AN INDEX of THREE FACTORS
The economyÕs expansion last quarter, for the first time in more than a year, has prompted much speculation that the recession is over. This turning point, however, simply marks an end to the decline in activity. The unemployment rate is at the highest level since the early 1980s and full employment remains a long way off. Early this year a team of scholars at the Brookings Institution began tracking data to assess where the nation stands regarding the ConstitutionÕs mandates that the government Òprovide for the common defense, promote the general welfare, and secure the blessings of liberty.Ó In this second ÒHow WeÕre DoingÓ index, a version of which ran last Sunday in The Washington PostÕs Opinion section, we examine the forces that stand in the way of a strong rebound.
About 8 million jobs have been lost to this recession — the largest decline in percent terms since the Great Depression. Although the pace of job loss has recently moderated, the weak business outlook and still-tight financial conditions point to continued slack in labor demand. A weak labor market augurs weak income growth, which means we are unlikely to see sustained robust gains in consumer spending anytime soon.
Strong growth in consumer spending is possible if households are willing to spend more and save less of the income they have. But with home prices and stock prices both down about 30Êpercent from pre-recession peaks, personal saving has risen as people attempt to rebuild household assets. Greater saving will eventually put households in a more sustainable position, but will also slow the pace of recovery.
Housing prices have turned up in recent months, but it is unlikely that a rebound in home construction will lead the recovery. The inventory of unsold homes has fallen with the collapse in construction, but remains high by historical standards. The millions of homes in the foreclosure process raise the risk that distressed properties will flood the market in coming quarters.
Regional diversity reflects the different forces at play with regard to a broad recovery. Although this recession represented a massive blow to the national economy, the Washington, D.C., area was only mildly hit. By contrast, Cleveland began to suffer well before the national economy. Employment there is down almost 6Êpercent from a year ago, but the metro area has shed nearly 40Êpercent of its manufacturing jobs since 2000.
Out West, the recession came a bit later to Las Vegas, but its recent job losses have been even more severe than those in Cleveland. That regionÕs overreliance on home building and rising home prices during the housing bubble ultimately battered its economy amid the subprime lending fallout and ensuing credit crisis.
A plunge in consumer spending further damaged the Las Vegas areaÕs tourism and hospitality industries, which are critical to the local economy. National home prices are showing signs of recovery, but home prices in this area continue to fall. Las Vegas and similarly structured housing and economic markets in inland California and throughout Florida will have to rethink their growth paths.
Beyond the economy, the surge of public satisfaction with the president, with Congress and with Òthe way things areÓ recorded in the first half of the year has retreated. These indicators remain twice as high as a year ago, at the height of the crisis, but the noticeable decline in the presidentÕs approval among independents, and the growing gap between how Republicans and Democrats view the presidency, are signs to watch.
The conflicts in Iraq and Afghanistan, with climbing fatalities, contribute to national unease. Though troop levels have begun to decline in Iraq, they have nearly doubled in Afghanistan. As the country looks to the final quarter of the presidentÕs first year in office, Americans seem to be asking not only Òhow are we doingÓ but also Òwhere are we going?Ó
The writers Alan Berube, Karen Dynan and Ted Gayer are, respectively, senior fellow and research director of metropolitan policy, senior fellow and vice president
of economic studies, and senior fellow and co-director of economic studies at the Brookings Institution. For a complete analysis of this data, a further breakdown of regional home and employment figures,
and interviews with experts, go to
brookings.edu/index.
THE QUARTERS
2008
2008
2009
2009
2009
Third
Fourth First
Second Third
GENERAL WELFARE
Real GDP growth (annualized)
-2.7%
-5.4%
-6.4%
-0.7%
3.5%
National unemployment rate
6.0%
6.9%
8.1% 9.2%
9.6%
Change in payroll employment in the Las Vegas metro area from one year prior É
-1.5%
-3.9%
-5.2%
-6.5%
-6.2%
É in the Cleveland metro area from one year prior É
-1.1%
-3.3%
-3.8%
-5.7%
-5.8%
É in the New York metro area from one year prior É
0.3%
-1.7%
-2.5%
-2.6%
-2.5%
É in the Washington, D.C., metro area from one year prior
0.6%
-0.5%
-0.7%
-1.3%
-1.2%
Consumer sentiment index
64.8
57.7 58.3
68.2
68.4
Real consumer spending growth (annualized)
-3.5%
-3.1%
0.6%
-0.9%
3.4%
Personal saving rate
2.2%
3.8%
3.7%
4.9%
3.3%
Inflation rate (CPI-U, annualized)
6.2%
-8.3%
-2.4%
1.3% 3.6%
Interest rate on 30-year fixed mortgage
6.32%
5.86%
5.06%
5.03%
5.16%
Foreclosure start rate — all loans
1.1%
1.1%
1.4%
1.4%
N/A
Foreclosure start rate — prime loans
0.6%
0.7%
0.9%
1.0%
N/A
Foreclosure start rate — subprime loans 4.2%
4.0%
4.7%
4.1%
N/A
MonthsÕ supply of new single-family homes (ratio of homes for sale to homes sold) 10.7
11.2
11.6
9.4
7.6
Change in home prices nationwide from last quarter É -3.8% -6.4%
-6.8%
1.4%
N/A
É in the Las Vegas metro area from last quarter É
-8.8%
-9.2%
-10.5% -8.8%
-2.5%
É in the Cleveland metro area from last quarter É
-0.6%
-2.6%
-6.2%
6.8%
0.0%
É in the New York metro area from last quarter É
-1.8%
-4.2%
-4.9%
-1.1%
1.2%
É in the Washington, D.C., metro area from last quarter -4.1%
-6.1%
-4.8%
2.2%
2.8%
Federal Reserve balance sheet as a percentage of GDP (total factors supplying
8.58%
15.98% 14.86% 14.60% 15.26%
reserve funds as of end of quarter divided by annualized, seasonally adjusted GDP)
Yield on investment-grade corporate bonds
7.21%
8.84%
8.21%
7.98%
6.66%
(MoodyÕs yield on seasoned corporate bonds — all industries, BAA)
Stock market — Dow Jones industrial average at end of quarter
10,851 8,776
7,609
8,447
9,712
Total number of new trade barrier initiations worldwide (product based) 26
33
33 34
44
Number of new trade barrier initiations by the U.S. (product based)
2
1
1
6
6
COMMON DEFENSE
U.S. troop fatalities (both wars) 130
65
85
102
163
U.S. troops in Iraq (thousands)
148,000 145,000 137,000 130,000 124,000
U.S. troops in Afghanistan (thousands)
34,000 36,000 41,000 56,000 65,000
Non-U.S. troops in Afghanistan (thousands)
30,000 31,000 32,000 33,000 36,000
Fatalities from terrorism, globally
3,792
4,015
3,544
3,914
N/A
Percentage of Americans who believe the war in Afghanistan has been worth fighting
51%
55% 56% 51%
47%
(Washington Post-ABC News polling)
BLESSINGS OF LIBERTY
Approval rating of the president
31%
28%
63% 62% 52%
Approval rating of Congress
16%
19%
30%
35%
21%
ÒSatisfied with the way things areÓ
18%
11%
20%
32%
26%
Approval rating of the president by independent voters
26%
23%
61%
60%
50%
Gap between Republican and Democratic presidential approval ratings
64%
57%
60%
64%
66%
Copyright 2009  Las Vegas Sun
