Smith Faculty Opinion Article

By Dr. Peter Morici, Professor of International Business E-MAIL WEB SITE

April 27, 2009

Economic Recovery and the “D” Word

The consensus among economic forecasters is that the economy will achieve very modest growth in the third quarter and climb out of the doldrums in the fourth quarter. However, among those soothsayers conviction may be waning,

For April, the consensus is predicting the economy will shed another 631 thousand jobs—that is an annual pace of more than 7.5 million. New jobless claims remain strong as April ends. With GM likely to idle plants for most of the summer and the prospects at Chrysler worse, additional large net job losses seem likely. Although employment is a lagging indicator, we should expect net job losses to abate significantly if the first signs of recovery are truly emerging, but job losses simply remain too large.

Through the summer, commercial real estate loan defaults will take a heavy toll on U.S. regional banks. On Friday, four of these banks failed, and FDIC funds are depleting. Reflecting concern that more regional bank failures are coming, the FDIC is seeking congressional approval for a line of credit from the Treasury.

Finance ministers convening at the World Bank–IMF meetings offered a quite cautionary assessment about the outlook for economic recovery. You can add my concerns to theirs.

Stay tuned for May and June jobs data. If those don’t improve markedly, we may be in the soup much longer than economists or the Administration believe is likely.

The “D” word may come into vogue. Depression may become the preferred term, because recession may soon prove an inadequate term for this economic slump. 

Peter Morici is a professor at the University of Maryland School of Business and former Chief Economist at the U.S. International Trade Commission.