The latest employment report shows jobs are still being lost. The spin is that the pace of job loss is slowing. The numbers were better than analysts predicted, but still pretty grim. More so if you happen to be one of the jobs lost. The official numbers were 345,000 jobs lost for an unemployment rate of 9.4% in May, a 25-year high. That amounts to 6 million jobs lost during the current recession.
However, those numbers only tell you the number of people who are seeking work. It doesn’t include those who have accepted some part-time employment, employment at lesser wages, or those who have given up altogether. If those people had been accounted for the number would have exceeded 16% (article). The report also showed that wages were flat.
Who Is Going To Buy?
Real estate sales figures have been looking better of late. Sales of existing homes were up for the third consecutive month. Falling prices, historically low interest rates, investors coming back into the market, and the $8,000 tax credit for first-time buyers has fueled this rise. On the surface things appear promising. However trouble is lurking beneath those numbers.
For any recovery to be sustained in the long-term there needs to be a steady stream of buyers. Unfortunately the high number of people unemployed or underemployed diminishes the pool of potential purchasers. So the lack of jobs certainly impacts the demand side of the housing market. It also has an effect on the supply side as well. People who lose their income or see it substantially reduced can have difficulty meeting their financial obligations. They may be forced to sell their home or lose it to foreclosure. This means more supply that needs to be sold.
The Dark Side of Recovery
For the economy as a whole to recover we need to have a better job market. When more people are employed there will be more money spent and this leads to economic growth. But when the economy starts to expand will see an increase in inflation and, in turn, interest rates. Each uptick in interest rates prevents some buyers from qualifying for loans and dampens the real estate recovery. The Federal Reserve has tried to hold down interest rates but they have been losing that battle recently (article).
We have already seen what the slightest bit of positive news can bring. Oil prices have hit $70 per barrel for the first time this year. That has been caused by a falling dollar and the prospect that the economy may start to recover. How high will they go when a recovery becomes reality? Rising cost of oil and other commodities will hamper any rebound.
Make no mistake, the recovery will not be smooth sailing. Some areas have been so hard hit they it will take them a lot longer to bounce back. Job creation is an absolute key. Without more jobs there can be no sustained recovery. All we hear about is how the employment picture is improving because fewer jobs are being lost each month. But they’re still being lost.
The Great Depression, like most other periods of severe unemployment, was produced by government mismanagement rather than by any inherent instability of the private economy. – Milton Friedman (economist)