Recovery will be vigorous in 2010, economist says
By Don Shilling
CANFIELD — An economic recovery is under way and will continue building steam next year, an economist told a group of local business leaders.
Ken Mayland, president of ClearView Economics in suburban Cleveland, said he thinks the nation’s gross domestic product — the value of all goods and services produced — will increase 3.5 percent next year after dropping 2.8 percent this year.
Plus, he thinks the stock market will continue to rise. Values are up 65 percent since March but need to climb 35 percent more to reach the market’s highs of 2007.
“We’re still just crawling out of the hole,” Mayland told a group of KeyBank customers at Tippecanoe Country Club here.
He said he is confident the recession has ended because of his analysis of economic trends, but the National Bureau of Economic Research won’t make an official declaration for at least six months.
Mayland said he thinks 2010 will bring a vigorous recovery, unlike the tepid recoveries that followed recessions that ended in 1991 and 2001.
He said recoveries tend to be like rubber bands that are stretched. A severe recession, such as the one we just had, is like a rubber band that is pulled tight; it will bounce back with a lot of strength, he said.
He added, however, that his crystal ball grows a bit cloudy toward the end of next year.
Concerning him are the possibilities of higher interest rates, increased federal taxes and increased energy costs because of proposed environmental legislation, in addition to large federal deficits.
These factors could unnerve Wall Street and bring down the stock market, which could bring on another recession as consumers and businesses curtail spending, he said.
More likely, however, is that the recovery will be sustained for a longer term, he said. Normally, increases of 3 percent in GDP don’t occur for just one year but come in a string of years, he added.
Mayland likes the chance of a sustained recovery because business inventories have been depleted, housing starts and business- capital spending are expected to rise, and U.S. exports are expected to increase as foreign economies improve.
He advised business officials to be prepared for the consequences of a recovery, however.
The Federal Reserve is likely to keep interest rates at current low levels through December and perhaps January, he said. But at some point, interest rates will increase, making borrowing more expensive, he said.
Plus, inflation will return, he said. Consumer prices have been lower this year than last year, but he expects them to rise 2.5 percent next year.
Business officials should consider entering contracts that lock in the prices of commodities at today’s prices or inserting language to pass along costs to customers, he said. They also should look at paying extra to lock in debt at fixed interest rates, he said.
shilling@vindy.com