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Vt. Economy Bouncing Back, But How Long Will it Take?

Montpelier, Vermont - November 12, 2009

Economists Jeff Carr and Tom Kavet said this was the first time in two years they had some good news for state leaders.

"It's actually fairly pleasant to be able to say the financial sector in the U.S. and global economy survived its near death experience and actually looks like it's at a turning point," Carr said.

But that may not mean much in terms of real recovery. They told the governor and legislative leaders that much of the upswing was driven by unprecedented government spending, not private sector growth.

"The patient's been stabilized and that's good but there's still this big life support system and it's coming from the federal government," Kavet explained.

That means unemployment in Vermont is expected to get even worse-- perhaps rising to 8 percent next year. Consumer confidence is still low, so companies are unlikely to hire new workers. And the decline in income tax revenues is going to be tough on state budgets.

"We don't see a gangbusters recovery here," Carr said. "The recovery is going to be surprisingly slow and narrow compared to how far we've gone and how long we've been down."

"There's still going to be a lot of down side in this, but I guess step one is to stop falling," said Sen. Susan Bartlett, D-Lamoille County.

"The news is the best we've heard in a long time," said Rep. Martha Heath, D-Westford. "We've had eight straight forecasts where revenues have declined significantly, so to not face another exercise in budget cutting at this point in the year is welcome. That said, we can't lose sight of the fact that we face a significant shortfall in the revenues in the budget we'll be developing. It's going to take a lot of hard work and I would guess quite a bit of pain to make those numbers come together."

Revenue forecasts for the next fiscal year have been increased so lawmakers won't have to cut the budget even more. But there's still a big gap.

"It sounds like we're not in free fall anymore, we hope we've bottomed out," said Gov. Jim Douglas, R-Vermont. "We shouldn't minimize the challenge ahead though. We're facing a shortfall of over $200 million in our general fund for the next two fiscal years combined. Our revenues are lower than they were four years ago. Vermonters' personal income, which yields the single largest source of revenue for the general fund, continues to fall. So we've got a tough row to hoe."

One positive sign in the economy is the state's unemployment rate has been ticking down-- now at 6.7 percent. But the economists say that may be because of a reduction in the labor force; people got discouraged and stopped looking for a job or retired early. So the unemployment rate is probably more like 12.5 percent.

It's hard to say how we will know when our economy is back to normal. But economists look at indicators such as the unemployment rate and housing starts. They say we have fallen so far in some of our indicators we could improve 25, 30, 40 percent and still not be where we'd consider a normal level of economic activity.

Kate Duffy - WCAX News