Dow Jones
Has the Ecomonic Recovery Already Started? by Jason P. Jones
Just more than a month since the approval of the giant $787 billion stimulus package, there are already signs that the economy might be recovering. The package which is a combination of federal spending and tax cuts will provide one-time rebates to about 111 million families, tax breaks to businesses and ease mortgage loan limits. The package is the Obama administration’s key for the economy’s revival.
Just a few days back, the general public’s mood was soured by the grim news of high unemployment rate which stands at 8.1 percent for the month of February. This is worsened by the expectations of some experts that the unemployment rate will reach 10 percent by year end. News on the housing front didn’t help either. First American CoreLogic reported that “about 8.31 million properties had negative equity at the end of 2008″ and more homeowners are expected to lose their homes due to foreclosures.
But despite this gloomy outlook, the public’s sentiment was never dampened and good news suddenly surfaced from unexpected sources. Based on the number of new house construction it seems the housing industry is on the rise again. The US Stock Exchange also starts to heat up rallying higher and higher since last week.
Last Tuesday, the Commerce Department reported that construction of new houses and apartments increased by 22.2 percent last month February compared to January. This construction boom has been observed throughout the country, except in the western states. The increase in constructions is mostly apartments and less on single-family houses. Experts believe that a more solid indicator of a strong housing rebound should be a sustained three month rise in single-family houses. But based on the current trend in home ownership there is a general belief that it’s much better to rent than to own a house. This belief could explain the increase in apartment construction. Prior the crisis, houses are very expensive that’s why a majority of house buyers opted for mortgage. Mortgage has been pinpointed as the cause of the current economic crisis and affects a large number of homeowners. It is estimated that about 27% of the country’s 52 million homeowners owe more on their mortgages than their homes are worth. The increase in construction boom is also followed by an increase in housing sales albeit more localized. For example in Cape Coral, Florida house sales has also gone up by 103 percent. However construction activity is still 47.3 percent below a year ago.
On March 13, Citigroup declared that it no longer needs government bailout money to keep itself afloat. This single news alone raised the US stock exchange, especially the Dow Jones industrial index to 7,198 points up by 0.39 percent that day. Puny by US standards by this rally has continued up to today. As of March 18, the Dow Jones has reached 7,528 points. That’s a hefty 13 percent hike from last week. This rise if further bolstered by the central bank’s announcement that it will purchase $300 billion worth of Treasury securities. There’s supporting data that this increase may be more than just a bear run as what most financial analyst believe. More people have opted to open savings accounts than to spend. February data shows that the US savings rate has zoomed up to 3.6%, which is a 2.8% increase compared to November last year. This means that the public have saved enough cash; with the Stocks at its lowest they started buying.
However everything is not as rosy as there are still some signs reminding us that the economy may not be in its best shape yet. Caterpillar Inc. planned to lay off more than 2,400 in the US, while Nokia will lay off 1,700 in its global operation. But despite this, I personally believe that with current trend in the stock and housing market, the start of the recovery might be at hand.
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