Top of the News: Our skepticism alert should always go on high when housing stories come out. So it is with today’s report that housing construction rose 1.5 percent in August.
Single-family housing construction actually fell, and the overall rate disappointed the forecast. This with a new tax-credit that is probably distorting sales upward and is likely not sustainable. Construction is a staggering 70 percent below its peak in 2006. And that’s where we begin to understand the deep wounds facing this sector — which had become more and more central to an American economy that was producing less of almost everything else (other than housing swindles) in the 2000s.
Even when housing “recovers,” it will feel sick. And the problem goes beyond the huge inventory of unsold houses.
A huge piece of the American economy calibrated itself to the pace of construction and sales during the mid-2000s. So the new normal may still feel like a recession. In places such as Nevada, Arizona and Florida, it will still feel like a depression. Business plans will have to be rewritten. Entire companies will continue to go under because they depended on boom-level revenues to stay afloat. And, of course, the massive leverage to keep the entire machine going is impossible to revive. Alan Greenspan is retired.
Of course, location, location, location. So the most desirable areas — including much, but by no means all, of the Puget Sound region — will come back sooner and “stronger” (the new normal, remember). But the pain from the housing crash will not go away anytime soon.
Midweek Briefing (a day late): The widely watched Anderson Forecast from UCLA agrees with Fed Chairman Ben Bernanke that the recession has ended. The bad news: Its damage will linger well into the next decade. Growth will be sluggish and unemployment will be above 10 percent nationally at least through 2010. More bad news for the Democrats.
–Richard Florida looks at data concerning unemployment in creative-class sectors (and, no, they’re not just poets). These groups are doing better than construction or production workers, but there’s significant differences among professions. “Computer, sciences, and engineering professionals experience lower rates of unemployment than arts, design, and entertainment workers. But the lowest rates of unemployment and the most stable employment are found in meds and eds occupations – health and education – where unemployment stays consistently low, even during downturns.”
–Learning Nothing Department: You remember credit default swaps, the weapons of financial mass destruction that helped set off the crash. According to Bloomberg, they’re coming back in vogue on Wall Street.
–China, Japan and the United Kingdom (which does banking for the petro states) added to their holdings of long-term Treasuries in July. Net foreign investment inflows are still in negative territory.
–Economist Nouriel Roubini offers his latest take in this column from the Globe and Mail. The guy who saw the great recession coming says that although the Fed avoided a depression, the trick now is to craft an exit strategy that avoids inflation and deficit disaster that could send the economy into another tailspin.
–Imitation being the sincerest form of flattery, someone has come up with a haiku contest to mark the G-20 summit in Pittsburgh. Par-tay.
Today’s Econ Haiku:
At the G-20
In Pittsburgh will they show steel
Against the banksters?