Posts Tagged ‘Great Recession’

October Job-Creation Numbers Show Slight Uptick

Monday, November 26th, 2012

The October employment report won’t blow anyone out of the water, but showed a modest improvement that caused many to breathe a sigh of relief.  According to the Department of Labor, 171,000 jobs were added in October – the highest number since February.  Retailing (up 36,000); healthcare (up 31,000) and business services (up 51,000) showed the most significant gains.  August and September employment numbers were also revised upwards by 84,000 jobs.  The nation’s unemployment rate stood at 7.9 percent, a slight tick upwards from the 7.8 percent reported in September.

Possibly of greater significance is the fact that the workforce showed signs of growth, with the labor force participation rate rising to 63.8 percent.  More than 500,000 Americans started job hunting in October.  The current number includes 12.3 million people who have no jobs; 8.3 million who work part-time; and 2.4 million who have stopped looking for work.  Compare this with October, 2009 – at the height of the Great Recession — when the unemployment rate was 10 percent.  Prior to the recession, the unemployment rate averaged five percent or less. Even though it has declined from its peak, it is still approximately three percent less than what is considered to be full employment.

Writing in The New Yorker, John Cassidy says that “Over the past year, the total number of people employed has risen from 140.3 million to 143.4 million, according to the household survey.  After allowing for population growth, the number of people unemployed has fallen by a million, and the number working part-time or no longer actively looking for work has dropped by about half a million.  The number of people who have been out of work for more than six months – the hard-core unemployed – has fallen by more than 800,000, and it now stands at five million.”

Despite the upbeat news, Americans still are not seeing any improvement in their standard of living.  In October, the average hourly wage for workers in the non-farm sector fell one penny to $23.58.  Wages have risen a scant 1.6 percent in the last year, less than the inflation rate.

Median Family Wealth Slid 40 Percent During Recession

Tuesday, June 19th, 2012

While the American public was bailing out Wall Street, those same taxpayers saw their families’ net worth decline by nearly 40 percent. The recession took roughly 20 years of Americans’ wealth, according to government data, with middle-class families faring the worst.  According to the Federal Reserve, the median net worth of families plummeted by 39 percent in just three years, from $126,400 in 2007 to $77,300 in 2010.  That means that American families median worth has reverted to 1992 levels.

The study is one of the most comprehensive examinations of how the economic downturn altered family finances.  Over three short years, Americans watched progress that took a generation to accumulate fade away.  The dream of retirement that relied on the expected rise of the stock market proved deceptive.  Homeownership, once viewed as a source of wealth, became a burden because the market collapsed.  The findings emphasize how deep the wounds of the financial crisis are and how healing is impossible for many families.  If the recession set Americans back 20 years, economists say, the road ahead is certain to be a long one.  And so far, the country has experienced only a halting recovery.  “It’s hard to overstate how serious the collapse in the economy was,” said Mark Zandi, chief economist for Moody’s Analytics.  “We were in free fall.”

Net worth is defined as the value of assets like homes, bank accounts and stocks, minus mortgage and credit card debt. The Fed found that median home equity declined from $95,300 in 2007 to $55,000 in 2010, a 42.3 percent drop.  Home equity is defined as the home’s value minus how much is owed on the mortgage.  According to the Fed, median incomes fell from $49,600 in 2007 to $45,800 in 2010, a 7.7 percent drop.

Additionally incomes fell the most among middle-class families.  The wealthiest 10 percent saw their median income decline 1.4 percent over the three years, while families in the second and third quartiles experienced a drop of 12.1 percent and 7.7 percent.  The lowest-income Americans saw their paychecks fall by 3.7 percent.  Families were less confident about how much income they could expect in the future.  In 2010, slightly more than 35 percent said they did not “have a good idea of what their income would be for the next year,” an increase over the 31.4 percent reported in 2007.

Although declines in the values of financial assets or business were important factors for some families, the decreases in median net worth appear to have been driven most strongly by a broad collapse in house prices,” according to the Fed.  The survey’s findings cast a harsh light on the damage done to the economy by the recession and which helps to explain the exasperatingly slow pace of recovery.  The housing market’s collapse was at the core of the recession, during which the economy contracted approximately 5.1 percent between the 3rd quarter of 2007 and the 2nd quarter of 2009, and the unemployment rate soared 4.5 percent to 9.5 percent.  “Housing was of greater importance than financial assets for the wealth position of most families,” the Fed said.  “A substantial part of the declines observed in net worth over the 2007-10 period can be associated with decreases in the level of unrealized capital gains on families’ assets.”

