Is Employment Still a Lagging Indicator?

A basic economic premise is that employment is always a lagging indicator in economic cycles. During previous downturns, companies were slow to lay off workers because of the time and other resources they had invested in these employees. At the end of these downturns, more 'permanent' resources such as employees were the last segment of expansion. Of course, these premises were built many years ago when most employees had retirement plans and spent a career with one or two companies. The companies themselves were in business 'forever.' In today's market of more frequent turnover of employees and more frequent turnover of companies themselves, we would expect that an old premise such as lagging employment would not be as strong.
Yet, as we look at an impending recovery it seems employment is the last indicator to get the message. We have now had three straight months of expansion of the leading economic indicators. Even real estate is starting to stir with increases in housing starts and existing home sales. Yet, we are nowhere near expansion of the workforce. The employment numbers are not as bad as they were but they are nowhere near positive. In the next week we have some very important numbers coming up. The first is a snapshot of second quarter economy and then the employment numbers for July will follow. It will be interesting to see if we continue to witness employment lagging behind other aspects of the economy. Make no mistake about it, employment must rise before we are fully out of this recession.
Housing experts predict that multi-family rental properties and apartments will recover fastest from the current downturn, followed by housing in cities that didn't overbuild. The market is likely to hit bottom in the next few months, says Bernard Markstein, senior economist and director of forecasting for the National Association of Home Builders. 'Next year will see slow but steady improvement, as home builders are controlling their inventory,' Markstein says. Apartments and other multi-family residences will snap back quickly once businesses start hiring again, predicts Victor Calanog, director of research at Reis. Baby boomers looking for retirement homes and first-time home buyers also will lead the way out of the decline, predicts Bill Singer, a securities attorney and trader who is a member of Forbes.com's panel of financial gurus. Source: Forbes.com
Low prices and high affordability both urge consumers back to the housing market, according to Realtor.com's national homeownership survey Nearly two-thirds (62.5%) of potential homebuyers surveyed named increased affordability as a motivator for them to purchase a home. Foreclosure bargains in their communities are the motivating factor for 19.6% of potential buyers surveyed. "Value is clearly motivating potential home buyers, and today's new level of affordability is still an under-appreciated reality that needs to be explored," said Realtor.com president Errol Samuelson in a release. "The variety and quality of homes currently within reach of the average American family is much greater than most people realize. Making credit available to responsible borrowers and building consumer confidence in the economy are now key factors in restoring vitality to the nation's housing market." The survey also showed that low prices aren't making sellers wary of the market. Only 10% of potential sellers said they were holding off putting their home on the market because of lower prices. In addition, 15.5% of potential buyers said they were motivated to buy soon because they believe prices are as low as they'll go. A concern over rates increasing was the factor an additional 15.5% of Realtors.com's respondents said is motivating them to buy, while the federal government's $8,000 tax credit for homebuyers is the motivation 14.6% of respondents said they need to get into the housing market. Source: Housing Wire

Courtesy of Joanie Deas with Franklin American Mortgage
jdeas@franklinamerican.com