January 11, 2012

Slow Maine recovery to last years,
economist says

Charles Colgan predicts little growth and more lost jobs in Maine for 2012, and there are 'wild cards' that could make things worse.

By Edward D. Murphy emurphy@pressherald.com
Staff Writer

PORTLAND - In 2012, Maine's economy will look a lot like it did in 2011, with little growth and more job losses, according to a leading economist.

Charles Colgan
click image to enlarge

USM professor Charles Colgan says “the case for pessimism (about Maine’s economy in 2012) is ... a pretty strong one,” but things could turn out better than he predicts.

2010 file photo/The Associated Press

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What he saw: Colgan estimates that it will take another two or three years to rebuild the state's work force back to 620,000, the number of jobs before the recession started in 2008. He says Maine's job loss of 5 percent is below the national average of 6 percent, and the official unemployment rate of 7 percent is below the national average of nearly 10 percent. He forecasts that employers will add about 2,500 jobs during the year.

What he said: "i'm starting the new year with a little more optimistic forecast."

What happened: Maine lost 1,400 jobs during the year, based on preliminary numbers.


What he saw:Colgan says that employment in Maine remains weak and predicts it will take two or three years to recover fully. Job growth is poised to return, likely between may and september. He expects maine to lose 30,000 jobs from the recession, up from his prediction in 2009 of 23,000 jobs lost.

What he said: "i think we are at the edge of the woods, but we are not out."

What happened: Maine gained 2,000 jobs from the end of 2009, with the growth in the last few months of the year, not the summer. The total number of jobs lost during the recession was 30,000, as colgan predicted.


What he saw: Colgan says Maine will remain in a significant recession until the first half of 2010. He says the state stands to lose more than 17,000 jobs from the end of 2007 to the third quarter of 2010.

What he said: "it has been a year of tumultuous change, especially in the fourth quarter, when we essentially fell through thin ice."

What happened: Maine lost 16,500 jobs in 2009 alone.


What he saw: Maine is likely to follow the nation into a recession this year, Colgan says. He gives several scenarios, from the "most likely" forecast that a moderate national recession eliminates 1,000 to 3,000 jobs in the state to a "most dire" forecast that a severe recession could cost the state 6,000 jobs.

What he said: (on his forecast title of "still on thin(ner) ice") "i don't know if we'll fall through, but that ice is cracking, so step gingerly."

What happened: maine lost nearly 12,000 jobs in 2008.

Source for employment figures: Maine Department of Labor


In giving his annual forecast Tuesday, Charles Colgan, a professor at the University of Southern Maine's Muskie School of Public Service, said he has tempered previous forecasts of an impending pickup in the recovery from the financial crisis and recession of 2008.

Now he foresees the continuation of a long, slow recovery. A year from now, he said, it's more likely he will be seen as having been overly optimistic rather than too pessimistic.

Colgan said his past few forecasts have anticipated a recovery about a year away from kicking into high gear, but this year he thinks it will be much longer before the economy gets significantly better.

For instance, he said, it will be 2017 before Maine recoups all 30,000 jobs it lost in the recession. A year ago, he predicted that would happen in early 2014.

Preliminary figures show that Maine lost about 1,400 jobs in 2011, said Colgan, who sees moderate job losses continuing this year, with the situation starting to improve next year.

Colgan said things could turn out better than he predicts, since profits for many businesses are rising and the housing inventory that was built up by foreclosures is likely to begin shrinking, allowing real estate prices to stabilize.

But, he said, "the case for pessimism is, I think, a pretty strong one."

Colgan said three "wild cards" threaten to nip even a slow recovery in the bud.

The European debt crisis, he said, could plunge that market into a recession, hurting export prospects.

Iran could follow through on its threat to close the Strait of Hormuz to oil shipments, causing oil prices to skyrocket, likely sparking a war and pushing the U.S. economy into another recession.

And, he said, political fighting in Washington could intensify, with lawmakers deciding whether to extend the payroll tax cut beyond February, wrestling with a bloated budget and deficit, and determining what to do about the Bush-era tax cuts, which are set to end Dec. 31.

Colgan said that "2012 promises to be a really good year for fiscal policy follies."

He doesn't appear to be out on a limb: most economists share his sense that the recovery will be anything but brisk, said Amanda Rector, the state economist. "It certainly has been much slower than anyone has anticipated," she said.

Rector noted that the state's economic forecasting committee has projected that employment will reach pre-recession levels in 2015, a couple of years ahead of Colgan's prediction, but she noted that the committee will meet this month to issue its first forecast since early November.

Businesses are still wary of hiring back workers, she said, and "there's so much uncertainty right now that everyone is unwilling to take any big risks."

The Maine Center for Economic Policy also weighed in, with Executive Director Garrett Martin calling Colgan's forecast "sobering." Martin said the recovery is fragile. He called on state government to encourage growth with a "robust bond package" of spending on education, infrastructure, and research and development.

The 250 people who attended Colgan's presentation Tuesday morning to USM's Corporate Partners appeared to match his downbeat mood.

"It puts a little bit of a cloud on things," said Kevin Freeman, director of business development with PC Construction, a Vermont-based contractor with a regional office in Portland.

Freeman said the recession and the lingering housing crisis have hit contractors hard, and smaller firms seem to be taking the brunt. He said some government spending will help, pointing to projects like the $33 million renovation of the Cumberland County Civic Center, expected to start this summer. Beyond that, the market is still soft.

"We're not getting worse. I think that's the most important message," said Randy Blake, who is retired but offers commercial real estate consulting services. "One percent (growth) is better than none."

Blake said the commercial real estate market is still hampered by the reluctance of banks to lend money for anything but a rock-solid project.


Staff Writer Edward D. Murphy can be contacted at 791-6465 or at: emurphy@pressherald.com


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