News

The Recession Will End… Uh, Sure It Will

We were really disheartened by some of the data in today’s Recession Briefing:

* 23% of homeowners’ properties are underwater
* 13% of parents of adults say one or more of their grown children have moved back in
* 34.5% of black males between the ages of 16 and 24 are unemployed: these are Great Depression proportions, folks
* 17.5% of people are unemployed, according to U-6 data, which includes discouraged and part-time workers who are looking
* The Small Business Administration has run out of money to back loans issued to small businesses.
* 33,000 people were laid off from from a single employer, the postal service in Russia

Things aren’t great, and maybe even scary. In an interview with CNBC.com, one economist suggested that, “Unless you create another bubble in which the economy can create jobs, then you’re not going to have growth. That’s the sad truth.” As such, Michael Pento, chief economist at Delta Global Advisors, added that he expects more of an L-shaped recovery—prolonged pain with no sudden rebound.

There are some bright spots here and there. For example, just because layoffs do continue (see mind-blowing Russia number above), there are still jobs that open up, and occasionally are created—check out the job boards for proof. We’ve seen examples of companies rehiring. And even if Wall Street has been part of the problem, it *is* helpful that that sector has regained its strength: if commercial paper and credit can’t flow through the markets, we’re all screwed, as we saw last fall.

So let’s take a brief look, by no means comprehensive, at where things stand in several key areas – homes, jobs, credit and federal funding. If you’ve got data or personal experiences to add to the picture, let us know.

Real Estate
Perhaps inspired by declarations of the end of the recession by folks like Ben Bernanke and Commerce Secretary Gary Locke, first-time homeowners flooded the market in September, sending the number of home resales up 10.1 percent. The uptick may also have reflected a desire to qualify for an $8,000 first-time homeowner tax credit that was extended to April 2010. Does it matter that those sales were cheaper than a year ago, by 7.1 percent? We think that’s excellent news for the buyers, but from a big-picture view, more money funneling through the economy is what strengthens it, not less. Good news out today, however: The Case-Shiller Index reports that prices are trending upward.

We’re encouraged that the number of resales is up, but the weaker areas can’t be ignored: some 14.41 people behind on their mortgage payments; 23% of homes underwater; foreclosures that seem like they’ll never abate. The loan situation is tricky, too: Though banks are getting more disciplined on who they issue loans to, with an increase in the number of  prime fixed-rate loans, this means those in need of government assistance won’t qualify for its loan modification program. It’s a pickle, to say the least.

Jobs
The notion of a “jobless recovery” is comical, and every new person who finds themselves out of work knows it. The main unemployment tally stands at 10.2 percent of the population, a frightening figure made only more sickening when you consider discouraged workers and part-timers who are still looking because half an income isn’t enough to pay the bills. The government recently passed some serious extensions on unemployment benefits, but $405 a week hardly cuts it in high cost of living areas like New York, and the proportion is the same everywhere: not enough to cover basic necessities such as food and shelter.

We’re also continually tracking the number of layoffs on a daily basis with our Screwed feature and occasionally we’ve held internal discussions about changing the feature, when it becomes a chore to suss out layoffs that took place in the preceding 24 hours. And then, just as we think we can evolve the feature, something like Russia’s 33,000-person layoff comes up. Not exactly pointing the way out.

Credit & Debt
Now that we’re pretty much in the full swing of the holidays, and Black Friday a tantalizing few days away, credit card spending is more relevant than ever. Even this time last year, things weren’t quite as bad—credit card companies had yet to start to put the squeeze on all of us, FICO-strong or not. Congress has heard our cries but proposals to prevent credit card companies from changing your limit and interest rate willy-nilly won’t pass in time for the holidays.

We don’t expect much relief on this front for awhile. Credit card companies themselves are under pressure after taking a pummeling in excessive defaults, so even people in good standing are feeling the pain, and will likely fight tooth and nail for the status quo. This won’t help pump spending, which is what this economy needs. When you hit the stores this Friday expect economic desperation to permeate the air.

Federal Funding
This is a touchy one. As I mentioned last week, I side with folks like the admittedly oft-shrill Paul Krugman who believe the government needs to invest even more billions into the economy, but there are a lot of people out there who feel we’ve already overspent. They see how we’ll be paying it back for years as a bad thing. I think Enron educated us all on how fluid accounting is and we really shouldn’t worry about payback now, let’s just bolster this baby.

But I think we’ll get some proof soon enough of whether things are working as is or not. For example, the shortage of SBA funds mentioned above—if the stimulus package was sufficient, small businesses who complain will just be squeaky wheels while business strengthens in spite of them. Meanwhile, we just need to get the rest of the $787 billion into the places it’s meant to go.

The Obama administration is currently floating trial balloons on the idea of government-created jobs programs, a la the Depression’s WPA. That has yet to play out.

So what does all this mean? We think it makes sense to draw out the dire news and wave it in front of those who might be able to prevent a disaster before it strikes. But please, no more breathless calls to the end of the recession before we can all be really sure of it.

Tags: credit, economy, housing, jobs, obama, real estate, recession, recovery, Small Business, The Recession Will End...