Incomes improved in late 2011 but have begun falling again this year,  said Gordon Green, cofounder of Sentier Research.  The decline is larger and more unrelenting than in the recovery after the 2000 recession, when family incomes returned to previous levels within 18 months, Green said.  “Incomes went down more during two years of this recovery than during the recession itself,” he said.  “I don’t think we’ve seen anything like this.”

The impact a given family felt depended on where they live, how much they earn and what kind of investments they had, said Scott Hoyt, an economist at Moody’s.  “Richer people owned more bonds that didn’t get killed,” Hoyt said.  “For middle-income households, their primary asset is their house at the low end and the government stimulus backstopped incomes.”

Household net worth reached a high point of $66 trillion before the recession hit in December 2007 and sank to just $54 trillion in 2008, according to the Fed.  It was $63 trillion in the 1st quarter this year, but that doesn’t reflect the stock market’s volatility since then.  The Fed estimates Americans lost $7 trillion in home equity because of the housing bust that followed a significant increase in mortgage defaults after 2006.

Great Recession Had Little Impact on CO2 Emissions

Tuesday, December 20th, 2011

Worldwide CO2, emissions have risen by nearly 50 percent in the past several decades, with 2010 now holding the record as the year with the most greenhouse gas emissions on record.  Burning fossil fuels released more than 36 billion metric tons of CO2 in 2010, due primarily to growth in China, India, and the United States.  Deforestation is another core cause.

Going back half a century, nothing seems to have set back emissions for many years and that includes the Great Recession that started in late 2008, according to a new study published in the journal Nature Climate Change. Other studies indicate that mankind has burned approximately 50 percent of available fossil fuels if we don’t want the climate to warm by more than two degrees Celsius.  More to the point, we’ll need zero or negative emissions and emissions to peak sometime this decade to avoid any further warming.

Emissions rose approximately 510 million metric tons of carbon to reach 9.14 billion tons in 2010, the most in records dating to 1959, according to the Global Carbon Project.  That represents a 5.9 percent increase, the largest since 2003, when they jumped six percent.  The 2010 global emissions were 33.5 billion tons when converted to carbon dioxide.

“We’re going exactly in the wrong direction for limiting global warming,” said Corinne Le Quere, co-author of the Global Carbon Project’s report and a director of the Tyndall Centre for Climate Change Research at the University of East Anglia, England.  “Governments need to develop ways to boost the economy using renewable energy,” she said.

“Global CO2 emissions since 2000 are tracking the high end of the projections used by the Intergovernmental Panel on Climate Change, which far exceed two degrees warming by 2100,” Le Quere said.  “Yet governments have pledged to keep warming below two degrees to avoid the most dangerous aspects of climate change, such as widespread water stress and sea level rise, and increases in extreme climatic events.”

There’s growing evidence that 2011 will almost certainly be the 10th warmest on record, and the hottest featuring the La Nina phenomenon that brings cooler waters to the surface of the Pacific Ocean, the World Meteorological Organization (WMO).  “There’s clearly a warming trend.  That’s supported by other indicators such as disappearing Arctic sea ice, melting glaciers and rising sea levels,” Peter Stott, head of climate monitoring at the U.K. Met Office, whose own temperature estimates feed into the WMO data, said.

“The global financial crisis was an opportunity to move the global economy away from a high-emissions trajectory.  Our results provide no indication of this happening,” according to the study’s authors.  The study was issued at a planet-warming gases panelat U.N. climate talks in Durban, South Africa.

Writing on Times’ Ecocentric blog, Bryan Walsh notes that “The study underscores just how little we’ve done to slow the increase in carbon emissions. Since 1990 –the base year for the Kyoto Protocol –carbon emissions from fossil fuels have increased by 49 percent, making a mockery of that global treaty’s ambition to cut emissions by at least five percent.  And it’s getting worse –on average, fossil fuel emissions have risen by 3.1 percent a year between 2000 and 2010, three times the rate of increase seen during the 1990s, even as global warming has become a global concern.

