Mar 21, 2008

US Economy Review - How worse is it and to what extent it can go?

Is it a 'recession'?

Whether the country is officially in recession is determined by the National Bureau of Economic Research, a private nonprofit research organization. The group considers several economic indicators, as well as the severity and duration of a downturn.

The NBER says the most recent recession lasted from March 2001 until November 2001 and that the economy has been in "expansion" since then.

The group typically does not declare a recession for anywhere from 6 to 18 months after its arrival. On Friday, the NBER's president, Harvard University economist Martin Feldstein, said we are in a recession, though it was not an official NBER declaration.


Economic Growth: Slumping

Gross domestic product - or GDP - is the broadest measure of the nation's economic growth and the government takes its pulse every three months.

In the last quarter of 2007, GDP growth slowed considerably, to less than 1%. Even so, the economy has not actually contracted since a short period in 2001 and there is still a debate about whether it will this year.

In a recent survey of 51 economists by the Wall Street Journal, 53% of respondents said GDP would decline in the first three months of 2008.

According to the Anderson Forecast by the University of California at Los Angeles, released last week, overall growth in 2008 will be 1.5%.


Jobs: Labor pains

There is little question that companies are getting more conservative with hiring.

U.S. companies cut their payrolls by 63,000 jobs in February, the biggest decline since March 2003.

The traditional unemployment rate is historically low at 4.8%, though that is in part because of discouraged job seekers - those out of work but not looking don't get counted.


Inflation: Bubbling up

There are many measures of inflation, and the Consumer Price Index is the most commonly cited.

It's issued each month by the government's Bureau of Labor Statistics and measures the change in a hypothetical shopping cart, which includes what a typical family might spend money on each month - everything from a gallon of gas and a box of cereal to rent and doctors' visits. To make the hypothetical cart useful, the BLS has surveyed thousands of families on their actual spending habits.

As of the most recent reading, prices were 4% higher than a year ago - not near the runaway inflation of the 1970s, but much higher than in recent history. And the recent spike in gas prices is expected to push next month's reading higher still.

Gas prices are projected to jump 40 cents a gallon on average this year, according to the U.S. Energy Information Administration. In 2007, the average driver consumed 578 gallons of gas per vehicle, according to the Federal Highway Administration.

So if gasoline consumption holds steady, it could cost $231 more to fuel a car in 2008.


Home prices: Falling faster

It's proven difficult for forecasters to keep up with the sliding real estate market.

The National Association of Realtor's tracks home sales in roughly 150 markets. The group's most recent reading, for the last three months of 2007, showed a steep drop in prices of 5.8% - the largest decline since it began keeping track in 1979.

As people's homes drop in value, that means they can't tap home equity to free up cash. A recent report by the Federal Reserve showed that Americans' percentage of equity in their homes has fallen below 50% for the first time on record since 1945.

Some good news: Seventy-three of the markets tracked by NAR showed price gains in the most recent quarter.