Some gains, but jobless rate will stay high

I want to give you the New Year's gift of a strong recovery in 2011. We're more than ready for it.

I want to, but the odds are next year will look much like this one, with perhaps some pickup in growth but not enough to help millions of unemployed.

The Puget Sound region continues to stand a good chance of outperforming the nation if it can avoid a swoon in job creation.

We'll get a boost from infrastructure spending with the deep-bore tunnel, light-rail expansion and federal money for higher-speed rail. Boeing's backlog will keep employment stable in Everett. We should know the outcome of the Air Force tanker competition.

Another critical issue in 2011 will be the hiring of a new president for the University of Washington, who could become an influential player in the region's research, biosciences and technology economy.

Arun Raha, Washington state's chief economist, said "things are looking up a little" since a forecast of only modest growth in November. "But it's too early to declare victory."

Exports are strong, which also means a healthy agriculture sector, and software publishing is growing. Boeing's continued strength is also a plus.

The downside: "The construction sector is doing nothing." Raha also worries that renewed instability in Europe could slow down the U.S. economy and thereby cause the state to stumble.

He expects 2011 to be "a year of transition, and we should be growing at a respectable rate by the end of the year."

Diane Swonk, chief economist of Mesirow Financial in Chicago and one of the country's top forecasters, told me that nationally, she expects "the economy to gradually re-accelerate over the course of the year, driven by investment and exports. Fiscal and monetary stimulus is a help, but unemployment is expected to come down only slightly, and remain painfully high by year end."

How high? Nine percent, at least.

America is still hung over from the biggest speculative and financial collapse since the Great Depression. This is not a typical business cycle. And the new year still has the potential to surprise in a way that has left four years of crystal balls shattered.

Here's a look at how 2011 is shaping up in some critical areas:

Jobs

The Great Recession caused the worst job losses since modern records were first kept in the late 1940s.

And in every previous cycle, this long after the start of a recession there had already been a meaningful rebound in hiring. Not this time.

More than 18 months after the end of the recession, nearly 15 million Americans are officially unemployed. Millions more can't get full-time jobs or have given up looking.

In Washington state, 18 percent of the work force are either unemployed, working part time while wanting full-time jobs, or discouraged and no longer seeking work. That's double the official unemployment rate, and higher than the national average.

Unless growth picks up substantially, which seems unlikely, it will take years to recover the lost jobs.

Job creation in Washington state will be a critical indicator in 2011, and lately the trend has been troubling.

The state saw a net 100 new jobs in November, and hiring in metro Seattle seemed to stall in the third quarter.

Surveys by both the Seattle Chamber and the Bellevue Chamber of Commerce offer some hope, predicting modest hiring next year by many businesses.

Still, it likely wouldn't be enough to make a major dent in the state's unemployment rate, which stood at 9.2 percent in November. That represents 323,000 Washingtonians, and behind every number is a personal tragedy.

Housing

This was one of the epicenters of the crash. Its travails are closely connected to the massive loss of construction jobs and household wealth.

And recovery won't come easily, held back by a huge inventory of unsold properties and continued mortgage troubles for millions of homeowners.

Nationally, U.S. housing values have declined 25.8 percent from their peak, according to the real-estate tracking firm Zillow. That compares with a 25.9 drop in the Great Depression.

New York University economist Nouriel Roubini, who earned the moniker "Dr. Doom" as one of the early seers of the Great Recession, estimates that banks could face another $1 trillion in housing-related losses in 2011. A double-dip housing recession isn't impossible.

Even less dire forecasts see housing continuing to struggle.

In Seattle, median home prices started falling later than in many cities but have now declined nearly 23 percent from the peak in 2007, according to the Brookings Institution. The latest quarterly drop of 0.4 percent, the 89th worst among 100 metro areas, indicates the property bust still has a ways to play out.

Growth

Mainstream forecasts expect economic growth to pick up in 2011, thanks to the extension of the Bush tax cuts, the Federal Reserve's so-called quantitative easing program and growth in Asia. Among the most optimistic comes from Goldman Sachs, which has revised its forecast of gross domestic product growth to 3.4 percent, up from 2.7 percent. A Reuters poll of more than 70 economists indicated GDP will rise 2.7 percent in 2011.

The Seattle-Tacoma-Bellevue area has done better than most others through the downturn and tentative recovery.

The gross metropolitan product (the local equivalent of GDP) has rebounded 4.9 percent beyond its peak in 2008, according to the Brookings Institution. That's the eighth best performance among 100 metros.

The question is whether the region can continue its relatively strong growth in 2011.

Unfortunately, even the more optimistic growth rates might not do much to help unemployment, especially if the expansion is not sustained. America remains burdened by debt and wounded businesses left over from the crash.

Which isn't to say the recovery, such as it is, won't produce winners. Corporate profits hit a record $1.655 trillion in the third quarter. "Corporations have a ton of cash and we should see some of that redeployed" in 2011, Swonk said.

Similarly, large investors are doing well and many forecasters expect the stock-market rally to continue. Merger activity is expected to pick up — good news for shareholders, bad for jobs. Credit may ease for small businesses. And a recovering Asia and Latin America will be good for Washington exporters, Microsoft and Boeing.

Phil Bussey, president of the Greater Seattle Chamber of Commerce, said much local growth will depend on working "our way through the continuing budget resets at the local, county and state (government) levels in ways that enhance, not impede, job creation and economic investment."

He also sees growth opportunities in focusing on such sectors as clean tech, global health, tourism, financial services and electronic gaming.

Consumer spending

This segment makes up two-thirds of the economy and is critical to local icons like Nordstrom, Starbucks and Amazon. Hopeful soundings continue about improving consumer confidence.

The real numbers from the holiday shopping season may be instructive about next year.

Still, consumer spending will continue to face head winds from high household debt and unemployment.

The number of Americans living in poverty rose 14.3 percent to 43.6 million in 2009, according to the Census Bureau.

Median household income fell 2.9 percent nationally. Indeed, from 2000 through 2009, that measure has fallen 2 percent in King and Pierce counties and 5 percent in Snohomish County.

We're a poorer nation after the great crash, and still very in debt.

Risks

The next 12 months will see a continued fragile recovery and many factors will hold it back or could knock it backward. A few: state and local fiscal cutbacks, Chinese inflation, instability on the Korean peninsula and the risky business of Wall Street.

The trajectory of oil, commodity and food prices will also tell us whether the Fed bet correctly that inflation remains low. But even without an inflation spike, oil above $90 a barrel could sucker-punch the recovery.

We fly on the leading edge of history. Predictions are only that. So, a happy New Year to all.

You may reach Jon Talton at jtalton@seattletimes.com