Unemployment, housing not likely to improve for rest of year, economists say
Unemployment numbers released late last week by the U.S. Department of Labor painted a somewhat improved picture on the labor market, as the national unemployment rate fell to 9.5 percent in June from 9.7 percent in May.
However, several Milwaukee and Midwestern economists do not believe there will be any more improvement in the jobs market for the rest of the year, even if economic conditions improve.
“Now what you’re seeing is there were so many people without a job and they were so discouraged that they were not looking for a job,” said Abdur Chowdhury, an economics professor at Marquette University. “Now that things are improving slightly and the economy is getting slightly better, many of these people will come back to the labor market and will start looking for jobs. That will keep the unemployment rate high.”
The Department of Labor report says virtually the same thing – that 652,000 people gave up on their job searches. Those people were not counted in the report.
Bruce Bittles, chief investment strategist with Milwaukee-based Robert W. Baird, agreed, and said that the unemployment percentage is likely to creep closer to 10 percent by the end of the year.
“I really think this is going to be a jobless recovery, if it is a recovery at all,” he said. “So many folks dropped out of the market that as soon as things pick up, they’ll get right back into it. It’s going to be difficult to get that unemployment rate down.”
Partly because unemployment is going to stay high, Bittles does not expect the housing market to improve for the rest of the year.
“During the second half of the year, home prices could come under pressure again simply because the government’s support program has expired,” he said. “Delinquency is still running at a very high rate, and foreclosure is as well. A lot of inventory is going to continue to come onto the market and I think that will continue to pressure prices in the second half of the year.”
“What was propping up the housing market was the government stimulus,” he said. “The question was ‘Can the housing market recover on its own?’ The first month was not so good. That’s something we have to be careful about.”
Although the massive oil spill that continues in the Gulf of Mexico is an environmental disaster, it is not likely to have a significant economic impact on the U.S., several economists say.
“If you look at the oil price since the start of the spill, it has not changed significantly,” said Abdur Chowdhury, an economics professor at Marquette University. “There is still a significant amount of oil inventory and that’s why you don’t see this translating into a higher price.”
Response to the oil spill, both from the government and private sector, could actually be a short-term economic stimulus, said Michael Knetter, dean of the School of Business at the University of Wisconsin.
“It may be something at the margin that requires more government spending and activity in that sense,” he said. “Certain natural disasters make GDP numbers look good. It’s an unmitigated disaster for the country, but I don’t know if that makes the near term economy worse.”
Several economists believe that the oil spill could result in long-term policy changes which could lead to economic drawbacks.
“The largest threat is if, as a result of us not producing more oil, prices begin to rise,” Bittles said. “If oil climbs back to $100 a barrel, I think it’s going to act like a big harsh tax on consumers. It would come at a time when the economy is already in a fragile state, and I think it would be a large negative.”
Roughly three-quarters of the crude oil consumed by the US is imported, said Keith Hembre, chief economist for US Bank, which could mitigate any federal moratorium on oil exploration or drilling.
“Oil production is not a major GDP component,” he said. “Closing down one component of domestic production is probably not a major factor in terms of the global supply situation. But at the margin, it’s less production.”
For more analysis from Milwaukee and Midwestern economists, be sure to read the July 9 issue of BizTimes Milwaukee, which contains our annual Mid Year Economic Forecast.