Is it Really Over?
We’ve said it before, more than once: Jobs and housing will be the real indicators for how the depression pans out. Housing led us into this mess, it is one of the worst performing asset classes in America, it’s most people’s biggest investment, and bad mortgages (and their subsequent securitizations) have rendered our financial system impotent — at best. And jobs, well… people gotta work. When they don’t, all kinds of craziness ensues.
So with that in mind, let’s check in on one “ultimate indicator” of the depression’s end.
5 Min. loyalists might remember that we first checked out this chart in late May, when Robert Gordon — one of the NBER economists responsible for calling the end of recessions — suggested that the peak in initial claims had marked the approximate end of this historic downturn. As you can see, that same thesis has worked pretty well in the past, so why not?
Yesterday, the Labor Department said 530,000 Americans filed for jobless benefits last week. That may be a slight improvement from the week before, but we note that since peaking this spring, jobless claims haven’t plummeted back to a historic norm, as in recessions past. Instead, they’re just hanging around, just 15% below the peak, almost 30% higher than this time last year and way above typical post-recession levels… actually higher than the peaks of yesteryear.
We realize that just by uttering these words we’re likely going to be wrong: But could it be different this time around? If the bread line is no longer at its worst, but still wrapped around the block, is it really fair for the Fed to say the recession is “technically” over?
And housing isn’t looking too pretty this week either. Yesterday saw a “surprise” fall in existing home sales. This morning, the Commerce Department says the median price of new homes in August fell 9.5%. That’s the biggest month-to-month decline in recorded history. The median price is now $195,000, down almost 12% from last year. Sales rose a statistically insignificant 0.7%.
The shred of good news from today’s report: New home inventory is down 36% over the last year, to a 7.3-month supply — the lowest level since January 2007. Still, on average, a newly completed home sits on the market for a record 12.9 months before it’s sold.