By HARRY DAVIS, N.C. Bankers Association

Editor’s note: Dr. Harry Davis, the economist for the , is a professor of banking at Appalachian State University. He writes the NCBA Business Barometer.

BOONE, N.C. – After enduring the worse economic meltdown since the Great Depression, what can we expect for the future?

This recovery will be different than those in recent memory and will not feel like a recovery for many households. GDP growth has often been in the 4-6 percent range for several quarters on an annualized basis after recent recessions.

For 2010, GDP growth will only be about 3 percent and the rate will actually decline to about 2.5 percent in the second half of the year as the economy bounces along the bottom.

At that level of growth, the unemployment rate will improve very little and remain above 9 percent through most of next year.

The economy is weighted down by a number of factors that make strong growth very difficult to achieve. Households are decreasing debt levels and increasing savings. Last year household debt fell by 1.7 percent, the largest drop since 1945. Consumer spending was flat in April and declined in May.

While consumer confidence is rising, it remains much lower than at the end of the 2001 recession.

The federal deficit will remain above a trillion dollars for several more years and declines to only $700 billion in ten years. Interest on the debt is over $200 billion this fiscal year and grows much faster than the budget or the economy for as far as the eye can see.

The housing sector will recover very slowly. The tax credits gave a
big boost to housing but they have now expired. Even with mortgage rates at historically low levels, housing will struggle for the rest of this year. New home sales in May set a new record low pace.

Housing cannot improve very much as long as the unemployment rate remains around 9 percent.

Uncertainty about the outlook for the economy and the fall elections weigh very heavily on U.S. corporations and small businesses.

Corporations are sitting on huge amounts of cash because they are not willing to invest in plant and equipment. The level of cash to assets is at the highest level since 1963 when the statistic began.
Businesses of all sizes are concerned about future tax policy and are thus delaying hiring of new workers.

Small businesses cannot get credit due to tighter lending standards which are being forced on banks by the bank regulators.

States are expected to have a total shortfall of about $150 billion this fiscal year. While Washington will likely help with about $25 billion, the remaining shortfall means large budget cuts in most states.

Public sector workers are now joining private sector workers in the unemployment line.

The state economy will grow even slower than the national economy at a rate of about 2 percent this year. This slow growth will leave the unemployment level for the state about 9 percent though all of next year.

State tax revenues continue to fall short of projections and stimulus money from Washington is running out which will mean additional cuts to the state budget.

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