Figures reflect economic pain

Official measures finally show what all know

June 07, 2008|By Jamie Smith Hopkins and Tyeesha Dixon | Jamie Smith Hopkins and Tyeesha Dixon,Sun reporters

You've known it. You've probably known it for months. But the official measurements are finally catching up, reflecting the increasing economic pain that many Americans are feeling.

The unemployment rate rose 0.5 percent in May, to 5.5 percent, the biggest one-month jump since early 1986, the federal government said yesterday. Continued job cuts are putting adults out of work and leaving in the lurch many teenagers looking for summer income.

Meanwhile, net worth is falling as people's homes lose value. Americans were worth $1.7 trillion less in the first quarter than they were at the end of last year, the Federal Reserve said this week. Household debt compared with net worth? At record highs.

If you hold stocks in a retirement account or outright, yesterday brought more bad news: The Dow Jones industrial average fell nearly 400 points, while the Standard & Poor's 500 and Nasdaq composite indexes both shed about 3 percent.

And oil soared to another record, nearing $140 a barrel.

"Most middle-income people are struggling," said John Silvia, chief economist at Wachovia Corp., who sees the rise in teenagers looking for jobs as a side effect of strapped parents.

While Maryland appears to be holding up better than the nation overall, a measurement released by the federal government this week showed economic growth in the state slowing to 2 percent last year - which means the pinch has been on for a while.

Leon Richardson, a software engineer from Columbia, said his family has paid much more attention to budgeting in the past nine to 12 months.

"We're a lot more conservative about our spending now," said Richardson, 46, a father of six. "We definitely feel a crunch. We just take it check-by-check."

Misery might love company, but the growing evidence that the crunch is widespread does not make folks feel any better. Investment bank RBC Capital Markets said this week that consumer confidence has been plummeting and is now at 22.5 on its index.

At the beginning of 2002, when employers were still cutting jobs in the wake of the 2001 recession, the index stood at 100.

"We're in a really crummy economy, and it's unlikely to improve any time soon," said Charles W. McMillion, president and chief economist of MBG Information Services in Washington.

"Not only do people have incredible debts, they have no current savings. ... Most people are spending their entire monthly salary and then some."

For Marylanders, it could be worse.

It could be Michigan, which has lost more than 70,000 jobs in the past year as its manufacturing base is pummeled. Some of the national job loss last month is a result of strikes and temporary plant closures in the auto industry, the government said.

Maryland, which benefits from outsized federal spending in the local economy, has more jobs now than it did a year ago.

Its loss of 1,900 jobs in the month of April - the most recent figure available - was the first drop this year, despite job reductions nationally since January.

Unemployment in the state was 3.7 percent, which is low.

But residents are feeling many of the same pressures as the rest of America.

Home values are dropping. Food prices are rising. The cost of regular gas is hovering around $4 a gallon.

Scott Hoyt, director of consumer economics at Moody's, said the decline in home equity "is particularly concerning from the standpoint of consumer psyches and consumer spending."

Nationwide, homeowners' equity fell to 46 percent of their homes' value in the first three months of the year.

That was the lowest level since the Federal Reserve began tracking it quarterly in 1952, when homeowner equity topped 80 percent.

On the other hand, Hoyt said, the early 1980s were worse for Americans.

Big job cuts.

Runaway inflation.

Double-digit mortgage rates.

He notes that consumers are getting their federal stimulus checks now, money that Uncle Sam hopes will give a boost to spending and therefore the economy. How - and whether - people spend the checks is yet to be seen.

So far, low-price retailers are holding up best. Warehouse club Costco said this week that its U.S. sales rose 5 percent in May, excluding the effect of gasoline price inflation.

Yannith Hsiao of Ellicott City shopped at the Costco in Elkridge yesterday, never mind that she drives a Lexus sport utility vehicle and her husband makes a good salary. Like everyone, she said, she's watching her spending.

"I try to cut back, but if you need the necessities, you need the necessities," said Hsiao, 43.

Fulton resident Carrie Baumann was also at the Costco yesterday because "with three kids, it's the most economical way for me." She's not worried about her job - she's a nurse - but sometimes she and her husband have concerns about his. He owns a landscaping business and has lost some customers.

News of the nation's rapidly rising unemployment rate does not surprise her. Baumann, 35, can feel what's going on in the economy.

"We're hoping that it will eventually turn around," she said.


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