ODU economic team foresees no recession locally

NORFOLK

Retail sales in Hampton Roads will fall this year, and the housing sector will face continued pressure, but the region will narrowly escape a recession in 2009, economists from Old Dominion University predicted Wednesday.

Increased defense spending, including higher pay for service members, will help buoy the region's output of goods and services, said Vinod Agarwal, a member of ODU's Economic Forecasting Project, during a presentation at the Norfolk Waterside Marriott Hotel.

In a luncheon address afterward, Cristian de Ritis of Moody's Economy.com cautioned that American consumers cannot pull the nation out of a recession as they did during past downturns. The panic that jolted the nation's credit markets in the fall has eased, but the availability of credit remains tight and "consumer confidence has been shattered," said de Ritis, director of credit analytics at the West Chester, Pa.-based forecasting firm.

The nation's recession will be the longest since the Great Depression, and the next six months "will be extremely painful," he said.

"Relief won't come until late 2010," de Ritis said.

The nation's unemployment rate, he said, is likely to rise to 9 percent later this year, but the stimulus package taking shape in Washington will keep it from rising as high as 11 percent, he said. The December jobless rate of 7.2 percent understates the extent of joblessness, de Ritis said, because it doesn't include part-time workers who want to work full-time or discouraged workers who have left the job market.

In Hampton Roads, the average jobless rate of 4.3 percent last year will climb to 5.2 percent in 2009, according to ODU's economists.

The team predicted the region's inflation-adjusted output of goods and services will expand by a lackluster 0.6 percent this year. That would be well below the average annual growth rate of 3.3 percent for Hampton Roads during the past 45 years but compares favorably with the 1.8 percent decline that they predict for gross domestic product nationwide.

In contrast to the rampant job losses occurring elsewhere in the country, Hampton Roads will add about 1,600 jobs this year, largely at companies that provide professional and business services and health care services, Agarwal said during the forecast program.

However, the region's housing sector will be hit by further declines in home prices and residential construction, ODU economists said. After skidding almost 30 percent in 2008, the dollar value of permits for single-family homes in Hampton Roads will tumble another 21 percent, according to their forecast.

"It will take 10 months to get rid of the inventory of existing homes for sale," which will continue to depress home prices in the region, Agarwal said.

For the housing market to recover, home prices will have to stabilize, which isn't likely to occur this year, Gil Yochum, a member of the ODU's economic team, told the gathering. The team predicts that the median price for homes sold in Hampton Roads this year will drop 5 percent from the 2008 level.

One favorable development, they noted, is that the region's housing is becoming more affordable.

In the region's maritime sector, a falloff in cargo traffic that began in the fall will continue until the nation's retail sales begin to recover, the forecasting team said. However, the slump in traffic could be offset by an increase in the number of container ships scheduled to call at Hampton Roads terminals later this year, Agarwal said.

Another major sector of the Hampton Roads economy - lodging - will witness a 2.7 percent decline in revenues, according to their forecast.

Nationwide, consumers' disposable incomes continue to climb, but their reduced wealth - from the slump in home prices and investment losses - are prompting many households to curb spending, Yochum noted. In Hampton Roads, retail sales will fall 3.1 percent this year after a 4.1 percent decline in sales in 2008, the forecasting team said.

"Households are saving more and have less access to credit," Yochum said.

One bright spot for the U.S. economy, he noted, is the strong financial condition of businesses that aren't involved in finance. Many companies, he said, are flush with cash and have benefited from rising productivity. However, the gains in productivity have prompted some to cut jobs more aggressively, he said.

For several years, ODU's forecasting team has been able to predict major trends in the Hampton Roads economy, including job growth, retail sales and the port's cargo traffic. In their forecast for 2008, they failed to foresee the declines in taxable sales and hotel revenues in the region.

However, the team accurately predicted that the cost of oil at $100 a barrel or higher would push the country into a recession. The team also forecast that credit defaults would hamper the nation's economic growth, which would prompt aggressive cuts in interest rates by the Federal Reserve and government efforts to stimulate the economy.

Tom Shean, (757) 446-2379, tom.shean@pilotonline.com