The Two Most Important Measures

We’ve said it before: This depression will be defined by two measures. Housing — most people’s largest store of wealth and employment — the backbone of any economy. Millions of people without jobs stuck in homes they can’t afford will not be able to “put the economy back on track,” as the current administration likes to say. This morning, we see big news on both fronts… and it’s not so good.

First, as we forecast yesterday, the Labor Department issued a worse-than-expected jobs report this morning. The U.S. economy shed 467,000 jobs in June, they claims. As this chart shows, the Street was betting on the current trend to stay intact. Job losses have decreased every month since their January peak… until now.

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B-list data points from this morning’s jobs report were equally lousy: The average hourly workweek fell to 33 hours, but hourly wages stayed the same. Those out of work for six months or more now exceed a record 4.4 million. And continuing claims for unemployment benefits remained at 6.7 million, just below an all-time high.

By the government’s count, a record 14.7 million people are now unemployed. That makes for a 9.5% unemployment rate, a 26-year high.

On the housing front, mortgage applications have fallen to a seven-month low. According to the Mortgage Bankers Association, requests for new home loans fell 19% last week while refis plunged 30%, both to levels unseen since November. While mortgage rates are well off March’s 4.6% record low (30-year fixed), they’re still at a reasonable 5.3%, a full 100bps below the average rate this time last year.

And since it worked so well the first time around: The Obama administration announced they will expand the “make home affordable” program to an even wider range of deadbeat borrowers. Previously, homeowners with mortgages worth more than 105% of their home’s value did not qualify for President Obama’s manipulated refi rates. That limit has been bumped up to 125%… incredible.

Even more amazing: One in five mortgage borrowers are “underwater,” meaning the value of their loan is worth more than the price of their home. That’s nearly 20 million homeowners.

“Housing and jobs are the two cornerstones of American middle-class wealth,” reiterates Bill Bonner. “If they can’t hold the weight of a building economy, there is little chance of a broad recovery in the United States… or Britain.

“In Britain as in America, the real economy is falling off just as investors, analysts and commentators think they see a recovery. They think rising stock prices – U.S. stocks are up 40% since March 9 — predict and precede a growing economy. Stocks, they say, ‘look ahead.’

“People will believe anything. If stocks had been watching where the economy was going, they never would have traded at such high levels in ’07. They clearly had no idea what was ahead. Nor do they now…

“What we see is this: The United States prospered in the 20th century not because of the Roosevelts, but in spite of them. The American economy was expanding… it was still young, strong, competitive and prosperous. The empire grew with economic power.

“But the years ahead are not likely to resemble the post-Roosevelt years. America’s position relative to the rest of the world is weak and in decline. She is not a creditor; she is a debtor. She is not a low-cost competitor; she is a high-cost competitor. She no longer has a free and flexible economy; she has one freighted with central planners, regulators and busybodies.”