Inside USD

Forecast for Economy? Still Gloomy

Wednesday, April 15, 2009

What will the future bring? The short answer is: no one knows.stock-words2

Especially in terms of the rocky economic climate, looking for answers is an exercise in frustration. In fact, a healthy dose of patience might be the best answer of all. Nonetheless, three USD professors from the School of Business Administration — Norm Miller, Alan Gin and Ryan Ratcliff — along with moderator Mark J. Riedy (executive director of USD’s Burnham-Moores Center for Real Estate) tackled a tough topic with statistics, insight and suggestions at Wednesday’s “Breakfast at the BMC” event. 

The topic, “After the Fall: What’s next for Commercial Real Estate?” was filtered through the professors’ respective areas of expertise. Their overwhelming message was that the economic stimulus plan, which won’t kick in until the end of 2009, should make 2010 a marginally better year. Still, long-term recovery remains an inexact science. 

“I think we’ll see some positive job growth in 2010,” said Gin, associate professor of economics, referencing San Diego County’s prospects of gaining jobs through projects such as the proposed federal stimulus plan to fund a new military hospital at Camp Pendleton. He warned that office sectors remain under pressure, high unemployment and historically low consumer confidence is hurting the retail industry and one of San Diego’s biggest draws, tourism, is being hurt by occupany and new construction cutbacks for restaurants and hotels.

Miller, professor and director of academic programs at the Burnham-Moores Center, touched on a lack of confidence in rating agencies and a need for changes in their financial models, foreseeing more loan extensions and the likelihood of more “big box” store closures in 2009.

Ratcliff, who is an assistant professor of economics and specializes in forecasting and macroeconomics, offered a five-year forecast, targeting lending, budget deficit and inflation concerns, on a slide presentation. 

  • On lending: “The securitized lending market will come back — the benefits are too good. But look for much more regulation to combat the principal-agent problems inherent in the securities.” 
  • On the budget deficit: “None of the answers are good: either taxes are going up or increased government borrowing puts upward pressure on interest rates and crowds out investment. Will Asia keep lending us money?” 
  • On inflation: “With so much excess capacity, the explosion of the money supply shouldn’t cause inflation in the next year. But either we’re going to see a major contraction of the money supply in a few years — higher interest rates — or we’re going to see double-digit inflation.” 

Gin, best known for developing and publishing USD’s monthly Index of Leading Indicators for San Diego County, spent the bulk of his talk discussing the local economic picture. His presentation showed major declines in San Diego.

The index number has been down 34 of the last 35 months, Gin said, and that the last five months have been especially bad. Employment growth in 2008 was the worst in San Diego County since 1992 according to Gin’s data. 

Wednesday’s event did serve as a positive forum for discussion, even though the gloominess of the economic picture is unchanged as 2009 continues. All three professors spent spent considerable time at the program’s conclusion interacting with a cross-section of local businesspeople in the audience. The good news is they were visibly encouraged by what they heard. And in these uncertain times, that’s better than nothing. 

—  Ryan T. Blystone 

For more information about the Burnham-Moores Center for Real Estate, click here.

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