Marriage is declining in popularity, including among young people. Moreover, the popularity of marriage seemed to decline with particular rapidity during the severe economic downturn that began in late 2007 according to recently released Census Bureau data. Among the factors that contributed to the decline in marriage among adults ages 25 to 34 is the growing acceptance of cohabitation, even when children are involved.

Many young people indicate that the reason for their ongoing reluctance to get married is due to economic considerations, though there are many who suggest that the economy has little to do with it and that other social factors are more important. In any case, the share of young adults who have never married rose from 35 percent at the beginning of the decade to 46 percent in 2009. Among the total population of Americans aged 18 or older, the share of men and women who were married fell from 57 percent in 2000 to 52 percent in 2009, the lowest percentage since the government began collecting data more than a century ago. The share of adult women who were married fell below half, to 49.9 percent.

A growing number of warnings signs regarding the U.S. recovery are beginning to emerge in regions across the United States. The economic recovery is roughly one year old, but overall momentum remains weak and in certain metropolitan areas has effectively come to a standstill. According to Moody’s Economy.com, 281 of the nation’s 384 metropolitan areas remain in recovery, including the Washington and Baltimore areas. Sixty-five metropolitan areas are still in recession and 34 are at risk of a renewed downturn, including Phoenix and Nashville. The expiration of federal home buyer tax credits has renewed concern about falling home prices in Phoenix while Nashville has experienced a broad slowing in private sector job creation.
Moody’s along with many other economists put the chances of another recession in the U.S. in the short-term at around one in three. Several months ago, Moody’s put that risk at one in five. More metropolitan areas are expected to slip into the at-risk of recession category in coming months, though Baltimore and Washington are not likely to be among them.

Were the U.S. economy to slip back into recession, there would numerous implications. Unemployment and bankruptcies would rise and corporate profitability would generally decline. Another implication is that home prices would likely begin to decline again. According to Moody’s Economy.com, another recession could mean that home prices would fall an additional 20 percent before stabilizing in early 2012. Of course, there is no guarantee that the economy will slip back into recession and this type of estimate can’t fully predict the implementation of future public policies designed to support the housing market.
The outlook for home prices also depends upon the performance of the Home Affordable Modification Program, which is designed to help at-risk homeowners stay out of foreclosure. To date, that program has been progressing slowly, in part because many borrowers are simply too deeply underwater to benefit from loan modification. Should the broader economy fall back into recession, home sales and residential construction would also likely decline in conjunction with home prices. That in turn would lead to further job losses.

For decades, American scholars and others have been fixated upon the earnings gaps that exist between men and women. Several years ago, the Institute for Women’s Policy Research estimated that women only made about 75 cents for every dollar that men earned based upon analysis of Census data. But there is growing evidence that younger women are beginning to close the gap vis-à-vis younger men and in some instances now routinely out earn their male counterparts. According to an analysis by Reach Advisors of Census Bureau data, in 2008, single, childless women between the ages of 22 and 30 were earning more than their male counterparts in U.S. cities with incomes that were 8 percent greater on average.
This trend has been emerging for several years in the nation’s largest cities, including in cities like New York and San Francisco, but has spread to small metropolitan areas across the U.S. For instance, in the Baltimore region, young women who are unmarried and without children now earn almost precisely what their male counterparts earn. In the Washington, D.C. area, young women earn 6 percent more than their male counterparts. The reason is clear. More women are going to college and many men aren’t.

While many Americans have been steadily paying down their credit card balances, a new wave of cards is reaching American households, but these are not traditional credit cards. Professional cards, sometimes also known as small business or corporate credit cards, are not covered under the Credit Card Accountability, Responsibility and Disclosure Act of 2009, or Card Act for short. That law prohibits card credit card issuers from engaging in certain billing practices, including rapid fire interest rate increases, truncated payment cycles and inactivity fees.
However, these restrictions do not apply to professional cards. According to the Wall Street Journal, until recently, professional cards had been relegated to small business owners or corporate executives. But since the Card Act passed in March 2009, issuers have been inundating ordinary consumers with applications. During the first quarter of 2010, issuers mailed out 47 million offers for professional cards, that represents a 256 percent increase from the same period last year according to research firm Synovate. One can understand why this is happening. The Card Act has squeezed bank profits and professional cards represent an opportunity to recover some of that loss.

There is a conventional wisdom that suggests that certain segments of the U.S. economy are recession proof. One of these segments is healthcare, since people who are sick presumably need and want treatment. But as it turns out, healthcare is also susceptible to economic downturns, this according to a recent study published by the National Bureau of Economic Research. The report finds that Americans, who face higher out-of-pocket health care costs than nations with near-universal coverage, have reduced their use of routine medical care much more than people in Great Britain, Canada, Germany and France. Individuals and families in all five nations suffered diminished income due to unemployment and depreciating asset values, but reductions in care were far greater in the U.S. in part because roughly 15 percent of Americans are uninsured. Relevant and specific data are available.
For instance, among Americans responding to the survey that powered the report, nearly 27 percent reported reducing their use of routine medical care since the beginning of the global economic crisis in 2007. That compares to 12 percent in France, 10 percent in Germany, just 8 percent in Britain and only 5 percent in Canada.

