Magazine article EconSouth

After Rocky 2008, U.S. Consumers Seek Stable Ground in 2009: Heading into a New Year, the U.S. Economy Faces Many of the Challenges That Made 2008 Difficult: Tight Financial Markets, Rising Foreclosure Rates, and Job Losses. by Almost Any Yardstick, 2009 Will Also Present Formidable Challenges

Magazine article EconSouth

After Rocky 2008, U.S. Consumers Seek Stable Ground in 2009: Heading into a New Year, the U.S. Economy Faces Many of the Challenges That Made 2008 Difficult: Tight Financial Markets, Rising Foreclosure Rates, and Job Losses. by Almost Any Yardstick, 2009 Will Also Present Formidable Challenges

Article excerpt

[ILLUSTRATION OMITTED]

In 2008 the problems affecting the U.S. financial system took a toll on an already weak general economy. High rates of home foreclosures, declines in home prices, and, ultimately, the lack of credit availability in the economy translated into sharply lower levels of economic activity. The outlook is for further weakness through the first half of 2009, and these conditions will likely continue to dampen consumer price pressures.

Weakening intensified during 2008

EconSouth's outlook at the end of 2007 identified consumer spending and labor markets as areas of downside risk in 2008. A favorable export environment was expected to boost economic growth, and forecasters anticipated higher inflation.

As expected, consumer spending slowed in early 2008 amid declines in real estate values and the run-up in energy prices. A tax rebate stimulus temporarily boosted spending in the second quarter, but growth in consumer spending remained restrained.

Slowing economic activity led to weakening labor markets. Nonfarm payroll employment began to decline in January as firms increasingly held back on hiring, raising the unemployment rate. Layoffs were widespread, and employment in residential construction and parts of the manufacturing sector bore the brunt.

Despite the worsening jobs situation, economic activity as measured by real gross domestic product (GDP) was relatively strong in the first and second quarters, at 0.9 percent and 2.8 percent, respectively. That growth was partially buoyed by robust exports, which were spurred by strong foreign demand and a decline in the strength of the U.S. dollar relative to other currencies.

Last half of 2008 saw faster weakening

Economic vital signs in the second half of the year were much weaker than during the first half. For example, the national unemployment rate for October was 6.5 percent, the highest level in 14 years and up from 4.9 percent in January 2008, according to the U.S. Bureau of Labor Statistics. Payroll employment declined by 650,000 from August to October compared with losses averaging 113,000 in the first quarter and 218,000 in the second quarter (see chart 1).

Financial stresses intensified dramatically in September, clearly contributing to a sharp contraction in spending and employment. Labor market conditions deteriorated further, shifting from businesses' reluctance to hire or replace staff to a marked increase in mass layoffs. The weakness has spread beyond housing industry woes and is now broad based: Employment has fallen in auto manufacturing, transportation and distribution, retail, and financial services.

Real GDP declined an estimated annualized rate of 0.5 percent in the third quarter, according to the preliminary estimate from the U.S. Bureau of Economic Analysis. At the same time, consumer spending notably weakened, declining for the first time since 1991. Data for October 2008 suggest that GDP is likely to drop steeply in the fourth quarter. For instance, auto sales plummeted in October, and anecdotal evidence, as well as record low readings from consumer confidence surveys, points to a bleak holiday season for retailers. Indicators from the manufacturing sector are similarly downbeat.

[GRAPHIC 1 OMITTED]

[GRAPHIC 2 OMITTED]

Inflation rears up, then settles down

Consumer price inflation accelerated through the first half of 2008, pushed up by rising oil prices that topped $140 per barrel during the summer. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.