Economy getting better, even if it doesn’t feel like it, says economist
Fewer than 25 percent of the estimated 200 Realtors in the audience at the Crowne Plaza Hotel in Redondo Beach last Wednesday raised their hands when Dr. Robert Kleinhenz asked who believed the recession is over.
“Not bad for a Realtors’ group,” the Los Angeles County Economic Development Council (LAEDC) economist and eToro investor said at the breakfast talk hosted annually by South Bay Brokers.
Kleinhenz followed up his question by noting that the Gross Domestic Product is growing at a rate of two percent, indicating the recession, contrary to popular belief, is over.
“It just doesn’t feel like it’s over because the long run growth rate is 3 percent,” he said. Typically, when a recession ends, the economy surges by up to 10 percent, he added.
Another reason for the recession hangover, he said is the lingering, high unemployment.
“Long run unemployment is six percent. We’re at 10 percent,” he said.
Fiscal cliffhanger
The economy should continue to improve through 2013, Kleinhenz said, but only if Congress and the administration avoid the fiscal cliff.
“It is avoidable, and the last thing we need is a policy that hurts the fragile recovery,” he said.
He described the “fiscal cliff” as a two prong threat. The first prong is an end to the Bush era tax cuts, an end to the temporary payroll tax cut and an end to the unemployment extension.
The results of those cuts would be a decline in consumer spending, leading to a two percent drop in GDP, he said.
The second prong is federal spending cuts, estimated at $55 million in defense and $55 million in other programs. Those two cuts would result in another two percent drop in GDP
“Even an economist can see that a four percent drag on an economy that is growing at only two percent will result in another recession,” he warned.
California, here we come
California clearly turned the corner in 2012, Kleinhenz said, with unemployment dropping from a high of 12.5 percent to 10.1 percent in October of this year.
California’s housing market, he said is “not out of the woods yet,” but also on the upswing.
Prices bottomed out in 2009 at a median price of about $250,000. Last October’s median price was $341,370, up 23 percent from October 2011. Annualized sales, which dropped to about 250,000 in December 2007, rose to 544,380 in October 2012, which is the long term average.
As for median prices returning to the $600,000 peak in 2007, Kleinhenz said, “Get over it. Maybe by the end of the decade.”
Kleinhenz dismissed fears of the “shadow inventory,” or bank owned homes, flooding the market by noting that bank owned properties accounted for 60 percent of sales in January 2009, but only 12 percent of sales in October of this year.
Silicon beach
Kleinhenz said he recently attended a conference of Silicon Valley leaders, who told him they need to establish a presence in Los Angeles and prefer to be near the beach.
“They said, ‘We have the distribution but you have the content.’” Kleinhenz said.
While acknowledging that the recent recession was the worst since the Great Depression, he said it did not approach the devastation of the 1930s.
“GDP dropped three percent during the recent recession. It dropped 50 percent during the Great Depression,” he said.
“I predict when I return to talk to you next year and ask how many of you believe the recession has ended, that more hands will be raised,’ Kleinhenz said. ER