Economic turnaround by mid-'10, Dhawan says

ATLANTA - America will emerge in the second quarter of 2010 from its longest economic downturn since President Jimmy Carter's 1975 recession. But that will occur only if the government gets banks back lending money.

If that doesn't happen, all the stimulus in the world won't help.

That's the opinion of economist Rajeev Dhawan, director of the Georgia State University Economic Forecasting Center, which he gave at his quarterly forecast Feb. 25.

"The government's stimulus plan – the strength of which is debatable – will succeed only if the credit system is functioning on its own rather than on life support from the Federal Reserve," Dhawan told about 350 business people, Realtors and media at his conference.

He cautions against just throwing TARP money at the banks. They should be made to show they are solvent (not so-called zombie banks) and will be in a position to begin lending again. The trick is to get money circulating again and to provide credit availability.

The good news is that the Fed and the Treasury are sending signals this is part of the plan.

The bad news is Treasury Secretary Timothy Geithner's press conference to reveal the plans was woefully sketchy on details about how this would be done and sent an already spooked Wall Street off on another downward spiral.

"If the Treasury can put the specifics of the [recovery] plan on the table soon and give Wall Street the assurances it is looking for, then the recovery can begin to pick up steam. This is a big, big if. If the banks are not up and operating and the credit system working, all bets are off."

Right now, the trust in the financial system is gone, he said.

"Before, investors worried about the return on the investment. But now they are worried about the return of the investment," Dhawan said.

Retrenchment in American companies is the order of the day. Pull back and wait for the situation to get better.

Dhawan says investment is one of the best indicators of job growth and even stock market performance, but that just is not happening.

The public just isn't buying and so down the line, everyone is thinning inventory, laying off sales personnel, delivery people, factory workers and so it goes.

In Georgia, the economy is going to get worse before it gets better. A quarter million jobs will have disappeared in 2008 and 2009, before modest gains in employment start to turn the corner in the end of 2010. Nationwide, Dhawan predicts 4.5 million jobs will go nationwide before the recovery.

That loss of 143,000 Georgia jobs in '09 is projected against a total of 3.9 million jobs with 60 percent of them in the Atlanta area. That translates to 92,000 metro Atlantans looking for a job this year. Dhawan predicts unemployment will crack 10 percent before subsiding.

Statistics show the job loss will be across the board in manufacturing, construction, retail-trade, leisure-hospitality and even local governments, which are the largest employers in the state. Population growth has kept only health services and education on solid ground.

"The last recession in 2001-04, we saw job recovery was fast. This time job recovery will be slow," Dhawan said. "We should be proactive, optimistic but not pre-emptive. This is going to be slow and brutal.

"The fog of uncertainty is so great now, it is difficult to see beyond the next 30 days."

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