According to a Nature blog, “What’s new in this analysis is that it puts the recovery in context with previous global crises.  It also updates a novel type of carbon dioxide accounting pioneered by lead author Glen Peters, who is at the Center for International Climate and Environmental Research in Oslo.  Usually, and under the Kyoto Protocol, carbon dioxide emissions are identified with the nation that produces them.  Yet rich countries have largely achieved cuts in CO2 emissions since 1990 by importing goods made elsewhere.  Around one-fifth of China’s emissions, for example, come from making goods demanded by consumers in other nations.  If you count the CO2 emissions embodied in final consumer demand, the study shows, Kyoto’s ‘developed’ countries are consuming more carbon dioxide now than they did in 1990 — although they report cuts in domestic production.  Even so, 2009 marked the first time that developing countries consumed more carbon dioxide than developed countries.  The crisis may not have fully passed, and it’s too early to tell whether the green stimulus packages introduced in recent years will have a positive impact, the study says.  For the moment it’s sobering to think that the pain caused by the financial crisis made but a small dent in global CO2 emissions.”

Generation Gap in Americans’ Net Worth

Wednesday, November 23rd, 2011

Households headed by older adults have made impressive gains when compared with those headed by younger adults in their economic well-being over the past 25 years, according to a Pew Research Center analysis. In 2009, households headed by adults aged 65 and older had 42 percent more net worth (assets minus debt) than households headed by their same-aged counterparts had in 1984.  During this same period, the wealth of households headed by younger adults declined.  In 2009, households headed by adults younger than 35 reported 68 percent less wealth than in 1984.

As a result of these trends, in 2009 the typical household headed by someone in the older age group had 47 times as much net wealth as the average household headed by someone younger – $170,494 versus $3,662 in 2010 dollars.  In 1984, this had been a less asymmetrical ten-to-one ratio.  This means that the oldest households in 1984 had median net wealth $108,936 higher than that of the youngest households.  By 2009, the disparity had grown to $166,832.

Writing for CNN Money, Annalyn Censky notes that “So why the growing chasm?  Housing trends have played a major role, the Pew Center said.  While rising home equity helped drive wealth gains for the older generation over a long timeframe, the younger generation has had less time to ride out the housing market’s volatility — especially its most recent boom and bust.  Meanwhile, the younger generation is also taking longer to enter the labor force and get married.  And surging college costs are also leaving them burdened by more student loans than prior generations.”

According to the Pew report, “Most of today’s older homeowners got into the housing market long ago, at ‘pre-bubble’ prices.  Along with everyone else, they’ve been hurt by the housing market collapse of recent years, but over the long haul, most have seen their home equities rise.  For young adults who are in the beginning stages of wealth accumulation, there has been no such luck, at least so far.”

The impact of the Great Recession on individual wealth was taken into account by the Pew Researchers. We don’t know what the future will bring, but things are happening much more slowly for this generation,” said Paul Taylor, director of Pew Social & Demographic Trends and co-author of the analysis.  “If this pattern continues, and this difficult start plays out and slows this generation down, then you start to call into question the basic tenets of the American dream, which is that every generation does better than the one before.”

While the recession hurt people of all ages, the older group was much better sheltered, and saw its median net worth drop just six percent between 2005 and 2009.  Generally speaking, it has increased 42 percent since 1984 when the Census Bureau first began measuring wealth according to age.  The median net worth for the younger-age households fell 55 percent since the recession and 68 percent when compared with 25 years ago.

Net worth consists of the home’s value, possessions and savings, minus debt such as mortgages, college loans and credit-card debt.  Fully 37 percent of younger households reported that they have a net worth of zero or less, nearly double the amount reported in 1984.  That percentage remained at approximately eight percent for households headed by a person 65 or older.  “It makes us wonder whether the extraordinary amount of resources we spend on retirees and their healthcare should be at least partially reallocated to those who are hurting worse than them,” according to Harry Holzer, a labor economist and public policy professor at Georgetown University.

The news isn’t all bad for young people.  For example, they may have more student debt.  That’s good news because it means that more of them are going to college, a choice that will show returns in the long-run, according to the study.  Education is essential  to making money in today’s economy, said Steven Klineberg, a professor of sociology at Rice University.  Unlike in the past, the availability of blue-collar jobs and unions that could boost a worker into the middle class no longer exist.  “The ability to keep learning is a critical requirement,” Klineberg said.

