Consumers, investors, employees enter uncertain year
For months, the question circulated, “Could a recession happen?” Now it’s here, and the question around Baltimore — and around the country — has become “How long will it last?”
The National Bureau of Economic Research declared in November 2008 that the economy has been in a recession since December 2007, making official what many Americans felt for months.
Consumer confidence reached an all-time low this week, and examinations of projections from the retail, housing, stock and employment markets show 2009 could be even tougher than 2008.
Consumer spending
The country’s retail sector will limp into 2009 after recording the first negative holiday retail sales season since the data was first tracked in 2000.
The International Council of Shopping Centers expected December sales to slip at least 1 percent from the same period in 2007, a scary sign for retailers entering the new year. The fourth quarter is historically the strongest for merchants, but was dragged down this year by growing consumer anxiety.
The showing “does not bode well for 2009,” said Michael Niemira, ICSC’s chief economist. “It suggests that the lingering problems will be the backdrop for the new year.”
Fitch Ratings, a global economic rating agency, expects the trend will continue as consumers curb discretionary spending and try to hold on to their cash.
Fitch projects personal consumption expenditures to increase just 1.6 percent in 2009, driven by concerns over job security, a difficult lending environment and falling home prices.
“These negative pressures will far outweigh any benefits consumers get from a decline in energy and commodity prices,” the group said in a statement.
Housing
The residential housing market slowed several months before the recession began at the end of 2007, but history says the market should be one of the first in the economy to recover.
“You’ll see the recovery sooner in housing,” said Marc Witman, a partner at Baltimore-based real estate broker Yerman, Witman, Gaines & Conklin Realty. “The real estate market has led the country into recessions and out of recessions.”
As home prices continue to fall in the Baltimore region and across the country, buyers wait on the sidelines for them to sink even further in hopes of timing the market.
“Prices were unsustainable high, and we’ve got to get that out of our system,” Stephen Walters, a professor of economics at Loyola College, said earlier this month.
But Witman said mortgage rates are near all-time lows, and sellers are becoming more realistic in their pricing, ultimately benefiting buyers.
“The rates are low, and they’re going to stay low,” Witman said. “Usually, when it’s the darkest, that’s when things will turn around.”
Stock Market
After a dark 2008, investors enter 2009 bracing for the stock markets’ next big move.
“Economic data is likely to remain grim for some time,” Bill Stone, chief investment strategist for PNC, said in early December. “In fact, one could be safe in forecasting that the economy … will get worse before it gets better.”
The Dow Jones Industrial Average, one of several stock market indicators, declined almost 35 percent in 2008, its worst year since 1931. Wall Street is hoping the economy will rebound in the second half of 2009, but huge losses have left investors wondering if and when the Dow will rally.
The Dow gained as much as 100 points in midday trading Wednesday, as investors took comfort in lower unemployment claims over the week.
The stock market has historically rebounded before the end of a recession, but Stone said it’s never clear when the market might turn that corner.
“No one knows when the precise ending of the bear market will occur,” Stone said.
He said constant reminders of how the recession is affecting businesses big and small won’t help the problem.
“Investors are now subjected to daily stories … about layoffs at various companies, which is likely to continue,” Stone said. “In fact, unemployment is viewed as a lagging indicator and is not likely to improve until after the economy has already started to recover.”
» 67 percent anticipate no change in hiring in the first quarter of 2009
» 16 percent of employers expect to hire
» 13 percent expect decline in staff levels
» 5 percent are undecided
» Sectors with the most promising outlooks: Mining and Professional & Business Services
Source: Manpower Employment Outlook Survey
Unemployment
The national unemployment rate at the end of 2007 was 5 percent. The country will begin 2009 with a rate at a 15-year-high of at least 6.7 percent.
And unemployment will go higher, said Peter Morici, business professor at the University of Maryland’s Robert H. Smith School of Business and a national economic forecaster.
“Unemployment will go above 8 percent,” Morici said. “We’re not going to recover sooner than the fourth quarter of 2009.”
In Maryland, the unemployment rate at the end of 2007 was 3.5 percent — it enters 2009 with a rate of at least 5.1 percent. The number of unemployed in the state increased 47 percent from the end of 2007 to 153,790 at the beginning of December 2008.
“It is clear that Marylanders are feeling the pain caused by the national economic downturn,” Thomas Perez, secretary of the state Department of Labor, Licensing and Regulation, said in a statement.
Morici said once unemployment hits 8 percent, the rate will likely stay flat for a while before it decreases.
“The trending line is going to stay up, and it’s not going to come down for a while,” he said.
The Associated Press contributed to this article.
