Is Economic Hardship Bottoming Out?

When you are down long enough it can be hard to recognize the start of a turnaround. That’s actually been the story of the U.S. economy over the past eight months – a touch of good news, followed by set of down-beat headlines, followed by a head-scratching indicator.

Patchwork Nation’s Economic Hardship Index for August offers another example of the difficulty of identifying good news in a confusing economy. The Hardship scores, a short-term measure of economic pain that includes gas prices, unemployment and foreclosures, plummeted to an average of about 17 (the lower the better), falling in every category.

The July average was 34.

In a lot of communities, things did not dramatically improve, they actually declined slightly. How is that possible with an improving Hardship average? That “slightly” is the key. After months where the foreclosure rates climbed fairly rapidly, they slowed a bit in the period between May and July. In other words things aren’t getting bad as quickly as they were a few months ago.

And inside the numbers, Patchwork Nation is starting to see a few more positive signs as well where foreclosures are concerned, with the problems being more contained to just a few places suffering very badly.

The bad news is unemployment seems locked in its current range – rising slightly, but essentially flat.

The Good News in Foreclosures

The biggest positive in the August index is in the wealthy Monied ‘Burb locales. The places saw foreclosures increase by some 13 percent between May and July, but that was actually down sharply from the period between April and June when foreclosures spiked by 21 percent.

“These are better scores, mostly on account of less volatile jumps in foreclosures throughout the summer,” says University of Maryland professor James Gimpel, a consultant to the Patchwork Nation project. “It might mean that the worst is over for the housing part of the recession, at least in some places. The Monied Burbs look much better, for instance. And we’d expect them to recover faster, I think, than lots of other places.”

That earlier improvement in the ‘Burbs is likely because many people there live on the upper end of the income scale and when things improve they tend to improve for the people at the top first.

And, Gimpel says the number of counties seeing improvement in foreclosures nationally in the past few months has been noteworthy. From February to April, some 835 counties saw falling foreclosure rates. From May to July 1, 200 saw their foreclosure rates drop.

Without question, that is good news. Improvement in the ‘Burbs could help restart the consumer-spending engine. But foreclosures are only one part of a picture that is far from clear. Unemployment also rose slightly in the ‘Burbs in this index.

And other communities are still struggling with foreclosures. The Boom Towns that grew rapidly in the first half of the last decade are far from out of the woods.

A Cloudy Road Ahead as Fall Approaches

As the political season approaches the question is whether phrases like “things aren’t getting bad as quickly” will mean much to a tired and surly electorate.

Patchwork Nation spent some time out in the Boom Town of Eagle, Colo., in August and found more than a few disheartened souls. There are nearly 350 foreclosures in the county. A few people said their town was “falling apart.” The Consumer Confidence Index was down in July. And, again, unemployment is not improving.

And there are still those mixed indicators out there – some scary and appearing just this week.

On Tuesday, came news that existing homes sales came crashing down in July to their lowest level in a decade – and 27 percent below July of 2009. The next day, new home sales for July also came in historically low.

And Thursday there was a surprisingly good joblessness report that showed new unemployment claims fell by 31,000 last week.

Furthermore, there is the possibility that the numbers in the current index look good, particularly where foreclosures are concerned, because they are still reflecting the federal homebuyers’ tax credit. A lot of short sales – homes where banks allow owners to sell for less than they owe – were made with that tax credit incentive.

Next month’s numbers will help tell the tale there.

But for those longing for economic rays of light, the message in the August Economic Hardship Index is this: After many months of struggles, the foreclosure mess might be starting to bottom out – still deepening in some hard-hit places, but retreating in many others.

That’s no panacea. But if turns out to be true, it qualifies as good news – at least in this economy.