A national economist told the 2009 IHL Economic Outlook Conference that the U.S. recession probably ended in June, that there will be bounceback in the second half of 2009 and that the expectation is for a prolonged U-shaped recovery. Dr. Nigel Gault, chief U.S. economist at IHS Global Insight, pointed out to business, education and finance leaders attending the conference that this recession is different because it will involve a slow recovery that is heavily influenced by slow job growth.
Gault attributes the bounceback in the second half of 2009 to replacement of inventories that have been allowed to go lower than normal and to the fiscal and monetary stimulus by the federal government. But after the bounceback comes a retrenchment as the economy attempts to get back to normal. The U-shape may actually more resemble a long “W.” Evidence that the recession may be bottoming out include key manufacturing indicators such as manufacturing orders, production and inventories indices, all of which dropped to their lowest levels in January and began going back up through July.
One of the best leading indicators of when a recession ends is unemployment insurance claims, which historically have tended to drop two months before the end of a recession. In Jan. 2008, unemployment claims nationally were at just under 350,000. By April 2009, that number had increased to over 650,000. Claims started dropping in June and by July had fell to around 550,000. The number will probably fall to 400,000 by the second quarter of 2010 when the federal government hires a large number of census workers.
The following are selected IHS Global Insight forecasts:
Light vehicle sales will be up 10.3 percent in 2009 and 13.8 percent in 2011;
Residential investment was down 22.9 percent in 2008, will be down 20.5 percent in 2009 and up 24.7 percent in 2011;
Housing starts were up 0.9 percent in 2008, will be up 0.5 percent in 2009 and up 1.3 percent in 2011;
Federal government spending was up 7.7 percent in 2008, will be up 4.8 percent in 2009 and down 3.8 percent in 2011; and
State and local government spending was up 0.5 percent in 2008, no change in 2009 and no change in 2011.
Housing, especially subprime mortgage loans and related consequences, was the subject of much discussion. Gault said that his firm is skeptical about whether the economy has reached the bottom because of foreclosures caused by unemployment.
Foreclosures continue to rise, with 1.5 percent of all mortgage loans entering foreclosure. Prior to 2000, less than 0.2 percent of mortgages went into foreclosure. The bright spot for housing is that conventional mortgage rates are low at less than 6percent for a 30-year loan and that housing affordability is at an all time high. Key single family housing indicators are also improving. The decline in new home sales bottomed out in January and sales have since been rising. The measure of months’ supply of homes on the market, which normally averages around five months, rose to over a year in January, and has fallen to around seven months as of July. In short, home sales are probably past the bottom, but a setback is expected when the Homebuyer Credit program expires. Whether Congress will extend that program is an unknown factor.
This housing market in Mississippi went down, but the bubble was less severe here, according to Dr. Marianne Hill, senior economist at IHL’s Center for Policy Research and Planning. The median price of existing homes in Mississippi dropped 5.1 percent from the second quarter of 2008 to the second quarter of 2009 compared to a 16 percent drop nationally during the same period. Housing starts fell 40 percent in Mississippi, compared to 46 percent in the U.S. Sales of existing homes went down 32 percent. Clay Beard, a Jackson are real estate broker who attended the conference said that homes in the $100,000 to $200,000 price range are now moving well, aided by a good stock of properties in that price range. There is a 22-month supply of homes in the $200,000-$499,000 range, while there is a 24-36 month supply of residential properties over $500,000. Beard reported that there is currently approximately 3,900 listings in the Jackson market, which number is remaining stable. He said that the number of listings needs to go down to around 3,400 before average prices will begin to increase.
Hill said that there were some positives and negatives in the Mississippi economy in 2009. Positives include a continuation of Katrina-related spending, some major economic development projects are ongoing and the $2.8-billion stimulus to the Mississippi government. Negatives are that employment is down, manufacturing has been hit hard, tax revenues have dropped and that long-term solutions to major challenges have been put on hold.
The Mississippi government budget was the subject of Department of Finance and Administration deputy executive director Freddie Phillips’ presentation. The news was not good. Revenue collections continue to fall below estimates at double-digit rates. Unemployment benefits for part-time employees was not accepted because it would expand the state’s unemployment benefits program and would create an unfunded federal mandate to continue benefits for this group after stimulus funds are no longer available. Phillips said that that among the challenges in the next two fiscal years will be to make appropriate use of “one-time” money and to craft a budget that reflects the reduction in stimulus finds. Indeed, as this conference was in progress, Gov. Haley Barbour announced that he has requested state agencies to come up with ways to make government more efficient as public as officials work on a budget for the year that begins next July 1.
Personally, this conference made part of me feel a little better, part of me feel a little worse and all of me feel better informed.
Phil Hardwick is coordinator of capacity development at the John C. Stennis Institute of Government. Contact him at email@example.com. Read his blog at www.msbusiness.com.
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