In recent weeks, key economic data highlight concerns that the economy will not rebound until sometime in 2009.

In at least three key areas — housing, automobiles and retail sales — recently reported numbers indicate that despite the Federal Reserve lowering short-term interest rates by 300 basis points, or 3 percentage points, and the federal government providing a $130 billion stimulus program, the economy on a broad front remains mired.

The Labor Department reported Friday that the U.S. unemployment rate posted its sharpest one-month jump in 22 years last month, increasing the jobless rate to 5.5 percent.

Home prices are falling faster as the economy slows. They declined an average of 1.7 percent nationwide in the first quarter of 2008 from the final three months of 2007, according to the Office of Federal Housing Enterprise Oversight. The decline was the largest in the index’s 17-year history.

Standard & Poor’s/Case-Shiller Home Price Indices, a leading measure of U.S. home prices, shows year-over-year declines in almost every major metropolitan area, with many areas showing double-digit price drops.

About 10 percent of the homes built after 2000 are now vacant, according to the Census Bureau. The highest foreclosure rates are for borrowers who took out prime adjustable-rate mortgages, according to the Mortgage Bankers Association.

The American auto industry, our second largest industry and an important economic engine, could suffer its worst year in more than a decade. About 14.95 million vehicles are expected to be sold in 2008, down from 16.2 million last year. Expected sales in 2008 could reach the lowest levels since 1995, according to the marketing firm J.D. Power & Associates.

There are at least three major reasons for low automobile sales.

* The high price of gasoline has shrunk considerably discretionary consumer buying power.

* Auto lenders and banks have tightened up lending standards. In today’s credit market, hundreds of thousands of consumers are unable to get financing for a car. Home equity loans, which had been used in at least one of every nine sales, are no longer a source of easy money for many prospective buyers.

* The grim employment outlook has slashed demand for high-priced durable products.

Fortunately, retail sales have shown marginally positive numbers so far in 2008. The Commerce Department reported that retail sales, stripping out auto sales, rose 0.5 percent in April.

However, another shoe might fall starting July 1 that could further dampen the economy. According to a June 1 article in The New York Times, “Think the Economy is Bad? Wait Till the States Cut Back,” spending by state and city governments could shrink at an annual rate of $50 billion. The Times cited a Goldman Sachs estimate. These cutbacks are mandated into state and local government budgets for the fiscal year that begins July 1.

“It is a big reason to expect a weak economy in 2009,” said Jan Hatzius, chief domestic economist for Goldman Sachs.

The cutback by state and local governments runs counter to the teachings of John Maynard Keynes, one of the fathers of modern theoretical macroeconomics. Keynes advocated an interventionist governmental policy. That is, the government would use fiscal and monetary measures to mitigate adverse effects of economic recessions, depressions and booms. State and local governments’ fiscal cutbacks therefore run counter to Keynesian economic prescriptions.

In Florida, the state government approved in May a $66.5 billion budget for the coming fiscal year, down from $72 billion. State legislators reacted to plunging home prices and slashed property-tax assessments.

Bill Gross, the chief investment officer of Pimco, one of the world’s largest bond funds, feels that the specter of price deflation in housing has sinister economic repercussions. Gross argues that because the United States’ and selected other economies are now substantially asset-based and dependent on stable and upward tilting prices, a deflation of an economy’s primary financial asset can be ruinous. Gross argued that housing deflation must be countered or the economy could continue to spiral downward.

In conclusion, our current economic problems have made the economy the nation’s primary concern in the upcoming election. The candidates will need to articulate their economic prescriptions for getting our economy back on track. Since the economy began to slide in the summer of 2007, many economists have voiced concerns that the impending recession could match the economic problems that we encountered in the 1970s, when we suffered from high unemployment and high inflation.

Certainly, the run-up of prices in a whole host of commodities has buttressed these fears.

Originally published in the Sarasota Herald-Tribune