Five Maine economists forecast 2009 | Five Maine economists give an initial public offering of their predictions for 2009, and take stock of the financial upheaval of 2008 and its recurring effects

Watch out Maine Street. After a year of housing market tumbles, blunders on Wall Street, mounting consumer debt and an unending stream of layoffs, what’s in store for 2009? Mainebiz asked five prominent economists to weigh in on that question, and more. Some hold out hope for the federal stimulus package, while others doubt its prospects for shoring up consumer and business confidence. Falling home prices will spur buying, some say, as others brace for a housing slump that will persist through the next new year. The questions ranged from energy prices to bright spots amid the economic clouds, but one thing is clear: 2008 isn’t done with us yet.

CHARLES COLGAN

Chair of the Community Planning & Development Program and professor of public policy and management at the University of Southern Maine’s Muskie School of Public Service; chair, Maine’s Consensus Economic Forecasting Commission

“2009 is the year we have to rescue ourselves from 2008, and set ourselves up to deal with the problems of 2008.”

Dow Jones Industrial Average: We could see a low in the upper 7,000s and a high approaching 10,000

Energy prices: Oil will be in the $60-a-barrel range

Maine jobs: Another 5,000 to 10,000 jobs will be lost

What’s in store for the housing industry and mortgage rates?
“Maine will probably not get to the bottom of the housing slump until 2010.” Existing home sales could pick up in the spring, but southern Maine has a ways to go before the income-to-home-prices ratio realigns. Mortgage rates will stay steady through the first half of the year but won’t fall much further. Capital markets still consider mortgage lending an extremely risky venture.

What will be the effect in Maine of the Federal Reserve slashing interest rates?
“The Fed’s going to have a very hard time with monetary policy having a stimulative effect.” While the capital market system remains broken, low rates won’t be as important as in the past. “The economy is so overleveraged, it’s so in debt, people are going to be wary of taking on additional debt.”

Will we see any relief from the recession in 2009?
“I don’t see much of a turnaround in 2009, but the worst will be over by the end of 2009.” As it has historically, Maine will emerge from the recession later than the rest of the country. We could hit bottom in the job-loss cycle by late 2010.

How do you see the effects of the recession in your daily life?
“I’ve noticed a little more room at the shopping mall.” At USM, students have voiced worries about finances and the number of courses they can afford to take.

What challenges will be unique to Maine in 2009?
The Maine economy will take a hit with the mid-2009 closure of Brunswick Naval Air Station, and we’ll endure a longer period of losses than other states.

What’s been overlooked?
“A lot of the challenge is that the longer-term problems are, in some ways, bigger than the short-tem problems.” We’ve lost the last eight years in terms of making progress on Social Security, Medicare, energy and the environment. Fixing those issues will require savings and taxes, hardly an attractive prospect in the thick of a recession.

Any bright spots?
If the stimulus package is passed and proves effective, the national economy could start to grow by mid-year. That’s not exactly a ray of sunshine, but it’s a form of not-so-bad news.

JONATHAN REISMAN

Associate professor of economics and public policy at the University of Maine at Machias

“The chickens have come home to roost; it’s payback time now.”

 
Dow: It probably won’t rise above 9,000, but could drop by another third

Energy: Today’s low prices are likely to rise

Jobs: Unemployment could breach 10%

Housing and mortgage rates: The housing market likely won’t rebound this year, though money set aside in the stimulus package for weatherization could help. A glut of former BNAS military housing that recently flooded the market has driven prices down by more than a third. Mortgage rates are down but demand remains low. Americans will continue to reel from a 20% to 30% hit on the value of their primary asset, their house, and a rebound probably isn’t in store for 2009.

Fed cuts: People need to borrow and banks need to lend to make the Fed’s moves effective. “The problem is confidence, business confidence and consumer confidence. I don’t think what the Fed is doing is helping.” The stimulus package will take time to work through the economy, provided the Chinese are willing to finance our debt.

