Oklahoma researchers expect modest recovery
ECONOMY

BY DON MECOY Comments 4
Published: October 6, 2009

Economists are debating what shape our economy will be in as the longest recession since the Great Depression wanes.

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Optimists predict a "V.” The pessimists fear an "L” or perhaps even a "W.”

A recent report by two research economists from the Center for Applied Economic Research at Oklahoma State University note there is "a growing consensus” for a U-shaped recovery.

The U-shaped recovery would be characterized by a modest global rebound of economic activity "as consumers seek to reload lost wealth by saving more and spending less,” write Russell Evans and Kyle Dean in their midyear update of a 2009 economic forecast. Evans is the center’s director; Dean is associate director.

Financial conditions by the letter

The letters describe a general depiction of a graph of economic activity. Each of the letters begins with a descender representing the economic decline, which appears to be ending.

A V-shaped recovery would reflect growth as strong as the economic collapse. "While hard contractions are often followed by swift expansion historically, such is not likely to be the case in the current recession,” they wrote.

The L-shaped recovery would essentially represent no recovery — a prolonged economic malaise.

The W-shaped recovery, predicted by "a nontrivial minority,” would chart a double-dip recession. "While we place a low probability on a significant double-dip recession, it remains a concern,” the economists wrote.

Expected third-quarter growth of 2.5 percent to 3 percent in the U.S. Gross Domestic Product — a key economic metric — could unleash pent-up consumer demand just in time for the holiday shopping season, Evans said.

"We could see a decent holiday sales season,” Evans said.

In the Oklahoma City area, energy companies should begin shedding more jobs — a reduction that already has begun in the Tulsa area, Evans said. The pair also forecast a "significant reduction” of jobs in the professional and business services sector.

Meanwhile, state and local governments are dealing with shrinking revenue due to low natural gas prices and unexpected shortages in sales tax revenue as consumers shave spending, Evans said.

However, a boost in the GDP could spark optimism among consumers that could maintain modest growth into 2010, Dean said. By the middle of next year, employment growth also could return, although that might not immediately result in a lower unemployment rate.

New job growth likely would prompt some unemployed Oklahomans who have quit looking for work to resume their search, which would put them back on the unemployment rolls, Evans said.