each November.

For the remainder of 2012, Dufrene said there are some question marks for the economy.

“Last November, I thought I was very optimistic, we were seeing some positive growths,” Dufrene said. “But right now, I think the outlook is more uncertain.”

Can personal spending be sustained? How will domestic demand trend in the coming months? Will the positive job growth over the last year dissipate?

Dufrene said the eventual answers to those questions will have a sizable impact on whether the recent rebound in the economy continues.

“Even though some people may be saying that, I don’t think we are” in a recession yet, Dufrene said.

He pointed to manufacturing indicators that he said show enough activity to prove the country isn’t in a recession.

As for labor, Dufrene said the Southern Indiana counties in the Louisville Metro Statistical Area have consistently recorded jobless rates “lower than the region and beyond” in recent years.

In November, Dufrene predicted the Louisville Metro Statistical Area would add more than 20,000 jobs this year and potentially erase the employment deficit created by the last recession, which most economists feel ended in December of 2007.

However, with more people coming back into the labor force, the unemployment rate remains elevated compared to traditional levels, Dufrene said.

Still, he said there’s been substantial positive job growth especially when comparing year-to-year numbers for the region.

“The question is, can that continue,” Dufrene said. “Likely not, because of what is happening with the national economy.”

But he cautioned that doesn’t mean the region will endure negative job growth, only that the gains will decelerate.

Manufacturing helped lead the charge of employment gains last year, and Dufrene said the question is how well the region and country will fare now that the sector has cooled in terms of job growth.

The Dow Jones industrial average was on pace for its best day since May 1 as of noon Wednesday according to Associated Press reports. The Dow was up 48 points.

But experts warned politics and the economic situation in Europe are hampering market growth.

“We’re in a period where there’s little conviction to buy,” Richard Cripps, chief investment officer at broker Stifel Financial, told the AP. “The road ahead is too uncertain because of European concerns and the [U.S.] presidential election later this year.”

Dufrene said political battles can have a negative impact on consumer confidence, which is a key ingredient for the economy because purchasing obviously fuels large employment sectors such as manufacturing.

He said it “doesn’t give people an uplifting feeling” when they continuously read or hear politically motivated comments about the condition of the economy.