Recession: The fundamentals of the economy are so badly damaged that we’re in for the worst economic outlook since the 1970s. Maine will lag the typical six to 18 months behind the rest of the country in crawling out of the recession. “It’ll be two Maines as usual.” The southern counties and Boston will rise first and Maine’s rim counties last. “I think we’re in for a two- to three-year stagnation if not decline in GDP and jobs.” Cuts at the University of Maine System are a harbinger of a tough outlook for the public sector this year.

Daily life: People are hunkering down to ride out the recession, instead of planning for the long term. “We’re going to be looking to the past rather than the future, which is a bad sign.” The “graying” of Maine — the exodus of young workers who leave and never come back — will only add to the state’s troubles.

Maine: “We are likely to see one or more rural hospitals close in Maine,” a devastating prospect in places like Machias, where the hospital is the region’s largest employer and economic driver.

Overlooked: Dwindling resolve and energy among the entrepreneurs who drive our economy. “The entrepreneurs I know are a pretty disheartened lot right now.” Bailouts are just about the worst move for an entrepreneurial economy because they remove the financial incentive that can accompany risk-taking. Also, Obama’s commitment to climate change policies will drive energy prices back up. “For every green job that government creates, they’re going to cost one job in the private sector.” The manufacturing and fishing industries are in deep trouble.

Bright spots: If energy prices remain low, the tourism industry could make a comeback. But don’t bet on it.

CATHERINE REILLY

Maine state economist, Maine State Planning Office, Augusta

“It’s going to be a year of waiting for things to get better.”

Dow: Two steps forward and two steps back will make for an overall flat year

Energy: Oil prices will stay below $60 a barrel for most of ’09

Jobs: More layoffs are in store, particularly in manufacturing, retail and financial sectors

Housing and mortgage rates: Prices will stabilize in ’09 as bargain hunters take advantage of low prices. Mortgage rates will stay low.

Fed cuts: Lower loan rates and Maine’s sound community banks will provide some good opportunities for households and businesses, if borrowers can overcome nervousness about taking on debt. “ Banks are still trying to get the word out that they’re open for business.”

Recession: Consumer confidence eventually will pull the national economy out of a recession, with Maine tagging along behind. Continued low gas prices will put money back in consumers’ pockets, serving as a “de facto oil stimulus package.” If people start feeling rich enough to resume summer vacations, the state’s tourism industry could get a boost by 2010, if not this year.

Daily life: The office refrigerator is getting fuller as more coworkers bring lunch from home rather than eat out. Then there are those eye-catching displays car dealerships put up “as their lots fill with snow rather than customers.”

Maine: Challenges include our reliance on tourism to drive the economy. “With consumer confidence at an all-time low, for most people travel is discretionary.” Mainers also will struggle to focus on the state’s unique assets, like boat building and wood composites, in the face of needed spending cuts. “All the oxygen in the room is being taken up by the budget realities.” But rethinking economic development, as the governor’s Quality of Place Council is tasked with, will ensure Maine is poised for growth when the recession abates.

Overlooked: The long-term aging of Maine’s population. “When the economy turns around, as it always does, [businesses] have to have young workers to hire and customers that aren’t on fixed incomes.” Reducing the cost of higher education for out-of-state and even undocumented students could encourage them to live and work in Maine after college. Otherwise, Maine’s economy will be at a disadvantage when the economy recovers.

Bright spots: The state continues to receive applications for major wind power projects that could get off the ground in 2009. If the federal stimulus package includes money for infrastructure upgrades, jobs generated in that sector could offset losses in the housing market. Additional jobs will result from Central Maine Power’s $2 billion power grid upgrade planned for 2010.

J. SCOTT MOODY

Chief economist, Maine Heritage Policy Center, Portland

“Hang on, it’s going to be a heck of a rollercoaster.”

Dow: The stimulus package could fuel a spike, but it’ll be short-lived

Energy: Continued devaluation of the dollar will boost oil prices

Jobs: Unemployment could approach 10% by the end of 2009

Housing and mortgage rates: Home prices have further to fall. “I don’t think we’ve reached bottom, nationally or in Maine.” Mortgage rates will drop as a result of the Fed cutting short-term interest rates, but likely only temporarily. The falling value of the dollar may mean rates have to rise to compensate, which would be bad news for the housing market.

