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2008-10-12 BACK
Some Thoughts on the Economy
Some Thoughts on the Economy This article originally appeared in the Texarkana Gazette on October 12, 2008 Dr. Ed Bashaw, Dean, Texas A&M-Texarkana College of Business I got special permission from Les Minor to submit this column later than normal so that I could write this after the U.S. House and Senate voted on the so-called rescue package. I did so because I wanted to be able to write about the good news that the stock market bounced back up and that we could see a bottoming out of the negative factors dragging on the U.S. stock market. As I pen these words today, the Dow Jones Industrial Average dropped another 500 plus points to where this index is below 9500, the lowest in five years. What happened? In today's column I look at some admittedly simplistic explanations and check into the third quarter Texarkana economy and look at the Texarkana Industrial Index (TII). The National Economy One of the first exhortations I received as a new, young salesperson was the old adage, "Nothing happens until somebody sells something." A corollary to this is that nothing happens until somebody buys something. This is a huge problem in our national economy today. Not enough people are buying something today. That includes businesses and consumers. Part of the problem, at the national level, is that we are all suffering the impact of too much buying (unreasonable home loans and high levels of personal consumer debt). The problem today is the chain of events that began when a high percent of those obtaining unreasonable home loans defaulted on their home loan. This has led to a collapse of too many in the financial markets, like Lehman Brothers, Washington Mutual, AIG, and Merrill Lynch. The impact of these failures led to the recent Federal rescue package and now the credit crisis among banks and the increasing difficulty of businesses and consumers to get a loan. When will we get out of this current economic situation? The short and overly simplistic answer is that when consumers, as a group, start spending their hard earned cash. This happens when they are optimistic about their own personal economic future and when they are able to borrow enough money at reasonable rates to buy what they want. My guess is that it will take at least six months for the actions taken at the Federal level to affect business and consumers. What should we look for to predict an improvement in the economy? Look for consumer confidence numbers (these correlate well with consumers' willingness to buy something), housing numbers (starts, pricing, and volume), and stock prices of banks (reflects their willingness and ability to make loans). The Texarkana Economy Recall that the TII consists of a formula using number of employees and stock price. The Index is down 13.3% from Jan. 1 and down 3.9% over Q2. Employment levels within these companies have dropped. The aggregate number of jobs has declined 8.8% since Jan. 1, 2008 and is down about 1% for the quarter. The summer season is a critical time for home real estate markets. The summer numbers (June, July, and August) are pretty good. Total sales are up 4.8% over last summer, but still down from 2006 sales by 11.7%. The average price for homes sold this summer is $124,458, down 8.3% over the 2007 average of $135,714. The good news is that this summer's average home selling price is up 9.8% from the 2006 average price of $113,364. The volume of housing starts is down dramatically this year over the same summer months the last two years. In 2008, we had 29 single family housing starts, down 67.8% over 2007 and down 39.6% over 2006. The value of the housing starts data is mixed. The $86,497 average value of the housing start means we are up 8.9% from 2007, but down 24.1% from 2006. August employment numbers for the Texarkana MSA were unavailable as of press time. My guess is that based on the June/July numbers, where unemployment was 4.6% for each month and the Texas numbers of 4.8%, 5.0% and 5.1%, the August Texarkana number will be something below 5%. This is very good considering the U.S. unemployment rate was 6.1%, the first time since the fourth quarter of 2003 that the U.S. rate came in at over 6%. I think there is some good news for Texarkana. Take the housing market. Total sales are up slightly. While the average sales price is down, the builders have reacted by building fewer homes. This has decreased the total supply of homes on the market. Eventually, prices will move up. Another plus is the timing of the local construction. Some examples of past and future construction projects are the new Science and Technology building at our new campus, the Interstate 30 improvements, and the TISD construction. These projects have kept money flowing in the community. These projects have increased the number of jobs in Texarkana and kept the unemployment rate low. These projects will help us ride out the effects of the national economy (deflated stock prices lowering personal wealth and credit difficulties hurting businesses and consumers) that I think will be impacting us for the next six to twelve months. Contact me at Edward.Bashaw@tamut.edu.
