Lower rates may spark longer term manufacturing jobs

Ben Bernanke is doing his best with what he has.  He strikes me as a noble man who wants the get this economy out of a rut.  I don’t claim to have his keen intellect, but coming from a long line of merchants and with a little economics training under my belt, I can conclude qualitatively at least, that lowered interest rates derived from the increase in money supplied to the market won’t impact hiring decisions.

Mr. Bernanke hopes that lowered prices for money will get people out of their apartments or mothers’ basements and into the market to buy homes.  Home ownership, especially the purchase of new homes, has a multiplier effect on the economy.  There hopefully will be an increase in demand for loanable funds, which will require lenders hire more loan processors and underwriters.

Happy couples and their dogs will go looking for houses, either new ones that haven’t moved in over a year since developers abandoned the lots they are sitting on, or foreclosed properties, since vacated by the neighbors to the new homes that were not moving who got tired of seeing their home values plummet and throwing good money after bad.  Let us not forget those who lost their jobs and couldn’t keep up with the payments.

As a result of the happy couples and their dogs looking at homes, the demand for interior designers, real estate agents, carpenters, and electricians will increase as these new homes or foreclosed homes will need a little work to get them ready for showing or have them ready for the happy couples and dogs to move in.  This is the growth in employment the Federal Reserve is hoping for.

Problem is that with all the inventory of new and foreclosed homes sitting empty, is this enough to sustain economic growth?  Didn’t we have this real estate activity in the last decade?  After the dust settled, why didn’t this activity help to sustain the economy for more than six years?

The answer may be in flat incomes, loss of manufacturing jobs, and our lack of willingness as labor to get in front of a structurally changing economy.  Real estate and construction are too seasonal, too dependent on changes in income in order to maintain continuous employment.

What may come from the signal lower costs of money transmit is more investment from overseas.  If owners of capital can borrow at a lower rate in order to turn around and buy American labor at lower cost we may find more manufacturing activity returning to the U.S.  Increased manufacturing activity leads to more employment.

This is not to say that we won’t see an uptick in housing market activity and the residual employment it creates.  It’s just that we shouldn’t expect to see that activity first.

About Alton Drew

Alton Drew brings a straight forward and insightful brand of political market intelligence. Alton Drew graduated from the Florida State University with a Bachelor of Science in economics and political science (1984); a Master of Public Administration (1993); and a Juris Doctor (1999). You can also follow Alton Drew on Twitter @altondrew.
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One Response to Lower rates may spark longer term manufacturing jobs

  1. Ken Ciszewski says:

    What may happen is that mortgage money will free up to allow people to buy some of the homes already in existence. The mortgage market has been “frozen”, so to speak, for quite a while because banks are afraid to lend because their balance sheets were in such terrible shape, also in part due to loans that had become risky. Getting those loans off their books might make them more confident.

    I personally believe that we spent too much time, effort, and money building and pursuing the acquisition of “mansions” for all, when many couldn’t afford them. The construction of much more modest housing would have benefited many Americans, but because we are literally in love with housing, and worship it like a golden idol/greven image, many of us seriously over bought in recent times. Builders felt, I suspect ,that Americans would not buy smaller houses even if they were new, so they built “mansions”. The banks were happy, because larger loans mean more interest money coming, realtors get higher commissions, title companies get bigger fees, home owner’s insurance costs more, property taxes are higher–all of the entities “on the take” were winnnig big, until the bottom fell out. Greed, pride, and arrogance reigned until things came apart.

    The need for good jobs to pay the mortgage is still a problem, obviously. Your point about which jobs may show up first is well taken.

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