With total financial write-downs breaking through the $100 billion threshold, analysts are now estimating U.S. mortgage losses could reach the $380 billion to $400 billion mark. Consumers, businesses large and small, and policymakers are scrambling to identify areas of risk and loss created by the breach in the financial dike.
Consumers are experiencing a deterioration of their wealth due to declining stocks and home prices and increasing inflation pressures, resulting from rising energy and food prices. Meanwhile, businesses are confronting softening sales that put on hold any expansion plans.
Yet, analysts are mixed on whether the United States is headed for an official recession (defined as two consecutive quarters of negative growth). A recent UCLA Anderson School of Business forecast says "no" to the idea of recession, but others are less optimistic. To provide you with an objective look, this installment of Hispanic Business magazine's economic forecast assesses the economy's current balance sheet and its prospects for 2008.
Payrolls Falling, Unemployment Rising
The year started with net job losses of 22,000 in January and a further 63,000 in February, the largest monthly job loss in the past five years.
Health care was a bright spot, as it continued adding 36,000 jobs in February, contributing to the total of more than 360,000 jobs created in the sector in the past 12 months. Food services too created new jobs, averaging a net 12,000 jobs per month.
Overall job declines occurred in manufacturing, construction, and retail. Manufacturing employment fell in February by 52,000 jobs, with cumulative losses over the past 12 months of 299,000 jobs. Construction was another hard-hit sector with 39,000 jobs shed in February, making a loss of 331,000 jobs since September 2006. The financial sector saw a loss of 116,000 jobs since its peak in October 2006.
Unemployment of Hispanics increased by 22 percent since March 2007. Most of this loss was a result of weaker employment trends in manufacturing, construction, and retail, as well as weakness in the economies of California, Illinois, Nevada, New York, and Florida. In contrast, U.S. unemployment increased only eight percent during that time.
Deteriorating Consumer Wealth
During 2006 and portions of 2007, increased U.S consumption was linked to employment growth and the "wealth effect" of people spending freely due to the increasing worth of their homes and investments. In 2008, that trend reversed.
According to the S&P/Case-Shiller Index, released on Feb. 26, 2008, the National Home Price Index posted a negative 8.9 percent decline from it peak in the fourth quarter of 2006. Th at decline is the single largest in the 20- year history of the index.
According to the study, "Miami remains the weakest market, reporting a double-digit annual decline of 17.5 percent, followed by Las Vegas and Phoenix at -15.3 percent each." The report concluded that, "Charlotte, Portland, and Seattle are the only three metropolitan areas experiencing positive annual growth rates."
In addition to real estate, consumers are also concerned about their savings and investments closely attached to returns on the stock market. At press time, March 10, the S&P 500 was down 9 percent for the year, and 18 percent points below the recent high reached on July 19. Increasing stock market valuations were providing steam to consumers in late 2006 and early 2007, despite already decreasing home prices. Now, both sources of wealth are shrinking at the same time that the job market is weakening.
