Snapshot for October 2008
US Economy in SERIOUS trouble!
House and stock prices are plummeting, and threatening to
take the economy down with them. The labor market contraction
could get worse and sharply lower economic growth. Troubles
on Wall Street have already translated into tighter credit
for Main Street. Businesses and homeowners, among others,
now have less access to credit, which means that consumption
and investment will likely be slow.
activity also means less hiring. The U.S. economy has already
lost jobs for nine months in a row. This year’s job
losses followed a very weak labor market that left families
woefully unprepared for the current crisis. Employment growth
has been the weakest since the Great Depression, wages have
been flat, and benefits have declined during this business
cycle, which started in March 2001. At the same time, prices
rose for many items, driving families deeper and deeper
into debt. As the labor market slump deepens, more and more
families are succumbing to economic pressures, declaring
bankruptcy and defaulting on their loans. Easing the burden
on families will not be easy as massive trade deficits drain
our national resources and budget deficits due to tax cuts
for the rich pose obstacles to real solutions for America’s
can’t finance investment. In the second quarter of
2008, credit-market borrowing financed 35.2% of fixed investment
by non-financial corporate businesses, down from 80.1% a
pay more for loans. Traditional mortgages are perceived
as much riskier than in the past and borrowers need to pay
a bigger premium over risk-free, long-term treasury bonds.
From March 2001, when the current business cycle started,
through the end of 2007, the average difference between
these two interest rates was 1.7 percentage points. For
2008, this difference averaged 2.3 percentage points. The
risk premium that the market charged for giving out mortgages
thus increased by 35.3% in 2008.
3. Job losses
mount. The U.S. economy lost a total of 760,000 jobs in
the first nine months of 2008, including 159,000 jobs in
September 2008. The United States lost on average 43,300
jobs each month during the past 12 months, after gaining
an average of 109,100 in the previous 12 months, and 188,600
in the 12 months before then.
rates reflect broad labor market recession. In September
2008, the unemployment rate was 6.1%—the highest level
since September 2003. The African-American unemployment
rate stood at 11.2%, the Hispanic unemployment rate at 7.8%,
and the unemployment rate for whites at 5.4% in September
5. Wages are
flat. Factoring in inflation, hourly wages were only 0.9%
higher and weekly wages were actually 0.3% lower in August
2008 than in March 2001.
6. Fewer people
have pensions and health insurance. The share of private-sector
workers with a pension dropped from 50.3% in 2000 to 45.1%
in 2007, and the share of people with employer-provided
health insurance dropped from 64.2% in 2000 to 59.3% in
7. Family debt
contracts from record high levels. Household debt averaged
129.3% of disposable income in the second quarter of 2008—
its lowest level since March 2006—down from a record
high of 133.5% at the end of 2007.
8. The housing
crisis deepens. New home sales in August 2008 were 34.5%
lower than a year earlier, and existing home sales were
10.7% lower. The median price for existing homes fell by
9.5% and prices for new homes by 6.1% during the same period.
lose wealth. The values of all homes fell by 2.5% or $351
billion in the second quarter of 2008 after accounting for
inflation. Home equity as share of home values also fell
to a record low of 45.2% in the second quarter of 2008.
troubles mount. One in 11 mortgages is delinquent or in
foreclosure. In the second quarter of 2008, the share of
mortgages that were delinquent was 6.4% and the share of
mortgages that were in foreclosure was 2.7%. The share of
new mortgages going into foreclosure continues to new record
highs with 1.1% in the second quarter.
feel the pressure. Credit card defaults rose to 5.5% of
all credit card debt by the second quarter of 2008—an
increase of 14.7% from the first quarter of 2001—even
though a new bankruptcy law was passed in 2005 to make it
harder for people to get a fresh start free of debt, especially
credit card debt. The personal bankruptcy rate also rose
to 3.2 cases per 1,000 people in the second quarter of 2008,
an increase of 115.9% since the first quarter of 2006, immediately
after the new bankruptcy law passed.
12. The budget
deficit increases sharply. For fiscal year 2008, which runs
through September 30, the deficit amounted to an estimated
$438 billion, up from $162 billion in 2007.
13. The U.S.
government is increasingly indebted to foreigners. Since
March 2001, foreigners have purchased 86.5% of all new treasury
debt. By June 2008, foreigners owned an unprecedented 53.6%
of all publicly held treasury debt. In the second quarter
of 2008, the U.S. government spent $43.0 billion in interest
payments to foreigners—more than double the $20.9
billion it spent in the first quarter of 2001.
14. The trade
deficit remains high. In the second quarter of 2008, the
trade deficit was at 5.20% of gross domestic product for
the third quarter in a row.
Original Article: http://www.americanprogress.org/issues/2008/10/econ_snapshot.html