Webster Bank economist discusses economic gains for Chamber

The effect of the Great Recession on state growth continued to be the topic of the moment at the Wilton Chamber of Commerce’s Eggs and the Economy breakfast Tuesday, Jan. 14. Dr. Nicholas Perna, chief economist with Webster Bank, returned this year as the keynote speaker.

Explaining that recovery periods after financial crises are generally slow to advance, Dr. Perna said the American economy is growing nonetheless.

“What we’ve got is a slow recovery that is very uneven,” Dr. Perna said. “GDP is about 12% up from where it was before the recession started. Dow Jones is about 15% up above the peak, but if you look at jobs, still 1% less people employed than 2007, 2008.”

Dr. Perna holds a Ph. D. in economics from MIT, and his professional background includes stints with the Federal Reserve Bank of New York, General Electric, and the Connecticut National Bank. He interspersed his sometimes somber views on the state’s economic outlook with quirky one-liners and, like any former college professor, ended his presentation exactly on time.

One reason for the uneven post-crisis recovery cycle on the macro level, Dr. Perna hypothesized, was stunted growth in Europe — where many countries still struggle to mitigate economic catastrophe.

“There has been an unusual economic stance going back to 2009,” he said. “If you add up all the net new stimulus in terms of tax cuts and stimulus spending it amounted to 2.5% of GDP in 2009. But by last year, it went to -1.5% due to the expiration of some tax cuts.”

Without justifying the “infamous” stimulus, Dr. Perna said when an economy goes from a big “plus” to a big “minus,” it shows the economy didn’t get enough lift before “throttling back.”

“This explains why the Fed did what it did,” he said. They put interest rates at 0% in 2008. You can’t go any lower than 0%. The Fed had to engage in quantitative easing trying to drive down the long-term interest rate, to try and help boost the stock market.”

This, the Federal Reserved hoped, he said, would cause the rise in stock market and housing economies, helping a country whose congress was in “paralysis.”

Regardless of the fact that many conservative voices viewed quantitative easing as an example of government overstepping its bounds, Dr. Perna said its long-term effect will be overall economic growth.

“Most economists expect 3% growth next year, which should be enough to generate three million jobs nationally,” he said.

The economist also took care to address last year’s calls for a national default on loans issued to the United States.

“Anyone who says that we can default without doing incredible damage to the economy doesn’t know what they are talking about,” he said. “It would be quicker than 2009. Banks would suddenly be belly up. Interest rates would spike, and all fixed-income securities would fall in value. Banks would have negative equity.”

In terms of inflation, Dr. Perna agrees with “a lot of conservative Wall Street types,” who predict it to hold steady around 2%.

Jobs numbers in Connecticut, Dr. Perna also said, “are not great, but they’re not abysmal.”

Independent reports “say we’ll get at least another 15,000 jobs this year and 25,000 the next year,” he said. “We’re still lagging behind the nation, and we still have a way to go to get back to 2007.”

He also said it is important that personal income will grow by 6% over the next year, a much quicker growth than the 2% expected of inflation.

“All told, this is not miserable. This is an improvement,” he said.