Last Updated:
June 19, 2010
Florida Real Estate
UNUSED RESOURCES
So if GDP is recovering, why does the economy still feel so lousy? In a nutshell, because there are still loads of idled resources: Assembly lines operating at less than full speed. Vacant warehouses, factories and storefronts. Mines, utilities and other operations churning out less than before the recession hit. In mid-2009, slightly more than two-thirds of total U.S. industrial capacity was in use. Today, utilization is about 74%, about five percentage points lower than the usual rate when the economy’s thriving, and well below the even higher prerecession rate.
Service industries have plenty of spare capacity, too: Empty washers at commercial laundries. Lawyers taking on pro bono cases to fill their time. And so on.
Moreover, millions of people remain out of work. The 980,000 net increase in jobs so far this year only begins to chip away at the 8.4 million jobs lost during the 2008-2009 rout. Until more employers are confident the economic recovery is on solid ground, they’ll resist committing to permanent hires. As a result…It will take until late 2012 to recover the lost jobs. Worse, because the labor force is always growing… with young people seeking first jobs plus immigrants…The jobless rate won’t sink to a more normal 5.5% again until 2014 or so.
TIGHT CREDIT
Credit availability also remains far from normal, crimping the ability of private businesses…especially small firms, which typically account for half of all jobs in the U.S…to grow. Under normal conditions, the difference between the share of small companies that say loans are becoming harder to get and the share that say the opposite is no more than about nine points.
Tightfisted lenders will eventually loosen up, probably easing standards in the second half of 2010. But for now, huge losses during the Great Recession, uncertainty about financial reform legislation and doubts about the durability of the recovery will restrict credit.
HOUSING WOES
Another hindrance…at least psychologically: Housing. Prices color consumers’ perceptions of their financial well-being, affecting their willingness to spend. And because housing and related industries typically account for 7% of the economy, making headway is tough when they stall.
The sad fact is, it will take a decade to regain the prerecession highs in construction and sales of new homes. Ditto, home prices, at least in regions that were the hardest hit, such as Calif., Fla. and Ariz. That’s mostly because those peaks were artificially high, pumped up by unsound mortgages destined to crumble. It would take three years of annual increases of 3%, followed by three more years of 5% annual gains, for the median home price to match the Oct. 2005 peak.
Even a return to pre-bubble levels will take years. At 650,000 this year and an expected 900,000 in 2011, housing starts are a long way from 2001’s 1.6 million. New-home sales won’t top half a million ’til next year and won’t hit 800,000…the high end of the normal band in the 1980s and 1990s…’til 2014 or 2015. A slightly less dismal outlook for sales of existing homes: 5.3 million this year and 5.5 million next…near pre-bubble levels.
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