By Mike Whitney
May 01, 2009 “Information Clearing House” — The economy continued to shrink in the first quarter of 2009 at an annual pace of 6.1 percent, making it the worst recession in more than 50 years. Gross Domestic Product slipped into negative territory from January to March for back-to-back quarters of negative 6 percent growth. The news of falling GDP was preceded on Tuesday by a dismal housing report which showed that housing prices have continued their historic downward plunge with only modest improvement. Since their peak in July 2006, housing prices have dropped 31 percent, falling 18.6 percent in the last year alone. The rate of decline has decelerated slightly but–on their present trajectory–prices are on target to tumble 45 to 50 percent from their 2006 highs. Another 20 percent loss in home equity means another $4 trillion loss for US homeowners.
The news on the employment-front is equally bleak. In the week ending April 25, initial jobless claims increased by another 631,000, bringing the 4-week moving average to 637,000. Ongoing unemployment claims are now at 6.27 million, an all time record.
According to the Associated Press:
Unemployment rates rose in all of the nation’s largest metropolitan areas for the third straight month in March… The Labor Department reported Wednesday all 372 metropolitan areas tracked saw jobless rates move higher last month from a year earlier.”
Consumer spending also fell more than forecast with purchases decreasing 0.2 percent in March and wages and benefits rising at the slowest pace in three decades.
GDP is falling, unemployment is soaring and business and residential investment are at their nadir. Even so, the stock market has continued its 7 week surge on signs that the market may be bottoming.
Although the bad news continues to mount, Northern Trust economists Asha Bangalore and Paul Kasriel have issued a report “US Economic and Interest Rate Outlook” asserting that the worst is over and that the huge quarterly contractions to GDP should gradually improve ending in positive growth by the forth quarter of this year. Kasriel is a first-rate economist and his work should be taken seriously. Still, whether there is a uptick in business activity in the near-term or not, deeper economic problems persist and are likely to get worse before they get better. There is no doubt, however, that Fed chief Ben Bernanke’s massive injections of liquidity have had an effect on stabilizing the financial system and reviving the sluggish economy. The Fed chief has committed or loaned $13 trillion in public funds to avoid an impending disaster and to restart speculation in the equities markets. Barron’s Randall W. Forsyth provides an original account of Bernanke’s intervention:
” THE FEDERAL RESERVE has been roundly castigated in some quarters — even former high officials of the central bank — for its aggressive and unprecedented steps to combat the credit crisis.
Read the full article on Information Clearing House.
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