Things Getting Better

http://economix.blogs.nytimes.com/2012/03/09/comparing-recessions-and-recoveries-job-changes-5/

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"If you want to be a sharp thinker, be around sharp people." (John C. Maxwell)

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With the Labor Department reporting a third straight month of net job gains above 200,000, the consensus of economists is there is some momentum on the plus side of economic growth here in the U.S.

I've attached the trend lines I watch ("Comparing Recessions and Recoveries: Job Changes") and they basically show the worst trend line since the Great Depression pulling itself back up. But, this is a trend line so dramatically worse than the others that "up" is more like "less worse."

Four years after employment peaked, barely 1/3rd of the net loss in jobs has been reversed. By the Labor Department's count, after shedding 8.8 million jobs in almost 2 years, the economy has generated about 3.45 million in the following two years.

As Laura Tyson pointed out in her January "Economix" post, job growth trend lines (developed by the Hamilton Project) at a 200,000 jobs-per-month rate would take until 2024 to make up the "gap" from what we've lost. Accelerate that same data to 321,000 jobs per month (average monthly job creation for the best year in the 90s), we're talking 2017.

There is a basic consensus that the U.S. economy has new workers joining (or available to) it at about the rate of 125,000 to 135,000 per month with high school and college graduation, etc. So, the nominal number of 200,000 plus only drops the unemployed number by a net difference per month.

Laura Tyson's perspective is that the central problem remains inadequate aggregate demand - both at home and around the world. The shortfall in demand is reflected in unutilized resources, notably unemployed and underemployed workers and idle plant and machinery.

While there are various estimates on this issue, Tyson quoted a recent Treasury study as indicating that there is a "gap" of about 7% between actual and potential output in the United States: more than $1 trillion in goods and services. And, of course, the "home value" thing gets in the way of consumption.

Temporary hiring is an early indicator of an economic comeback and this week's numbers are very good in that regard. According to one economist, this week's numbers are "unambiguously" positive and the job creation numbers are predictive of a GDP growth rate of 2.0 to 2.5%.

However; Macroeconomic Advisers, one of the most closely watched forecasting firms, reduced its estimate of economic growth in the current quarter to an annual rate of 1.8% from 2%. In the fourth quarter of 2011, the economy actually grew at 3%. Several forecasters expect job growth to slow: IHS Global Insight forecasts a slowdown to 180,000 jobs per month. Macroeconomic Advisers says that growth will slow to 140,000 jobs per month by the end of the year. These people see a drain from rising oil prices and a continued debt overhang.

We'll see.

Home Prices Declined to New Lows in 2011

http://www.nytimes.com/interactive/2011/05/31/business/economy/case-shiller-index.html?ref=business#city/DAL

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"Actions always have consequences; realistic thinking helps you to determine what those consequences could be." (John C. Maxwell)

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With all that positive talk when home prices began to recover in 2009, nothing's happened since.

The S&P Case-Shiller index of home prices (20 cities) fell to new lows in 2011 according to data published yesterday.

Case-Shiller is, and has been, the most prestigious home market tracker in the U.S. Their interactive chart in the article I've attached speaks volumes about where the peaks and valleys have been.

Only Dallas has held up relatively well. Dallas was a special case during the housing boom; prices in Dallas rose more slowly than in any other market except Detroit. As the article points out, one reason for its slow ascent and subsequent slower fall may be that, because of state laws, refinancing mortgages is harder in Texas. That meant there was less money to bid up prices in good times, and fewer homes worth less than what was owed when the bad times arrived.

Steve Brown (Dallas Morning News) points out today that about a third of the homes being sold in the U.S. are previously foreclosed or otherwise distressed. The average discount for these houses is 20%: "Pull the distressed stuff out of the mix, and home prices are starting to inch up."

The differences in prices by neighborhood are also dramatic: the median home sale prices in the Park Cities rose 25% in January from a year ago along with a 12% rise in North Dallas and 10% in Frisco. But for all of that, median sale prices fell 42% in The Colony, 14% in DeSoto and 12% in Garland.

So, for Dallas and its suburbs, we have the best case of a mixed case of a housing market that continues to be effected by foreclosures and houses worth less than there mortgage value.

From CoreLogic:
States with the Highest and Lowest Percentage of Homes Worth Less Than their Mortgage Value

HIGHEST
Nevada: 61%
Arizona: 48%
Florida: 44%
Michigan: 35%

LOWEST
New York: 6.4%
Alaska: 6.9%
Pennsylvania: 8.4%
Montana: 9.0%

U.S. 22.8%
Texas 10.2%
Dallas 12.3%

So, another case in point for those who don't see the overall economy coming back until somewhere between 2014 and 2019. But, what about those outstanding reports coming out this week on auto sales? Some projections for auto sales are at 15 million units (a huge jump!) sold for 2012 based on current sales rates. But, how much of that is pent up demand? The average age of a vehicle on the road today is 10.8 years which is the highest on record.

We'll see.