It is hard to make sense of economic news in the best of times. These are not
the best of times. Much of the "good" news pertains to a relatively small
cross-section of the United States. Much of the "bad" news involves reporting
on widely suffered pain.
Housing market numbers perfectly illustrate this. We have been told for four
months that we have/are turning the corner. Asset markets have been soaring.
Spirits have clearly been lifted for many. The problem remains that improvement
has been heavily concentrated in the upper tiers of the economy. These folks
are over-represented in the media and public consciousness. Our celebrity
worship, athlete obsession and overwhelming disinterest in real people's
material conditions all speak to this.
The bottom 80% of Americans are suffering, their children are
suffering. People's lives and conditions are not getting better. Sooner or
later, this produces disaster. The divergence of fortunes was a significant
cause of the great crash from 2007-2009.
On August 21, The National Association of Realtors (NAR) released July existing
home sales numbers. Existing home sales rose 5% over their July 2008 levels.
This increase was led by condo and co-op purchases. Almost one of every three
homes sold was sold out of foreclosure or deep distress. The average home price
declined by a massive 15% to $178,000 from $210,000. On this news, stock prices
soared. Major US indexes added to their recent gains with surges of over 1.25%
across Friday, August 21.
Foreclosure rates soared 32% between July 2008 and July 2009. One in every 154
homes in Florida is in the foreclosure process; one in every 123 homes in
California is in the foreclosure process; one in every 56 homes in Nevada is in
foreclosure; 361,000 households received foreclosure notices in July 2009. As
of May 2009, nearly 35 million Americans were receiving food stamps, a record.
Much of this pain is driven by the dismal employment situation.
Fifteen states and the District of Columbia reported jobless rates of at least
10.0% in July. Michigan continued to have the highest unemployment rate among
the states, at 15.0%. Rhode Island recorded the next highest rate at 12.7%,
followed by Nevada, 12.5%; California and Oregon, 11.9% each; and South
Carolina, 11.8%. The rates in California, Nevada, and Rhode Island set new
series highs, along with the rate in Georgia (10.3%), according to the Bureau
of Labor Statistics on August 21.
Yes, we saw great success in the cash-for-clunkers program. Americans are
flocking to buy new cars and some new condos, homes and co-ops with low
interest rates and government discounts. No, this does not address the problems
of the mass of unemployed people in the country. We are seeing those with
decent credit, employment and faith take advantage of historically cheap
interest rates and taxpayer-assisted low prices.
These programs leave out tens of thousands for every American they include. The
poorest Americans and the mass of Americans get little benefit. If you still
own a house, plunging prices and 9.4 months of unsold homes in inventory are
bad news.
A recently released study from Bankrate (Bankrate.com, Families and Finance)
reveals that more than one in four Americans owes more on their home than it is
worth. Falling prices are terrible news for tens of millions of families. A
falling rate of unemployment growth is cold comfort for the 247,000 newly
unemployed Americans in July. Discounts on new cars and homes don't help those
with low credit scores, no jobs and foreclosure notices. These millions can't
buy new homes or cars.
Between July 02, 2009 and August 21, 2009 the S&P 500 share index increased
by 111 points, or 12.4%. The S&P 500 is the broadest and most widely used
measure of overall US stock performance. Thus, wealth has begun to recover from
the devastation of last year.
The wisdom and sustainability of the recent global market run is an issue for
another column. Rapidly slowing declines in the macro economy and huge doses of
help have led more affluent Americans to feel better. Those feeling better are
concentrated in the higher income and wealth reaches. Middle income families
have one significant asset, the home.
The average American now owns only 41.4% of their home. These bank-owned homes
have been tumbling in value. As the value falls, the debt remains and middle
class Americans see their wealth decline. Lower-income Americans own nothing.
Lower- and middle-income Americans live on income from jobs and wages. We have
9.4% national unemployment and real wages were flat last month.
The trend toward greater inequality has grown through the past four months of
the downturn. This is creating a growing disconnect between optimistic news
stories and the realities in American homes. This also challenges belief in a
sustainable recovery.
From September 2008 through March 2009, wealth, assets and our financial system
were battered. Many felt they were not directly vulnerable. They were wrong.
Between March and the present, wealth and assets have rallied as millions
suffer. Those who think this can continue are wrong. Neither is sustainable
without broad improvement.
This year we will deficit-spend more than US$1.5 trillion. We will likely see
positive gross domestic product numbers for a quarter or two. That won't put
folks back to work or make home payments affordable. We need structural
economic reform to help sustainable grow and bridge the yawning gap between the
two national economies forming inside America.
Max Fraad Wolff is a doctoral candidate in economics at the University of
Massachusetts, Amherst, and editor of the website GlobalMacroScope .
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