October 1, 2009. Speaking on the anniversary of the collapse of Lehman Brothers, Fed Chairman Ben Bernanke said that from a technical perspective, “The recession is very likely over at this point.” He cautioned, however, that the economy may remain weak. In its final meeting of the quarter, the Fed seemed to confirm that view, suggesting that economic activity had “picked up.”
Still, short-term interest rates were left unchanged. Stock markets were in agreement, as the recovery in the Dow Jones Industrial Average off its March low has been spectacular.
Unemployment
Employment tends to be a lagging indicator for economic recoveries, which is why no one expects much good news on this front for the rest of the year. But the bad news just seems to keep on coming.
• Nationally, unemployment hit 9.7% in August, the highest level in 26 years.
• Teen unemployment was at 25.5%, the highest rate since the Bureau of Labor Statistics began breaking out this figure in 1948.
• California’s unemployment reached a 70-year high. El Centro, California, recorded an astounding 30.2% jobless rate in July.
• The broader measure of unemployment, one that accounts for those who have given up on looking for work, reached 16.8% in August. That’s the highest since this measure was adopted in 1994.
Hopefully, the lag between the end of the recession and a return of job growth won’t be too long, or the recovery will be short-lived.
Given these grim statistics, it’s not surprising that the housing market continues to struggle. Some 7.58% of home mortgages were at least 30 days late on payments in August, a record. About 1.5 million mortgages are in the early stages of foreclosure, and another 1.2 million are in limbo—the borrower is in serious default, but the bank hasn’t begun foreclosure proceedings.
Inflation
In the fiscal year that ended September 30, the federal government issued a total of $7 trillion in bonds. Net borrowing needs were $1.7 trillion, nearly $1 trillion more than in the final year of the Bush presidency.
Many observers expected that the borrowings would have an inflationary impact, but there is no sign of that to date. Perhaps the poor employment numbers and slack in the economy are responsible. For the 12 months that ended August 31, the Consumer Price Index (CPI) was down 1.5%. Health care costs are rising relentlessly, but otherwise inflation remains tamed.
Some CPI components:
% change
Food at home -1.6
Food away from home 3.0
Gasoline -30.0
New vehicles 0.5
Used cars and trucks -5.4
Medical care services 3.2
Energy
The upside of higher oil prices is that it stimulates more exploration. Good news—more than 200 discoveries of oil and gas deposits already have been announced this year. Roughly 10 billion barrels of oil were discovered in the first half of the year. At that pace we could reach the best rate of discoveries since 2000.
However, much of the newly found oil is only worth recovering when the price of oil is $60 per barrel or more. The fact that the price fell to $34 per barrel last December worries some oil executives, especially when coupled with continuing U.S. economic weakness.
(October 2009)
© 2009 M.A. Co. All rights reserved.
