2009 economic outlook: When will downturn end?

February 22, 2009 

Economists across the region are crunching the numbers, trying to answer the question that's on everyone's mind: when will the economy turn around?

The most optimistic prediction says it will be late this year. Others say it won't be until 2010 that residents and businesses start to see any improvement.

But one thing is clear: 2009 is shaping up to be a rough year.

"Everyone's looking for a magic sign on the horizon," said Frank Hefner, an economics professor at the College of Charleston. "If you think of economic forecasting as a crystal ball, it's like a hurricane inside that ball right now. It is stormy, it's unclear, it's going all around in circles. It's very uncertain."

The uncertainty gripping the market makes it difficult to predict exactly when a turnaround will occur, economists said. Some of them had even wagered last year that the downturn would be over by now.

Predictions now range from late this year to 2010, at the earliest.

"There's no way that we can see that the economy is going to turn around in any fundamental way in 2009," said Doug Woodward, a research economist at USC's Moore School of Business. "In many respects, we're just getting started with the economic slump that started last year."

Things will get worse before they get better, said Coastal Carolina University research economist Don Schunk. The country is on pace to lose several million jobs this year, he said. Those layoffs trickle through the economy, keeping consumers tight on their spending habits and putting a damper on sales.

Grand Strand retail sales could fall 5 percent to 7.5 percent this year, and Horry County's accommodations and admissions taxes - taxes on entertainment and lodging rooms - will be down more than 3 percent, Schunk said. Banks will likely see loan defaults spread to consumer and business loans. Tourists might keep scaling back.

The downward spiral can only end when people and businesses start loosening their purse strings, Schunk said.

"When do things stop getting worse? It's when confidence comes back enough that consumers and businesses start spending again."

People are adding to their savings and reducing their debt, which will help them get to the point where they can once again shell out money in stores and restaurants and on real estate, Schunk said. It's a slow process, however.

"We are seeing savings rates starting to climb and households paying off their debt. We don't really know how long that's going to take. Does it take a year or does it take two years?" Schunk said. "Once that happens, then we can have a strong recovery."

Businesses, too, are making cuts to weather the tough times, said Woody Hall, an economist at the University of North Carolina at Wilmington.

"Not only is it uncertainty on the part of household, it's also uncertainty on the part of business firms," Hall said. "What they're trying to do is cut costs. You essentially cut first where you get the biggest reduction in costs," which is leading to salary cuts, shorter work weeks or layoffs.

In addition to an uptick in spending, improvements in the real estate market and an end to month-after-month unemployment increases will also be signs that the economy is mending.

Especially along the coast, where construction boomed in recent years, the housing market slowdown cut deep into the local work force. About 21,000 construction jobs were lost statewide from December 2007 to December 2008, according to the latest information from the S.C. Employment Security Commission.

Horry County's unemployment rate jumped from 6.8 percent to 11.5 percent during that time, and Georgetown County's rose from 7.9 percent to 11.8 percent.

The statewide unemployment rate is expected to drift higher into the double digits, said Woodward, the USC research economist.

He also expects many homegrown and national businesses to succumb to a dearth of sales. They will close or file for bankruptcy, as retail chains Circuit City and Goody's already have.

"You are going to see, on the Grand Strand as across South Carolina and across the country, a wave of commercial bankruptcies," Woodward said. "Retail is going to get hit pretty hard. It already is."

The Grand Strand's reliance on tourism means it could see an even later comeback than other parts of the nation, Schunk said. If tourism is weak this year, as it's expected to be, it will be the summer of 2010 before the area gets another chance to attract the tourist dollars that are the lifeblood of many local businesses, he said.

There are, however, some bright spots. Gas prices are expected to remain relatively low, as are the prices of many household goods.

Pieces of the federal stimulus package could provide a much-needed boost even though it will likely take time for it to trickle through the economy, experts said.

People should keep in mind that this recession will come to an end as all recessions do, Schunk said. When it does, the economy should be poised for a period of strong economic growth, Schunk said.


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