Archives for May 2010

Even though the economy remains weak and the housing market, in particular, is still years from recovery, some news suggests that stronger growth can be expected as the year progresses.

Technically, the economy already grew sharply in the fourth quarter of 2009, and industrial production rebounded 5 percent since hitting bottom last June, but such technical measures are meaningless unless accompanied by job growth and consumer spending.

The job situation is mixed. Overall, there are 3 percent fewer jobs in the economy than there were last year at this time. But new job losses slowed to just a trickle in the last few months, and there was improvement in such critical areas as retail trade and business help. Manufacturing jobs are down 8 percent in the last year, despite the improvement in industrial production. In government, an increase in jobs at the federal level was more then offset by reductions at the state and local levels. In health care, the only reliable job-creating sector during this recession, growth has slowed to a crawl.

The most encouraging news is that consumer credit continues to fall. The economy cannot recover until consumers have reduced their level of short-term debt, that is, credit card and automobile debt. The recession happened because consumers maxed out their credit and had to stop spending, and recovery won’t happen until credit has been reduced to a level where spending can resume. So far, the adjustment has been about 8 percent.

Although the rest of the economy will recover steadily over the next year, the housing market will lag behind because of the large remaining inventory of excess homes. The current level of construction is about half a million new homes per year, down sharply from the 2 million level that prevailed for years. But even at this reduced level, the absorption of the past excess will take several more years.