The economy grew at a rapid 6% annual rate in the fourth quarter of last year. For many, news of rapid growth appears inconsistent with widespread job losses, high unemployment rates and widespread bank failures. Much of the inconsistency stems from the difference between the level of business activity and its change. Changes from very depressed to not quite as depressed may impress economists and statisticians. They don’t impress those struggling to deal with current economic conditions.
There has clearly been some improvement in the business climate. Nationwide, housing prices are up about 5% from their lows last spring. However, prices remain 30% off their highs. The collapse in home prices has left a quarter of all mortgage holders with negative equity in their homes. Negative equity has meant significant loan losses for banks. In addition to the equity decline in their homes, many homeowners face a challenging job market. In spite of the improvement in business activity and increased orders for new business, layoffs continue and companies are reluctant to rehire workers.
