Group Paints Gloomy Economic Picture
Frankfort, KY – It's bad out there, and although there are glimmers of hope, nobody's sure when the current recession - one of the worst on record - will end. That was the gist of analysis offered to the Consensus Forecasting Group, a panel of economic experts that advises the governor and legislative leaders. State economist Thomas Jones says all of Kentucky's leading index growth rates have been negative since February 2008. The recession began in December 2007.
"This is the story of the current recession. U.S. retail sales has been falling sharply for several months," said Jones. "From June 2008, which was the previous peak, we've lost $35.7 billion in U.S. retail sales. That's 9.3% decline in just eight months."
More bad news on the economy comes from state economist Greg Harkenrider, who took a look at light vehicle sales across the country.
"At the peak, we're going to have below ten million units. It's going to be like 9.6 million, I believe, in 2009," said Harkenrider. "So, we're going to go from 16 million units to nine million units on new vehicle sales. That's a peak to trough decline - 16 million to nine million. It's almost cut in half."
And he says the decline in housing starts is staggering. Since early 2006, housing starts have fallen from over two million to under a half-million.
"You'd have to go back to 1945, the end of World War II before you can see housing starts at a half-million. And there were a lot fewer people in the United States then than there are now," said Harkenrider. "Sales of existing homes - if you've got a For Sale sign in your front yard, you better be hoping for the control forecast instead of the pessimistic forecast. But neither one are too rosy."
Manufacturing inventories are high and new orders are low. Personal income is stagnant, gas and oil consumption are down, and so are grocery sales. Job losses have been profound. But if you're looking for a ray of hope, disposable income and consumer spending are up slightly. Larry Lynch, who chairs the Consensus Forecasting Group, says he wants to be optimistic, but it's not easy.
"I haven't really reviewed everything in great depth yet, but things don't really look good," said Lynch. "I mean, you'd love to think it's going to turn around. You know, the market being up a little and all that makes you feel good. But maybe it's just a false signal, you know."
Lynch says the forecasters will spend the next few days digesting everything they've heard and then meet again.
"The staff crunches the numbers and we keep reviewing our usual sources of economic outlook," said Lynch. "And then we look at the numbers that they give us and decide what we want to do - decide if we like the control, or we like the pessimistic, or we like some kind of blend, or if the world changes a lot in the next 11 days, we might cheer up!"
He says the panel will reconvene on May 29 to offer a revised revenue forecast on which to base possible state budget revisions. Governor Beshear believes the state could be facing a deficit topping $1 billion dollars next fiscal year. Dr. Lynch says that's not unrealistic.
"It seems plausible. It seems plausible," said Lynch. "I don't know what we'll come up with, but it's probably in that neighborhood some place."
Governor Beshear says if, indeed, the state is facing another huge deficit, the sooner lawmakers address it, the better. He's already discussing the budget crunch with legislative leaders, but wants the new revenue projections in hand before deciding whether to move forward with a special session.