The Recession – How Bad Is It

About three weeks ago, I posted a bit on the status of the economy.  I wanna go back to that and review again.

I have a friend who, like  me, is a political news junkie.  I think that we use each other as our own personal foils.  Anyway, the topic of economic indicators came up, and this list came up:

  1. Unemployment
  2. Housing Starts
  3. Consumer Price Index
  4. Inflation
  5. Industrial Production
  6. Bankruptcies
  7. GDP
  8. Broadband Internet Penetration – I don’t agree with this one as a historical reference.
  9. Retail Sales
  10. Stock Market
  11. Money Supply

Let’s review some.

From the top.  Let’s take a look.

Unemployment

Right now, with the January numbers in, we are looking at a 7.6% unemployment rate.  To be sure, that is a historical high; a RECENT historical high.  In fact, you would have to go all the way back to September of 1992 to find a rate higher than where we are now.  And that’s a long way back, really is.  But–it’s no where near, not even close, to as bad as it’s ever been, or even as bad as it’s been since the Great Depression.  Now, the thing about that September 1992 value is that it was in the middle of a run of 21 straight months of 7.0% or higher; 21 MONTHS!  For referance, we are in the middle of, ummm, 2.  Only two!

Way Back MachineIf you dial the Way Back Machine to the year 1980, specifically May of 1980, you will be looking 68 straight months of unemployment higher than 7.0%.  Imagine!  Imagine having to go through the last two months for most of 6 years!  In fact, there were 78 months above 7.0% missing only one which came in at 6.7%  And to make it even worse, at the height of it, the rate stood at 10.8%.  Almost 11%.

Is 7.8 high?  Recent history suggests that it is.  Is it the worst since the Great Depression?  Hardly.  In fact, so far, it’s not even as bad as it was in 1992.  And the run in 1992 really had lasted from 1990 through 1994.  Now, clearly we are not sure where, or how high, we are going with these numbers.  But that’s not the use of this statistic.  These numbers represent what is going on in the nation today.  [Or last month as it were.]

Housing Starts

Without even looking, I think that this one is going to be bad.  In fact, this could be as bad as we have seen it.  And there is a reason for that; the whole reason we are in the place we are in is due to the burst of the housing bubble.  So, while I think that it is worth taking a look at the housing market [if only to act as a guide when we begin to turn], I hesitate to use this as any significant historical model.

And now that I have taken a look, I was right.  This indicator isn’t in good shape.  With data that I have going back to 1969, we are at the lowest level on record.  We reported only 550,000 new homes in December, 2008.  For an annual perspective, from Dec 2007 to Dec 2008, we saw a 45% decline.  This is the highest such decline on record.  To be sure, there have been other periods where we saw declines in the high 30’s, but this level is unprecedented.

Now, as I mentioned above, it is my feeling that it is the housing market that has us in this dilemma to begin with.  That is, there was a housing bubble and we are now contracting that bubble.  I am not surprised to see that we are reducing our output of new homes at just the same time that we are trying to move through our excess supply.  In fact, given our past spending on homes, I would be concerned if housing starts were NOT contracting.  With all of that said, however, we will not truely be able to say that we have come through the other side until this metric turns.

NOTE:

Foreclosure rates, on the rise for some time, have dropped sharply in January, with California rates at their lowest in nearly 14 months.  Further, pre-floreclosure filings also dropped, indicating that the falling rate may be sustainable.  Lastly, one of the most interesting aspect of a liberal media bias is that while rising oil prices are reported as horrible news for consumers, the price of housing is reported exactly opposite.  Why is it bad news when the affordability of housing is trending positive.  Right now, the affordability of housing is about 35-40% below the histroic rate.  All of this points to an ending of the housing correction.

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