Source : The Straits Times, Feb 11, 2008
WASHINGTON - EMPTY homes and for-sale signs clutter neighbourhoods. Layoffs are on the rise. Paychecks and retirement investments are taking a hit.
Could the US be in recession? Sixty-one per cent of the public believes the economy is now suffering through its first recession since 2001, according to an Associated Press-Ipsos poll.
The fallout from a depressed housing market and a credit crunch nearly caused the economy to stall in the final three months of last year. Some experts, like the majority of people questioned in the poll, say the economy actually may be shrinking now. The worry is that consumers and businesses will hunker down further and pull back spending, sending the economy into a tailspin.
'Absolutely, we're in a recession,' said Ms Hilda Sanchez, 44, of Waterford, California.
Squeezed by high energy and food bills, 'we can't afford the things that we normally buy,' she said. 'We are cutting corners in our spending. For our groceries, we are buying a lot of generic and we are eating out less.'
For many, the meltdown in the housing and mortgage markets has proved especially disturbing. Record numbers of people were forced from their homes, unable to afford the monthly loan payments. People watched their single biggest asset fall in value, a reason to tighten the belt.
'Obviously the housing market is creating deep concern. And one of the real problems could be that if people, as a result of their value of their homes going down, kind of pull in their horns,' President George W. Bush said in a television interview aired on Sunday.
Credit has become harder to get, thwarting would-be home buyers, adding to the glut of unsold homes and aggravating the housing industry's woes.
'For-sale signs are everywhere. In my area, 35 to 40 homes are standing there and aren't even complete. There aren't any buyers,' said Mr Jim Sims, 60, of Greer, South Carolina.
Ms Nanette Dahlin, 52, of St. Louis Park, Minnesota, called the situation 'very scary.' She said friends in Madison, Minnesota, put their home up for sale recently and reduced the asking price more than US$100,000 (S$141,749) in just a week. 'They are in bad shape,' Ms Dahlin said.
For all of 2007, the economy grew by just 2.2 per cent. That was the weakest performance since 2002, when the country was struggling to recover from the last recession. The housing collapse was the biggest culprit in 2007. Builders lowered spending on housing projects by 16.9 per cent on an annualised basis, the most in 25 years.
The job market is faltering - a point driven home by a report showing that employers cut jobs in January for the first time in more than four years.
'The way things are, people are afraid of losing their jobs,' Ms Sanchez said.
Employment concerns
Employment concerns are contributing to darker feelings about the economy and people's own financial well-being. Consumer confidence, as measured by the RBC Cash Index, dropped to a mark of 48.5 in early February. It was the worst reading since the index began in 2002.
A cooling job market along with high energy and food prices are taking a toll on paychecks. Workers' average weekly earnings, adjusted for inflation, fell 0.9 per cent last year. In 2006, earnings grew by a solid 2.1 per cent.
Wall Street is unsettled and as a result, people's nest eggs are not what they once were.
In fact, that was the top economic worry in the AP-Ipsos poll.
Fifty-nine per cent said they were worried 'a lot' or 'some' about seeing the value of stocks and retirement investments drop.
'I really dread opening my (financial) statements,' Mr Sims said.
By one rough rule of thumb, a recession occurs when there are two consecutive quarters - six straight months - when the economy shrinks. That did not happen in the last recession, though. The economy contracted in the first quarter of 2001, turned positive in the second quarter, shrank in the third quarter and turned up again in the final quarter of that year.
The National Bureau of Economic Research, the recognised arbiters for dating recessions, uses a more complicated formula. It takes into account such things as employment and income growth. By that measure, the last recession was in 2001, starting in March and ending in November.
US not in recession: Bush
Mr Bush, citing some experts, said the US was not in a recession, although he acknowledged 'that the signs are troubling enough' to justify the US$168 billion economic rescue plan that passed Congress this past week. The measure he intends to sign on Wednesday includes tax rebates for people and tax breaks for businesses.
To bolster the economy, the Federal Reserve embarked on a rate-cutting campaign in September, with two big reductions last month. In just eight days in January, the Fed slashed rates by 1.25 percentage points. The hope it that the lower rates will induce people to buy more and revive the economy.
So if the poll figure of 61 per cent is right - that the country is now in recession - then those relief efforts will help ease the effect of a downturn.
'People are both depressed and anxious about the state of affairs. The anxiety is going to persist because we are in an uncertain season economically and politically,' said Mr Terry Connelly, dean of Golden Gate University's Ageno School of Business.
The AP-Ipsos poll was conducted from Feb 4 to 6 and involved telephone interviews with 1,006 adults. It had a margin of sampling error of plus or minus 3.1 percentage points. -- AP
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