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A Fresh Start

National economist says we are in recovery

The same day that the New York Times came out with an article stating the U.S. was coming out of the longest economic “contraction” since World War II, and the Bureau of Economic Analysis released a press release stating that real gross domestic product increased by an annual rate of 3.5 percent in the third quarter of 2009, Bruce McCain, chief investment strategist for Key Private Bank, sat in ABM’s conference room and spoke about what he had been saying for months: We are in recovery.

“When most economists were predicting that the recession would linger into 2010 or 2011, Bruce was right on the money saying it would be the second half of this year (2009),” said Brian Nerland, Key Alaska district president, who was also in attendance at the meeting.

But recovery will be slow, lasting up to 10 years as job availability increases, the housing market stabilizes and consumer spending gets a jump-start. The economic recovery is happening, but it is likely to be slow and cautious.

“Bruce believes if we get a ‘spark’ we could see a surge as consumers begin spending to satisfy pent-up demand and businesses scurry to rebuild depleted inventories and restore productive capacity that was cut to reduce expenses during the recession,” noted Nerland.

McCain sees three stages to economic recovery as noted in his Economic & Market Update plan, released in September of last year. He begins by saying it’s important the U.S. first must stabilize, then reaccelerate. The first stage is where the decline ends and the economy begins to stabilize; however, pessimism remains high. The second stage is a “snap back demand” that creates a growth surge, and “catch up” spending is unleashed while pessimism wanes. The third stage is where growth subsides to the sustainable level and optimism takes hold.

“Even a slowly flowing stream releases a surge of water once a dam is removed,” McCain noted in his Web-based PowerPoint presentation.

This is good news for the U.S. and good news for Alaska, at a time when fears the recession will hit the state are minimized by a somewhat healthy economy. McCain noted Alaska was not hit as hard as the rest of the U.S., mainly because of our resource-driven industry, including fishing and oil. Energy will be a big part of our future, he said.

While noting some decline in job growth in Alaska, the first in more than 20 years, he sees a bright future for Alaska, and a bright future for the U.S. once people realize the economy is improving, business confidence improves and consumer confidence grows.

He notes, on his presentation, that “businesses seem prepared to rebuild capacity, but will be reluctant to get too far ahead of improving results.” Lingering concerns, according to McCain, are fourfold: “sales need to improve, competition in many industries remains fierce; concerns about energy and other commodity costs remain; and there is uncertainty about how health care-policy and energy-policy changes might affect costs.”

He stated there is already great economic improvement in other emerging countries, such as China.

Some credits to U.S. economic recovery include the Cash-For-Clunkers program, the $8,000 federal tax credit for first-time homebuyers, and the $787 billion stimulus package.

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