David Berson	James Smith

From Staff Reports

The economic recovery in the United States will continue to gain traction with a 3.5 percent increase in the next 12 months, but job growth will continue to be slow, two economists predicted during UNC Asheville’s 27th annual Economic Crystal Ball Seminar on April 21 in the school’s Lipinsky Auditorium.

About 400 people heard the crystal-ball forecasts by David Berson and James Smith, who were billed as “world-class” economists,” by Joe Sulock, a UNCA economics professor who is the event’s organizer.

Berson is chief economist and strategist for California-based The PMI Group, a provider of home mortgage insurance. Berson has been vice president and chief economist at Fannie Mae, president of the National Association of Business Economics and held a senior position with Wharton Economics Forecasting.

Smith is chief economist at Parsec Financial, an Asheville-based financial planning firm. Smith has worked with the Federal Reserve, the President’s Council of Economic Advisers and National Association of Realtors. The seminar was sponsored by Parsec, along with UNCA’s economics department.

Over the years, the crystal ball seminar attendance — itself — has become an economic indicator, Sulock said, noting that in the past two years, with the rocky economy, attendance has soared. In an apparent sign of economic recovery, the 750-seat auditorium was slightly more than half-filled last month.

Sulock also noted that while the two economists have not always been exactly right, they always have been close in their predictions, with no major mistakes. He added that “they are both rather humble guys ... They realize, unlike some economic forecasters I know, that they will have to eat humble pie” occasionally.

The crowd cheered when Sulock added that, “what we see are two very generous economists, which are as rare as dinosaurs,” who established the Berson-Smith Endowment Fund “that benefits students at UNCA.”

During his introductions of the two economists, Sulock said, “These are very interesting economic times. Supposedly, we’re not in a recession ... If so, why does it feel like we are? Where are the jobs?”  From his perspective, Sulock said it does not “feel” like a recovery, especially with the unemployment rate.

Berson began by noting that “every forecast that an economist will give you will be wrong. It’s a question of whether it’ll be a little wrong or way wrong.” He urged the seminar attendees to not expect them to be right in their projections, but rather to consider “the magnitude that we will be right ... It’s only an accident if you get it exactly right.”

As for last year’s predictions, “I said the recession was over. The economy is only going to grow and this would be the third jobless recovery.”

While Berson said that he could see how Sulock and others might wonder about a jobless recovery, it is, nonetheless, occurring, with slow job growth that will accelerate in the next year, but still lag previous recent recoveries.

He said recession and recovery are based on gross domestic product, but conceded that “I know we don’t live in a GDP world; we live in an employment world ... In 2003 and 1993, we’d say exactly the same thing. It doesn’t feel like an expansion. So my basic forecast for last year was right.”

For this year, “economic growth and, more importantly, job growth are accelerating,” Berson said. The number of jobs in the private sectors has grown each month over the past year, ‘but the growth has not been strong,” Berson said, which in turn leads to less optimism about the economy than might otherwise be warranted.

While his projection for job growth in the next year is “not a tremendous rate,” it is an improvement, Berson said. “We will continue to see unemployment growth trending downward.”

Both economists agreed that job growth will continue, but unemployment is unlikely to fall below 8 percent until 2012 and, Berson added, “if we’re lucky, under 7.5 percent.” He said 5 percent is considered the normal jobless rate for the U.S., but “what we consider full employment will be higher” in the near future because so many Americans have been unemployed for a longer-than-usual period, making it more it more difficult to retrain them for jobs.

He also said housing prices probably hit bottom in the first quarter. “Everything is expanding” in the economy, except for housing, Berson noted. However, he said foreclosures have peaked and are headed downward, although they will stay high for a while. Berson pointed out that housing’s recovering is hurt by the inability of borrowers to get loans, the jobless recovery, weak new household formations and the threat of further price drops.

Berson said the recovery has been impeded by the financial system, in which “all participants in it made credit much too easy” to obtain. Now, “the system has gone too far in the other direction, reacting to huge credit defaults, so it will hold the economy back.

“Federal and state deficits are too high and they’re cutting back. It’s necessary in the long run, but it’s going to hold back” the economic recovery in the short run, Berson said.

Smith began by noting, “I know why Joe (Sulock) thinks it’s still a recession. He works for the state (as a UNCA economics professor) — and the state is broke.” Smith grinned and the crowd laughed at his light-hearted verbal jab at his friend Sulock.

Smith added, “What I’m going to do is try to convince you that things are better than most of what you see and hear ... I’m here to tell you things are getting better and will continue to get better.”

He said he does not see anything in the near future that would avert the national economy from its upward trajectory. “Once we get growing, we tend to keep growing for a long time,” Smith said.

From 1983 to 2010, the U.S. has had a 10:1 ratio of positive growth rates in the U.S. economy,” Smith noted. “We’re now almost two years into the expansion and we’ve made up the loss we suffered (in the economic collapse), so every quarter is another record set.”

He credited the new-found emphasis on government cost-cutting as a key in the recovery. “No one could see how rapidly the political debate would shift from ‘What problem can we throw money at?’ to ‘How can we cut the deficit?’”

Still, Smith asserted, “Fiscally speaking, we’re on the road to oblivion,” if current trends continue. “We can’t keep doing what we’ve done for the last 50 years” and remain solvent as a nation.

He pointed out that the country has a proposed $3.5 trillion budget for next year, with a $1.1 trillion deficit. However, U.S. Rep. Paul Ryan, R-Wisc., is proposing $6 trillion in cuts over the next 10 years, while President Barack Obama, a Democrat, is proposing $4 trillion in cuts during the same period. With a smile, Smith guessed that the federal budget will be cut by $5 trillion over the next decade.

On an optimistic note, Smith asserted, “We have room for phenomenal economic growth for the next few years. While he is projecting a modest 3.3 percent growth rate for this year, he noted that that is an improvement over the 0 percent growth in 2008 and negative 2.6 percent rate in 2009, the latter of which he termed the worst since 1946.

With a laugh, Smith said, “I don’t make these things up. Other people make them up — and I quote them.”

Regarding jobs, he said, “David (Berson), I couldn’t agree more that some day, we’ll get back to 5 percent unemployment, possibly 4.5 percent — maybe by 2013, or so ... We lost 8.5 million jobs during the recession and added 1.5 million jobs since then, so we’re down about 7 million jobs still.”