With the US economy now in outright contraction, it's clear that steering a course through the credit crisis will set the stage for another big job after that: reviving growth.
One after another in the past decade, important economic engines have sputtered and then stalled: an Internet boom, homes and mortgages, commodities. Long-invincible US consumers are now retrenching in the face of debt burdens and a weak job market.
Where will new growth come from, and when?
The possibilities include technology, healthcare, energy, and manufactured goods – possibly all of the above. But don't hold your breath for the word "boom" to be attached to any sector. It may take a year or more for a new job engine to get started.
In fact, after one big stimulus package offered only passing relief to the economy this year, the next government effort to restore growth should target specific industries with long-term potential, not just put money into the hands of consumers, some economists say.
"That would be a huge change" from traditional recession-fighting efforts, says Robert Atkinson, president of the Information Technology and Innovation Foundation in Washington. But "this is a unique time in our history where we have a short-term crisis and a long-term crisis."
The immediate problem is a recession, but the recovery may hinge on how the economy copes with long-run problems that range from the cost of healthcare to global competition in knowledge-based industries.
"We can no longer afford a 'consumption-based' stimulus package that leaves the nation with little to show after consumers spend the money," Mr. Atkinson's group argues in a new report.
Whereas the mid-year stimulus package of 2008 focused on tax-rebate checks for millions of consumers, he proposes a range of spending plans that have both immediate and longer-term benefits.
Targets for federal spending or tax credits would include:
•Universities that build new research infrastructure.
•Consumers and businesses that buy energy-efficient equipment.
•Healthcare providers that deploy information technology to cut costs.
•Computers and Internet access for low-income families.
•Businesses investing in information technology.
Such measures would give a quick boost to the gross domestic product, but also lay the groundwork for larger goals, such as an economy less burdened by energy and healthcare costs.
Even after the milder US recession of 2001, it took time for the technology sector to hand the baton to a new engine of growth – which turned out to be home construction and mortgage finance.
This time, the economic problems run deeper. Many forecasters say additional government stimulus is needed in some form – as well as ongoing steps to repair the damaged financial sector.
Gary Shilling, an economist who owns a forecasting firm in Springfield, N.J., warns that working through a glut of homes for sale, and new help for homeowners hit by falling home values, is just the start. The recession will also hit banks with losses from credit-card debts, commercial real estate loans, and junk bonds, he predicts.
Where the financial sector for years had been an important engine of US growth, this represents a sharp reversal.
"It is going to reduce growth considerably for the long run," Mr. Shilling says.
Waiting for growth sectors
Although a recovery may start slowly and not necessarily soon, new catalysts for growth will eventually emerge, investment strategists say.
"We continue to view this period of extreme volatility as an opportunity to search for the next wave of growth stories," Richard Bernstein, Merrill Lynch's chief investment strategist, wrote in an Oct. 15 report to clients.
"The manufacturing side of the Health Care sector (biotech, life sciences, and devices) is delivering traditional growth," the report notes.
Alan Lancz, who runs his own investment management firm in Pittsburgh, also sees biotechnology as a growth engine.
Like Atkinson, he says the economy stands to benefit in tough times from companies that help Americans boost their productivity – whether it's at a hospital or an industrial firm.
"Productivity is going to be such a key," he says, and many of America's high-tech firms are global leaders that could emerge from this downturn stronger.
Energy sector as economic spur
Energy stocks have plunged along with oil prices, but that sector, too, may hold promise, Mr. Lancz says. For one thing, oil prices may head back up at some point. More broadly, under a new US president the search for energy security could spur investment that creates jobs in both traditional and alternative fuel sources.
A global economic downturn puts America's export of manufactured goods, such as industrial equipment, at risk. But exports, too, could be a source of strength in the next expansion, some economists say.
The reason: Developing nations have just hit a speed bump, not the end of their road.
As of last week, economists at Merrill Lynch predicted that emerging market nations will post 5.4 percent economic growth next year, down from a peak of 7.9 percent in 2007. They see China growing at 8.6 percent, buoyed in part by its own stimulus program including new infrastructure spending.
"We want to hook into that fast growth" overseas, not just for today but for the long term, says Timothy Taylor, managing editor of the Journal of Economic Perspectives in St. Paul, Minn. "For all its difficulties, globalization is a really big thing to embrace."
Eventually, US consumers will get back on their feet – once the credit markets and job markets start functioning normally again, predicts Rajeev Dhawan, an economist at Georgia State University in Atlanta.
But for now, with a squeeze on both domestic and global consumers, "you're not going to see a decent amount of job growth until early 2010," he says.