Bottom Hunting: The New Economic Pastime

We used to seek deals, steals, and undiscovered treasures. Forget all that. Nowadays, all anybody wants to know is, where’s the bottom?

The stock market, the housing market, the job market – all have been getting unremittingly worse. We’re not used to this. A little downhill slide is one thing, but the great American economy has always had more ups than downs.

This ride, however, seems to be getting steeper and darker every week, starting with all those four- and five-figure layoff announcements. For months, Caterpillar, the huge tractor builder, had bucked the economic slump, thanks to a weak dollar that helped boost exports of its earth-moving equipment. That silver lining has turned gray, and Cat now says it will lay off a staggering 20,000 workers.

[See why there's nothing new about this recession.]

Dozens of other struggling firms are working through their own layoffs: 8,000 at Spring Nextel, 7,000 at Home Depot, 3,400 at Texas Instruments. Even stalwarts like Intel and Microsoft are axing thousands of jobs.

Those layoffs - and more coming - will darken the entire year: With fewer people working, most other aspects of the economy can only get worse. The obvious upshot is that 2009 is going to be one lousy year.

If there’s any good news, however, it’s that we may finally be sinking deep enough into the economic trough that the elusive bottom – the point at which the plunge in employment, house prices, and the national mood begins to subside – may be coming into view. A breakdown, by some of the economy’s key measures:

Unemployment. When to look for the bottom: Late this year or early next year. Forecasts for the unemployment rate – which is 7.2 percent now – range from a low of about 8 percent to a high of about 10 percent in 2009. That’s a pretty wide range. But the forecasts are fairly consistent in terms of when they peak: Late in 2009 or early in 2010.

[See why more failure might be healthy in 2009.]

That means it will be a nerve-wracking year for millions of workers, since the economy could still shed 1 to 2 million more jobs before it starts to recover. If you still have your job six months from now, you probably will have survived the worst; a year from now, you’ll probably be able to consider your job safe.

Those who lose their jobs, however, are likely to find the going tough. Most economists expect the job market to recover slowly and spordically, with the unemployment rate staying well above 7 percent throughout 2010. Another “jobless recovery” could be in store. That will also diminish workers’ ability to move from job to job and to get a raise.

Housing. When to look for the bottom: Late this year. The boom and bust in real estate is what torpedoed the economy in the first place, and the economy won’t start to recover until the housing bubble deflates. The good news is that housing prices have already been falling for more than two years. And housing may bottom out before other parts of the economy. Moody’s Economy.com predicts that housing prices should stop falling nationwide by the second half of 2009. Overall, the forecasting firm predicts a 30 percent drop in home values from the peak values of 2006.

[See 9 reasons this recession might be good.]

Once it seems clear that house prices have stopped falling, there could be a buying boomlet, as buyers stop worrying that they could be purchasing a costly asset that’s still falling in value. But don’t expect another housing surge. Consumers will be cautious until jobs seem plentiful and incomes start to rise, which could still be years off.

Consumer confidence. When to look for the bottom: Next year. Consumer confidence closely tracks the job market, since work and income most directly affect whether people fell well-off or not. The dismal numbers of the last few months may creep up throughout 2009, but not significantly. Homeowners have lost more than $3 trillion worth of value in their homes over the last three years, and investors have seen their stock portfolios shredded. Even with modest improvements in the economy, it will take a lot of repair work before Americans in general start to feel better off.

The stock market. When to expect a bottom: Mid-2009. Or 2015. During a recession, the stock markets usually rebound before the broader economy, since companies get more efficient as they shed jobs and cut costs. That pattern may already be playing out, as huge job-cut announcements from companies like Home Depot and Sprint actually boosted the stock price.

But don’t bet what’s left of your savings on the usual pattern to hold. With the banking system still fragile and corporate losses mounting, predictions of a stock rebound could be off by years. That, in fact, may end up being the usual pattern.