Thursday PM March 6th, 2008
by: Ed Mayberry, March 6, 2008 11:03:00 am
The Labor Department says the number of new people signing up for unemployment benefits fell sharply last week. It was a spot of welcome news that still failed to change the overall picture of a softer employment climate. The government's report on Thursday shows new applications filed for unemployment insurance fell by a seasonally adjusted 24,000 to 351,000 for the week ending March 1st. The drop left claims lower than the 360,000 showing economists were expecting. Still, the longer-term picture shows a slowing in the jobs market. A year ago, new filings for unemployment benefits stood at 327,000.
The Federal Reserve says Americans' percentage of equity in their homes has fallen below 50 percent for the first time since 1945. The Fed's U.S. flow of funds accounts shows homeowners' percentage of home equity slipped to a revised 49.6 percent in the second quarter of 2007 and declined further to 47.9 percent in the fourth quarter. It marks the first time homeowners' debt on their houses exceeds their equity since the Fed started tracking the data in 1945. Home equity is equal to the percentage of a home's market value minus mortgage-related debt. On average, housing is Americans' single largest asset. Economists expect falling home prices to continue to eat into equity.
A professor emeritus of international economics from the University of Chicago's Graduate School of Business looked into his crystal ball for the Houston chapter in a discussion at the Houston Club. Robert Aliber says things do not look good in the housing market.
"I think it's likely that we will see further declines in house prices, that we're going to be in a very severe recession. That's going to make a big dent in corporate earnings and the likelihood is high that stock prices are going to fall. So we'll face a situation in which both house prices and stock prices are falling at the same for a couple years. That means investors will sit on a lot of cash. The increases in gas prices has had a big impact on people who have below-average income, and so they are hurting. Now, I think the good news is that we're at the end of the expansion phase of the cycle and as we and other countries go into recession, we're very likely to see the oil price fall and perhaps sharply, as it has in previous recessions, unless a political incident in one of the producing countries leads to a reduction in supply."
But Aliber says we're not into a recession at this time.
"One of the important measures of recession is a drop in the number of people employed. If we were to be in a recession, we would see a decline of a million people--800,000 or a million people--nearly one percent of the labor force. If we were in a recession we would see a sharp decline in industrial production—four or five percent. That hasn't happened. So we're not in a recession yet. This morning's news said that jobless claims actually declined. But recession is inevitable. Anytime the capital structure of the banking system collapses, recessions follow because of the credit crunch."
Aliber successfully predicted the housing crisis at last year's Houston Club luncheon.
The pump price of gasoline is extending its advance toward record levels. AAA and the Oil Price Information Service put the national average price of a gallon of gas at about $3.18—up nearly a penny.
The House Budget Committee has approved a $3 trillion budget plan for 2009. The Democratic blueprint passed on a party line vote early Thursday. It would produce sizable surpluses by 2012 by allowing President Bush's tax cuts to expire as scheduled. It would also award greater-than-inflation increases to domestic programs. That immediately earned a promise from the White House that Bush would veto spending hikes that show up in agency budgets. The Senate Budget Committee plans a vote Thursday on a largely similar plan. Bush claimed victory in last year's budget standoff with Congress and is eager to bring lawmakers to heel again. As a result, Democrats are signaling they do not intend to send him many spending bills this year. They prefer to deal with his successor, who they hope will be a Democrat, after bush leaves office next January.
Federal regulators say they will seek a $10.2 million penalty against Southwest Airlines for failing to inspect older planes for cracks and then letting the airplanes fly before inspections were done. The FAA said that Dallas-based Southwest operated nearly 60,000 flights using 46 planes that had not been inspected for possible fatigue-related cracking on the fuselage. The inspections were ordered in 2004. The airline says it complied with regulators' requests and thought the case was closed last year. A spokeswoman says the airline will contest any fine.
While U.S. taxpayers wait for federal rebate payments, some state officials across the country are considering their own programs aimed at jump-starting the economy. Pennsylvania's governor has proposed a one-time state tax rebate up to $400 for more than 475,000 lower-income working families. The governor of Illinois wants to give families tax breaks by selling off future revenue from the nationwide settlement with tobacco companies. In Connecticut, some lawmakers want to send rebate checks of $50 to $290 to a million taxpayers. Legislators are also considering rental and heating assistance for needy families and a new revolving loan fund to ease the subprime mortgage mess. Unlike the federal government, most states have to balance their operating budgets. That means funding a state stimulus program could mean less money for education, health care, transportation and public safety. The IRS has said the federal rebates will begin going out in May, both in the form of check and direct deposit payments into taxpayers' bank accounts.