Looking back, I want to remember this:
The following are excerpts from an article published in the
Economist.
Heading in the wrong directionMar 8th 2008 | WASHINGTON, DC From Economist.com
IF ANY more evidence is needed that America’s economy is perilously close to recession, it was delivered this week. On Friday March 7th the Bureau of Labour Statistics announced that the economy lost 63,000 non-farm jobs in February, following a smaller decline in employment in January. Even with all the bearish talk recently, these results were unexpectedly bad; forecasters had projected a small increase, not the largest drop in five years.
On the same day the Federal Reserve announced that it would make additional loans of up to $100 billion available to prevent renewed strains in money markets from hurting the economy. The question for many is now turning from whether a recession is on the way to how long and how deep it will be.
The worst jobs news is still in the house-building sector, which is reeling from the effects of plummeting home prices. Since an industry high point in 2006 some 209,000 trade jobs (such as plumbers and electricians) and 137,000 construction jobs have melted away. The Mortgage Bankers Association reported on Thursday that foreclosures are up by 71% from a year ago.
Mortgage-delinquency rates hit the highest point since 1985. And rates of delinquency among prime borrowers also increased as the crisis shifts further beyond sub-prime borrowing to affect safer loans. Many Americans are seeing their home value sink below the size of their mortgages, giving them an incentive
to ditch their property and stack up higher losses for banks.
Collapsing housing markets are partly the result of struggling American manufacturing. Firms shed 52,000 jobs last month, mostly in durable goods such as cars. And domestic consumer spending is too weak to keep the sector from contracting.
But the news is not all bad. Given the weak dollar and high demand from Asia, exports of everything—from telecommunications equipment to tractors—are up, helping to mitigate the pain. The weak dollar is also giving a boost to overseas tourism—up by some 7% in 2007. All of which kept the economy growing in the fourth quarter—but only barely. And a $150 billion fiscal-stimulus package will take full effect in May, leading some forecasters to predict a short and mild recession.
Even if the recession is brief and shallow, the recovery could take a lot longer. Most politicians still studiously avoid using the r-word. But with the outlook worsening, expect to hear it more often in Washington, DC. And expect policymakers to compete to come up with the most ambitious new plans to end the swoon.
