Economic Trends Monthly thru April 2009
Summary
Economic Trends Monthly
Covering Data through April 2009
Please find attached the next installment of the Economic Trends Monthly covering data through April 2009. I have also included an abridged version. I went ahead and included a couple of slides on the new employment numbers for May since they were just released (see below).
There are many, many indicators of the state of the economy, of which a small portion is captured in this report. Every now and then, I come across an indicator that is a bit out of the ordinary in that it is one that I, anyway, would not think to monitor. And, there are those that are out of the ordinary because they are just odd. Rob Chrisman, who publishes the Daily Mortgage News and Commentary online at www.robchrisman.com discussed an indicator that falls in the former type of out of the ordinary. The quote from his newsletter follows.
“I guess when people become tired of Ben Bernanke, they look back at Alan Greenspan. The former Federal Reserve chief’s favorite economic indicator is men's underwear sales. Supposedly, Greenspan often said one of the first things men stop buying when the economy is doing poorly is underwear, because it's something no one really sees. You can reason that when men start buying new boxers and briefs, it means the economy is turning around. Interestingly, after a 12-month, 12% decline through the end of January, men's underpants sales leveled off during February and March, according to NPD (a group which tracks clothing trends). That suggests the economy is stabilizing, right? Usually it goes up 2% to 3% annually – don’t ask me why, as I would think it would hover around population growth – so a return to that would be a good sign.”
Well, I don’t know that I would put too much stock in this as a predictor of the economy, but there seems to be some logic to it. Is the economy stabilizing? I can’t bring myself to say it is stabilizing because to me that indicates that there is a leveling off (i.e., the economy is hitting some inflection point whereby it is about to move from decline to growth in this case). Wow, that statement in the parentheses was quite nerdy; sorry, I got a new pocket protector today, so the nerd juices are flowing. Anyway, there are indications that the decline in the national economy is starting to slow, but I don’t think it has quite hit bottom, yet. This can be seen a little bit in the employment numbers that were released last Friday, as I am sure you have heard.
Even if you have heard the numbers, I would like to begin the summary with a brief discussion of a couple of data points in this report. The key statistics reported are that employment fell by 345,000 in May and the unemployment rate increased to 9.4% from 8.9% in April for the U.S. The good news (to the extent any of this can be called "good") is that the level of job losses was the lowest since
September of last year. In fact, the pace of the decline in jobs has been slowing since it reached its greatest depth this past January. Additionally, many economists were projecting job losses in May at around 500,000. Maybe the economists were just wrong (shocking, I know), but all of this seems to indicate that the job market is seeking some stabilization.
There is also an apparent paradox in these numbers. At first glance, it seems odd that job losses would fall to the lowest amount since last September, while the unemployment rate still jumps by half a percentage point. I believe this can be explained by the increased number of people that are entering the labor force and starting to look for work. When these people drop out of the labor force, they are not counted as unemployed, but as they start searching for a job, they are now counted as unemployed. This could mean that people are getting a little more optimistic about their job prospects, which is a good sign.
On the flip side of the coin, there are also an increasing number of people who are dropping out of the labor force. These are the really frightening numbers, in my opinion. When marginally attached workers and those employed part-time for economic reasons are included in the unemployment, it increases dramatically to 16.4%. "Marginally attached workers are persons who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past" but not in the past 4 weeks. Discouraged workers are a subset of the marginally attached workers and include those who have become so discouraged about their prospects for finding a job that they have quit looking. Those working part-time for economic reasons are workers who want to work full-time but are forced to work part-time schedules. These folks are not counted in the 9.4% unemployment rate, so the 16.4% is a more "true" measure of the level of unemployment.
To add insult to injury, I expect that the unemployment rate will continue to increase possibly through the rest of this year. At this point, it is a pretty safe bet that the national unemployment rate will exceed 10%.
Now, let me talk a little bit about what is happening with the San Antonio economy. Like the national employment numbers, there is a bit of good news to report regarding employment in San Antonio. In April, the unemployment actually declined to 6.0% on a seasonally adjusted basis from 6.1% in March. Employment actually grew at the slight rate of 0.6% in April. These are good numbers, but I think they are only temporary. I hate to be cynical, but I still see nothing that would pull me from my forecast that unemployment will hit 7% in San Antonio. In fact, the business cycle index is still indicating a declining economy in San Antonio with an annualized decrease of 3.71% over the period from October to April. The housing market also continues its decline. The news is pretty much the same in this market with inventories increasing to 8.5 months, home sales down 23.43% compared to April of last year, and prices down slightly in April (-0.53% on a four-month moving average basis). As you will see in the charts, though, San Antonio’s economy is doing better than the other metropolitan economies in Texas, in my opinion. However, I still think we will continue to see the economy weaken locally and across the state. I am also still of the mind that we will begin to see the economy reach bottom at the end of this year or the beginning of next year.
The question is: How long will the national economy stay at bottom? It is really anybody’s guess, but I can see two scenarios potentially unfolding. One scenario is that the economy will either begin to
bounce back fairly quickly, but at some point, the Fed will have to increase interest rates to slow inflation causing another slow-down but not nearly as deep as this one. The other possible scenario is that the economy will stagnate at bottom for a while before beginning a solid recovery. It is likely that the San Antonio economy will follow the pattern of the U.S. economy, although not as dramatically.
In conclusion, let me take a little space for some self-promotion. In the three years, I have been doing this report, I have never done this, and I pledge that it will not be a regular occurrence. Since you receive the report (and hopefully, read it), I am hoping that you might find this of interest. Anyway, I am now blogging on the mysanantonio.com website. I also have a blog at the SABÉR Institute website (saberinstitute.org), so you can also find the same postings there, as well. As you might expect, I am writing about the economy, but I also rarely mix in a few other items of interest that are not necessarily economics related. So, if you want to catch my thoughts or even comments (you have to do that at the mysanantonio.com website) in between issues of the Economy Trends Monthly, please visit my blog. Seriously, please visit my blog, I need somebody to read it besides my lovely wife.
Steve Nivin, Ph.D.
Director and Chief Economist, SABÉR Institute
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