U.S. recession 'likely over' but not in Sonoma County

Federal Reserve Chairman Ben Bernanke declared Tuesday the worst recession since the 1930s is “very likely over,” but analysts said Sonoma County probably will take longer to emerge from the economy's slump.

“We often come out a little later,” said Ben Stone, director of the county's Economic Development Board. “We have some challenges yet to deal with.”

The county's commercial real estate sector hasn't hit bottom, and there's potential for more shakeout in the premium wine industry, he said.

“We're going to have a long, slow climb out of this,” Stone said.

Bernanke said while the nation's economy likely is growing now, it's not enough to prevent the national unemployment rate, now at a 26-year high of 9.7 percent in August, from rising.

“From a technical perspective, the recession is very likely over at this point,” Bernanke said at the Brookings Institution in Washington. “It's still going to feel like a very weak economy for some time because many people will still find that their job security and their employment status is not what they wish it was.”

The recession, which started in December 2007, has claimed a net total of 6.9 million jobs.

With expectations for a lethargic recovery, the Fed predicts unemployment will top 10 percent this year. The post-World War II high was 10.8 percent at the end of 1982.

Some economists say it will take at least four years for the jobless rate to drop to a more normal range of 5 percent.

Even if the economy logs “moderate” growth in 2010, unemployment is likely to stay elevated, Bernanke said.

“Unfortunately, unemployment will be slow to come down. It will come down but it may take some time,” he said. “Obviously, that's a very serious concern.”

Still, Bernanke's declaration that the recession likely ended marked his most optimistic assessment yet of the economy. And his remarks came on the same day that the government reported that retail sales jumped 2.7 percent in August, the most in more than three years.

Last month, Bernanke told a Fed conference in Wyoming that economic activity appears to be “leveling out” after declining sharply at the end of last year and into the beginning of this year. He also said the global economy was just “beginning to emerge” from recession.

Business cycles are officially dated by a committee of economists at the National Bureau of Economic Research. It often spends many months sifting through economic trends before declaring the beginning and end dates of a recession. The latest recession began 12months before it was officially declared in December 2008 by the committee.

Analysts predict the U.S. economy is growing in the current quarter, which ends Sept. 30, at an annual rate of 3 percent to 4 percent. It shrank at a 1 percent pace in the second quarter, much slower than in previous quarters.

Bernanke's view was echoed by a new outlook issued today by the respected UCLA Anderson Forecast, which measures the strength of the U.S. and California economies.

The U.S. recession “likely ended in the current quarter,” said senior economist David Shulman. Still, “growth will remain very modest for most of 2010,” he said.

California also will experience little growth through the middle of 2010, although the state's economy could begin to take off in the latter part of the year, said Jerry Nickelsburg, a UCLA senior economist who prepared the state forecast.

The state's unemployment rate will peak at 12.2 percent in the fourth quarter — it is 11.9percent now, the highest since World War II — and then subside slowly over the next two years, he said.

“Though the California economy will be growing in 2011, it will not be generating enough jobs to drive the unemployment rate below double digits until the end of the year,” Nickelsburg predicted.

Sonoma County fell into recession in October 2007 — two months earlier than the rest of the country — because of a steep slide in housing prices, said Steve Cochrane, an analyst who tracks county business indicators for Moody's Economy.com.

“In Sonoma County, it hit early and it hit deep,” he said.

The length of the local recession will be determined by what drives the recovery, he said. The downturn could linger if consumers don't begin to open their wallets, Cochrane said.

“Sonoma County really depends on consumer spending for a lot of its economy,” he said.

The county's 10.3 percent jobless rate in July was nearly a full point higher than the U.S. average in July, 9.4 percent.

A record 27,000 county residents were looking for work in July, 70 percent more than the same month in 2008.

Double-digit unemployment likely will continue in Sonoma County next year, Stone said.

“It will be 2012 or 2013 before we see substantial growth in hiring,” he said.

“Nobody will feel like the recession is over until the labor market improves and unemployment goes down,” Cochrane said. “Sonoma County is no exception.”

Still, there's a perception the economy has improved since the year's grim first quarter, Stone said.

“There is a feeling the worst is over,” he said. “We've reached a level where we aren't fearing free-fall.”

Bernanke said the national economy is coping with “ongoing headwinds,” including hard-to-get-credit for consumers and businesses, and households saving more, spending less and trimming their debt. Those forces can weigh down the recovery, he said.

Other analysts worry falling house prices could hamper the broader rebound, especially if they cause consumers to tighten their belts.

Disagreeing with Bernanke on the recession's end, Michael Williams, dean of Touro College's Graduate School of Business, said troubles in the residential and commercial real-estate markets are prolonging the economic downturn.

He said the economy is still shrinking and won't turn around until later next year — “this recession lingers.”

This article was compiled from reports by Staff Writer Steve Hart, the Associated Press and New York Times. You can reach Hart at 521-5205 or steve.hart@pressdemocrat.com.