While what we know can be pretty frightening, it’s what we don’t know that is likely to undo our ambitions. For instance, on September 10, 2001, many of us were fixated on the recession that had begun in March of that year as well as a foiled GE-Honeywell merger that had been undone by European regulators. This made many Americans angry. But a day later, those things were quickly forgotten in the wake of unprecedented attacks on America.

More recently, many Americans looked forward to spending some easy days on the Gulf Coast after last year’s staycations, concerned undoubtedly about whether they could afford such luxury. But an explosion and spill undid those plans, which goes to show that the best laid plans . . .
That said, in the aftermath of calamities, we often learn that there were clues guiding us toward future events. That was true with 9/11 and it was true with BP and its legion of safety violations.
Here are some other clues regarding our collective future. On March 26th, a North Korean submarine sank a South Korean warship. Some hypothesize that this was done to help Kim Jong-il, 68, establish his 27-year-old son as his legitimate successor. In other words, we may soon have a person younger than 30 years of age with really bad genes in command of a nuclear arsenal.

In the Afghan/Pakistani theatre, the war has thus far cost us about $300 billion. Long-term estimates for the war’s cost range from $1.5 to $2 trillion. These numbers include interest payments on the debt associated with the Afghan war as well as future spending on wounded veterans and replenishing war-making inventory. Part of America’s challenge is convincing local villagers to ally with a nation that has established a withdrawal date for July 2011. One could reasonably argue that the greater threat emerges from Pakistan. In October of 2009, insurgent Pakistani forces demonstrated that they were capable of breaching and occupying Pakistan’s equivalent to the Pentagon. Given the presence of sympathetic insiders, it is conceivable that extremist groups could soon gain access to a weapon of mass destruction.

And then there is the Middle East. Iran’s pursuit of nuclear weaponry is inexorably bringing the West and East toward yet another conflict. Of additional concern is how a nuclear Iran could impact the price of oil. Some fear that the Iranians will seek to flex their nuclear or near-nuclear muscles by closing the Strait of Hormuz though which 20 percent of the world’s oil passes each day. Though this scenario is not particularly likely given broader Iranian interests, including relations with other oil producers and revenue from oil sales, it is important not to presume that one’s enemies will act rationally or even in their own self-interest. In other words, ideology and symbolism often trump rational self-interest in world affairs, and if this were not the case, there would be very few wars.

With momentum in the nation’s financial, housing and labor markets waning in recent weeks, many economists have been racing to downgrade their forecasts for 2011. For many months, good economic forecasters have understood that the key to 2010 was the production of sufficient momentum to offset a sea of headwinds that we know will become more impactful next year.

For its part, Sage has generally been pessimistic about economic prospects and has built in a high probability of a double dip recession since late-2009. There are a number of things that could happen that would upend the ongoing economic recovery next year. Here are some highlights:

• The ’01 and ’03 Bush tax cuts lapse – as a result, the estate tax becomes draconian and many investors harvest capital gains toward the end of 2010, causing the market to swoon;
• short- and long-term interest rates begin to rise;
• State and local governments begin to slash spending in a non-election year, including in the area of preK-12 education;
• European markets become unsettled fearing that the roughly $1 trillion package to stem the risk of sovereign default has only served to postpone the inevitable;
• The dollar’s value rises along with gold and certain other commodity prices, making production more expensive and limiting U.S. export growth;
• Corporate profits fall short of expectations, causing the U.S. markets to become even more volatile;
• Investors get nervous and consumers become psychologically shaky causing the savings rate to rise again;
• Correspondingly, retail sales begin to slump, inventory investment declines and the emerging momentum in industrial production and durable goods orders is thrown into reverse;
• The federal government looks on helplessly as the 2009 stimulus package monies are steadily spent down and the budget deficit remains stubbornly high as federal revenues fail to rebound;
• Commercial real estate begins to pummel bank balance sheets, leading to further tightening of credit; and
• small business hiring remains frustratingly slow due to an ongoing lack of confidence among owners.

It should be noted that only a handful of these items would need to transpire to send the economy into reverse. There is evidence to suggest that some of these forces are already conspiring to slow economic weakness. As of this writing, the latest Economic Cycle Research Institute Weekly Leading Index indicates that the recovery lost momentum as early as late-April. The Conference Board’s index of leading indicators began to show signs of emerging weakness in June by posting its largest decline since March 2009. Both indicators suggest that the U.S. economy was beginning to limp as the third quarter began.

