America showing economic growth…will it last?
April 8th, 2009
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America is showing some slight growth, but, unemployment is at the highest level in decades. Housing prices are continuing on their downward spiral. Even rental apartments are sitting empty. But yet, Americans feel optimistic and think the country is headed in the right direction:
Housing: The mantra behind every successful real-estate sale has always been “location, location, location.” But in the current recession, that “location” has turned out to be the reason home prices are circling the drain. However, there are tentative signs that the hardest-hit spots may be turning around.
Florida, California and the Las Vegas area are well-known as the ground zeroes of the housing bust. But BusinessWeek is reporting that home sales in some of these areas are actually surging as first-time buyers are taking the plunge, thanks to plunging home prices and low interest rates. Speculators looking to invest are also snapping up foreclosed properties.
Employment: Yes, unemployment has hit its highest level in more than two decades, but more and more employers are looking to the long-term and doing everything they can to avoid layoffs. In order to cut costs, companies are freezing salaries, cutting back hours or temporarily halting 401(k) matching. But some employers are recognizing that laying people off will actually cost them more down the road when they have to replace those workers. From AP:
“If you overshoot on the downside and lay off workers, it puts the company at a disadvantage when the economy comes back to life,” said Sean Snaith, economics professor at the University of Central Florida.
But if you do get laid off and you just bought a home, you might actually be in (a little) luck. Some builders are now offering “layoff insurance” to new home buyers. AP reports that Lennar Corp., a major U.S. builder, will cover the mortgage payments for up to six months if a buyer loses his or her job within two years of purchasing their home.
The perks: Now is definitely a good time to be a consumer. As retailers and businesses are forced to tighten their belts, many are doing everything they can to get people to buy buy buy. Can’t afford happy hour anymore? One enterprising D.C. clothing store is luring customers with free beer, scotch or soft drinks while they shop. Even colleges are getting in on the game: Some private colleges are now slashing their tuition to compete with much-cheaper public universities.
Southwest Airlines, known for its “cattle call” seating and cheap flights, announced it will now be flying in and out of New York’s LaGuardia Airport. JetBlue’s “Promise Program” will refund airline tickets if you lose your job after booking a flight. Mainstreet.com reports that many businesses — gyms, cable companies, even automakers — are offering refunds or reduced fees for the recently unemployed.
While stock market investors have embraced tentative signs of improvement in the mortgage market and elsewhere, even a sharp pickup in demand for products and services will take considerable time to play out.
The mathematics are daunting. The shortfall is running at more than $1 trillion in annual sales and other transactions. Only once since the Great Depression has there been such a severe loss of output — in the 1981-82 recession — and after that downturn, it was seven years before the economy regained the lost production.
Recovery from the current recession could be similarly sluggish. New occupants have to be found for empty stores. Factory owners who are hesitant to ramp up production will wait until they are sure of demand. Hiring the right people for an operation will take time. And imports, entering the country in ever greater quantities, will slow any expansion by siphoning sales from domestic producers.
Then there is the growth rate itself. In the six years of recovery from the 2001 recession to the current one, the economy grew at an average annual rate of only 2.5 percent, adjusted for inflation. If that growth rate were to resume, just $350 billion a year would be added back, requiring three years to restore the $1 trillion in lost capacity. But getting the economy to grow at all after so much output has been lost, and so many jobs, is no easy task.
It shows up everywhere. Lawyers are booking fewer hours. Retail space goes begging. Tourism is down. So is cellphone use, airline bookings, freight traffic and household borrowing, which is less than half what it was on the eve of the recession, the Federal Reserve reports.
With orders dwindling, manufacturers are using less than 68 percent of the nation’s factory capacity, the lowest level since records were first kept in 1948. And while entrepreneurs are as inventive as ever, they may not be able to get venture capitalists to bankroll their creations.
President Obama’s solution was the recently enacted stimulus package that spreads $787 billion over two years. So even if every dollar of spending restored a dollar of output, President Obama would be nearing the end of his first term before output approached the level achieved just before the start of the recession in December 2007 according to Robert J. Gordon. Mr. Gordon, an economist at Northwestern University, specializes in tracking the gap between actual output and potential output, a k a full capacity.
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The Wall Street Journal came out with a report: 
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