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CSUF: Long But Shallow Economic Downturn

The national economy is in for a long but shallow slowdown, according to California State University, Fullerton economists.

The downturn could bring the loss of 15,000 Orange County jobs this year, a 1% decline, according to Cal State Fullerton’s Anil Puri and Mira Farka.

At their annual midyear forecast held at the Hyatt Regency in Irvine, the duo said a recovery might not begin until the middle of next year.

The tolls of the credit crisis, housing downturn and inflation are running their course, Puri said.

“There’s no way out of this slowdown,” he said.

The U.S. economy hasn’t yet had back-to-back quarters of decline that would certify a recession by most standards, Puri said.

Government data for the first quarter’s gross domestic product is set to be released Wednesday.

Puri said his biggest concern is consumers’ ability to keep their spending levels up to support the economy, which contributes to 70% of the GDP, he said.

The local housing market may have an additional 10% to 15% to fall before a recovery takes place next year, he said.

Despite obvious local weakness in employment and housing, the county’s economy has been propped up by a number of factors, he said.

Corporate profits have been stable due in part to exporters benefiting from a weak dollar overseas, according to Puri.

Strength from emerging global economies such as China and India has cushioned the blow unlike previous recessions, he said.

Aggressive rate cutting from the Federal Reserve, which brought the overnight lending rate between banks down 300 basis points in seven months, has been another helper.

For the first quarter, Puri and Farka forecast a 0.4% raise in GDP and for the second quarter a 0.3% decline.

Their full year forecast for 2008 is for a 1.2% rise in GDP and for 2009 a 2.4% increase.

By 2010 Puri said he expects the economy to resume growth of about 3% a year.

Banks beginning to see their debt markets start to move again is evidence the credit crisis is being put behind us, he said.

Though not all banks have shared with the public the extent of their losses from bad loans, the belief is that more than half of the damage is already known, he said.

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