Photo courtesy of Washington University in St. Louis
People refer to this economy as the worst since the Great Depression. Do you see it being quite that bad?
This is nonsense. In third quarter 2008, gross domestic product fell by one half of one percent, expressed as an annual rate — that is, if this decline persisted for a full year, GDP would fall by .5 percent. According to various forecasts, the corresponding figure for last quarter 2008 is expected to be something like a 2.5 percent decline and roughly the same for first quarter '09. Unemployment is presently 6.7 percent.
The corresponding figures for the recession of the early '80s are –8 percent for GDP growth and 11 percent for unemployment. These figures, which are seen as really bad by modern standards, are dramatically better than the corresponding numbers for the Depression. In fact, 6.7 percent unemployment was considered "low" in the '80s. Best guesses are that this recession will resemble the post-9/11 one, very shallow and slowly evolving. Comparisons to the Depression are like comparing the typical St. Louis thunderstorm to Katrina.
It seems like there is news of layoffs everyday. Do you see the St. Louis region being able to absorb most of these laid-off workers?
Layoffs and hires occur every day in every city. The most current data shows St. Louis unemployment at about 6.9 percent, up from 6.7 percent in September, so layoffs have exceeded new hires by a small amount. The math says most of the layoffs are being absorbed.
The local housing market and construction have also taken dramatic dips. Based on what history shows, how long do you see this trend lasting?
Housing and construction — along with furniture, automobiles, retail, etc. — are among the most cyclically sensitive industries in the economy. It's routine for these industries to be hard hit during any recession. Of course, the mortgage market mess has exaggerated this. It is difficult to forecast when the housing decline will end, but the history of modern recessions suggest that a downturn in GDP growth lasting more than a year would be unusual. Based on this, one would expect an improvement by summer in such a cyclically responsive sector. Of course, forecasting is predicting the future from the past and should be taken with a grain of salt. At the same time, there is little evidence to suggest the current slowdown is "special."
President-elect Obama has talked a lot about "green jobs." Do you see these jobs possibly playing a role? Are there other areas where St. Louis might create or expand new industries, such as biotechnology?
If you mean "playing a role" in the effect of the business cycle on St. Louis or the U.S. economy: not really. Green jobs are more about the long-run growth of the economy and the extent to which sectors such as biotech, though not inherently green, grow in importance.
Are there any bright spots, particular industries that are holding strong?
As usual, health care, biotech, education, pharmaceuticals and telecommunications are doing well. In particular, St. Louis' largest employers — BJC, Scott Airforce Base, Boeing, Walmart, the U.S. Postal Service, Wash. U., Monsanto — are generally doing well, although Wash. U. is feeling the impact of the stock market on its endowment.
While people wait for the economy to get better, what advice would you give them?
The economy fluctuates. This is simply part of the way the economy adjusts and reconfigures itself as it grows. In the U.S., we see some sort of recession roughly every 6 to 7 years. These events used to be much more disruptive and painful than they now are. Now we think of 93 percent of people being employed as bad news and 96 percent as great news. So my advice is to focus on the facts — don't get caught up in the hysteria. If you are one of the few without a job, this advice is cold comfort. But the fact is that the unemployed are few in number. If experience is any guide, this slowdown will likely be shallow, and it will likely not last beyond '09.
