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Contrarian Says ‘Double Dip’ Doubtful

Christopher Thornberg, the economist who was ahead of the curve predicting a recession in 2007, said last week that while the recovery remains painfully slow, it’s on track and a feared double dip isn’t in the cards.

“Forget all that nonsense about a double dip. It’s simply not going to happen,” said Thornberg, principal of Beacon Economics, who spoke to about 200 people attending a Sept. 20 economic forecast conference held at the Hilton San Diego Bayfront.

Taking a contrarian stand from a plethora of negative economic news, Thornberg said for another recession to occur there needs to be a deep, sustained negative shock.

While there have been some mild ones, such as the debt ceiling crisis and ongoing problems with European countries, the fact is the national economy, as well as those for the state and San Diego, has been growing for two straight years and doesn’t show any signs of slipping back, he said.

“The U.S. economy is far behind where it should be … but a weak economy is not the same as a double dip,” Thornberg said.

Tepid Growth

Part of the reason for the pessimism that pervades the public chatter on the issue revolves around comparing the tepid recovery this time around to prior years when the turnaround from a recession was stronger.

For the first half of the year, gross domestic product showed 0.7 percent growth following the last two years when it averaged about 3 percent, he said.

Thornberg noted data on employment gains, housing sales and prices, delinquencies and foreclosures, and consumer confidence signal ongoing growth, not a contraction as is being bandied about by many pundits.

The drone of negative news reached new highs earlier this year following a slew of reports on declining home prices across the nation, after those prices were increasing in 2010.

Because there was such an enormous overhang of debt resulting from a housing bubble, many homeowners are in a deficit position and unable to purchase move-up housing, he said.

It isn’t the number of foreclosures and increased notices of default that are pushing prices down and stifling the recovery, but the lack of equity many homeowners now face after values fell precipitously when the bubble burst, Thornberg said.

“Americans have a record low equity in their homes,” he said. “If you don’t have equity, you’re not buying a new home.”

Middle Market Housing Impacted

While housing prices have stabilized in the last year and a half, the massive deleveraging that is under way is mainly impeding sales in the middle, move-up market. Things at the top and lower end of the housing markets are doing OK, he said.

In California, the sluggish recovery is a direct result of one of the largest housing and consumer spending bubbles in the nation, making it tougher here than most other states, Thornberg said.

The state’s unemployment rate of 12 percent as of August, second only to Nevada, is slowly decreasing. From August of 2010 to last month, the state added 171,000 jobs. Beacon Economics forecast the state’s job growth through the end of this year will be about 1.5 percent, and 2 percent in 2012. By 2013, the jobs growth will continue improving and by 2014, California should exceed its previous employment peak of 15 million jobs.

Brad Kemp, Beacon’s director of research, gave a similar optimistic forecast for San Diego. “It’s going to be growth, but it’s going to be slow growth,” Kemp said about the regional economy.

In terms of its job creation, San Diego continues performing better than practically every part of the state except San Jose, Kemp said. The growth in three key sectors — hospitality, health care and professional/scientific — as well as positive trends in other sectors indicates the worst is over, he said.

San Diego’s unemployment rate stood at 10.2 percent in August, down from August of 2010 when it was at 10.7 percent. Kemp said the rate continues to be high because more workers are returning to the ranks of those actively searching for a job. He predicted the rate falling to about 9 percent in 2012.

Health Care Sector Growing

A major chunk of the new jobs are coming in the health care sector, which was up 9.6 percent from September of 2009 to July 2011. The gains were far in excess of what would be normally expected even in a downturn because the Baby Boomer generation is using these services more often, and because the area has a higher number of retirees, he said.

In contrast, Kemp cited several sectors that were lagging, such as tourism and retail, and some, such as construction, that will likely take many years to recover.

As for housing prices, the worst of the downturn is over for San Diego, but the median single family home price of $360,000 as of July is still far below the 2005 peak of $560,000, according to a report issued by Beacon.

Price gains should continue over the next few quarters and accelerate in 2012, before hitting a stride in 2013, the report states. “There is still an inventory of troubled mortgages that need to be worked through the system, but San Diego is definitely moving the right direction on that front,” according to Beacon.


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