Monday, July 14, 2008

U of O Index Indicates Recession Started In March

Professor Duy released the U of O Index of Economic Indicators for May last week.

The University of Oregon Index of Eco­nomic Indicators again extended its de­cline in May, falling 0.3 percent to 100.7 (1997=100). Only three indicators—the interest rate spread, the Oregon weight-dis­tance tax, and Oregon building permits—improved. Remaining indicators held roughly steady or deteriorated. Compared to six months ago, the index declined at an annualized 3.5 percent rate, the fourth de­cline greater than 2 percent in the past five months. Such persistent weakness is con­sistent with at least a mild recession.

As a general rule of thumb, a decline of 3.5 percent over six months, coupled with a decline in more than half of its components, signals that a recession is likely imminent.

On the job market
Oregon’s economy shed jobs for the third consecutive month in May as nonfarm pay­rolls fell by 3,700, pulling job growth down to just 0.3 percent compared to May 2007. The three-month job loss total now stands at 6,700; consistent with incoming housing data, construction is the hardest hit sector, suffering from a decline of 9,400 jobs since last July. Initial unemployment claims con­tinue to hover around a weekly average of 8,000, indicating continuing weakness in labor markets, while Oregon help-wanted advertising continues to decline.

On Housing Starts
Residential building permits edged upward for the month to 908 units authorized (sea­sonal adjusted), but are down 52 percent compared to April 2007. Recent increases in mortgage rates, combined with tighter underwriting conditions, argue for sus­tained weakness in residential housing for the foreseeable future.

A little vindication for all of us bears
The three consecutive months of declining nonfarm payrolls, in combination with a general persistent weakness among most in­dicators, suggests that Oregon tipped into re­cession territory in March. While monetary and fiscal policy are supportive of firming economic activity by the end of this year, labor markets could remain weak for a pro­tracted time, similar to the 2001–3 period.