Frederica Freyberg:
The Department of Revenue has just released new numbers on the state economy and we learn about the good news and the bad news of that report now with help from John Koskinen, the department's chief economist. Thanks a lot for being here.

John Koskinen:
Pleased to be here.

Frederica Freyberg:
So the good news is that we can expect the state economy to start adding jobs later this year according to your report.

John Koskinen:
Right.

Frederica Freyberg:
The bad news is that we won't be back to full strength to where we were before until the end of 2012.

John Koskinen:
That's correct. We're expecting really the hiring to start taking place even next quarter. We have already some sectors of the economy adding jobs, but as the recovery starts gaining strength, that will become more pervasive.

Frederica Freyberg:
We were just talking about how there seems to be an expectation that maybe this rebound would happen faster than this. 

John Koskinen:
I actually think the pace of the rebound is going to be adequate. The problem was that the fall-off was so sharp and so fast that you can have a rebound, and it's not going to feel like it for a while, but it's clearly underway.

Frederica Freyberg:
Well, that is good news. How does Wisconsin's loss of more than 153,000 jobs in this recession compare historically?

John Koskinen:
If you were to consider this recession as a single event, it would be the worst, but if we were to go back to the early '80s, there were two recessions, one in 1980 and the other one followed in '81, '82. Wisconsin really didn't recover much from the 1980 episode, so that was sort of like a continuing recession. Those job losses for the two events were worse than this one.

Frederica Freyberg:
But taking this as a single event, your report says something about not this bad since World War II.

John Koskinen:
That's correct.

Frederica Freyberg:
Yeah. So that's bad. What sector did most of the job loss occur in?

John Koskinen:
Well, manufacturing, actually surprising, is number two. The biggest job losses were in construction. And that's true nationwide.

Frederica Freyberg:
Those manufacturing jobs, is the expectation that they will ever return? Because I did read also in the report that when the recovery kind of starts happening, the service sector will be the sector to add jobs first.

John Koskinen:
The service, well, certain areas of the service sector already are adding employment. In total, the service sector will have some lift early. But we would expect manufacturing jobs to start coming back by third quarter this year actually.

Frederica Freyberg:
Isn't it also true, though, that we expect to lose more manufacturing jobs before we start getting them back?

John Koskinen:
Well, welcome to the lovely world of an annual average versus an average. Last year as the economy was going down, we were losing jobs. We figure out that average. This year we're expecting to start coming up, but we're starting from a lower base, hence my reference to by third quarter we'll be adding jobs.

Frederica Freyberg:
How do you make these projections so far out?

John Koskinen:
The state of Wisconsin Department of Revenue is one of about seven states that has proprietary models. We have a national model prepared by a national forecasting service. We use those inputs and our own knowledge of Wisconsin economy to do the forecasts.

Frederica Freyberg:
And have they proved correct?

John Koskinen:
You know, I was actually going to sit there and try to figure that out, their track record. If we listen to, one side is very good. I actually think we did a reasonable job this year.

Frederica Freyberg:
What about moving into another area, Wisconsin personal income.

John Koskinen:
Right.

Frederica Freyberg:
Where is that at a historical level?

John Koskinen:
Sort of interesting cross currents there. The state of Wisconsin's personal income in 2009 probably fell. And that's nationwide, it did fall. So we're not unusual in that respect. However, we're seeing some evidence that we're starting to come out a little earlier and stronger than we would have expected. Third quarter, Wisconsin personal income was actually among the strongest in the country. We were like fifth-ranked, in part, this sort of says once you get some wage gains back and some hours back in manufacturing, even if the employment numbers aren't coming up, just getting the hours back helps a lot. The other of which is, normally over a long period, state of Wisconsin would not have been above the Great Lakes average in personal income, but we crossed that in 2008, so we are now above our neighbors of Indiana, Ohio, Michigan. We are expecting in this forecast that our rate relative to the rest of the country will increase.

Frederica Freyberg:
What is the take-away message for folks on Wisconsin's economy from here on out?

John Koskinen:
I actually think we're more competitive than a lot of people give us credit for. And I think we are well-positioned going forward. There's some evidence already that manufacturing will come back stronger. As a manufacturing-intensive state, that will only help us. The other advantage we have is we didn't have a lot of the construction overhangs lots of the rest of the country did.

Frederica Freyberg:
John Koskinen, thanks very much.

John Koskinen:
My pleasure.