The bad news, he said, is that recovery could be followed by inflation.
Dr. Mark G. Dotzour, who spoke at the 2009 Central Texas Economic Forecast at the Mayborn Center, told a packed house that people are getting tired of being afraid.
“Consumer spending is determined by consumer confidence, particularly confidence people have in their job. Right now, that’s about as low as it can get,” he said.
That lack of confidence combined with an increased debt load have led to a restrained economy. But that has also brought about a change in lifestyle.
“Now, people are doing what they’re supposed to be doing, which is living within their means, ” Dotzour said.
He said he believes recovery will start before the end of this year. “But, it’s going to take a while,” he added.
Because the stock market anticipates changes in the economy, we should begin seeing stock markets recover three to four months before that economic recovery begins. That’s now, he said.
One thing Dotzour believes is that government will have to get out of the picture before business and the stock market will begin to recover. “What’s it going to take to get investors back in the game?” he asked. “Government has to get out before people will come back into the market … the quicker they get out the better.”
As for tips, he said now’s the time to buy a house if you’re going to stay in it two to three years. Interest rates will never get lower and, in Texas, prices will probably not drop much more than they already have.
During the presentation, sponsored by CentraLand Title Co., Dotzour did give a disclaimer. “There’s a 50 percent chance I’m wrong,” he joked.
Dotzour’s best-case scenario:
-Favorable corporate earnings in the fourth quarter of 2009
-Stocks to rise four months before that
-Consumer confidence rises with stocks
-House prices/volumes continue to fall, except in Texas where we have a balanced market
-Foreclosures continue to be heavy
-More spending results in higher profits
-Layoffs end by the end of 2009
-Jobless recovery in 2010 (profits are up, but company’s are not hiring anyone yet)
-Higher interest rates and inflation in 2010 and 2011
Dotzour’s worst-case scenario:
-No effective fiscal package gets passed (this has already happened with the passage of the stimulus plan)
-Treasury and Fed continue to stumble
-Bad banks and businesses are propped up
-No price discovery for “toxic” mortgages
-Political risks for business stays high (it’s still high because business doesn’t know what government is going to do)
-Business/investors “sit on their hands”
-Unemployment goes well over 10 percent
-Commodity deflation and price deflation.
