Unemployment Now at 13.9% | John Burns Real Estate Consulting

Unemployment Now at 13.9%


The best measure of unemployment is not the one you read in the newspaper. The U-6 unemployment rate, which represents 13.9% of the total adult population who wants to work, also includes part-time employees who would rather work full-time. The number of part-time employees desiring full-time work is now 7.8 million, which is up 65% over the last year. In addition, the U-6 rate accounts for the 2.1 million unemployed people who want to work, but have stopped looking. The U-3 unemployment rate, which is what is reported in the paper, consists of 11.6 million people, which is up 54% over the last year and represents 7.6% of the labor force. The U-6 category of unemployment is growing faster than the U-3.

Economic Growth…………………………………………………………………..D
Real GDP fell to an annual rate of -3.8%, according to advance estimates, which was the most significant decline since the early 1980s. The employment sector is also quickly deteriorating, losing 3.5 million jobs in the last year. The 2.6% year-over-year decline in employment is the largest since 1982. The headline unemployment rate has increased to 7.6%, reaching its highest level in more than 16 years, and the real unemployment rate is 13.9% (including part-time workers looking for full-time work). Mass layoff events – job cuts of more than 50 jobs – have risen 55% in the last year. Inflation continues to decline, with the Full CPI now at 0.1% and the Core CPI (all items less food and energy) reaching 1.8%.

Leading Indicators………………………………………………………………..D-
The leading indicators declined further this month, pointing to an extended period of economic weakness in the near future. In January, stocks were unable to continue the small rally witnessed in December, and fell gradually through most of the month, with year-over-year losses of between 37-40% reported for all four major stock indices we track. Homebuilder stocks were once again battered, declining 47% year-over-year. While the price of crude oil has fallen quickly since September, prices are relatively flat compared to last month, averaging just $41.74 per barrel in January. Adjusted for inflation, oil prices are back to early 2004 levels. The Leading Economic Index improved slightly from the previous month, but the negative growth rate of -4.7% suggests further weakness in the economy for the near-term. Despite the small uptick in January’s value of the Purchasing Managers Index, it remains near its lowest point since the early 1980s, indicating continued contraction in both the manufacturing sector and overall economy.

Affordability…………………………………………………………………….C+
Affordability continues to quickly improve due to declining home values and improving mortgage rates. However, strict lending standards, job loss fears and fear of further declining home values have kept many potential buyers on the fence. Mortgage rates continue to fall, reaching their lowest level in nearly 40 years. The 30-year fixed mortgage rate was at 5.10% at January month-end. The Fed’s overnight lending target rate remains at a range of 0.00% to 0.25%, which is the lowest level on record, with the intention of kick-starting the economy and battling deflation. The Mortgage Bankers Association reported a slight increase in the share of ARM applications, which reached 2.4% in the last week of January, but is still extremely low when compared to peak levels above 35% of total loans in early 2005.

Consumer Behavior…………………………………………………………………D-
Consumer confidence continues to weigh heavily on the economy. The Conference Board’s consumer confidence index – currently at just 37.7 – reached its lowest level in the 41-year history of the index. The Consumer Sentiment Index increased slightly in January, yet the Consumer Comfort Index declined this month to a record low. As consumers cut back on spending, the personal savings rate continues to improve, gaining 3.6% year-over-year for a total of $378 billion in savings.

Existing Home Market………………………………………………………………D
The existing home market remains weak due to steep price declines and weak sales volume. The median price in the resale market has fallen nearly 15% year-over-year to $174,700, according to the National Association of Realtors (NAR), while the Case-Shiller index shows an annual decline in paired sales of nearly 17%. The annualized existing home sales volume increased to 4.7 million transactions in December, up from 4.5 million in November, yet down 3.5% year-over-year, according to the NAR. The volume of pending home sales increased in December, and is now 2% higher than one year ago, which suggests a further uptick in sales activity. The supply of unsold homes shrank slightly to 9.3 months of inventory, reaching its lowest level since June 2007.

New Home Market…………………………………………………………………..F
The new home market continued to show signs of weakness in the past month. Builder confidence fell once again to a new historical low, as the Housing Market Index declined to a value of 8. The median new home price fell in December and is now down 9.3% year-over-year, equal to $206,500, according to the Census Bureau. The annualized new home sales volume also fell sharply in December to 331,000 transactions, declining 45% year-over-year, and reaching the lowest level since the Census began tracking this data in 1963. While the absolute volume of unsold new homes continued to decline, falling sales activity pushed the months of supply to nearly 13 months.

Housing Supply……………………………………………………………………F
The overall supply of new housing diminished across the board, from permits to starts to completions, pushing housing supply to extremely low levels. The annual volume of new home completions fell to 1,015,000 units, which was down 24% year-over-year. Both single-family and multi-family starts declined, pushing total starts down to 550,000 units. Single-family and multi-family permits also declined, resulting in a nearly 51% year-over-year drop in total permit activity. The homeowner vacancy rate increased slightly in the fourth quarter to 2.9% – matching a record-high level.

