The Economy: How Hopeless is It?

The GDP continues to decline

Detail from "A Hopeless Dawn" by Frank Bramley

According to preliminary estimates released by the Bureau of Economic Analysis, real gross domestic product — the output of goods and services produced by labor and property located in the United States — decreased at an annual rate of 5.7 percent in the first quarter of 2009. In the fourth quarter of 2008, real GDP decreased 6.3 percent.

Other indicators are down, too

The GDP is the most commonly-used measure of economic strength or weakness.  But if you’re unemployed and searching for a job or underemployed and looking online for quick cash to get by until payday, it offers little insight for assessing your own economic prospects. For anyone in need of cash now, other economic indicators may hit a little closer to home but are no more encouraging.

JOBS

According to the Bureau of Labor Statistics, the lowest unemployment rate we’ve seen since 1980 was 3.8% in April of 2000.  The unemployment rate for May 2009 continued to rise, increasing from 8.9% the previous month to 9.4%. To put that into perspective, unemployment reached 24% in the Great Depression, and 9% in the last oil-fueled recession of April 1976.

The government’s methodology for calculating unemployment has become controversial and the relevance of government statistics to the current composition of the job is questionable. The government’s figures do not include the 3.7 million-plus people who are reluctantly working only part time, and the “discouraged workers” (read Don’t Give up the Job Search) who have given up scouring want ads for seemingly nonexistent jobs. When these people are included, the unemployment rate is nearer to 16%.

PERSONAL INCOME

Having a job is a good start, but many people today are underemployed and most don’t have wages that keep pace with inflation. According to the Pew Charitable Trust Economic Mobility Project, the current generation does not earn as much money as the previous one did.

Pew compared the income of men now in their 30s to that of men who were in that age group 30 years ago. Looking at the most recent figures available, Pew’s survey shows that salaries for men in their 30s went up 5% from 1964 to 1994. But for the period 1974 to 2004, salaries actually went down 12%, from $40,210 to $35,010 (in inflation-adjusted dollars).

Income was actually on a bit of a downswing in the early 1980s, but was still higher than at any other point in recent history. In 1980, the average income for a man in his 30s was $39,109. In inflation-adjusted dollars, Pew estimates an average of $34,676 for 2008.

PERSONAL SAVINGS

How rich or poor you feel depends in part the amount of money you have left over after you’ve paid the bills. The Department of Commerce Bureau of Economic Analysis, calls this “personal savings” and expresses it as a percentage of disposable personal income. The Bureau’s most recent report shows that the personal savings rate is over 4%. That’s up from a record low of negative 0.7% in the third quarter of 2005. (A negative personal savings rate means that people are borrowing money to pay personal bills.) The high end of the scale of 12.2% in 1981.

HOME PRICES

According to the Federal Housing Finance Agency, home prices continued to fall in the first quarter of 2009. Price increases in January and February were offset by a decrease in March. The purchase-only house price index, calculated using home sales price information from Fannie Mae and Freddie Mac-acquired mortgages, was 0.5 percent lower on a seasonally-adjusted basis in the first quarter of 2009 than in the fourth quarter of 2008. This decline was much more modest than the 3.3 percent decline in the prior quarterly period. Over the past year, seasonally-adjusted prices fell 7.1 percent from the first quarter of 2008 to the first quarter of 2009.