Economy still grim, GSU forecaster Dhawan says

A Georgia economist on Wednesday cautioned that many are celebrating a false spring while the job market is still worsening and recovery remains more than a year away.

At Georgia State University's Economic Forecasting Center's quarterly conference Wednesday morning, director Rajeev Dhawan said he is skeptical about evidence that the recession has bottomed out.

His message was considerably more gloomy than most other forecasters. While most economists say that unemployment is likely to keep rising, they generally predict a peak lower -- and sooner -- than Dhawan's forecast.

That less pessimistic consensus is pegged to hope that the banking sector has stabilized, that federal stimulus spending will have an impact this year and that housing is hitting bottom.

For instance, Steve Palm, who also spoke at the conference, said the damage has been extensive but that the worst is over. The flood of foreclosure, he said, is on the decline.

We are going to start building cheap new homes," said Palm, president of SmartNumbers, a Marietta-based research and consulting firm. "Housing has led us into this thing. It will lead us out."

Still, despite challenges, Dhawan didn't waver.

"It is not whether the glass is half full or half empty -- there is a damned crack in it and it's leaking," he said.

The crack is the troubled financial sector, he said. Until banks are purged of bad loans and debts, consumers and companies will not get the lending needed for growth and hiring.

A report on April's unemployment rate in Georgia is due Thursday. In March, the state jobless rate held steady at 9.2 percent, spurring hope that Georgia's labor market had hit bottom.

Forget it, Dhawan said.

Instead of improvement, the region should brace for unemployment to rise until it crests around 10.4 percent next year. Around the same time, national unemployment will hit 11 percent, Dhawan said.

"By the job metric, it will be the deepest recession since 1945," he said.

The U.S. economy will shed 5.1 million jobs this year and 2.3 million jobs next year, he predicted. Georgia will lose about 179,400 jobs this year and 26,200 next year.

Atlanta will account for the lion's share of the state's job losses, as well as for most of the modest hiring that eventually follows, Dhawan said. Payrolls will add about 62,400 jobs in 2011.

Today's projection is almost certainly grimmer than any previously given by Dhawan. And it is dramatically more gloomy than those of the recent past.

A year ago, Dhawan predicted small job losses for the rest of 2008, modest job growth in 2009 and a stronger showing in 2010. But that was before $4-a-gallon gasoline, the financial crisis of late summer and the flood of layoffs that followed.

A slightly more upbeat message came from Palm on Wednesday.

While prices in many places have collapsed, housing "starts have stopped," and foreclosures -- increasingly high-end homes -- are a virtual flood, the overall market will not keep declining, he said.

Palm recommended that Dhawan recast his forecast somewhat. Dhawan declined, citing the huge inventories of unsold homes.

He predicted that housing permits in metro Atlanta this year will be 71 percent below those of 2008.

Meanwhile, the much-vaunted federal stimulus package -- while helpful -- "can only go so far,"' Dhawan said. "When will corporations get back into the game? That is key."