National Economic Outlook - June 2014

National Economic Outlook - June 2014

Written By:
Ingo Winzer, President

Local Market Monitor

The majority of Americans live in places where home prices - even if they have increased lately - are still at least 10 percent lower than the peak they reached during the mid-2000s boom. These include New York, Los Angeles, Chicago, Atlanta, Washington DC, Seattle, Charlotte and Salt Lake City. Prices are higher only in San Francisco, Denver, and pretty much all of Texas.

The reason this is important is that large numbers of homeowners in those places hold mortgages that are still under water - they owe more than their home is worth - and therefore can't borrow against any home equity and can't either sell their home or buy a new one. They are essentially out of the real estate market and also can't spend any money. No wonder that home construction is still in a trough and that the economy is just sputtering along.

The latest GDP estimate for the fourth quarter of 2013 shows that consumers increased spending at a modest 2 percent annual rate but that investment in equipment, construction and inventories dropped just as much, leaving GDP down one percent because exports fell. (The government, as usual, made no contribution.)

Despite the optimistic pronouncements, the job situation in May was much the same as it has been for months, with jobs up 1.8 percent from last year. Jobs were up just 3 percent in construction, 1 percent in manufacturing, 2 percent in retail, 3.5 percent in business services, 3 percent at restaurants, and 1.5 percent in healthcare. Note that low-wage jobs make up most of the increase. The unemployment rate is still 6.3 percent.