While there is still disagreement among economists over whether the U.S. is in a classically defined recession, there can’t be any doubt that the economy is in serious trouble and has been for quite some time, and that the primary culprit is the nation’s financial sector.
The dismal economic growth figures announced this week by the Commerce Department’s Bureau of Economic Analysis underscore just how bad our national economy is, and which regions of the country and sectors of the economy have been hit the hardest.
The new estimates released by the U.S. Bureau of Economic Analysis (BEA) show that economic growth slowed in most states and regions of the U.S. in 2007. Real GDP growth slowed in 36 states, with declines in construction and finance and insurance the leading factor in most state’s economic losses.
Nationally, real economic growth slowed from 3.1 percent in 2006 to 2.0 percent in 2007, one percentage point below the average growth of 3.0 percent for 2002–2006.
According to the BEA report, “The deceleration in growth in 2007 was most pronounced in Arizona, California, Florida, and Nevada. Each of these states had experienced faster real growth than the nation since 2003, but slowed dramatically between 2006 and 2007, to rates below the national average (chart 2). In 2006, Arizona and Nevada were in the highest growth quintile, and California and Florida were in the second–highest quintile. But in 2007, Arizona dropped to the third quintile; California dropped to the second–lowest quintile; and Florida and Nevada dropped to the lowest quintile. In Arizona, Florida, and Nevada, construction subtracted more than one percentage point from real GDP growth. In California, construction and finance and insurance combined subtracted one percentage point from real growth.”
Forty-nine states saw losses in the construction industry 2007. The sole exception was Wyoming with a 6.0 percent increase in construction. Nationwide, the combined drop in construction was 11.0 percent.
The largest drop in construction in dollar terms was in California, down $10.8 billion, which accounted for 1-in-6 of the $67 billion lost in construction work nationwide between 2006 and 2007.
In terms of percentage of construction work losses, the hardest hit states were:
New Hampshire -18.70%
The BEA clearly identifies the credit crisis, and its domino effect on related industries such as real estate and construction, as the primary cause of the nation’s economic woes.
BEA noted that “A downturn in the finance and insurance industry group accounted for nearly half of the slowdown in economic growth in 2007.”
“Construction’s value added declined 12.1 percent in 2007 after falling 6.0 percent in 2006. Real estate and rental and leasing value added growth slowed to 2.1 percent in 2007 from 3.4 percent in 2006.”
Four industry groups — finance and insurance, construction, mining, and real estate — “accounted for about one quarter of GDP in 2007. However, they accounted for nearly 80 percent of the slowdown in economic growth.”
These figures support what we’ve been saying for a long time: the real estate market (and related industries like construction) will not recover until the financial markets are stablized.