People should expect the current recession to be long and painful, said the economist for the North Carolina Bankers Association.
An $819 billion economic recovery package passed by the U.S. House of Representatives on Wednesday may help stimulate the economy somewhat, but is wasteful and will probably be largely ineffective, said Harry M. Davis.
"It should really be called a spending package," said Davis, speaker at Thursday's Hickory Rotary Club meeting. "And this country does not need to raise its level of spending. That's what got us to the point we're at now."
Davis, who is also a professor of finance at Appalachian State University, said the current recession will be long by post-World War II standards.
Since World War II, U.S. recessions have averaged 10.5 months, with the most recent two recessions lasting eight months each, Davis said.
He said this recession, which began in December 2007, will be the longest since the Great Depression, probably lasting through 2009.
"There may be slow growth after mid-year, but we won't see many signs of recovery until the end of this year or early 2010," he said.
The recession is already painful in terms of job losses, and is going to get more so, Davis said.
"The United States lost 2.6 million jobs last year, and we'll see a lot more lost before this is over," said Davis, who expects to see the U.S. unemployment rate climb from its current 7.2 percent to 9.5 percent, and North Carolina's jobless rate climb from its current 8.7 percent to 10 percent or higher.
Davis expects inflation to remain low in 2009 and interest rates to stay near current levels.
As 2010 and a growing economy approach, the Federal Reserve will be increasingly challenged to keep inflation under control, he said.
"In 2010, the Fed's feet are going to be to the fire to keep the economy growing without creating inflation," Davis said.
"I don't know that anyone is nimble enough to pull off that juggling act, but we'll see."
The economist thinks efforts to stabilize the nation's banking system are working.
"For the most part, the financial sector has already stabilized," he said.
"I don't think there are any more big surprises out there. Things will start improving as we go along."
Davis is less optimistic that the $819 billion economic recovery package will do much to stimulate the economy.
While the plan now headed for the U.S. Senate contains some business tax cuts that will be helpful, not nearly enough assistance is directed at creating jobs, Davis said.
"Money should be going to sectors that are suffering the most, including manufacturing," Davis said.
"We should be investing in tax credits and marginal tax rate cuts rather than giving $50 million to the National Endowment for the Arts."
Davis said the worst thing about the economic recovery package might be that most of the $819 billion won't be spent until a year from now.
"We'll already be in recovery by then," he said.
Davis believes long-term economic recovery will depend in large part on consumers, businesses and government learning to live within their means.
With its $819 billion economic recovery package, the government is starting the next "bubble" in the U.S. economic cycle, Davis said.
"It's precisely the wrong thing to do," he said.
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