Economic Dynamics in the Corridor are Simply Different

Though the Baltimore-Washington Corridor has more than a few issues, the region now appears to be in the midst of a self-sustaining economic recovery. The difference between the U.S. economy and the Corridor’s economy is one part economic and one part psychological. Unlike much of the U.S., the Corridor’s economy possesses a key economic driver that is presently expanding briskly; namely defense and related activities.

The presence of this source of employment growth and investment has led many economic actors in the region to conclude that the Corridor’s future is bright, risks are relatively low and that the time to invest is now. In much of the nation, there is no analogous reason for economic decision makers to be similarly confident. Therefore, hiring and investment remain more subdued. Exceptions include Silicon Valley, parts of Texas, Northern Virginia and a host of natural resource rich communities in America’s heartland.

Data characterizing regional activity reflect ongoing momentum. For instance, during the second quarter of 2010, the direct vacancy rate in Annapolis was 12.2 percent, down from a year ago. At 12.9 percent, Columbia’s direct vacancy rate was also down from a year prior. Though vacancy around BWI remains elevated, it has fallen over the past six months. Notable recent office transactions include Computer Sciences Corporation leasing 42,681 square feet, Northrop Grumman leasing 26,149 square feet and ITT leasing 22,575 square feet, all in the BWI submarket.

Housing statistics also paint a picture of steady healing. The active inventory of unsold homes in Howard County is now below 6 months and is below 5 months in Montgomery County. These are indications of housing markets in equilibrium. The attainment of equilibrium, in turn, is associated with rising home values and construction levels.

In Prince George’s County, the active inventory of unsold homes is higher in terms of months of supply. However, the county has made enormous strides toward equilibrium over the past year and was arguably the leading beneficiary of first-time homebuyer tax credits while they were available.

This is not to suggest that the Corridor will experience the pace of growth that characterized the middle part of the prior decade. Challenges remain, including elevated commercial vacancy, tight credit, higher than usual unemployment, consumer shakiness, volatile financial markets, and a potentially slowing national economy. That said, few region economies are positioned to outperform the Corridor next year.

In a move reminiscent of the Great Depression, a growing number of U.S. homeowners appear to be renting out rooms in their homes in order to avoid foreclosure. With the nation’s unemployment rate still stubbornly close to a 26-year high and with foreclosures in their fifth year of increase, more Americans appear to be turning to on-line resources to help them rent out rooms. Approximately a tenth of all U.S. mortgages were delinquent during the first quarter of the current year and more than half of all loans modified under federal relief programs went into default again within one year, an indication of deep distress among many households. Along with Craigslist, one of more prominent websites assisting people with rentals is Airbnb.com. The company was started in 2009 and is now used in more than 5,700 cities in 148 nations.

Revenue is doubling every three months, with customers often being travelers who expect to remain in a particular location for a few weeks. Not surprisingly, some hotel operators aren’t happy about short-term rentals. Earlier this month, New York lawmakers passed a bill backed by the Hotel Association of New York City banning rentals of less than 30 days in apartment buildings, though individual homeowners were not impacted.

The housing downturn that began in 2006 has produced an array of negative economic impacts. Household wealth has been destroyed, construction, real estate and banking jobs have been lost in large numbers, many have been forced from their homes, real-estate related tax revenues have plummeted and government deficits have ballooned.

But one of the positive aspects of the downturn is that it made the value of good schools that much more obvious. That’s because communities with reputations for good schools suffered far less property value declines than adjacent areas. For instance, in Irvine, California, which often receives national attention for the quality of its schools, average home price per square foot has declined about 18 percent since its 2006 peak. But prices in the greater metro area surrounding Irvine have fallen 33 percent. The same is true for Edina, Minnesota, where prices per square foot are down about 14 percent since their peak versus 27 percent for the greater Minneapolis area. And in the town of Andover, Massachusetts, known for its brain power, prices are down 4 percent versus more than 16 percent for the Boston metro division.

This should be a fine year for the economy.  Sage in its typical fashion continues to take a cautious approach to forecasting.  Our model suggests that the U.S. economy will expand in the mid-two percent range this year, the global economy a bit more.  But the domestic economy could easily surprise to the upside. 

A cursory look at recent post-recession years may be instructive.  In 1983, the U.S. economy expanded 4.5 percent.  In 1992, the economy expanded at a 3.4 percent pace and in 2002 at a 1.8 percent pace.  Take the average of those figures and you get around 3.2 percent, which is better than our baseline forecast.  But look more closely at the numbers and you also see a disturbing trend.  Recoveries from recessions are becoming less dynamic, which means that the economy could underperform expectations, too.

Over the course of this year, this blog will chronicle the performance of the U.S. economy and point out a variety of influences.  It will also discuss key economic policy issues in the U.S. and in the nation’s Mid-Atlantic region, including in Sage’s home state, Maryland.

-AB