Experts predict recovery on track.

Byline: Sherri Buri McDonald The Register-Guard

Barring a catastrophe, there should be fewer reasons for Oregonians to sing the economic blues this year, according to The Register-Guard's five-member board of economists.

"The confidence factor has improved both for consumers and businesses as we went through 2004," said Tom Potiowsky, head of Oregon's Office of Economic Analysis.

Business capital spending on computers, software and equipment should be up this year, which bodes well for Oregon manufacturers, he added.

"We're finally getting the economy on its own track, where it sort of feeds on itself," Potiowsky said.

The board predicts nonfarm job growth of 2.1 percent for the state and 1.5 percent for Lane County in 2005.

If their predictions come true, it will be the second year of solid job gains after several years of painful losses.

A predicted slight downturn in housing starts, driven by a gradual rise in interest rates, may be the only sour note this year, the economists said.

The economists forecast a 0.8 percent decline in single-family building permits in Lane County and a 1.7 percent decline in Oregon.

Those predictions are down significantly from last year's estimated 4 percent rise in Lane County and a staggering 14 percent rise in Oregon.

"I think this is going to be a tough year for housing," said Bill Conerly, an economics consultant based in Lake Oswego. "I think we've put a lot of people into houses who had been apartment renters. I don't think there are a lot of credit-worthy people still in apartments."

The short-term economic numbers suggest a recovery is taking hold.

But just looking at job gains and housing starts is a shallow take on the whole economy, and they say nothing about some troubling underlying trends, said Ed Whitelaw, a UO professor and economics consultant.

The numbers are improving, but plenty of people are left with the question, `If the economy is in recovery, why do I feel so unrecovered?' he said.

"The notion of income insecurity and instability are weighing heavily in the nation," Whitelaw said, "and in Oregon we're getting hit disproportionately."

He attributes the problem to globalization, but not simply to the oft-cited factors of cheap imports and offshoring of jobs.

Rather, U.S. firms in intense competition with overseas firms are passing the risks of that competition onto the U.S. worker, Whitelaw said.

One example, he said, are the widespread rollbacks in employer-sponsored health benefits.

"More people are at risk of a large medical problem that could put them down over the long run," he said.

But in the short run, the economy looks to be in decent shape, the economists said.

Forecasters predict that the national gross domestic product will be up about 3.9 percent in 2005, compared with a long-term average of a bit higher than 3 percent a year, Conerly said.

"But it needs to be above average because we have not been working up to our potential and we're still digging ourselves out of the hole we got into during the recession," he said.

Oregon's economy follows the lead of the national economy.

And, Conerly said, three national economic factors are relatively more important to Oregon than other states: housing starts, business capital spending and exports.

The economists believe that national housing starts - which consume Oregon wood products - will slow, but not to worrisome levels.

Businesses are resuming their capital spending, which supports Oregon's high-tech sector and other manufacturers, such as truck and rail car builders.

Exports, too, should get a boost, the economists said. The decline in the value of the dollar makes U.S.-made products even more attractive to foreign countries.

That will benefit Oregon's high-tech manufacturers, transportation equipment makers, agriculture and the lumber and wood products industry.

The devalued dollar also could add some spark to Oregon's travel and tourism industry.

It provides an incentive for foreigners to travel in the United States and for U.S. residents to travel domestically instead of internationally, according to Potiowsky.

Probably the biggest risk to continued economic improvement this year would be a disruption in oil supply and a spike in energy prices.

Brian Rooney, a labor economist with the Oregon Employment Department, predicts that energy prices will fall a bit from the highs they reached in 2004.

"There are risks, but if I had to bet, I think it's going to keep on going, and I think it's going to be a pretty good year," said Mitchell, the US Bank economist.

"I travel around for the bank in seven states, and people are really feeling pretty good."

Lane County's economy should continue on the road to recovery, Rooney said.

The recovery that has added about 2,300 nonfarm jobs in Lane County in the past year is broad-based, Rooney said.

A lot of the factors causing the recovery still will be in place this year, Rooney said: residential and commercial construction, and federal improvements to highways and bridges.