Economy Series: Signs point to recession's end

Oregon's state economist likes to describe the state's current financial situation by quoting a line from an old song by Jim Morrison and The Doors.

“Well, I've been down so very damn long that it looks like up to me,” says the line from the 1971 release, “Been Down So Long.”

“I think that's a good theme for where we're at right now,” Tom Potiowsky said last week at the 2010 Business Outlook Forum at Umpqua Community College.

He said the downturn of the past two years, which he described as the Great Recession, is over.

“This is the longest recession we've seen since World War II, but it's starting to look up,” Potiowsky said. “It may not feel like it because you're in the bottom of the pit right now ... but there's definitely signs here that this recession in the United States came to an end probably this summer.”

LONG RECOVERY

Bruce Hanna, the Oregon House minority leader from Winchester, said it may take some time before that becomes apparent.

The owner of Coca-Cola Bottling Co. of Roseburg, Hanna said sales at his company have decreased. He's cut back on expenses and curtailed overtime work for route drivers, a good source of extra income for workers in the past.

Even Coca-Cola corporate officials have taken notice of the lousy economic conditions and high unemployment in Douglas County, which peaked at 18.5 percent in March and dipped to 14 percent in September. The company has lowered its expectations for Hanna and his franchise operation.

“It's pretty rare for me to have my budget examined as a franchisee and have them walk in the door and have them say, ‘Gee, we hope you're even.' Normally, it's like “Here's your franchise agreement and your numbers are out here somewhere. You had better put your track shoes on. They're not telling us that.”

Hanna, who said that Coke provides him with extensive economic data, believes it will take 12 to 18 months for the economy to improve. Even then, he doubts people will spend money as freely as they have in the past.

He said he's spoken to people who are putting aside extra money, beyond what they contribute to 401(k) and other retirement accounts. In the past, those same people spent their disposable income and weren't accustomed to saving.

“Even as the market returns and even as the job outlook gets better, I'm not sure people are going to go out and start spending,” he said.

Already, Potiowsky said he has seen consumer buying habits change. Many shoppers are much more interested in finding bargains.

They actually want value for their dollar, where I think they were just paying lip service before for that,” he said. “But now, truly, they're very, very careful with their spending.”

SLOW JOB GAINS

Job growth will take even longer to become visible, Potiowsky said. That's because as companies find firmer footing, they're going to begin adding hours for employees who have had their hours cut but who are still working. It will take longer for companies to seek out new workers, he said.

Potiowsky predicts there will be some employment growth in the second half of 2010. However, that won't temper continued losses during the first half of the year, he said. He predicts a 2 percent growth statewide by 2011.

The timber industry has been especially hard hit during the recession.

“If you want to use the word ‘depression,' you could apply it to wood products,” he said.

Timber industry employment in Douglas County has declined 41 percent since March 2003, when 4,660 people were employed in that segment. Today, there are 2,740 wood products jobs. The statewide decline virtually mirrors the Douglas County experience.

The nationwide financial crisis and the downturn in new home construction have fueled the drop in lumber demand. Only 31 billion board feet of lumber is expected to be sold this year nationally, less than half the amount sold in 1995, when an all-time high record was set, according to the Western Wood Products Association.

Housing has historically accounted for 45 percent of annual lumber consumption. Only 551,000 homes are expected to be built this year in the U.S., the lowest number since 1945. Remodeling and repair, the second-highest timber market, has also suffered, but not quite as bad as the construction area.

David Jackson, an association economist, predicts a modest recovery in 2010. However, given the weak economy and an expected continuation of high home foreclosure rates, gains in lumber production and demand will be modest, he said.

Bob Ragon, executive director of the Douglas Timber Operators in Roseburg, agreed. He said he believes the industry has hit the bottom of the trough, but the recovery is going to be slow.

“It's going to take a while to come out of this,” he said.

Local mills have curtailed production, with most of them running at 60 percent of capacity or less, he said. Companies are trying to maintain infrastructure and market share to help them when demand does increase.

The large number of home foreclosures is also expected to affect new home construction, Ragon said. As those homes come up for sale, the pressure for new homes will decrease, he said.

The number of building permits issued by the Douglas County Building Department has fallen this year. New home permits are down 36 percent, while permits for manufactured homes have dropped 20 percent.

Banks have also tightened lending policies, making it more difficult to obtain mortgage loans.

The extension of the $8,000 first-time buyer's credit until April 30 should help new home construction, said Liz Conroy-Yockim, executive vice president of the Umpqua Valley Home Builders Association. An even bigger incentive might be the provision in the extension providing a new $6,500 credit for existing homeowners who buy a new home.

“I think that will help,” Conroy-Yockim said. “People who were financially able to build a new home did not qualify for the original credit. Now they can.”

UNEMPLOYMENT MAY RISE

With the recovery, the unemployment rates for Douglas County and Oregon could rise in the short term, said Graham Slater, administrator for the work force and economic research division of the Oregon Employment Department. The rates will likely rise as the unemployed who had become discouraged by dismal job prospects begin looking for work again, he said.

During the period they weren't actively looking for work, those residents would not have figured into the unemployment rate.

Nonfarm employment in Douglas County is down 1,500 jobs — 4 percent over the past year. Even so, the number of jobs held by Douglas County residents has risen in recent months, increasing from 39,441 workers in March to 40,399 in August, ahead of the seasonal increase that occurs when school starts in September.

During the same period, the number of unemployed Douglas County residents went from 8,950 to 7,327.

“You're not losing as many jobs. It isn't as disastrous as it was eight or nine months ago,” said Slater, who also spoke at the forum sponsored by the Roseburg Area Chamber of Commerce.

CONSTRUCTION FLAT

The number of construction jobs in Douglas County and throughout the state is flat. There were 2,290 construction jobs in the county in June 2006. That segment reached a low of 1,480 workers in March and increased to 1,750 in September.

Area home builders hope an increase in construction activity will occur next year, Conroy-Yockim said.

However, it could take until 2015 to hit the same number of housing starts recorded in 2007, already a down year, Potiowsky said.

Each time the United States has weathered a recession, Potiowsky said, it's taken longer to come out of it. This time, it could take five years before the economy reaches the point where it was before the slide, he said. Rural areas such as Douglas County usually lag behind urban areas, he said.

In the middle of the recovery, Douglas County could face another crisis with the potential loss of the federal timber safety net. The county will lose another 10 percent of the $31.7 million it received this year under the new fiscal year beginning July 1. The following year, the lowered amount will be cut by an additional 35 percent. That will be the final year of the four-year extension.

Douglas County Commissioner Doug Robertson has urged the Obama administration to come up with a better forest management plan that would increase timber production and give timber counties more revenue.

Meanwhile, Robertson said it's important to extend the safety net to provide a stable source of funding until a permanent solution can be found. It won't be easy, he said.

“We're going to have a tough row to hoe in getting a new extension,” Robertson said.

• You can reach reporter John Sowell at 957-4209 or by e-mail at jsowell@nrtoday.com.