Recent College Grads Can Expect Starting Salaries 10 Percent Below 2000 Levels

Tuesday, November 8th, 2011

Recent college graduates can expect to earn 10 percent less than they did as long ago as 2000.  In fact, one of the longest-lasting legacies of the great recession may be its negative impact on the lifetime careers of young graduates.  The current high unemployment rate will leave many of them a step behind throughout their careers.  A study conducted by Yale School of Management economist Lisa Kahn determined that workers who graduated from college during the recession of the early 1980s were still in worse shape financially than workers who graduated in better times after approximately 2006.  When young college graduates do get a job, it frequently won’t pay well.  According to Census Bureau statistics, the median annual earnings of a worker 25 to 34 years old with a bachelor’s degree was $40,875 last year, a significant decline from the $45,200 reported in 2000, adjusting for inflation.

Despite the dismal salary news, there is good news in that fact that hiring for 2011 graduates is up 10 percent when compared with last year.  Meanwhile, unemployment rates among those with a degree is less than half the national average.  It’s those with just a high school education whose unemployment rates are above the national average.

The typical wage for recent college graduates has fallen by nearly $1 per hour over the last 10 years, according to the Economic Policy Institute (EPI).  Despite the lack of growth in entry-level wages, a college degree remains a worthy investment.  According to the EPI’s Heidi Shierholz, “After gains in the 1980s and particularly in the 1990s, hourly wages for young college-educated men in 2000 were $22.75, but that dropped by almost a full dollar to $21.77 by 2010.  For young college-educated women, hourly wages fell from $19.38 to $18.43 over the same period.  Now, with unemployment expected to remain above 8 percent well into 2014, it will likely be many years before young college graduates — or any workers — see substantial wage growth.”

There is some upbeat news for the class of 2011. Students who will graduated this year received job offers with starting salaries averaging $50,034 annually, a 3.5 percent increase over last year, according to a survey from the National Association of Colleges and Employers (NACE).  Employers said they plan to increase hiring of college graduates by 13.5 percent compared with 2010.  Business majors were the best positioned, with the average starting salary rising nearly two percent to $48,089.  Accounting majors received salary offers of $49,022, up 2.2 percent, while finance majors were offered an average of $50,535, an increase of 1.9 percent.  Starting salaries for business administration/management graduates fell slightly to $44,171, down 2.3 percent.  Engineering graduates — typically one of the highest-paying fields — didn’t see a big change, with the average starting salary down 0.3 percent but still impressive at $59,435.

Certain engineering majors saw noteworthy increases, with electrical engineering majors receiving an average salary offer of $61,690 — up 4.4 percent over 2010.  Mechanical engineering salaries rose 3.8 percent to $60,598, although it didn’t pay as well to graduate with a degree in civil engineering, with starting salaries in that field slipping 7.1 percent to $48,885.  While the association’s survey didn’t break out starting salaries for individual liberal arts majors, offers were up an impressive 9.5 percent to $35,633.  That compares to a steep decline of 11 percent last year.

The financial crisis is forcing Americans to re-think what they want out of a college education. “Students and families are becoming more savvy consumers about how they get their degrees, where they go to school and how they pay for it.  I think that is long overdue,” said Edie Irons, the Institute for College Access and Success’s communications director.  “It used to be that a college degree seemed like a ticket to ride, but there are no guarantees anymore that once you get that degree, you’re going to get a great job and do really well financially.  There’s been research that has shown students graduating in a recession earn lower incomes throughout their lifetimes than those graduating in a boom,” Irons said.  “It is a real concern, and we think graduates need good information about how to manage their debt.”

According to Brandon Lagana, director of admissions at Northern Illinois University, students are being more fluid in their approach to college.  Some chose a more affordable university, others start at a two-year institution then finish at a four-year school, and some wait a few years before starting any schooling.  “We’re certainly seeing students using more options to a degree than they ever did before,” he said.

Read my recent Huffington Post article about college education and debt here.

Despite a Sluggish Economy, American Household Wealth Is On the Rise

Monday, July 11th, 2011

American households’ net worth moved up a bit as the year began, with rising stock prices, increased savings and debt reductions outpacing an ongoing decline in real-estate prices.  According to the Federal Reserve, average household wealth in stocks, bonds, homes and other assets — minus mortgages and other debts — rose 1.2 percent to $58.1 trillion during the 1st quarter.  The increase is likely to boost the economy, because as peoples’ net worth increases, they tend to become more confident about their financial future and more willing to spend.  Noting the recent decline in stock prices, “in general, financial wealth has been increasing, which would tend to increase consumer spending,” said Goldman Sachs economist Andrew Tilton.

