Wednesday, December 09, 2009

Has the MoCo Economy Hit Bottom?

Every business cycle has an inflection point, a moment when up turns down or down turns up. Economists have great trouble identifying them contemporaneously, often finding them after many months have passed. One of the reasons is that the data around an inflection point is contradictory, with some measures showing improvement and others showing continued problems.

Montgomery County may just be in such a moment.

A recent analysis prepared by Montgomery County’s Department of Finance shows a mix of improvement and deterioration, a departure from the universally gloomy forecasts of the last year or two.

The Bad News

New residential construction is still in the tank.

New non-residential construction also continues to do badly.

The office vacancy rate has not stopped rising. That will have a discouraging effect on new commercial projects.

The Good News

Home sales are up in 2009 over 2008.

The inventory to sales ratio of existing homes has fallen down to the levels of the white-hot 2006 market. Together with rising sales, this should eventually revive the new housing market.

Mixed Bag

The county is still losing jobs, but at a slower rate than it was in the spring and early summer.

The unemployment rate has been above 5% since May, a high level by Montgomery County’s standards, but it may have stopped rising.

So does all of this add up to a turning point? Maybe. When the construction market looks down, the existing home sales market looks up and the labor market appears to be stagnant, that does not look like the free fall to which we have been accustomed for the last year. We may very well be near or at the bottom.

Even if we are, it will take awhile for any improvement (or in the short term, any lesser amount of deterioration) to affect the county’s budget. And unfortunately for the politicians, any upturn will be obvious to the voters likely only after election day.