Is The Recession Over Yet?

by Dave on October 15, 2009

Recession.

So many of us are sick and tired of the word recession. But the simple fact is that this enormous economic downturn affects us today and will for the foreseeable future.

How long, though, do we have to put up with this necessary evil of the business cycle? Will Delaware emerge as one of the first states into recovery? How will the resort area fare?

With that in mind, we caught up with  Senior Economist John Stapleford of Moody’s Economy.com, and here is what he had to say to Coastal Sussex Weekly:

AN ECONOMIC UPDATE

John E. Stapleford
Moody’s Economy.com

The “good news” since we last looked at the Delaware and national economies in Coastal Sussex Weekly in May is that rate of decline is moderating. Everything from employment to output to income shows signs of approaching a turning point.

The “bad news” is that Delaware’s performance relative to the nation has deteriorated modestly. Delaware employment is dropping at a steeper rate than across the country. Real (inflation-adjusted) personal income is still declining in Delaware while stabilizing nationally. At 8.4% in June, Delaware’s unemployment rate remains below the nation but the gap continues to close.

All Delaware industries except health care and local government are still leaking air. The rate of growth in health care has slowed for the first time during a recession since 1960, yet modest growth persists. The demand for health care is relatively insensitive to price because “if you haven’t got your health, you haven’t got anything” and because only 12 cents of every dollar spent on health care comes directly from patients. This is compounded by the aging baby-boomers who, particularly in Sussex County, are driving demand for ambulatory care, home health care and nursing homes.

Over the near term any gains in local government jobs will depend primarily on real estate conditions as local government revenues in Delaware are tied to property values and real estate transfer taxes. Over the longer term it is expected that local government will gain ground relative to state government.

On a seasonally adjusted basis, tourism continues a decline that will last until next summer. Not only are household vacations down, the spending while on vacation is down as well. While still suffering the effects from the housing correction, construction is now being hit by drop in nonresidential building activity. The Federal stimulus will help to offset this, nevertheless the turning point for Delaware construction employment isn’t until mid-2011 and over the long term construction will only return to 75% of its pre-recession peak.
Retail should turn the corner at the same time as total employment, in mid-2010, yet over the longer term is not expected to surpass its pre-recession peak. Delaware’s national share of retail spending will actually be dropping modestly. This may be attributed to the expenditure patterns of an aging population throughout the region where consumption shifts from durables (e.g., new refrigerators) to services (e.g., MRI’s). Aside from the tourists, this shift should be especially noticeable in Sussex County. On the positive side, the aging population is expected to kick-start restaurant sales.

Delaware per capita income continues to converge on the national average and transfer payments account for a larger and larger share of Delaware personal income. With its growing retiree population, income in Sussex County is especially dependent upon transfer payments (e.g., Social Security, Medicare) and asset earnings (e.g., dividends and interest). The growing strength of the stock market is a plus for Sussex County, but a wary eye must be kept on any “reform” to Social Security or Medicare.

Finally, passing through the turning points is important and marks significant progress, but it will then take years for Delaware’s economy to return to its pre-recession levels. Total employment won’t hit full recovery until the middle of 2012. After peaking at almost 9% next year, the state’s unemployment rate will drop slowly and level out at 5% by early 2014. Construction, manufacturing and retail are not expected to achieve their pre-recession levels of employment. The previous peak for the median price of housing won’t be reached until 2015. So, we should celebrate the signs of the coming turning points, but realize at the same time that full recovery is years in the future.”

There is the sober and serious status update from one of the premier economists in the region. We thank John Stapleford and Moody’s Economy.com for their contribution to helping us understand where we are and where we’re going here in coastal Sussex County.

For more insight from the staff at Moody’s, click here to visit Economy.com.

This column appeared in Coastal Sussex Weekly, August 20, 2009.

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