Even though Americans’ net worth rose to its highest level since the middle of 2008, it remained significantly below the peak of $65.8 trillion in June 2007.  Additionally, the upsurge has been driven primarily by stock prices, which benefit people who have invested their money.  The significantly larger percentage of Americans who have the majority of their wealth in their homes is still feeling the continuing real-estate slump.

Paul Ashworth, who owns Ashworth Drugs, a pharmacy in Cary, NC, says his retirement portfolio has recovered somewhat in recent years, but still is more than 20 percent less than its level when the recession began.  The Ashworth family has curtailed dining out and scrapped its subscriptions to the ballet and symphony.  “The bounce hasn’t really made me feel better at all,” Ashworth said.  “I still have a job, but I don’t feel as secure.  We don’t feel as good about getting out and spending as we used to.”

The Fed’s quarterly overview of American household, business, bank and government finances showed that companies are accumulating profits rather than spending them.  Cash holdings and other liquid assets rose 2.6 percent to $1.91 trillion.  At 6.8 percent of total assets, the level of cash reached its highest level in nearly 50 years.  Debt levels in budget-crunched state and local governments showed slight declines, but that was outpaced by an increase in federal debt.  Government debt rose two percent to $12.1 trillion during the 1st quarter.

Meanwhile, the value of real-estate assets continued their decline, falling 1.9 percent to $18.1 trillion.  The ongoing decline in housing is hurting consumer spending.  During the housing boom of the last 10 years, many homeowners extracted wealth from their houses through mortgage refinancing and home-equity loans, which spurred spending.  Now, with many homeowners owing more on their mortgages than their properties are worth, that is no longer occurring.  Instead, many consumers are skeptical about the recovery’s strength and are still not spending on home improvements.

Writing on the blog, Tim Cavanaugh says that “You know what you almost never hear about anymore?  How the American consumer will lead the way to an economic recovery.  Just a year ago learned pundits were holding out hope for another consumer-led recovery.  The New York Times was still clinging to the consumerist wreckage as recently as May.  In December, the remarkably durable idea that U.S. consumers will restore prosperity was still generating such brilliantly tautological news as ‘Consumers give boost to holiday sales.’  But the mirage of the consumer-led recovery has been fading for years.  Retail sales rose 0.6 percent in the month of December, an increase that fell well below expectations of 0.8-0.9 percent, and a letdown after a Festivus season filled with tales of confident, resurgent shoppers.”

The 1st quarter of 2011 is not the only time during the Great Recession when household wealth grew. John Ryding, chief economist at RDQ Economics, notes that household net worth grew by $5 trillion between the 1st and 3rd quarters of 2009, after declining sharply earlier in the recession.  Additional spending generated by the rebound helped keep the savings rate from climbing to seven or eight percent.  Household savings encourage long-term economic vitality, but a rapid upward adjustment makes consumer-spending growth more difficult to achieve in the near term — a phenomenon known as the “paradox of thrift.”  If the savings rate remains relatively static or rises slowly, it would remove one of the headwinds to consumer-spending growth in the near future.  That would be a bullish sign for the economy, because consumer spending accounts for roughly 70 percent of GDP.

Economists Say U.S. Economy Is on the Road to Recovery

Wednesday, April 27th, 2011

The American recovery is on the road to recovery, unless the mounting federal deficit slows its momentum.

A recent survey by Smart Brief and the international market research firm Ipsos of 841 financial professionals found that 67 percent think that stock prices will rise this year and that the country’s economic output will increase by 65 percent; another 59 percent said they expect unemployment to decrease slightly in the next 12 months.  The survey found that even such modest optimism is tempered by expectations of rising health care costs (88 percent); higher fuel prices (85 percent); rising prices for durable goods such as appliances, automobiles and consumer electronics (72 percent); and slightly higher interest rates (59 percent).  Additionally, 43 percent expect home prices to continue declining, while only 21 percent expect them to rebound; 34 percent expect no change.  By a margin of 70 percent – 30percent, respondents oppose allowing states to declare bankruptcy; 77 percent expect the nuclear disaster in Japan to drive greater investment and funding into renewable energy.

“Financial professionals are cautiously optimistic about economic prospects in the near term; indeed, they think that the overall scenario will improve, and they’re making business decisions on that basis, such as increased investment and hiring,” said Ipsos Managing Director Cliff Young.  “That being said, there are still concerns in the short to medium term about the increased costs of inputs such as fuel and durable goods.”

