Real economy

According to new figures released this week by the Bureau of Labor Statistics, the nation’s jobless rate recently fell from 8.1 percent to 7.8 percent.

While both presidential campaigns sprang into spin mode before the ink had dried on this latest report, this columnist ran for his calculator. What I found behind the numbers may prove informative for long-term care insurance (LTCi) advisors operating in the weeks ahead.

But first, some history.

The events of September 2008 triggered what we now collectively refer to as the “Wall Street Collapse”, followed by a nationwide recession many economists rank behind only the Great Depression in magnitude.

Four years on, how do we measure our return to normalcy? There are any number of market indicators, including stock market valuations, new & existing home prices, the nation’s unemployment rate, and so on. We can even make a direct attempt to take Americans’ temperature by conducting “consumer confidence surveys”. Let’s see how we’re faring.

Incorporating data from previous crashes, wars, and political instability, one major study concluded that the stock market’s average recovery time from a “major historical shock” is between 1 to 4 months (with an average of 3.3 months).

Sure enough, we find that the Dow Jones began its path to sustained improvement just 5 short months after the Collapse, and overcame its pre-Wall Street benchmark over 2 ½ years ago.

Corporate balance sheets are the strongest in 60 years (the new buzzword is “self-insurance”), and personal savings rates are coming back. Consumer consumption is decent, too. It turns out when you conduct a “Consumer Confidence Survey,” Americans have an unhealthy habit of regurgitating the negative press they’re exposed to 24/7 on cable TV. They see “how bad it is out there,” and parrot those same responses… but their own buying behavior for durable goods doesn’t correlate with their own answers at all! What’s more, we can now look back and tentatively pronounce the European Sovereign Debt Crisis “contained.”

So where does that leave home prices?

While home values have not yet returned to their previous highs, delinquencies are at an all-time low. According to the figures I have on file (from Sept. 11), the housing market was over-supplied by 3 million homes (expressed another way, that’s a 9 ½ month supply).

Home prices in 2010 were down 15 percent, but as of last year down only 4 percent. One factor keeping home prices from increasing is a “25/25” rule of thumb: at any given time, 25 percent of all houses sold are distressed/forced sales, selling for a 25 percent discount.

But here’s where the story may actually be a blessing in disguise: So many consumers have re-financed during this period of unprecedented low interest rates that the average household is now saving over $3,000 per year.

According to USA Today, our interest-paying burden is now the lowest since 1977. The next time you encounter a prospect who feels too anxious about his net worth to apply for a long-term care insurance policy, you might remind him that his new, lower mortgage payments just put an extra $3,000 in his pockets this year. So unless he’s putting that home on the market, your $1,200 to $2,200 per year LTCi premium should be manageable.