U.S. HOUSING MARKET STATISTICS
Data Current Through January 31, 2009
Grade*
Overall Grade
D-
Statistic
Grade
Economic Growth
D
These are the best indicators of how the economy is currently performing.
Real GDP (annual rate) -3.8% D
Employment Growth (1-year Change)
– Non-ag Payroll, NSA -3,499,000 D
Employment Growth Rate
– Non-ag Payroll, NSA -2.6% D
Unemployment Rate 7.6% D+
Mass Layoff Events, SA (YOY % Change) 54.9% D+
Productivity 3.2% C
Retail Sales -9.2% F
Inflation
Core CPI 1.8% B+
Full CPI 0.1% C+
Personal Income Growth, nominal 1.4% F
Federal Deficit (last 12 mos., $mil curr.) -$822,822 F
Total Households 111,854,000
Owned Households 75,508,000
Rented Households 36,346,000
Statistic
Grade
Leading Indicators
D-
These have all proven to be predictable early indicators of the direction of economic growth.
Leading Econ. Index (Ann. Growth Rate Last 6 Mos.) -4.7% D+
ECRI Leading Index -24.7% F
Manpower Net Employment Outlook 10% D-
Corporate Profit Growth (pre-tax) -9.2% D
Residential Investment as % of GDP (nominal) 3.1% F
Interest Rate Spread
10-year Treasury 2.75%
2-year Treasury 0.90%
Interest Rate Spread 1.85% B
3-month LIBOR 1.22%
3-month Treasury 0.13%
TED Spread 1.09% C-
Stock Market (Return over last 12 months)
Dow Jones -37% D
S&P 500 -40% F
NASDAQ -38% F
Wilshire 5000 -40% F
S&P Super Homebuilding -47% F
Crude Oil Price (Current $) $41.74 C
ISM Manufacturing Index 35.6 F
ISM Non-Manufacturing Business Activity Index 44.2 D
Statistic
Grade
Affordability
C+
These statistics are probably the most important indicators of short-term housing market performance.
Conforming Mortgage Rates (contract rate; an additional 0.6 – 1.0 points are also paid up front by the borrower)
Mortgage Rates, Fixed 5.10% A+
Mortgage Rates, Adjustable 4.85% B
Fixed/Adjustable Spread 0.25% F
Fixed/10-year Spread 2.35% C+
Fed Funds Rate 0.13%
Percentage of Adjust. Loans 2.4% A+
Equity/Owned Home (Current $) $112,390 C
Debt % in Home (LTV) 55.3% F
Median Household Income $50,233
– Growth Rate, nominal 4.2% C-
Revolving Cons. Credit per Household $8,228
– Growth Rate 3.0% B+
Statistic
Grade
Consumer Behavior
D-
Consumer attitudes correlate well with short-term housing sales performance. Consumer income growth, debt levels and job prospects affect the long-term outlook for housing sales.
Consumer Confidence Index 37.7 F
Consumer Sentiment Index 61.2 F
Consumer Comfort Index -51.3 F
Personal Savings Rate 3.6% D+
Misery Index (Unemployment + Inflation) 7.30 B-
Statistic
Grade
Existing Home Market
D
Sales volumes correlate well with the Housing Cycle calculations, and boost the trade up New Home sales market.
S&P/Case-Shiller® U.S. Price Index (YOY % Change) -16.6% F
NAR Single-Family Median Home Price $174,700
NAR Single-Family Annual Price Appreciation -14.8% F
Freddie Mac Annual Price Appreciation -5.6% F
Annual Sales Volume, SA 4,740,000 B-
Months Supply of Unsold Homes, SA 9.3 D+
Purchase Mort. App. Index, SA 294.3 C
Pending Home Sales Index, SA 87.7 F
Homeownership Rate 67.5% B
Statistic
Grade
New Home Market
F
High appreciation and low inventory would mean an excellent short-term outlook for the new home industry.
Housing Market Index 8 F
Multifamily Condo Market Index 8 F
Median Price, NSA $206,500
Annual Appreciation Rate -9.3% F
Constant Quality Price Index (YOY % Change) -5.7% F
Sales Volume, SA 331,000 F
Months Supply of Unsold Homes, SA 12.9 F
Months of Homes Completed, SA 6.3 F
Months of Homes Under Const., SA 5.0 D-
Months of Homes Not Started, SA 1.7 F
Statistic
Grade
Housing Supply
F
High construction levels are good for the economy. However, if new supply exceeds demand, prices could fall.
New Housing Units Completed, SA 1,015,000 F
Single-Family Starts, SA 398,000 F
Multifamily Starts, SA 152,000 F
Total Starts, SA 550,000 F
Single-Family Permits, SA 363,000 F
Multifamily Permits, SA 186,000 F
Total Permits, SA 549,000 F
Manuf. Housing Placements, SA 70,000 F
Total Supply, SA 619,000 F
Total Housing Stock 130,840,000
Homeowner Vacancy Rate 2.9% F
SA stands for Seasonally Adjusted Annual Rate. NSA stands for Not Seasonally Adjusted.
* The best 15% ever are “A” scores, the average is a “C”, and the worst 15% ever are “F” scores, with distributions throughout.

 


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