WASHINGTON — After a miserable year mired in the worst downturn since the Great Depression, Americans can take comfort that 2010 is likely to get better. How much better depends on a wide range of factors, but few economists expect a robust rebound.
"The pain of this economic downturn is going to be felt for a longer time frame," warned Martin Regalia, the chief economist for the U.S. Chamber of Commerce.
The good news for the U.S. economy, which is now thought to be out of recession, is that some important tail winds will give it a push.
These tail winds, at least for the first half of the year, include federal government stimulus money that's still entering the economy in large amounts. Businesses are replacing the inventory they've burned through, and strong productivity numbers indicate that companies are doing more with fewer workers, suggesting that companies that survived the recession are becoming more profitable.
These developments bode well for the hiring outlook. Over the last three months of 2009, the net number of workers that companies were shedding moderated. Many economists now think that businesses collectively could begin adding jobs, rather than eliminating them, as early as March.
That would just be a beginning, however, not the end of the matter, and the pace at which employers add jobs will reveal a lot about the vigor of the recovery.
Most mainstream economic forecasts envision growth in the gross domestic product of 2.5 percent to 3 percent next year. Under normal conditions, those would be good numbers.
With the unemployment rate at 10 percent and expected to go higher early next year, however, the U.S. economy needs to grow at a 6 percent clip, at least for the first half of the year, to knock the jobless rate down sharply. No credible economic experts anticipate such a sharp rebound.
The Federal Reserve, in the final 2009 statement by the interest rate-setting Open Market Committee, said Dec. 17 that while job losses were abating and the housing market was stabilizing, "Economic activity is likely to remain weak for a time."
Private economic forecasters are equally subdued.
"We're not predicting a dramatic change in things," said James Glassman, the chairman of a special advisory board to the Securities Industry and Financial Markets Association, which issued its 2010 forecast on Dec. 16.
The advisory panel, which includes top economists from many of the largest global financial institutions, projects a U.S. growth rate of 2.8 percent next year. It beats going backward, but it's far too slow to spark a hiring boom.
"I'd say stay tuned; we're in the beginning of a recovery," said Glassman, who's also a senior economist and a managing director at JPMorgan Chase.
Glassman expects the unemployment rate to increase to between 10.2 and 11.3 percent. Even as employers resume hiring, the unemployment rate is expected to keep rising as people who gave up looking for work begin searching again and are counted in unemployment data.
Developments in the labor market strongly influence consumer sentiment and spending, and most economists think that the unemployment rate will remain stubbornly high and consumption sluggish next year.
"We expect to see growth, but sort of half speed," said David Wyss, who as the chief economist for the rating agency Standard & Poor's in New York envisions just 2 percent growth in 2010. "The biggest head wind is all the imbalances that are out there."
Many of the economic imbalances will take time to work through, he said.
"We need to get some employment growth. We're up to our necks in debt, both as individuals and the government," Wyss said. "I think most of all, it's hard to get consumption moving again, and that's 70 percent of the economy."
The U.S. Chamber of Commerce expects growth of 2.5 to 3 percent, and chief economist Regalia warned that such a sluggish pace leaves the U.S. economy vulnerable to shocks such as an oil price spike or a debt default by a foreign nation.
"With growth relatively slow, it takes a lot less to push you over the brink," Regalia said.
Here are some of the dangers to the U.S. economy next year:
_ Housing. The two-year slide in home prices appears to have bottomed out, and housing finally is going to stop dragging heavily against growth. However, home prices and sales aren't expected to boom, either.
"While the rate of decline has decreased throughout the year as the market began to stabilize, it's not at all clear that the market is on a recovery path," James Diffley, a group managing director for the forecasting firm IHS Global Insight, said in a housing report published Dec. 18.
The study found that the housing market for the nation as a whole is now slightly undervalued. Only 16 metropolitan areas, six of them in Texas, escaped net home-price declines during the long national slide.
One reason that home prices and sales are unlikely to boom is the high number of mortgage delinquencies and foreclosures, which threaten to push millions of homes into a market that's already suffering from a glut of unsold homes.
Researcher First American CoreLogic said in a report Dec. 17 that as of the end of September, 3.8 million unsold new and existing homes were on the market.
_ Commercial real estate. Problems in this sector haven't caught anyone by surprise. Instead, it's been more like a slow-motion train wreck.
Smaller regional banks are more exposed to these losses, which are caused by the recession, not the weakened lending standards that bedevil residential mortgages. In a recent study, the rating agency Moody's Investors Service warned that hotel properties are the fastest-growing segment of commercial real-estate delinquencies.
"There is a lot of vacant office and retail space. It's going to be a damper" on economic growth, Wyss said, suggesting that it nonetheless is a known threat. "I think we know about it; I think that damage has already been done."
_ Debt defaults. This is an unknown threat. The recent near-default by the Persian Gulf emirate of Dubai sent shock waves across the globe until neighbor Abu Dhabi rode to the rescue. The brief scare underscored how panicky investors remain, and a surprise default by any number of heavily indebted nations could spark a new wave of investor chaos.
"I think the problem is there is still a lot of fear," Glassman said, adding that the brevity of the Dubai scare could be a good sign. "I think it tells you we have gotten used to these stresses."
_ Global economy. After an expected contraction of 2.5 percent this year, the global economy is projected to grow at 3.1 percent or more in 2010, according to a December forecast by the Institute of International Finance, a global association of financial institutions. That bodes well for U.S. exports, which throughout the downturn have prevented an even deeper U.S. crisis.
"The key ingredients to this recovery are the push from expansionary economic policies and the fading drag from the financial crisis," the institute said.
It's unclear how much the United States would benefit from a global rebound, however, because two of its main export markets — Europe and Japan — are expected to continue struggling next year.
"The growth that you are seeing in the world is in places like China and India that don't buy a lot from us," said Wyss, who thinks that export growth will help the U.S. economy only modestly. "It's an improvement, but I think it's going to be a long slog to get out of this mess."
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