No jobs progress in Maine after 4 years; don’t count on 2013, economist says

By Whit Richardson, BDN Staff
Posted Jan. 08, 2013, at 3:41 p.m.

PORTLAND, Maine — While the United States has recovered nearly half the jobs it lost in the depths of the recession, Maine is stuck exactly where it was four years ago. And the prospects for 2013 don’t offer much hope in terms of an accelerated recovery.

That’s the conclusion drawn by Charles Colgan, former chair of Maine’s Consensus Economic Forecasting Commission and a professor of public policy and management at the University of Southern Maine’s Muskie School of Public Service. He presented his predictions for 2013 to a large audience Tuesday morning at the annual “Breakfast with Charlie” event, held on USM’s campus.

In 2013, he predicts salaried employment will increase by about 3,100 jobs, or about 0.5 percent, to a total of 596,000 in the fourth quarter. When he includes self-employed people, that growth could reach 1.1 percent.

He expects Maine’s unemployment rate to remain unchanged, fluctuating between 7.2 and 7.4 percent.

Those estimates assume no major fiscal policy crisis, which is far from a certainty, Colgan said, given the gridlock in Washington, D.C., on the fiscal cliff, the debt ceiling and forced spending cuts. He gives this baseline forecast a 55 percent chance of occurring.

Colgan’s worst-case scenario, which he gives a 10 percent chance of occurring, is that there’s no agreement on spending cuts and the debt ceiling during 2013. If that happens, Colgan predicts Maine will lose 20,000 more jobs, and the state’s unemployment rate will rise to 10 percent. (Read more about why Colgan calls his economic forecast a “forlorn hope.”)

Colgan doesn’t see much to be excited about in Maine’s economy. While the country as a whole has regained nearly half the jobs lost from the depths of the recession, Maine’s job growth has been stagnant for the past four years. One bright spot is that when incorporating data from the Bureau of Labor Statistics’ monthly household survey, which includes self-employed people, jobs are up about 10,000, Colgan said.

So why is Maine lagging compared to the nation?

The key to Maine’s economic recovery will be the national economy, Colgan said. And despite the job gains, the national economy is still experiencing sluggish growth.

“Until the national economy finds traction, we won’t grow at much more than a couple thousand jobs a year,” he said.

One thing that’s different about this recovery than those in the past is that the sectors usually leading the way out of recessions, such as construction and manufacturing, are not adding jobs. Instead, it’s those industries that are normally last to recover, such as tourism and hospitality, health care, education, and professional and business services, that are recovering and adding jobs.

“The problem is Maine is ill-positioned in all these areas,” he said.

To put into perspective how slow this recovery is expected to be, Colgan showed a graph comparing how many months it took for the nation and Maine to recover from the recession in the early 1990s and the one following 9/11.

During the recession in the early 1990s, “which remains the most severe recession in Maine over the last 60 years,” it took about 80 months for Maine to recover to its prerecession position. The nation took 36 months. However, contrary to the belief that Maine will always lag behind the nation, the state recovered faster than the nation during the recession in the early 2000s — 30 months versus 34 months.

“But this time, no such luck,” Colgan said.

He predicts the national economy will take 78 months to recover fully from the recession, which officially ended in June 2009, and that Maine’s economy will require 93 months, nearly eight years.

Colgan identified four problems exacerbating the problem: what he calls the “great housing casino collapse,” the collapse of policy, globalized risks, and the productivity paradox and income gap.

The great housing casino collapse is no surprise. The financial sector bet on mortgage-backed securities in ever-more complex ways and lost, taking the economy down with them. Colgan said for every dollar borrowed to purchase homes in the United States, 100 dollars were being bet on those mortgage-backed securities.

“All that went on someone’s books somewhere,” he said, “and most of that got tanked.”

Colgan warned that lack of decisions in Washington — and, therefore, the continued tumble down the fiscal slope — will have dire consequences for Maine.

“The risks of going over the — I don’t even know what to call it now — are significant,” Colgan said. “And Maine, because it’s not yet begun to recover and is so reliant [on the national economy], will be disproportionately affected.”

While the housing crisis and fiscal cliff have received plenty of media attention, Colgan said two issues that need more attention are the productivity paradox and the income gap.

The first — the productivity paradox — is the fact that U.S. workers, including Maine workers, are more productive than ever, as measured by output per person. However, labor’s share of income has continued to fall, while the wealthiest portions of the population have increased their share of income. Couple that with the fact that median wages in real dollars — meaning they’ve been adjusted for inflation — have remained stagnant for the past 30 years, and you’ve got an economy in trouble.

“It says in all the economics textbooks that if output per person grows, if productivity grows, then incomes ought to expand and consumers ought to be better positioned to buy things,” Colgan said. “So here we have this textbook solution to the problem, which is not having textbook consequences.”

Colgan expanded on the problem after his presentation.

“You can’t run [an economy] on mass consumption unless the masses can consume, and right now they can’t,” he said. “That’s partly because of fiscal policy, and mostly because of changes in the national economy that no one’s talking about.”

Colgan doesn’t contend he has the answers to why a productivity gap has been created and why wages are stagnant — though there are theories, such as a decrease in the influence of unions and the shift to a service-based economy. Instead, he argues those are issues that policymakers should be discussing, but aren’t.

“My argument is not that we know the answer, but that we’re not spending any time finding out the answer,” he said. “That is so central to policy that arguing about where Medicare ought to be in 30 years before we figure out how the economy is going to look in that period of time is putting the cart before the horse.”

Colgan did offer some positive notes about Maine’s economy. It looks like housing sales and construction are on an upward trajectory, he said. In addition, he said most businesses are ready to invest money in their operations; they’re just waiting for that upswing that will bring more certainty to the equation.

“It’s not going to take a lot to get things moving; we just haven’t found that spark yet,” he said.

http://bangordailynews.com/2013/01/08/business/maines-economic-recovery-to-drag-hinge-on-national-situation-charles-colgan-predicts/ printed on November 27, 2014