Larry Summers, former president of Harvard and architect of the Obama administration’s stimulus plan agrees, noting that “An economy in economic freefall has now recovered for 18 months,” he said.  “Make no mistake, the American economy has a feeling of normalcy that was completely absent in 2009 and that is a substantial achievement.”  Summers warned that the nation faces new challenges, including reducing the 8.9 percent unemployment rate, which he said is “far, far too high.”  He said it will be important for the US — and Massachusetts, in particular — to keep the life sciences industry strong.

To keep the recovery on track, the International Monetary Fund urged the United States to speed up efforts to slash the budget deficit.  “It is important the United States undertakes fiscal adjustment sooner rather than later,” said Carlo Cottarelli, director of the IMF Fiscal Affairs Department, the U.S. is projected to have a fiscal debt balance as a percentage of GDP of 10.8 percent in 2011, the biggest percentage among advanced countries. “Market concerns about sustainability remain subdued in the United States, but a further delay in action could be fiscally costly,” the IMF said.

According to the IMF, although most advanced economies have taken steps to tighten budget gaps, two of world’s largest economies — Japan and the United States — had delayed action to maintain their recoveries.  “Countries delaying adjustment in 2011 will face more significant challenges to meet their medium-term objectives,” the IMF warned in its updated “Fiscal Monitor” report.

Signs of Confidence Sprouting in the Construction Industry

Tuesday, April 12th, 2011

The recent construction industry mantra of “Wait until next year” may be coming to fruition in 2011, according to a recent survey conducted by ENR.  The 1st quarter of 2011 Construction Industry Confidence Index (CICI) survey soared to 51 on a scale of 100, a significant increase from the 43 percent reported in the 4th quarter of 2010.  The rise marks the first time the CICI has risen above 50 since March of 2009 and provides hints of a market that is stabilizing.  The survey of 679 construction and design executives suggests that the market has hit bottom and should improve throughout the year.

The uptick in market confidence is in step with the most recent CONFIN-DEX survey conducted by the Construction Financial Management Association.  This survey of contractors, general contractors and civil contractors spiked to 131 from 117 on a scale of 200, said Mike Verbanic, the organization’s director of marketing.  The most encouraging statistic is the increase that measures current business conditions, which rose to 145 from 129, again on a scale of 200.  “What makes these indices doubly reassuring is that our members are not wild gamblers, so their responses are measured and based on conditions they see,” according to Verbanic.  CFMA’s survey found some bad news in the financial conditions index, which rose to 116 from 105.  “These indices show that CFMA members expect demand to increase, but that credit and project financing may lag,” said Anirban Basu, CEO of Sage Policy Group, Inc., an economic consulting firm.

Although relatively few survey respondents plan to start office construction projects anytime soon, the strongest sectors are hospitals and healthcare facilities; distribution centers and warehouses; multi-family residential; retail; hotels and hospitality; and entertainment.  Fully 27.6 percent of respondents said client access to credit is an ongoing problem, while 51.8 percent said that access to credit is easier now than just a few months ago.  An additional 20.7 percent believe that access to credit is easing.

Construction companies are concerned about the price of materials.  A significant 80.3 percent of respondents said they are experiencing pressure on the cost of materials and equipment.  The cost of steel, copper and gas were mentioned most often.  According to Basu, the Producer Price Index has shown substantial price pressure recently.  “The dollar has been softening recently and there is evidence that commodity speculators have become more active in the metals markets,” he said.

Dodd-Frank Bill Collides Head On With Deficit Realities

Wednesday, February 9th, 2011

Implementation of the historic Dodd-Frank bill – which President Barack Obama signed into law last July to regulate Wall Street against the excesses that led to the Great Recession — is in danger of being gutted if Republicans’ proposed deep spending cuts become a reality.  Representative Barney Frank (D-MA) pointedly criticized Republicans’ proposal to slash government spending to 2008 levels. According to Frank, that is not an option because the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) need funding to hire hundreds of employees to write and issue regulations to give the new law teeth.  Frank co-sponsored the bill with former Senator Christopher Dodd (D-CT).

