Glum and glummer pretty much summarizes the continuing steady flow of dismal economic reports, capped last week by unemployment data that had economists straining for words to describe just how bad the situation has become.
“Almost indescribably terrible,” is how one analyst responded to the loss of 533,000 non-farm payroll jobs in November — way above the 400,000 loss that was supposed to be the “worst case” projection. The November loss —the 11th consecutive monthly decline — pushed the unemployment rate to 6.7 percent, the highest it’s been since October of 1993, and that figure doesn’t include all the discouraged workers who would like to find a job but have concluded that it is futile to look for one.
The U.S. has lost 1.3 million jobs in the past three months alone, as the continuing aftershocks from the subprime mortgage crisis have spread throughout the economy, pummeling home sales, freezing credit markets, devastating the stock markets, and terrifying investors and consumers.
“The Great Recession"
Virtually every economic report produced in the past five months has confirmed that the nation is in the grip of a recession that some predict could be the worst we’ve seen since World War II. “The Great Recession,” is how one analyst predicts the history books will record it. For the record, the National Bureau of Economic Research, the economic town crier responsible for proclaiming the beginning and end of recessions, dates the start of this one in December of last year. That means it’s almost a year old and, with no end in sight, on track to beat the March, 1975-November, 1976 recession — currently the longest on record. The Great Depression lasted 33 months, from August, 1929 to March 1933.
With the holiday season approaching, no one needs an endless list of the depressing statistics that have filled the financial press for weeks, so we’ll just summarize a few of the most salient:
- The Federal Reserve’s monthly survey, the “Beige Book,” found economic misery in all 12 regions the agency analyzes, with retail sales down, auto sales “deteriorating,” consumers slashing spending, lenders tightening underwriting standards for businesses and consumers, and housing markets still struggling nationwide.
- The Labor Department reported that the Gross Domestic Product (GDP), a measure of economic growth, declined at an annual rate of 0.5 percent in the third quarter — the sharpest contraction since the third quarter of 2001.
- Not surprisingly, given all the other statistics, business confidence continued to decline last month. Moody’s Economy.com reported that plans for investment in equipment tumbled in November, while employment, inventory and sales projections for the next six months were weaker than ever recorded in this monthly survey.
- Consumer confidence, measured by the Conference Board, rebounded surprisingly in November after touching record lows in October, rising to 44.9 from 38.8. Although the “present situation” index fell again, to 42.2 from 43.5, the future expectations index rose to 46.7 from 35.7. But economists caution against hanging too much recovery hope on these slender statistical threads. “Despite the improvement n the expectations index, consumers remain extremely pessimistic and the possibility that economic growth will improve in the first half of 2009 remains highly unlikely,” Lynn Franco, director of the Conference Board survey, noted.
- Consumer spending, representing two-thirds of the nation’s economy, plummeted at a 3.7 percent annual rate in October, worse than the 3.1 percent contraction analysts had predicted and the largest decline in nearly 30 years. That’s not surprising, given that disposable income fell at a 9.2 percent annual rate —the largest drop for this indicator since 1947.
- The Index of Leading Economic Indicators, which predicts the economy’s direction for the next three to six months, fell again in October, it’s third decline in the last four months.
- As the “Big Three” automobile manufacturers (on their way to becoming the “Mid-Sized Three” or perhaps the “Subcompact Three”) continued to plead for government help, auto sales plunged to an annual rate of 10.1 million units in November, with all of the companies reporting year-over-year declines of 30 percent.
- Downward remains the operative term for the housing market, as well, with new and existing home sales, new construction and prices all declining in November. The closely-watched Standard & Poor’s/Case-Schiller index of home prices declined by 16.6 percent in the third quarter compared with the same period last year. The National Association of Realtors reported that between 35 percent and 40 percent of existing home sales in the third quarter were distress sales.
● Foreclosure rates continue to rise, putting more downward pressure on home values. The Mortgage Bankers Association reported the third quarter foreclosure rate at 6.99 percent, attributable not solely to re-setting subprime mortgage rates, as in the recent past, but also to shrinking wages and increasing job losses. One report estimated that 1 in every 452 homes received a foreclosure notice in October. Separately, First American CoreLogic estimates that declining home values have left 7.5 million home mortgages under water.
Glimmers of Good News
Now for the good news. Really. Every time President-elect Barack Obama has announced a nominee for his new cabinet, the stock market has rebounded, leading one news commentator to suggest that he should stagger the announcements over a longer period and, perhaps, repeat some announcements he’s already made.
Meanwhile, the outgoing Bush Administration seems finally to have found a recipe for thawing the frozen credit markets — or at least, some segments of them — with the announcement that the Federal Reserve plans to purchase $600 billion in debt from Fannie Mae and Freddie Mac. The announcement reduced mortgage interest rates almost instantly by .50 percent — to 5.5 percent — triggering a surge in refinancing applications. Reports that the Treasury Department is contemplating a plan to push 30-year fixed-mortgage rates down to 4.5 percent for home purchases have spurred hopes for a resurgence in home buying activity as well.