HispanicBusiness

The Sept. 7 U.S. Treasury decision to place Fannie Mae and Freddie Mac into conservatorship will help to dispel some of the risks in the mortgage market and may contribute to bringing mortgage rates down. Although a decrease in mortgage rates is necessary to bring life to the housing and construction industries, the sector current imbalances, high houses inventories, and expected declining prices will still delay any positive impact that the housing sector could bring to the overall economy.

Impact And Outlook On Employment
The amount of unemployed Americans has increased by 2.2 million since August 2007. About two million people joined the workforce and were unable to find jobs, and an additional 276,000 people lost their jobs. The unemployment rate hit 6.1 percent in August 2008, up from 4.7 percent in August 2007, to reach 9.4 million unemployed workers.

The impact of unemployment is most severe for minorities. In August 2008, the unemployment rate reached 8 percent for Hispanics and 10.6 percent for African Americans. Although Hispanics represent just 14 percent of the employed, they account for 25 percent of the unemployment increase since August 2007. Similarly, African Americans represent 11 percent of the employed and account for another 25 percent of the unemployment increase in the past year.

Lower employment, together with the negative effect on wealth from the declining home and stock values, spell gloom for any hope of consumption-based recovery.

Impact And Outlook Small Business Finance
Small businesses that need financing are suffering from the tightening of lending standards and price terms for loans. The Federal Reserve, in its latest "Senior Loan Officer Opinion Survey on Bank Lending Practices," reports that 65 percent of domestic banks had tightened their lending standards on commercial and industrial loans (C&I) to small firms. Also, loan officers "had tightened selected price terms on C&I loans to firms of all sizes."

Despite the Fed efforts to provide liquidity to the financial markets, credit availability has been reduced because large financial institutions' capital have diminished due to losses and asset write-downs, with result of decreasing lending capacity.

The declining home prices also affect small business finance since they use real estate assets to secure their loans. As much as 45 percent of the total dollars in business loans are backed by real estate assets.

Finally, businesses suffer the impact of higher cost of oil, raw materials, and transportation. Due to competitive market conditions and slowing demand businesses cannot convert rising costs into higher prices; therefore, profit margins tend to decline.

On The Positive
There are a few positive indicators. Business productivity is increasing at a 4.3 percent annual rate, more than any increase in wages, therefore reducing resulting labor costs. The economic slowdown is reducing the price increases we have seen in previous months, among key prices, crude oil price is at $101 per barrel, down from $147 in July. Some industries are still adding jobs: education, health care, business Services (IT), local government, and mining. Although some states (Colorado, Maryland, New York, North Carolina, Texas, Virginia and Washington) posted gains in July 2008 over July 2007, no state posted any employment gains in July 2008 over the previous month.

GDP increased at an annual rate of 3.3 percent in the second quarter of 2008, according to preliminary estimates by the Bureau of Economic Analysis. The increase was mainly due to a 13.2 percent rise in exports and a 7.6 percent decrease in imports. Federal government consumption and investment increased at a 6.8 percent as well as national defense posted an increase of 7.4 percent.

Related:
-- U.S. Dept. of Labor statistics