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Experts at Santa Barbara Summit Foresee Slowly Turning Economic Tide

UCSB Economic Forecast Project's Peter Rupert cites the struggles of 'weak-covery'

Santa Barbara County’s private sector continues to struggle with employment during the “weak-covery,” Peter Rupert, director of the UCSB Economic Forecast Project, said during Thursday’s 30th annual Santa Barbara County Economic Summit at The Granada.

Both the state and county are performing worse than the country in private-sector employment rates. The construction industry has fallen nearly 40 percent from its previous peak and, along with goods production and financial activities, shows no sign of improving. Unemployment rates are at about 10 percent, higher than the national average. The “reeling” estate market saw its first-ever housing prices decline during a recession cycle, and California has been hit harder than many other areas.

Rupert predicted a larger demand for apartments given the reluctance to invest. The county’s population trends show more Generation Y workers and retirees by 2020, he said, and both groups are likely to prefer apartments to single-family homes.

With low rents and low interest rates, there is a lot of opportunity for growth, Rupert said. The uncertainty has quelled investments, but he predicts that when things do happen, they’ll happen fast.

The UCSB Economic Forecast Project website is working with Simpler Systems to offer updated data year-round in addition to the annual presentations. Rupert said he hopes it will help people stay informed and ask questions of one another to better understand the region’s trends.

Andrew Ross Sorkin, New York Times financial reporter and author of Too Big to Fail, spoke at the economic summit and said the financial crisis was about confidence.

For his book, Sorkin interviewed 200 people intimately involved with the financial crisis — some were more reluctant than others — and many said they believed the situation would have been worse if the public had been told what insiders knew.

“When you got to actually peel back the onion, it was so much worse,” Sorkin said.

He recalled the early morning hours of Sept. 15, 2008, when he was writing what became a front-page story. Bank of America had purchased Merrill Lynch, Lehman Brothers filed for bankruptcy, and everyone was wondering which dominoes would fall next.

Sorkin said new legislation doesn’t address the issue of debt and leverage, how the Fed “abdicated” its regulatory role, and businesses that are too big to manage, which he said makes accountability difficult.

Looking forward, Sorkin said everyone could do with taking some responsibility — including the public — to think more long term in financial decisions. Too Big to Fail was made into a movie that will show May 23 on HBO.

Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis, said the economy’s “headwinds” will be based on real GDP, unemployment and inflation issues. He foresees that national unemployment rates — about 8.8 percent now — will “normalize” to 5 percent during the next five years and that inflation rates will increase to just below 2 percent — with the caveat that his forecasts were wrong last year.

Someone questioned the role of the Federal Open Market Committee, of which he is a member, in regulation and where it went wrong.

Kocherlakota said said that everyone buys into the “this time it’s different” mentality, even insiders, which makes it challenging to build brakes into the system.

“It’s not the immediate future you have to worry about,” he said. “It’s when things are going very well that you have to start worrying.”

Noozhawk staff writer Giana Magnoli can be reached at .(JavaScript must be enabled to view this email address). Follow Noozhawk on Twitter: @noozhawk or @NoozhawkNews. Become a fan of Noozhawk on Facebook.

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