Jensen: Recovery will begin by early 2010

Veteran journalist Mike Jensen, who has covered economic crises dating back to the oil shocks of the 1970s, offered a dose of optimism in a speech to MMA Annual Meeting attendees on Jan. 24.

“I think the efforts [by the federal government] to shore up the economy will be successful, and by the end of 2009 or the first quarter of 2010, the recovery will be under way,” said Jensen, speaking during the meeting’s closing session. “That doesn’t mean that we’ll be in a robust economy, but it does mean that the stage will be set for modest growth in 2010 and 2011.”

Jensen stressed that conditions will get worse before they get better, during what is already the longest recession in more than half a century. Unemployment, he said, is likely to peak as high as 10 percent about a year from now.

But the credit crunch that helped push the economy into recession is easing, according to Jensen, thanks to the $1 trillion that has been spent, loaned or promised by the Federal Reserve or the U.S. Treasury.

And Jensen predicts that the Obama administration’s $825 billion stimulus package, expected to receive congressional approval this month, will achieve its desired effect.

The administration’s proposal, Jensen noted, includes $25 billion for so-called “shovel-ready” projects in cities and towns, and $25 billion to help compensate for the loss of local property tax revenue, as well as a program to backstop state and municipal debt markets.

“What is certain is that this package will involve a new and much more complicated relationship between the state of Massachusetts and its cities and towns,” Jensen, a Gloucester native, said. “The Obama administration had made clear that it prefers to deal with the states, and [expects] them to serve as the distribution points for municipalities.

“This is going to be a very big challenge for all of you in the months ahead, to ensure that this distribution system works efficiently and fairly and to your advantage.”

Beyond stimulating the economy, Jensen said, the new administration is also likely to pave the way for much-needed regulatory reform.

Jensen also predicted that the stock market, after suffering devastating losses during the last four months of 2008, will be up by 8 to 10 percent a year from now, and perhaps by as much as 30 percent if the recession ends up being milder than expected.

Wall Street, Jensen said, has already “priced in” the cost of the recession, meaning that the steep declines in recent months reflect not only bad news but the expectation of further bad news in 2009.

Jensen, a former New York Times reporter and chief financial correspondent for NBC News, said his optimism is based in part on his understanding of earlier crises, including the sharp increases in oil prices in the 1970s and Japan’s aggressive buying of U.S. real estate in the 1980s.

“The U.S. economy survived all that, and it prospered,” Jensen said. “Just as it will survive the current crisis.”