When Jed Smith Speaks We Need to Listen!

Who is Jed Smith? He is The National Association of Realtor's Managing Director of Quantitative Research. He recently posted an excellent podcast on the subject of recession which can be found on NAR's website at http://www.realtor.org/research/research/research_podcast_series.

I consider this to be one of the very best, as well as most important messages I've heard to date from any source anywhere concerning this topic. It is insightful, truthful, and right-to-the-point. It is very important for you, your clients and customers to know this. Please read this transcript and pass it on.

Here it is:

"Hello. This is Jed Smith, Managing Director of Quantitative Research, with the National Association of Realtors in Washington. I’d like to offer a few comments on some of the topics in the economic news in the past few days—particularly as related to how the economic news relates to the concept of a recession.

Today I would like to address some key questions on the recession topic. The purpose of my comments is to explain exactly what a recession is and then put the current economic situation in context.

The economic news has been mixed in recent days.
· For example, there is talk of continued credit problems in the financial markets and housing foreclosures, and a glut of unsold new homes.

· There was an announcement Friday morning that the unemployment rate is now up to 5.5 percent.

· There have been reports of weak car sales, particularly as related to pickup trucks and SUVs in the face of rising gas prices. Major automakers have announced cutbacks.

· Finally, you don’t need the news to tell you about rising food and gasoline prices. Gas prices in particular are at the top of everybody’s list of important economic news.

In recent months the economic news has lead to talk of recession—that is, are we in a recession or not, how bad can it get, and what does all of this negative news mean?

The National Bureau of Economic Research defines a recession as a significant decline in economic activity spread across the economy, lasting more than a few months, and normally visible in real GDP, real income, employment, industrial production, and wholesale and retail sales. These concepts are usually interpreted as the occurrence of two successive quarters of decline in the real Gross Domestic Product accompanied by an overall slowdown in the economy.

Next, let’s take a look at what actually happens during a recession. In previous recessions, the real Gross Domestic Product has fallen on average about 1.6 percent. Clearly this is not what we want to have happen, and the number is significantly below the positive 3 or so percent economic growth we would normally experience. One major reason that the word recession attracts a lot of attention is our memory—mostly from history books—of the Great Depression. Please note: a 1.6 percent decline in GDP is not the Great Depression. In terms of current conditions, however, we have had positive—although minimal—economic growth this year, and growth in the GDP in excess of 2 percent is forecasted for last two quarters of the year.

Taking a look at Employment, on average non-farm employment has fallen an average of 1.5 percent during previous recessions. In today’s economy, that would be a loss in the neighborhood of over 2 million jobs. This morning the news reported a loss of 49,000 jobs in May, and a year to date loss of 324,000 jobs this year. So far, we are not near a recession.
Taking a look at unemployment, unemployment has on average climbed to 7.6 percent during previous recessions. Unemployment was announced on Friday as climbing to 5.5 percent in May. Unemployment is normally in the 4 percent range as people shift jobs in the economy, so we are still not at a recession.

Finally, the average length of a recession has been 11 months, followed by an on average expansion of 64 months. Three of the four recessions since 1980 have been 8 months or less.

So to summarize the characteristics of recessions, it is clear that the economy declines a bit during a recession, and life is less pleasant. However, in no sense are we talking Great Depression, which is an image you might get when you read the newspapers and surf the Internet. Recessions are slowdowns, and there is no growth, and we tighten our belts at bit, and they are unpleasant. In recent years they have ended in 6 to 9 months.

In terms of the current state of the economy, GDP continues to grow, although very slowly. Sales of existing homes seem to be stabilizing or turning up in many local markets. Although the national numbers for real estate declines appear in the news on a continuing basis, we need to remember that all real estate sales are local, and well over half of the markets have increasing sales. Unemployment is a bit higher, but well within historic ranges, and inflation and interest rates are relatively low. What we have is a slowdown in growth, not a recession.

Looking to the future, NAR projections for 2008 and 2009 show positive growth for the next two years. A review of the data suggests that sales of existing homes should start to recover in the third quarter of this year, and that prices will be on an uptrend.

In conclusion, we are exposed to a lot of negative economic news these days in the press, the Internet, and on radio and TV. A lot of this has already impacted the housing markets, which NAR forecasts to recover. The major downsides to the projections are additional surprises from Wall Street, additional major developments in the energy markets, or some type of unknown that hits the economy unexpectedly. Otherwise, the data suggest no recession and a pending recovery in the foreseeable future as government stimulus, increased exports, and continued relatively low interest rates help the economy.

So, we’ve considered what a recession is, that the data don’t yet show one, and that the data indicate a return to a growing economy in the foreseeable future. Thanks for listening. "