Unemployment Up, Home Prices Down as U.S. Economy Slows
San José, CA – In the first week of June, two important reports showed a sharp slowdown in the U.S. economy. On Friday, June 3, the Department of Labor said that unemployment in May rose to 9.1%, while only 54,000 new jobs were created, far less than what mainstream economists were predicting. Two days earlier, on June 1, a report on home prices showed another drop of 4.2% in the first three months of 2011, bringing home prices to a new low since the housing market began to tank in 2006.
Not only did the unemployment rate rise for the second month in a row, but the average length of unemployment rose to 39.7 weeks (almost 10 months), the longest time on records going back to 1948. Unemployment continued to hit oppressed nationalities the hardest, with the African American unemployment rate at 16.2%, more than twice the rate of whites.
One of the reasons for the small number of new jobs created in May was that local governments cut 28,000 jobs, mostly from cuts in education. Over the last year, local governments have cut 268,000 jobs as the poor economy and cuts in state and federal government support have forced cutbacks in schools and other local government services. These cuts often hurt poor and working-class families who have to depend on public schools and local government services, especially with the continuing high unemployment rates.
The fall in home prices was reported by the Standard and Poor’s/Case-Schiller index, which looks as changes in prices of same homes (as opposed to most reports that just give the average price of whatever homes are sold, which can be pulled up or down by the numbers of low or high priced homes being sold). The fall in home prices has brought the average home in 20 U.S. metropolitan areas back down to 2002 levels, wiping out all of the gains of the housing boom from 2003 to 2006. Falling home prices are pushing more and more homeowners ‘underwater’, where their mortgages are worth more than their homes. Almost a quarter (23%) of homeowners with mortgages are in this situation, which makes it harder for them to sell their home and foreclosure more likely.
Falling home prices are not only hurting homeowners, but are also a drag on the overall economy. In previous recessions, construction of new homes has been a big part of an economic recovery by creating new jobs in construction, real estate and finance. But with large numbers of foreclosed homes putting downward pressure on home prices while continuing high unemployment is a damper on home buyers, housing construction remains very slow despite very low interest rates on mortgages. The latest report of about 550,000 starts of home construction (at an annual rate) is one-third to one-half the rates following the last three recessions.
With high unemployment limiting household spending, the construction industry in the dumps, businesses sitting on a trillion dollars of cash that they are unwilling to spend, and local and state government cutting jobs, wages and pensions, only the federal government has been able to spend to sustain the economy. But the Republican-led charge to cut federal government spending promises even more job losses, increasing the chances of the economy falling back into a recession.