CHARLESTON, W.Va. (AP) — The U.S. economy will continue to struggle to recover in 2012, buoyed by increased business investment but still overshadowed by a very weak labor market, a Federal Reserve economist told the annual West Virginia Economic Outlook Conference on Tuesday.
Economist Andy Bauer said the real estate market, after helping to trigger the Great Recession, remains a drag on the economy. With new housing starts at near-historic lows, the result includes depressed construction jobs and payroll levels, Bauer said.
"We expect to see a slower recovery in the coming quarters than we initially hoped," Bauer said. He added, "Going ahead, people are expecting 2012 to be more of a transition year."
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The housing market and consumer spending usually help drive recovery, Bauer said. With the housing sector too weak to aid growth, chronic unemployment and fears of another recession have led to very modest consumer spending, he said. For many people, it doesn't feel like much of a recovery, he said.
"Labor markets remain very, very weak," Bauer said. "It's a significant problem that's facing the recovery and the economy more broadly."
Bright spots include business investments in equipment and other core essentials, Bauer said. Orders and shipments for such goods have recovered from their recessionary plunge and are now above pre-recession levels, he told a conference packed with West Virginia business leaders, government officials and other attendees.
"We have now surpassed where we were before the recession started," Bauer said. "Orders coming in faster than they can be filled."
Bauer also estimated moderate inflation for 2012, a positive factor for the year. But concerns over foreign debt burdens have helped create uncertainty among businesses, as has the ongoing debate over cutting the U.S. budget deficit and tackling the federal debt, he said.
Businesses have also been unsure about resulting costs of the federal health care overhaul, the push to regulate Wall Street through such measures as the Dodd-Frank law, and environmental policies, Bauer said. All told, these factors sapped recovery efforts in 2010 and then again this year, he said. They threaten to do the same in 2012, he added.
"The sources of uncertainty aren't temporary shocks. They're somewhat persistent," Bauer said.
Bauer also explained a Congressional Budget Office estimate that shows a much-improved federal budget picture. It assumes that spending would remain restrained while Bush-era tax cuts expire and Medicaid and Medicare cut reimbursement rates to doctors, hospitals and other health care providers, Bauer said.
"As a result, the deficit stabilizes and the ratio of debt to (gross domestic product) stabilizes," he told Tuesday's audience.
Bauer said his forecast represented his views, and not that of the Federal Reserve. Based in Baltimore with the Federal Reserve Bank of Richmond, Bauer was among several economists scheduled to offer forecasts at the Charleston conference. West Virginia University's Bureau of Business and Economic Research, marking its 60th year, has helped put on the annual event.
Its economists are expected to forecast modest West Virginia job growth in 2012, and believe the state's economy will continue to expand in the absence of another national recession. Tuesday's other scheduled speakers include Gov.-elect Earl Ray Tomblin.
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