Economist offers glimmers of hope

Yelena Takhtamanova, an economist with the Federal Reserve Bank in San Francisco, tried to impress one fact on the dealers and suppliers who gathered before her at the ProDealer Industry Summit: When it comes to the current economy, even the Feds are in uncharted waters.

“For us to forecast now is daunting,” Takhtamanova said. “We can’t rely on the old [economic] models.”

But the Russian-born PhD, whose research topics have included the link between household wealth and consumption and the effect of monetary policy on employment, did address inflation, home prices, the GDP and other topics of concern to the LBM industry.

Many people were surprised to learn that the recession peaked -- at least officially -- in December 2007. “The consensus is that we may have reached the bottom,” Takhtamanova said. Manufacturing output has increased, single-family housing permits are starting to rebound, and there are signs of improvement in the credit markets. A modest recovery is expected in the worldwide Gross Domestic Product growth.

But Takhtamanova noted that 7 million jobs have been lost since the beginning of the recession, and although job loss is slowing, “the bad news is that [many] people aren’t finding jobs.” The unemployment rate, which hit 10.2% in October, does not count people who are “underemployed” or who have given up on looking for a job, she noted. Factor those in, she said, and the number would be closer to 15%.

The commercial real estate market is another area of weakness in the economy, Takhtamanova said, with prices falling on industrial, office and retail properties. Foreclosures continue to rise on home mortgages. “The scary part is that prime loans are seeing an uptick in delinquencies,” she observed.

So what is the federal government doing about it? Takhtamanova described the pros and cons of various monetary policies being employed by the Federal Reserve. She seemed confident that the Feds can keep a lid on inflation over the next year or two, although Takhtamanova gave no words of encouragement for a quick recovery. It took the United States four quarters to bounce back from the 1990 recession, she noted; this time around, we’re looking at three years before the U.S. economy returns to its pre-recession levels.

Takhtamanova resisted applying a trajectory to the recovery -- V, W, or any other letter -- because there were too many variables to consider. But the two indicators she will closely watch are unemployment and homes prices. “I’m worried about the price,” she said. As for housing starts, Takhtamanova seemed pretty certain they had already hit bottom. “Although,” she added, “they didn’t have that much farther to go.”