The guest speaker at the September General Membership Meeting of the Benton Bryant Realtors Association was UALR’s State Economic Forecaster, Dr. Michael Pakko.
Beginning by saying that while the U.S. had seen the end of the recession three years ago, it didn’t really feel like it at times.
“The problem,” Pakko said, “is that we have not seen the rapid growth. Aside from a couple of quarters of 4 percent growth, it has been pretty sluggish the past three years.”
In the summer of 2009 industrial production and real GDP hit bottom and resumed growth. Expansion in both indicators grew stronger towards the end of that year.
“We have had very slow job growth,” Pakko said. “Part of the problem was such a sharp downturn to begin with. But really the past three recessions have been classified as jobless recoveries. Starting with 1990, ’91, this seems to be the pattern; that employment is the last thing to turn up.”
It used to be that in manufacturing you would lay people off and then bring them back. Today, Pakko said, we are seeing more job losses remain permanent.
The recovery, post recession economy or whatever you want to label it has not produced those new jobs that are such an important factor to not only those who draw the paycheck, but the rest of Main Street America that is so dependent on the sale of their goods and services.
If you look at total growth since the end of the recession it is 6.8 percent. Which, Pakko says, for three years isn’t great. Where it has been slowest are two areas of investment spending – residential construction and non-residential construction. “That is the area that is holding the economy back,” Pakko said.
In an August 23 post to his blog, Arkansas Economist, Pakko said the 2012 2nd quarter housing data for the state was a “mixed bag of results. The seasonally adjusted ‘Purchase-Only Index’ (which uses only sales price data) showed Arkansas house prices up 1.9 percent for the quarter and up 7.2 percent from a year earlier. In comparison, data for the U.S. showed prices up 1.8 percent for the quarter and up 3.0 percent from the previous year. On the other hand, the FHFA’s “All-Transactions Index” (which includes appraisal data from refinancing) showed prices declining. House prices were down 1.5 percent in Arkansas, and down 0.7 percent nationwide.”
Always a major factor on Arkansas’ overall economy is the agricultural sector. There was the spring flooding back in 2011 and the summer drought of this year. Agricultural output (including forestry, fishing and hunting) declined by over 16 percent last year.
In a state like Arkansas where agriculture comprises a large share of economic activity, weakness in that sector generates secondary, induced effects in other areas of the economy. However, statistics suggest that damage from this summer’s drought and from Hurricane Isaac are not as severe as many had feared – at least in Arkansas. Nationwide, the drought has had a larger impact.
Looking ahead to the future Pakko said that home prices have bottomed out.
Andrew Cherlin, a professor of sociology and public policy at Johns Hopkins University agrees. “We may be seeing the beginning of the American family’s recovery from the Great Recession,” Cherlin said. He pointed in particular to the upswing in mobility and to young men moving out of their parents’ homes, both signs that more young adults were testing out job prospects.
“It could be the modest number of new jobs or simply the belief that the worst is over,” Cherlin said.
Of the 20 cities tracked by the Standard & Poor’s/Case-Shiller Home Price index, 16 are in the black for this year. But the housing market isn’t like the stock market. Bounce backs are typically slow.
Mortgage rates still at historic lows and the Fed’s recent action suggest they will remain so. Pakko also said that the recent rise in building permits is positive - “Builders are starting construction and have confidence there are buyers there.”