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Home Sales Take a Dive in July: More Bad News as the Economy Points to a “Double-Dip”

By Masao Suzuki

San Bruno, CA – On Aug. 25, the Commerce Department reported that new home sales in July fell 12.4% from the level of sales in June, and were 32.4% lower than July of 2009. This report, which was much worse than most economists expected, followed a report by the National Association of Realtors the day before that sales of existing homes in July fell 27.2% from June, and were 25.5% lower than a year earlier.

These dismal reports on home sales capped a week of bad economic news. On Aug. 19, the Department of Labor reported that new claims for unemployment insurance rose for a fourth week in a row, to a nine-month high of 500,000. The total number of people getting state or federal unemployment insurance topped 10 million. This level of new claims for unemployment insurance points to job losses in the private sector for the first time this year, on top of job losses at the local, state and federal levels of government due to budget cuts and the end of temporary census jobs.

With the housing and job markets in retreat, the threat of another downturn in the overall economy, or what economists call a ‘double-dip,’ looks more and more likely. While most economists still say that they don’t expect a double-dip, the fact is that most U.S. recessions show a pattern of an initial fall in the economy, a period of recovery and then another leg down to a new low.

More ominously, a double-dip took place during the Great Depression of the 1930s, where the economic expansion that began in 1933 was followed by another severe recession in 1937-1938, when the government stimulus was cut back. With the stimulus of the 2009 American Recovery ad Reinvestment Act largely spent and Republicans trying to block more federal stimulus at every turn, there is the growing possibility that a new downturn will worsen.

Last week the Federal Reserve, which bought $1.7 trillion dollars of government and mortgage bonds to save the financial system, voted to keep buying bonds to replace those bonds that are paid back. The Fed still has the option of buying even more bonds, pumping even more money into the economy. The problem is that most of this money created by the Fed is sitting in banks, which have more than a trillion dollars of “excess reserves,” i.e. money that they could lend out, but aren’t.

U.S. corporations are also sitting on record amounts of cash from their swollen profits made by cutting jobs and squeezing more work out of their remaining employees. At the end of March, U.S. non-financial corporations had almost $2.5 trillion in their checking and savings accounts and money market funds, a record high.

With another economic downturn looming and an even more pro-business, pro-rich government in the cards for next year, working people, trade unions and grassroots community and student groups will have their work cut out for them in the fight to defend our livelihood, homes, schools and communities.

#SanBrunoCA #EconomicCrisis #2009AmericanRecoveryAdReinvestmentAct