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Economic Forecast for Central Coast Remains Tepid, Experts Say

Local and federal economists, addressing the Santa Barbara County Economic Summit, predict slow growth, low inflation and gradual drop in unemployment

Slow growth, low inflation and gradual unemployment decline.

That was the outlook offered Thursday by local economists and officials with the Federal Reserve Bank, who spoke to several hundred attendees at the annual Santa Barbara County Economic Summit at the Granada Theatre.

The good news for Santa Barbara County is that it has been somewhat insulated from the recession, according to UCSB economist Peter Rupert.

But he is worried about the county’s negative real GDP growth the last several years. Since 2005, the county’s real GDP has declined at an average rate of 0.18 percent, while there has been no real gain in residential investment over the past four years. 

Normally, the economy recovers quickly after deep recessions, but this is the slowest recovery since the Great Depression, said Rupert, director of the UCSB Economic Forecast Project.

“The issue is to keep us on this growth trend,” said Rupert, estimating relatively flat GDP growth over the next few years. “Whatever politicians do, whatever the Fed does, whatever the Treasury does, the key is to keep us on this growth trend. Now, I’m an optimist, but we’re in deep trouble ” in terms of negative GDP growth.

Santa Barbara County’s housing prices recently took a 3.6-percent dip after a slight rebound; the labor market is struggling at 8.9-percent unemployment and retail spending has remained flat.

David Altig, director of research for the Federal Reserve Bank of Atlanta, warned that housing prices might drop again when foreclosed homes come back on the market.

On the national level, there is more publicly held federal debt than in any other recovery, banks are holding onto $1.6 trillion in excess reserves and the U.S. central bank balance sheet has grown to nearly $3 trillion, compared to its $800 billion balance sheet prior to the recession.

Europe’s financial difficulties may continue to drag the U.S. economy, Rupert said. 

While unemployment numbers have improved by nearly 1 percent compared to this time last year, some of that may be due to discouraged workers who dropped out of the labor market, Rupert said. Also, most of the county’s job growth has stemmed from unskilled jobs that pay around $20,000 a year.

On the other hand, local housing prices should stabilize, the information technology industry output increased by more than 10 percent, and business sentiment is slowly improving.

Charles Plosser, president of the Federal Reserve Bank of Philadelphia, is forecasting a 3-percent increase in U.S. economic growth for this year and next, inflation to hover around 2 percent, and unemployment to drop to 7 percent by 2013.

Atlanta Federal Reserve Bank President Dennis Lockhart and San Francisco Federal Reserve Bank President John Williams also spoke Thursday.

“It’s essential that we keep strong monetary stimulus in place for quite some time,” Williams said.

Noozhawk business writer Alex Kacik can be reached at .(JavaScript must be enabled to view this email address). Follow Noozhawk on Twitter: @noozhawk, @NoozhawkNews and @NoozhawkBiz. Connect with Noozhawk on Facebook.

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