Recession?

As this report goes to press, the economy is not officially in a recession. Already, however, the national economy has racked up a grim list of recent statistics, making the anticipated designation of a recession seem more and more a formality:

Between December 2007 and July 2008 (the most recent month for which data are currently available), the U.S. economy shed more than half a million private sector jobs.

The July 2008 unemployment rate stands at 5.7%, compared to just 5% in December 2007.

Inflation-adjusted housing prices, as measured by the widely followed S&P/Case-Shiller Home Price Index, have fallen by 23% from their peak in October 2006.

Since the housing crisis emerging in 2007, the Pennsylvania economy has performed better than the hardest-hit states, such as California, Florida, Michigan and Ohio. But Pennsylvania has clearly been hurt by the impact of the financial crisis on the national economy. Moreover, Pennsylvania has also suffered because, contrary to some perceptions, the state did have its own housing price bubble. Following the national pattern, that bubble has now burst. (For details on the Pennsylvania housing market, see A Building Storm: The Housing Market and the Pennsylvania Economy.

Since the first quarter of last year, inflation-adjusted housing prices in Pennsylvania have fallen by 4% (compared to 7% nationally using the same housing price index).

Private sector payrolls in the state are down by 4,700 jobs (.09%) since December.

The state unemployment rolls have risen by just over 62,000 since December 2007, an increase of 22%, and the Pennsylvania unemployment rate has risen from 4.4% in December 2007 to 5.4% in July 2008.

Another way to gauge the health of the current Pennsylvania economy is to use an index of economic activity for Pennsylvania maintained by the Philadelphia Federal Reserve Bank. Into this single index (which has the name “the Coincident Index”), the Reserve Bank folds information on recent trends in employment, wages, hours worked in manufacturing, and unemployment. Since 1979, the only periods in which this Pennsylvania index fell for four or more months in a row were near the beginnings of the last four U.S. recessions. In 2008, the index has fallen for six months in a row. Based on past experience, this suggests the economy fell into recession at the beginning of this year (Figure 1 & 2).

Next: Wage Stagnation

This page is an on-line summary of a portion of the full State of Working Pennsylvania 2006 report available for download from www.stateofworkingpa.org. © 2006 Keystone Research Center - www.keystoneresearch.org.