November 13, 2012

Are we better off now? Depends

Economic statistics show mixed verdict

Employment: Falling, now rising

Arizona's unemployment rate hit 8 percent in December 2008, and it's remained above that level since. By late 2009 and early 2010, the state's unemployment rate peaked at 10.8 percent before ebbing. Last month, the state's unemployment rate fell to 8.2 percent.

Nationally, unemployment has followed a similar, albeit less severe, trend. The national unemployment rate was 7.3 percent in December 2008. Nearly a year later, it hit 10 percent before tapering off. In September it was 7.8 percent, the first time in years the national unemployment rate was below 8 percent.

Yes, the unemployment rates are worse than they were four years ago, but Hoffman said people should be cautious about making the direct comparison. "In the fall of '08, most of us knew with pretty high probability that things were going to be really miserable within six to nine months because we were heading into the worst recession in the post-war period."
Verdict: Mixed wages and living costs

Many living costs have increased over the past four years while wages have increased only slightly. The Consumer Price Index for the Phoenix metro area increased from 119 to 124 in that span (the baseline is 100). Another index most readers are familiar with also made a big jump: the price of gas. In Oct. 24, 2008, the average cost of a gallon of gas in Arizona was $2.94, according to AAA. In Phoenix, it was $2.91.

Four years later, the average cost of gas was $3.69 a gallon in Phoenix and across the state.

Meanwhile, wages have only moderately increased. In 2008, the average hourly wage in Arizona was $18.88 and the median wage was $14.87. By 2011, the most recent year available from the state, Arizona's average hourly wage was $21 and the median wage was $16.40.

"Wages are lower after you adjust for inflation," University of Arizona economist Marshall Vest said. "If you adjust for inflation, I think we have lost ground."

That was the case for Linda Guymon, who posted this on Facebook in response to The Arizona Republic's question of whether people are better off than they were four years ago:

"Fixed income is going faster now," she wrote. "We were going to travel when I retired, but the cost of medicine and the price of fuel has hindered our plans. Everything is so much more expensive."
Verdict: Worse dealing with debt

A big trigger for the recession was too much borrowing by consumers during the prior economic boom. When the party ended, Americans were tapped out, burdened with a record $12.7 trillion in household debt by the third quarter of 2008, and they have been struggling to pay it down ever since.

To a degree, these efforts have succeeded. Consumer debts have dropped by $1.3 trillion, or 10 percent, since the peak four years ago, according to the Federal Reserve Bank of New York. Loan delinquencies have tumbled across the board, with the proportion of past-due credit-card accounts now at an 11-year low, reports the American Bankers Association. "Economic uncertainty has made consumers hesitant to take on new debt," said James Chessen, the association's chief economist. "Building a stronger financial base has become a priority."

Arizona's bankruptcy picture reflects this progress. Filings totaled 1,950 in September, the most recent month for which statistics are available. While that's up from 1,741 filings in November 2008, it's down sharply from the peak of 4,135 in March 2010.

But it's also true that a good chunk of the debt load incurred by Americans was deemed uncollectable and written off by banks and other lenders, and some of it got dumped by people filing for bankruptcy. While the debt burden has lightened, a sizable amount of IOUs were wiped away but not paid off.

In short, the worst of the debt crunch appears to have passed, though problems remain and consumers don't deserve full credit for the deleveraging trend.
Verdict: Mixed savings and deposits

Consumers who continue to make debt payments generally have benefited from the slide in interest rates spurred by weak economic growth and Federal Reserve efforts to push borrowing costs lower. But there's a flip side: The same pressures have battered people with money in deposit accounts and other forms of saving.

The evaporation in yields has been startling. Six-month certificates of deposit that paid 2.83 percent on average in November 2008 had shrunk to 0.33 percent as of October of this year, according to the Federal Reserve. One-year Treasury bills slipped from 1.04 percent to 0.18 percent. Yields on medium-quality corporate bonds fell from 9.21 percent to 4.55 percent.

