When in 2009 Will the Economic Recovery Begin?
By John McClain, Senior Fellow, George Mason University, Center for Regional Analysis
The United States “officially” entered into recession in December of 2007, and as of early 2009 continued even deeper into recession as measured by many national economic indicators. As 2009 begins, a new president and administration have begun to address the challenges in the national economic condition, and many hope that the federal government actions will begin to turn the economy around. The Washington metropolitan area continues to have job growth and is weathering the economic storm better than anywhere else in the country, but the effects of national economic forces are felt in the region. What can be expected in 2009 in the economy and housing market—nationally and in the region?
How Does This Recession Compare?
The 2007-2009 recession is already long enough to be the worst since the 1981-82 recession, which lasted 16 months. It is possible that this recession may exceed that one. Here is a summary of key national indicators:
- Housing continues to be a drag on the economy with both new and existing home sales in a negative trend, and information on foreclosures indicating serious problems in many parts of the country.
- National job growth has dropped from an annual average of adding 2.13 million new jobs in December 2006 to a loss of 2.5 million jobs from November 2007 to November 2008.
- Both the manufacturing and business indices of the Institute of Supply Management show significant recessionary declines as of November 2008.
- Initial claims for unemployment increased to near record levels and the unemployment rate stood at 7.2 percent in November.
- Consumer confidence measures have dropped to all-time historic lows.
- The financial crisis and the recession are the focus of Congress and the Obama Administration and measures will be implemented and are planned to address the economic situation. There is the expectation that the actions and plans, along with time for markets to improve, will result in economic recovery, in general, by later in 2009.
US Gross Domestic Product – the primary but not only item used to measure recessions – was negative in the fourth quarter of 2007, turned positive in the first two quarters of 2008 as spending was enhanced by the stimulus checks to taxpayers, and turned negative again in the third quarter of 2008. Forecasts by Global Insight are that the fourth quarter of 2008 and the first quarter of 2009 will be the bottom of the economic slide with quarterly GDP down more than 5 percent in each of those quarters. The forecast for the second quarter is a decline of another 1.8 percent before the economy turns positive in the third quarter of 2009.
If these forecasts hold, then the national economy will begin to recover this coming summer and will return to normal healthy rates of growth by spring of 2010.
What about the Washington Region’s “Recovery”?
Against the environment of the national economic situation, the Washington area economy continues to expand, although much more slowly. The region is not expected to actually enter into recession. For the past four recessions going back 28 years, Washington D.C.’s Gross Regional Product did not turn negative, although the region experienced job losses in both the 1982 and 1991 recessions. For the 2007-2009 recession, the Center for Regional Analysis projects continued job growth, albeit very modest.
Recessionary effects are partially mitigated in the Washington region due to the presence of the federal government, and as of November 2008 the region was adding jobs at an annual rate of 1.0 percent per year, and its unemployment rate of 4.4 percent was the lowest among all metropolitan areas in the country, far below the national rate.
But while the effects are partially mitigated in the region as measured by broad economic indicators, there are nevertheless significant impacts being felt by many sectors of the economy – those related to housing and those more connected to national factors. The region continues to add jobs in the services sectors and in government, while losing jobs in construction, trade, financial activities and manufacturing.
Given these conditions and the data as of early 2009, it is expected that 2009 will be the worst year since 2002 but that jobs will continue to be added and growth will be in the low 20,000s—about half the long-term average job growth in the region.
And if this forecast holds, the housing market will also begin to turn around in 2009. Prices have already stabilized in the inner parts of the region; sales have been increasing in the outer suburbs where prices have fallen to levels that potential buyers are moving in from the sidelines and becoming buyers. As of early 2009, there is a way to go for a return to normal markets, but forces are underway that should bring market conditions closer to normal as the year unfolds. Low interest rates, lower prices in many areas, fewer housing starts, and likely actions in a federal stimulus package are all good reasons to believe that we will see a better housing market in 2009.