Chapman is predicting an upturn in the local economy during late 2009, with job growth coming in mid-2010. Some of you may be wondering what they're thinking over there since the unemployment rate announced last week went up to 8.6% for Orange County. Chapman's economists look at and weigh many factors.
One factor is looking at patterns of previous recessions. If you look at previous recessions, you may learn how to spot when the line on the graph really starts to go up instead of down. This can be tricky because there can be many small ups and downs before a real trend emerges. Looking at the change in monthly payroll employment, the decline that started in 2007 appears to have bottomed out. There was a sharp increase in the downward rate about a year ago. The numbers have leveled out for about the last 3 months.
Housing has driven much of Orange County's economy. New housing creation employed people in construction, development, sales, and lending. Chapman's staff looks at construction spending throughout California. Starting in late 2005, construction spending started to decline. Chapman thinks construction spending will bottom out in the last quarter of 2009 and start to trend upward during the next year.
Jobs, saving and spending go together. No job is no spending and no saving.
Unemployment numbers are frequently quoted as an indicator of economic health, but the unemployment number is a little "dirty". The number of people receiving unemployment includes new people being added this week because they just lost their job and became eligible and people continuing to be on unemployment. Also, once you stop being on unemployment because you used up your eligibility, you stop being counted. (Yes, these uncounted, unemployed people are a subject of much discussion among economists.)
A better measure is the leading indicator (See Pt 1 of this series) of initial jobless claims. This number shows if more or fewer people are losing their jobs. Initial jobless claims started to rise in February of 2009 after a flat January. The claims leveled off at about 650,000 (4 week moving average) from about March to the end of April. Claims started to dip slightly (from about 650,000 to about 625,000) then level off in May. Economists are hoping the dip and new lower level may indicate we are heading into a recovery.
The Chapman forecast uses both national and local data to reach their conclusion. Some of the things the forecasters look for are:
Are the same trends being seen both nationally and locally?
What is the time lag between national and local economic events and cycles?
Has history shown a strong tie between local and national events or do the two sometimes diverge? Is it possible for the nation to be in a recession while Orange County stays level?
What doesn't make sense? What other data is needed to see a trend, or do we just need to wait it out to see the direction it's moving in?
GDP (Gross Domestic Product)
GDP was measured using a quarter to quarter percent change (also called real GDP growth.) You do this to see if the number is increasing, decreasing or staying the same. Real GDP growth hit zero (0!) in 1st quarter of 2007, went up, flattened out, and hit zero again before the 1st quarter of 2008. Real GDP growth spiked again in the 2nd quarter of 2008, then went below zero (negative). It's looking like real GDP growth hit bottom in the 4th quarter of 2008 and is trending slowly upward. Real GDP growth became positive around March 2009 and is now around about 1.2% to 1.7% percent, quarter to quarter. This is a good sign that the pieces of the GDP (see Pt 1 of this series) are starting to move in one, positive direction.
Household income was measured as year to year % change. Change in household income was flat from January 2007 to January 2008, then started to decline. In December 2008,
Economists have a lingo all their own. When economists talk, people smile and nod, but many of them don't understand what was said or what it really means. Let's start with some common terms. Getting thru these will arm you for your next battle of wits with some one who thinks they know what they are talking about!
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