by Bill McBride on 2/12/2012 01:05:00 PM
Sunday, February 12, 2012
Someone sent me an article by Dylan Ratigan in the HuffPo: On the Mortgage Settlement: There Is No Political Solution to a Math Problem
Unfortunately some of the numbers are incorrect.
"Roughly half of homeowners with mortgages are underwater, which means they owe more than they own ..."This is way too high. According to Zillow, 28.6 percent of all single-family homes with mortgages had negative equity in Q3 2011. And according to CoreLogic, "10.7 million, or 22.1 percent, of all residential properties with a mortgage were in negative equity at the end of the third quarter of 2011".
And many of these homeowners were only slightly underwater, and will probably keep making their mortgages payments (especially if they are eligible for the new HARP program).
And on the employment-population ratio and the participation rate:
[T]his is by far the worst recovery we've had since the end of World War II. The best way to measure this is not through traditional unemployment indices (which can be gamed), but by asking the question of how many Americans are working as a percentage of the population. In 2007, this was 63 out of 100. Today, it's a full five percentage points lower. The ratio hasn't been this bad since the early 1980s recession, and remember, we're in a recovery. And the labor force participation rate is dropping, which is a long-term bigger crisis.Ratigan is referring to the employment-population ratio, but as I've pointed out several times, this ratio is being impacted by demographics. A decline in the participation rate has been predicted for years, and a decline in the participation rate pushes down the overall employment-population ratio. So the employment-population ratio is not "the best way" to measure the recovery, and the decline in the participation rate is not a "crisis".
Click on graph for larger image.
During this period of a significant shift in demographics, it helps to look at the employment-population ratio for the prime working age group (25 to 54 years old). This leaves out most changes in demographics (although this can be impacted by the ratio of men to women in the prime working age cohort and other factors).
For this key demographic, it appears the employment situation for men is improving a little, but the employment situation for women is still lagging behind.
Ratigan also wrote:
[R]oughly thirty million jobs ... will bring America back to full employment.Currently, according to the BLS household report, there are 12.8 million unemployed out of a labor force of 154.4 million, or about 8.3% unemployed. If full unemployment is 5% (structural unemployment is probably a little higher), then the US economy is short 5 million jobs - not 30 million.
Based on his comment about the employment-population ratio and the participation rate, Ratigan is probably expecting the participation rate to increase significantly. That isn't going to happen (see this post).
There are plenty of issues currently with negative equity and unemployment, but it is important to get the size of the problems correct.
• Summary for Week ending February 10th
• Schedule for Week of February 12th
Posted by Bill McBride on 2/12/2012 01:05:00 PM