Unfortunately, the positive things that Dodd-Frank was designed to accomplish have run head on into the non-partisan Congressional Budget Office’s (CBO) bleak warning about the direction of the nation’s debt.  According to NPR  Planet Money correspondent David Welna, “It was not a pretty picture that CBO director Douglas Elmendorf painted as he sat before the budget committee”. This year’s deficit, he said, will be nearly $1.5 trillion dollars, nominally the largest in history.  And if the tax breaks that got extended this year continue throughout the next decade, Elmendorf said the nation’s debt would grow to be the size of its economy, something that hasn’t happened since the end of World War II.  The time to do something about it, he told the grim-faced panel of senators, is now.”

Elmendorf warned that “The longer the necessary adjustments are delayed, the greater will be the negative consequences of the mounting debt, the more uncertain individuals and businesses will be about the future government policies, and the more drastic the ultimate policy changes will need to be.”  Senator Kent Conrad (D-ND), chairman of the Senate Budget Committee, said “The thing that makes the most sense is there is a summit between the White House, leaders in the House and the Senate, because at the end of the day, the White House has got to be at the table. And unfortunately, during the budget process, the president is left out.”  NPR’s Welna continues, “The revenue side of the equation, of course, is taxes and raising them has been a taboo topic for most in the GOP.  But the likely need for more revenues was underscored toward the end of today’s hearing when Conrad noted that the Social Security surplus that lawmakers have been raiding for years disappeared this year and instead, Social Security has started cashing in its IOUs with the Treasury.”  Social Security will post nearly $600 billion in deficits over the next 10 years as the economy recovers and millions of baby boomers begin retiring, according to new congressional projections.

House Republicans, led by Representative Scott Garrett (R-NJ), chairman of the House Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, wants to cut $55 to $60 billion in non-defense spending during fiscal year 2011.  “A dramatic spending increase to fund the SEC and CFTC, as envisioned by the authors of the Dodd-Frank legislation, would further the mindset that our nation’s problems can be solved with more spending, not more efficiency,” according to Garrett.  Frank countered that Garrett’s comments only reinforce his “fear that Republicans are attempting to cripple regulation by failing to fund it.  I had thought even among people in the Tea Party that credit default swaps were not that popular.  We’re arguing the security of the average American was far more endangered by the financial crisis than by a lot of other things that our military does.”

If the cuts are put into place, the SEC and CFTC would be frustrated in their mandates, such as setting up a new office of municipal securities, according to Frank.  The Republican response to Democratic concerns is that their goal is to make federal regulators more efficient.  Representative Spencer Bachus (R-AL), chairman of the House Financial Services Committee, said “Past experience indicates that a few investigative reporters have been more effective than the many employees at the SEC in addressing and exposing financial wrongdoing.”

November Existing House Sales Numbers Disappoint

Tuesday, January 4th, 2011

November Existing House Sales Numbers DisappointExisting home sales in November rose at a slower pace than anticipated, spurred in part because of the end of a government tax credit aimed at encouraging first-time homeowners to buy.  According to the National Association of Realtors (NAR), sales rose 5.6 percent over October to an annual rate of 4.68 million.  Economists had predicted that sales would climb to 4.75 million for the year, according to Bloomberg News.  When compared with November of 2009 – when the tax credit was still available – home sales had fallen by 25 percent.  The tax credit, which was worth as much as $8,000, lifted existing home sales to a two-year high of 6.49 million one year ago.

Reduced prices and lower mortgage rates have made houses and condominiums more affordable, and these factors are likely to have propped up sales to some extent after the government tax credit expired.  The unemployment rate – which is still in the 10 percent range nationally – is also depressing existing house sales.  “Housing is going to remain dead in the water through the middle of 2011,” said Mark Vitner, senior economist at Wells Fargo Securities LLC.  “Foreclosures coming back on the market will put downward pressure on prices.”

November existing home sales rose in the Northeast, the South and the Midwest; the West had the best showing, reporting a 12 percent increase.  The median price rose slightly to $170,600 from $170,000 compared with November of 2009.  Distressed sales, including foreclosures and short sales, totaled one-third of all sales.  NAR officials predict that total existing sales for the year will be in the 4.8 million range, the lowest level recorded since 1997.  Lawrence Yun, the NAR’s chief economist, expects sales to rise to 5.2 million in 2011, which he describes as a “sustainable” rate.

The bottom line is that the existing home market still favors buyers and is likely to remain that way for some time.  Douglas Yearley, CEO of Toll Brothers, Inc., a large luxury homebuilder, said “As the economy improves, we believe our buyers are going to come right back out.  It’s still a buyers’ market and you still need some incentives.”