TOP
Some Thoughts on the Economy
Some Thoughts on the Economy This article originally appeared in the Texarkana Gazette on October 12, 2008 Dr. Ed Bashaw, Dean, Texas A&M-Texarkana College of Business I got special permission from Les Minor to submit this column later than normal so that I could write this after the U.S. House and Senate voted on the so-called rescue package. I did so because I wanted to be able to write about the good news that the stock market bounced back up and that we could see a bottoming out of the negative factors dragging on the U.S. stock market. As I pen these words today, the Dow Jones Industrial Average dropped another 500 plus points to where this index is below 9500, the lowest in five years. What happened? In today's column I look at some admittedly simplistic explanations and check into the third quarter Texarkana economy and look at the Texarkana Industrial Index (TII). The National Economy One of the first exhortations I received as a new, young salesperson was the old adage, "Nothing happens until somebody sells something." A corollary to this is that nothing happens until somebody buys something. This is a huge problem in our national economy today. Not enough people are buying something today. That includes businesses and consumers. Part of the problem, at the national level, is that we are all suffering the impact of too much buying (unreasonable home loans and high levels of personal consumer debt). The problem today is the chain of events that began when a high percent of those obtaining unreasonable home loans defaulted on their home loan. This has led to a collapse of too many in the financial markets, like Lehman Brothers, Washington Mutual, AIG, and Merrill Lynch. The impact of these failures led to the recent Federal rescue package and now the credit crisis among banks and the increasing difficulty of businesses and consumers to get a loan. When will we get out of this current economic situation? The short and overly simplistic answer is that when consumers, as a group, start spending their hard earned cash. This happens when they are optimistic about their own personal economic future and when they are able to borrow enough money at reasonable rates to buy what they want. My guess is that it will take at least six months for the actions taken at the Federal level to affect business and consumers. What should we look for to predict an improvement in the economy? Look for consumer confidence numbers (these correlate well with consumers' willingness to buy something), housing numbers (starts, pricing, and volume), and stock prices of banks (reflects their willingness and ability to make loans). The Texarkana Economy Recall that the TII consists of a formula using number of employees and stock price. The Index is down 13.3% from Jan. 1 and down 3.9% over Q2. Employment levels within these companies have dropped. The aggregate number of jobs has declined 8.8% since Jan. 1, 2008 and is down about 1% for the quarter. The summer season is a critical time for home real estate markets. The summer numbers (June, July, and August) are pretty good. Total sales are up 4.8% over last summer, but still down from 2006 sales by 11.7%. The average price for homes sold this summer is $124,458, down 8.3% over the 2007 average of $135,714. The good news is that this summer's average home selling price is up 9.8% from the 2006 average price of $113,364. The volume of housing starts is down dramatically this year over the same summer months the last two years. In 2008, we had 29 single family housing starts, down 67.8% over 2007 and down 39.6% over 2006. The value of the housing starts data is mixed. The $86,497 average value of the housing start means we are up 8.9% from 2007, but down 24.1% from 2006. August employment numbers for the Texarkana MSA were unavailable as of press time. My guess is that based on the June/July numbers, where unemployment was 4.6% for each month and the Texas numbers of 4.8%, 5.0% and 5.1%, the August Texarkana number will be something below 5%. This is very good considering the U.S. unemployment rate was 6.1%, the first time since the fourth quarter of 2003 that the U.S. rate came in at over 6%. I think there is some good news for Texarkana. Take the housing market. Total sales are up slightly. While the average sales price is down, the builders have reacted by building fewer homes. This has decreased the total supply of homes on the market. Eventually, prices will move up. Another plus is the timing of the local construction. Some examples of past and future construction projects are the new Science and Technology building at our new campus, the Interstate 30 improvements, and the TISD construction. These projects have kept money flowing in the community. These projects have increased the number of jobs in Texarkana and kept the unemployment rate low. These projects will help us ride out the effects of the national economy (deflated stock prices lowering personal wealth and credit difficulties hurting businesses and consumers) that I think will be impacting us for the next six to twelve months. Contact me at Edward.Bashaw@tamut.edu.
TOP