State economist: Recession over, recovery fragile

OLYMPIA — The economic recovery is still very fragile, but the long recession appears to have ended in both Washington and the nation, the state's chief economist said Friday.

In his latest quarterly economic report, state economist Arun Raha said key indicators are starting to move upward — a major change from the drops reported in March, and an improvement over flat-line trends in June.

Part of the cautious optimism, Raha said, is tied to unexpected economic strength in East Asia and Western Europe. Countries in those regions usually lag the U.S. in emerging from recession, but appear to be leading the way out this time, Raha said.

"In fact, something unprecedented is happening: We are seeing a synchronized global recovery under way," Raha told a meeting of the state's Economic and Revenue Forecast Council.

An early overseas recovery bodes well for Washington's manufacturing sector, keyed by Boeing Co.'s commercial jetliners. Washington often is called the nation's most trade-reliant state.

Definitive word of the recession's end probably won't come from its official source, the National Bureau of Economic Research, until late next year or early 2011, Raha said.

And the recession's end doesn't mean immediate, noticeable improvements for the average consumer or business, since the nation's economic recovery is expected to be long and slow.

"Consumer confidence remains low, and spending is bumping along the bottom," Raha said. "If consumers do not pick up the ball and run with it ... we risk a double-dip recession."

Early reports from the back-to-school shopping season showed that people are still willing to spend money on their kids, Raha said — but at a lower price point.

Local and regional banks still face significant risks because of their close connections to commercial real estate, Friday's report said.

A key profit center for smaller banks, commercial properties have seen more vacancies and dropping values. If the sector remains weak, credit could contract again — albeit on a smaller scale than before — and crimp the nascent recovery, Raha said.

Washington's unemployment picture also has improved. Raha's report said initial jobless claims in the state appear to have peaked. The forecast council now expects the state's unemployment rate to peak at 9.8 percent in the first quarter of 2010, down from June's peak prediction of 10.5 percent.

Employment, which lags other indicators in an economic recovery, will likely be a key to helping get consumers off the sidelines, state budget director Victor Moore said.

"To feel confident, they still need to see that people are hiring again," he said.