Fed cuts: With short-term rates close to zero, the rate of return on dollar-denominated investments like oil is far from attractive. That will push oil prices higher in 2009, disproportionately affecting Maine’s heating oil-dependent economy. Also weighing on the dollar are rumors that the Fed has resorted to printing more currency to expand the nation’s money supply.

Recession: Optimism generated by the federal stimulus could briefly draw us out of the recession, but only statistically. “I doubt the average Mainer or the average American would know the difference.” Whether the dollar retains its reputation as a safe investment will prove a key factor in the recession’s length.

Daily life: The closing of Office Depot and Linens ‘N Things stores are just the beginning of rough days ahead for retailers. Consumers are trying to pay down credit cards, auto loans and mortgages instead of opening their wallets at the mall.

Maine: The state’s small private sector poses a unique challenge. It’s been hard enough to increase the private sector share in Maine’s economy when times are good, much less in the face of a recession.

Overlooked: Fannie Mae and Freddie Mac. Mismanagement of the quasi-governmental mortgage lenders got us into this economic mess, but their powers have not been curtailed. “They got away with a slap on the wrist.” The problems Fannie and Freddie represent will linger without stiffer penalties.

Bright spots: Passage of three MHPC-based initiatives — a Taxpayers’ Bill of Rights, reducing the automobile excise tax and health care reforms — are crucial to helping Maine’s economy outperform the national average. The Legislature must take steps to make running a business in Maine more attractive, and slow the flood of workers leaving the state for greener employment pastures.

LAURIE LACHANCE

President and CEO, Maine Development Foundation, Augusta; former state economist

“It’s going to be a very challenging year, but I’m not totally worried that the sky is falling here.”

 
Dow: She doesn’t dare hazard a guess

Energy: Invest in efficiency and alternative energy now, because prices are headed back up

Jobs: A 1% job loss is likely, and 2010 doesn’t look much better

Housing and mortgage rates: A continued drop in interest rates could generate some housing activity, but consumers will remain cautious given concerns about employment and threats of rising oil prices.

Fed cuts: To the extent that people can restructure their debt, the cuts will benefit Maine people and businesses. The state has old housing stock and the need to replace it remains strong, so lower rates could spur construction. Regardless of how low rates drop, a building boom still isn’t in the cards for the short term. Most of the activity will be in the form of refinancing and restructuring.

Recession: Much will depend on the depth of the recession and the sectors that lead us in and lead us out.  Maine’s financial sector is more diverse, conservative and solid than in many other regions, so if it can stay relatively healthy, we may be better positioned than many states to emerge from the downturn.  If, however, our largest employers (in the forest products industry, shipbuilding and precision manufacturing) are hit hard, it may take some time to recover.

Daily life: More conservative gift-giving at Christmas. “People were far more thoughtful this year about making purchases that were wise.” People also are making fewer trips to the grocery store, eating out less, packing lunches, shopping during sales and dropping nonessential services like cable television.

Maine: Our relatively extreme dependence in New England on fossil fuels for heating and transportation leaves us even more vulnerable than most to continued oil price spikes.  We also have substantial infrastructure investment needs, roads and bridges in particular, that we have to address even in difficult financial times. The fact that we now have the highest median age in the nation presents some workforce challenges.

Overlooked: It’s critical that Mainers take time to pay attention to the basics, such as upping the efficiency of schools and the delivery of government services. That way, we’ll position ourselves to take advantage of opportunities when the economy finally recovers. “Just because it’s a bad time doesn’t mean you shouldn’t find a way to invest in your future.”

Bright spots: We have invested wisely and strategically in research and development and in technology startup companies.  We have become leaders in composite materials, which has strengthened several of our traditional industries including boatbuilding, forest products, energy and defense. We also have experience and innovative research to support the development of alternative energy sources in Maine. Finally, we have a large community of artisans and craftspeople who are creating high-value jewelry, furniture and other goods who are coming together to market their products. 

Jackie Farwell, Mainebiz staff reporter, can be reached at jfarwell@mainebiz.biz.