Wells Fargo economist, Lehigh Valley experts say recovery will continue in 2012

But Jay Bryson tells local business people that European turmoil could derail any progress.

The economic recovery will progress in 2012 assuming Europe doesn’t unravel, an expert told a local business audience Tuesday.

“Everything I tell you is on the presumption Europe doesn’t blow up,” Wells Fargo economist Jay Bryson said. “If Europe blows up, then take what I say and ditch it.”

Bryson and local experts spoke at the Greater Lehigh Valley Chamber of Commerce’s annual economic forecast. The luncheon at ArtsQuest Center in South Side Bethlehem drew a  crowd of about 550.

Assessing the nation and region, analysts agreed the economy is growing albeit not robustly. That should continue this year pending there is no global panic, Bryson said.

Bryson said events in Europe matter to local business because a collapse there would impact banks globally and raise borrowing costs worldwide, which could throw the United States back into recession.

The debt crisis in Italy is central, Bryson said. Unlike Greece, which has relatively small influence, he said Italy’s $2 trillion economy is simply too big to bail out.

“If Italy blows up, it’s another Lehman Brothers,” Bryson said. “That would affect everyone in this room.”

Bryson estimated those odds at less than 50 percent, saying he expects European central bankers to provide whatever backstop is needed to mitigate the crisis. In this area, Bryson said, business owners should redouble their risk planning.

“I’m not advising people to jump into foxholes,” he said. “That would have been appropriate in 2008. It’s not appropriate now. But do your due diligence. And when you’re done, do it again. Other than that, enjoy 2012. It should be a half-decent year.”

On the domestic front, Bryson said consumer confidence is rising as indebtedness declines. Recent reports also show an uptick in home sales.

Bryson advised not to expect too strong a surge in consumer spending because household debt is still relatively high compared with historic levels. Consumption is critical because it fuels about two thirds of economic activity.

Businesses investment, meanwhile, is steadily improving, Bryson said. Bethlehem-based economist Kamran Afshar said survey data conducted with the chamber shows that trend holding up locally.

That could bode well for the job market. About 30 percent of employers plan to hire over the next six months, while only 6 percent plan cuts, Afshar said. Most project no change.

“My prediction is the Lehigh Valley will show measurable improvement this year and we will see a significant increase in employment,” Afshar said.

Regional unemployment stands at 8.6 percent. That’s nearly a percentage point lower than one year ago but still well above the pre-recession norm of about 5 percent.

For all the progress, Nancy Dischinat, executive director of the Lehigh Valley Workforce Investment Board Inc., cautioned that many are still hurting.

Official data don’t include those who have given up searching for jobs. Because such individuals are omitted from the workforce, they do not show in jobless numbers. When one combines the unemployed, the discouraged, and the “underemployed” — or those working part time but prefer full time — Dischinat estimated that figure rises to about 16 percent.

Dischinat added there is disconnect between employment opportunities and the skills of applicants. There are about three unemployed people for every job opening, she said.

“I agree with Dr. Bryson, we have a lot of work to do,” Dischinat said.