Jobs and Housing: Better News
The stuttering sound you hear is the economy as it attempts, yet again, to gain momentum. Last fall we all were excited about those ‘green shoots’ popping up all over the place. After the horrendous dip of late 2008 and early 2009 practically anything constituted an advance. Now, a full six months later, our standards should be higher: we need to see solid evidence of a recovery. Not just in bits and pieces, but consistently in every aspect of the economy.
Do we see such widespread and solid growth?
No.
And that continues to be a huge source of frustration.
Today’s reports on claims for unemployment assistance and housing sales fall firmly into the ‘coulda shoulda’ category.
Both are relatively decent, but they are nowhere good enough for us to call the recovery either solid or even sustainable.
Let’s start with unemployment.
First time claims for unemployment assistance dropped last week, from 480,000 to 456,000. That’s a good improvement, and brings the level of new claims to about 27% below year ago levels. So, on the surface the news looks encouraging. But claims still are lingering in that mid 400,000 range where they have been stuck for months. Were the economy entering a surge in job creation new claims should have fallen well below that level some time ago. Instead here we are at about the same point we reached in January. In other words there has been no substantial progress.
It is annoying to find the biggest story in the data being a technical one rather than a substantive one. We can be pleased with ourselves in that we dismissed the uptick in new claims over the last three weeks as being the result of poor data gathering caused by the odd timing of Easter. It appears that Eater’s early arrival this year did, indeed, create a glitch in the data.
To which we should all shrug.
The bigger question remains: when are we going to see a strong improvement in job creation?
To which there is still no good answer. Unemployment, I fear, will linger on all year as the primary problem we all face. The flattening out of new claims suggests that things are moving sideways rather than forwards. My view is that businesses have been able to meet the modest increase in demand by using overtime rather than new hiring. As long as demand stays on its current very sluggish, but improving, trend, I see no reason for business to create jobs in abundance. Fears of a renewed downturn still linger, and profits can be best protected by undershooting rather than over shooting in production. Besides, there is still enormous spare capacity that needs to be absorbed before we hit any form of supply constraint. This too, tells me we have a long way to go before we see plentiful new jobs.
As for housing: sales of existing homes rose by 6.8% in March, and are up 16.1% since this time last year. Obviously the worst is over for real estate. Much of the recent gain comes from the government tax credit for first time buyers, so it is difficult to decide just how strong underlying demand is. This means we should continue to treat the housing data with a certain amount of caution. Until we see incomes and employment growing I think it is very hard to imagine a scenario in which housing recovers fully. Until then the trend will be one of steady but locally patchy recovery. Some states, those hit hardest by the bubble will experience volatility, while others should get back on track more easily.
The tax credit’s effect on prices is an example of the confusion in the data. House prices are no longer falling over the country as a whole – in fact they rose 0.4% in the year ended in March. The problem is that sales, and therefore the prices used in this calculation, are concentrated in houses where the tax credit had most effect – at the low end of the market. Since homes in other price ranges are still not selling as well, we have no idea what the price dynamics are across the entire market.
So where are we?
Stuck in a seemingly never ending mediocre slow growth mode. We get the first quarter GDP numbers next week, and, by all accounts, they will look good – around 3.0%, maybe 3.5% – but that is a deceiving level of activity given the lingering effects of the stimulus. If we take away one time and stimulus effects I expect GDP to be in the 2.0% range. For an economy in its early stages of post-recession recovery that’s slow.
As the year progresses I expect more of this slow climb. All the historic evidence suggests that the recovery will be very difficult and slow moving. Any time a recession is spurred by financial system collapse – as ours was – the subsequent recovery is tenuous and prone to relapse. This is true for economies all over the world. We have no reason to think we will avoid such a fate. On the contrary, so far, we fit that trajectory perfectly.
So: slow and steady it is.
