PORTLAND – Maine enters the new year with its economy at a pivotal point, the state’s leading economic forecaster said Wednesday, waiting to see whether 2010 represented a pothole on the path to recovery or a cliff threatening a second downturn.

Charles Colgan, a professor at the University of Southern Maine and chairman of the commission that develops economic forecasts for the state’s budget preparations, said he is going with the pothole.

“I’m starting the new year with a little more optimistic forecast,” he told hundreds of business people at a breakfast forum sponsored by USM Corporate Partners.

But any upbeat outlook, Colgan said, is tempered by the slow pace of employment growth, nationally and in Maine.

With the federal government’s stimulus money largely spent, the current jobless recovery can’t sustain the economy without greater consumer spending. He estimated 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.

Colgan highlighted some national indicators that contribute to his cautious optimism:

• The number of hours worked is rising and business profits are surging. That typically leads to new hiring, but companies have been slow to respond.

• Private-sector job growth rose modestly in 2010, although it was offset by a drop in public jobs that’s likely to continue.

• Household debt is falling sharply, approaching levels from the early 1990s. A jump in car sales last month may signal that people have more money to spend.

But other events could cancel out those favorable trends and lead the country off a cliff, into a second recession:

• The European debt crisis — while seemingly remote — threatens the value of the American dollar and the cost of our exports.

• The unresolved legal fight over lender foreclosure practices could prolong the housing crisis.

• Benefits from the $100 billion payroll tax cut passed in the lame-duck session of Congress could be negated if the new Republican majority makes good on its threat to cut an equal amount of spending this fiscal year.

Colgan said Maine weathered the recession better than many states. Its rate of job loss — 5 percent — was below the 6 percent national average. The official unemployment rate, now around 7 percent, is below the national average of nearly 10 percent. Assuming that the federal payroll tax package remains effective, Colgan said, Maine’s employment growth could edge up by 1.2 percent this year.

But don’t look for much help from construction, retail, manufacturing or government, he said. Most job growth will come in health care, leisure and hospitality, and professional and business services. The last sector, he said, will be the key driver in job growth this year.

Beyond short-term outlooks, Colgan expressed great concern for the pending crisis over interest on the federal debt and the growing cost of entitlements, namely Social Security and Medicare. “This is a solvable problem, if we really want to solve it,” he said.

Colgan’s assessment reflected the observations of some business leaders.

Michael Dubyak, CEO of South Portland-based Wright Express, said his company is seeing national contractor accounts growing slowly, as well as truck traffic. Wright Express handles fleet transactions through charge cards, and the trends are good indicators of a strengthening economy, he said.

Reacting to Colgan’s employment forecast, Dubyak said he plans to hire 30 to 50 new workers this year. Wright Express has more than 900 employees; 600 are in Maine. A major obstacle is finding workers in Maine with the right skills, he said.

Before Colgan’s presentation, Dubyak presented USM a check for $34,636, reflecting the company’s desire to grow the local labor force.

Colgan’s forecast also seemed on target to Tim Hussey, CEO of Hussey Seating Co. in North Berwick.

Despite Colgan’s worries about the overseas debt crisis, the company is seeing some export growth, Hussey said. But the company, which makes stadium seating, relies heavily on the domestic construction industry, and that business hasn’t recovered. The company has 190 employees. Any new hiring this year will come from sales of new products, Hussey said. 

Staff Writer Tux Turkel can be contacted at 791-6462 or at: tturkel@pressherald.com

 

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