Retirees and others living on fixed incomes have paid the price. In the search for higher income, some have responded by shifting from CDs and money-market funds to bonds and bond funds. Yet those latter investments fluctuate in price and could get clobbered when interest rates start rising, which seems inevitable. "These people are trading one type of risk for another," said Allan Flader, a financial adviser at RBC Wealth Management in Phoenix.

But for the most part, many people still prefer to play it safe, hedging against the possibility of job losses or economic calamity down the road.

Despite paltry yields and grumbling about bank fees, Americans actually have $1.3 trillion more on deposit in federally insured bank accounts today than they did at the time of the 2008 election -- and most of that money is earning next to nothing.
Verdict: Worse real estate and housing

In fall 2008, Arizona's housing values were collapsing as foreclosures were flooding the market. The median sales price for Maricopa County homes (single family and condos) was $145,000 and falling fast, said Michael Orr, director of the Center for Real Estate Theory and Practice at Arizona State University's W.P. Carey School of Business.

By April 2009, the median sales price hit $119,900. The market hit bottom in August 2011 at $112,000. By September 2012, the median sales price had cycled back up to $146,000.

"From a housing point of view, we are dramatically better off," Orr said.

Likewise, foreclosure filings, while still significant, have slowed down. In December of 2008, there were 12,351 foreclosure filings for Maricopa County, according to RealtyTrac. In September, there were 4,126 filings.

That's cold comfort for anyone who lost a home in the crisis, but it reflects improvement.

"We have a lot of people who have lost their homes," Orr said. "But if you're looking ahead rather than behind, prospects look a lot better now than they did in 2008."
Verdict: Better education, student loans

Tuition and fees at Arizona's three universities have increased over the last four years. So have student-loan burdens as well as the number of students with debt at graduation.

For Arizona residents, tuition and fees at the state's three universities was about $5,000 in 2007-08. By 2011-12, tuition ranged from $8,824 at Northern Arizona University to $10,035 at the University of Arizona, according to the Board of Regents.

Meanwhile, the average amount of debt students are carrying at graduation has increased from $17,572 in 2007-08 to $21,158 for the 2010-11 school year, the most recent year available from the Arizona Board of Regents.

This follows a national trend. According to the Federal Reserve Bank of New York, the nation's student-loan debt has increased by $303 billion since the third quarter of 2008. As of June 30, student-loan debt stood at $914 billion. At the same time, other forms of consumer debt have decreased by $1.6 trillion.
Verdict: Worse stock market

If there's one corner of the economy that's clearly better off compared with four years ago, it's the stock market. Share prices actually continued to sink following the 2008 presidential election and didn't bottom until the following March. But since then, it has been a steady upward march, with the Dow Jones industrial average and Standard & Poor's 500 index more than doubling.

A gradually improving economy and sharply higher corporate earnings have been catalysts. Big U.S. corporations in the S&P 500 collectively earned just $14.88 a share in 2008. That rose to $86.95 a share in 2011, and profits are on track to top that in 2012, though the rate of increase is slowing. Also, companies are flush with cash and have returned some of that to shareholders as dividends.

The rebounding stock market has created a "wealth effect" for some investors, helping them feel more confident about their finances and making them more willing and able to spend money. However, not everyone has joined the party. Roughly half the nation has no stake in the stock market, and a lot of the rest have scaled back their exposure to equities despite the solid rebound. In particular, adults in the 35-44 age group have missed the rally by staying in cash, not participating in workplace retirement plans or making other poor moves, according to a Pew Research analysis.

But investors in general have grown more skittish. For example, they have withdrawn a net $250 billion or so from stock mutual funds since the start of 2009 while adding nearly $1 trillion to bond funds, according to data compiled by the Investment Company Institute.

Meanwhile, public skepticism of Wall Street remains high, with just 17 percent of respondents saying they trust the market -- about half the confidence expressed in banks -- according to a recent University of Chicago survey.

In short, while memories of the 2007-09 bear market remain open sores for many people, stocks have recovered virtually all of the lost ground.

www.azcentral.com

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