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Economic experts voice cautious optimism for 2011

Federal Reserve Board Governor Elizabeth A. Duke.

Federal Reserve Board Governor Elizabeth A. Duke.

While 2011 is barely underway, there remains cautious optimism that this year will see less unemployment, more freedom in the credit markets and greater spending by consumers in Maryland and the country as a whole.

For its annual First Friday meeting, the Maryland Bankers Association convened a panel of economists and Federal Reserve Governor Elizabeth A. Duke to present their forecasts for the coming year.

An audience of about 700 heard predictions on where the country’s unemployment rate will end up by year’s end, to what impact the Dodd-Frank financial overhaul law will have on the state’s banking industry.

One estimate for unemployment in the state is that it could dip almost a full percentage from the 7.4 percent recorded in November. Anirban Basu, CEO of the Sage Policy Group, a Baltimore-based economic and policy consulting firm, told the group he thought unemployment in the state might hit the mid-6 percent range by the end of the year. He also forecast 40,000 new jobs being created in the state in 2011.

“This will be a good year for job growth in Maryland,” Basu said.

As for the national picture, a panel of banking experts estimated that unemployment would range from where it is now — around 9.5 percent — down to the mid-8 percent range.

The U.S. Department of Labor said Friday the unemployment rate had fallen from 9.8 percent to 9.4 percent, the lowest it has been since May 2009.

One panelist, Gregory Miller, chief economist for SunTrust Bank, told the bankers group Friday he felt the downward trend would continue. He said he felt unemployment would fall below 9 percent by the end of the year, and the momentum would keep the downward trend going.

“Once unemployment starts to decline, it tends to improve more rapidly than it rose,” Miller said.

In her speech to the group, at the Baltimore Marriott Waterfront hotel, Duke said that the country’s economic recovery has gained traction but still has a lot of ground to cover.

“Real economic activity has been steadily recovering overall, but the speed and strength of the rebound have been restrained by significant financial headwinds,” she said.

Duke said the recovery in economic activity has been “uneven” and has not been enough to reduce unemployment. She said the recovery has been underway for 18 months, but the market was still short 7 million jobs that were there prior to the recession.

“Perhaps the most telling measure of the modest pace of the economic recovery is the painfully slow improvement in the labor market,” she said.

Duke did say that sustained gains in consumer spending and business investment, coupled with a loosening of credit markets, will continue to reduce unemployment.

She cautioned that another area slow on the uptick is real estate. Duke said the current commercial real estate market is “anemic.”

“Even after almost three years of declining investment in office and commercial structures, vacancy rates are still elevated and property prices remain weak,” Duke said.

And, while the coming year holds uncertainty as the Dodd-Frank reforms, a series of new rules aimed at preventing taxpayer bailouts of banking and financial institutions, get fleshed out, Duke told the group she was confident the banks would be able to handle the changes.

“I don’t think there’s anything in the legislation that is going to kill the community banking business model,” Duke said.