Economic Commentary for August, 2009
The recession has been devastating, both long and deep. August will mark the recession's 20th month; the previous two longest recessions since World War II ended after only 16 months. By many measures, the current recession has also been the most severe of the postwar period—the largest percentage decline in real GDP and in payroll employment, and the biggest increase in the unemployment rate. The median duration of unemployment, at 15.7 weeks, far exceeds the prior peak of 12.3 weeks in early 1983. The number of persons unemployed for 15 weeks or longer, at 53.7 percent of the total unemployed, is well above the previous high of 41.1 percent during the recession of 1982-83. I think we will all be happy to see this recession go away.
A number of economic indicators point to a bottoming out of the economy. Most housing indicators—home sales, housing starts, building permits, and the pending home sales index—point to a turnaround in this important sector of the economy. Orders for durable goods have strengthened, including orders for non-defense capital goods other than aircraft, a leading indicator of business capital spending. In July, the decline of 247,000 in payroll jobs was the smallest since August, 2008; earlier estimates for May and June were revised up a bit, and the length of the workweek increased from 33.0 to 33.1 hours. Aggregate hours worked in manufacturing rose by 0.4 percent, indicating a solid increase in manufacturing production last month. The unemployment rate declined a tick last month, as the civilian labor force fell by more than 400,000. It is virtually certain, however, that the end of the rise in the unemployment rate still lies ahead.
Locally, we seem to be seeing increased activity in the housing market, especially for first-time homebuyers. This is most likely due to the $8,000 tax credit ending December 1st. The stimulus; California is set to get the greatest share of the $787 billion in stimulus package that was passed in February. This money will not really start to be spent until later this year and will continue thru 2011. Mortgage rates should be able to stay low, but we will see some pressure for increased rates in October due to the Federal Reserve stopping the Treasury purchase program. The Fed’s program for mortgage purchases will continue through the end of the year. As of July 31st they had only spent 56% of the $1.25 trillion to buy Mortgage Backed Securities.
In conclusion, all indicators seem to suggest we are finally seeing a light at the end of this recession's tunnel. If you have any questions, please feel free to contact one of our Loan Officers.
By Shaun Velayas