Economic recovery, especially job creation, will be slow, but the situation is improving, an economist told the Paulding Chamber of Commerce Thursday.

Dr. Roger Tutterow, professor of economics at Mercer University, said the recession ended last July. “Technically, we’re probably out of the recession,” he said, adding that it “doesn’t feel like we’re in recovery until we start adding jobs. The labor market is still facing challenges.”

Jobs were being lost at the rate of 600,000 per month, and that has fallen to the loss of about 160,000 non-foreign payroll jobs in November, he said.

Tutterow said the 2.8 percent increase in gross domestic product in the third quarter could be partly attributed to rebuilding of inventories for the first time in six quarters, when more was being sold than produced. GDP measures production, not sales, and inventory replenishment probably accounted for 1 percent of the 2.8 percent rise, he said.

People advanced vehicle purchases during “cash for clunkers,” accounting for 0.8 percent or 0.9 percent of the GDP rise, he said. After car sales earlier than otherwise would have occurred and rebuilding inventories, the economy grew about 1 percent in the third quarter, said Tutterow. “We’re growing very slowly; the recovery remains fragile.”

He said the three drivers of the recession were energy prices, residential real estate and “the worst credit crunch in my lifetime.”

Experts knew energy prices had been too low, but $144 per barrel was an excessive price, despite growing international competition for oil and other commodities, said Tutterow. World oil demand grew about 15 percent from 2002 to 2008, he said, and the weakening of the dollar raised import prices.

“Financial speculators added volatility,” Tutterow said, and then trends reversed to about $40 per barrel. “Seventy dollars a barrel is probably close to what it should be long-term,” he said.

“One of the fastest-growing counties in the nation,” Paulding was hit especially hard by the slump in the housing market. “You know how important residential real estate is,” he said to chamber members at the Georgia Power Luncheon. “We’ve gone through a 50-year flood in residential real estate” but “the worst is behind us.”

New home sales peaked in late 2005, preceding a correction of 35 percent to 40 percent in new homes sales.

Metropolitan Atlanta’s residential real estate market was down “about 93 percent from peak to trough,” said Tutterow. “It’s hard to overstate how the correction hit the Atlanta economy.”

Disproportionate exposure to durable goods manufacturing and construction industries jeopardized the economy, and the unemployment rate went from 3 percent to 4 percent in 2004-2005 to 7 percent last year. “And we’ll probably pass 11 percent next month, because of exposure to residential real estate.

“We’re seeing slight upticks in absorption of residential real estate,” he said, recommending ignoring numbers from December and January that will be skewed through extension of first-time homebuyer grants.

Housing “inventory will come down, despite increasing foreclosures,” he said, predicting the housing market will begin to “feel normal” in 2011-2012. “The new normal will be about one-third less than 2004-2005,” he added.

Home prices dropped 25 percent to 30 percent nationwide, and even more in the markets of coastal Florida, along Interstate 92 from Virginia to Maine and on the West Coast from Napa Valley to Tucson, where “home prices went up too fast.” Metro Atlanta home prices fell about half of the national average, Tutterow said. “Atlanta and Paulding have not seen drops of 35-40 percent in home values.”

Tutterow said the Federal Reserve has dropped short-term rates “to zero” and predicting the Fed will start raising those rates again around the third quarter of 2010. “The bond market is moving again” and is “within 15-20 percent of where we were.”

He said Alpharetta is known as “ground zero” of bank failures in a state that has seen many banks fail.

But Tutterow said banks are not to blame for the current credit crunch. Banks have been acting with “a rational response to the real estate market and regulatory environment.” Unable to secure capital to improve their books, banks have chosen to shrink.

“The problem wasn’t mortgages,” he said, noting that most mortgages are sold and not held by community banks.

“It’s a tough time to be in state and local politics; when the economy is in recession, revenues are down.” State tax revenues were 10 percent lower in FY2009 and will be down again in 2010, Tutterow predicts. Elected officials “are having to make very hard choices.”

On the federal level, “the story no one told” is that in 2005-2007 the deficit was said to be $430 billion but was actually $170 billion, said Tutterow, adding that the Bush tax cuts end in 2010. “Fiscal policy at the federal level will dominate the economic debate,” he said.

Tutterow said the United States invested in infrastructure in the 1940s through 1960s and said he supported infrastructure projects in the federal stimulus package. “The problem with the stimulus package is the other things piled in there,” he said.

“Tax rates are going higher,” he predicted, adding that they shouldn’t rise to levels that jeopardize entrepreneurship and savings.

“It’s been tough, but we’ve been through tough times before,” he concluded. “We take shocks, contract and come back. This, too, will pass.”