SALEM - Oregon is in for a long, "shallow" recession but recovery should begin by the second half of 2009 and accelerate in early 2010, State Economist Tom Potiowsky said Thursday.

In his quarterly forecast to lawmakers, Potiowsky said the economic slowdown translates to a decrease of $120 million in state general fund revenue, or a drop of 1 percent from his previous forecast in June.

Potiowsky called it a relatively small decrease. And state lawmakers said tax collections are still high enough that the state won't have to make cuts in school spending or other state services in the current $15 billion two-year budget.

"We've got savings in place to protect our budget" from cuts next year, said Rep. Phil Barnhart, a Eugene Democrat who is chairman of the House Revenue Committee.

Potiowsky said Oregon's recession isn't as severe as in states hit harder by home foreclosures, declining home values and higher energy costs. And he said it's nowhere near as deep as the 2001 recession that left Oregon reeling and forced cuts in state programs.

"We're not immune from U.S. business cycle, but we are handling this one better than we did back in 2001," he said.

Still, Potiowsky said, the key risks to Oregon's economy continue to be housing, financial markets, energy and inflation. Single-family building permits for January through July of this year are down 62 percent compared to last year, he said.

The wood products industry is expected to lose jobs at a rate of 7.7 percent in 2008 and 2.1 percent in 2009. As the housing market improves into 2010, wood products employment should grow by 1.8 percent, he said.

Construction employment also is projected to fall by 7.3 percent in 2008 and 2.7 percent in 2009 before beginning a turnaround in later part of 2009, with job growth of 1.5 percent expected by 2010, he said.

Although job losses are spread across many sectors, private education, health services, wholesale trade and business services still posted "mild" job gains, he said.

Potiowsky, in his revenue forecast, said lawmakers are going to have a tougher time making ends meet in next budget period because of the extended nature of the current downturn.

His office cut the projected amount of income available for the 2009-11 budget by almost $240 million from the previous forecast, which would translate to a $16.8 billion budget when lottery proceeds are included.

Republicans had a gloomy reaction to Thursday's forecast, warning that the state's economy was stagnating and accusing Democrats of spending too much.

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