Tuesday's Gather homepage poll struck a cord:
Turns out that a majority of Gather.com members responding to this Jan. 22 poll feel that a recession is indeed in the cards. That's not so surprising when you look at all of the essential things that we're feeling pinched on these days (see "The Bottom Line: What would you do with a $600 federal kicker check?" for a look into what those are).
But it does bring to mind two looming questions: What exactly is a "recession," and what actually will be impacted when or if it hits? For the answers I turned to the National Bureau of Economic Research.
What is a recession? (The quick-pick version)
"A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in an expansion. Expansion is the normal state of the economy; most recessions are brief and they have been rare in recent decades."
What actually will be impacted when or if it hits?
We know the stock market hit all-time highs in 2007. We know unemployment is up over the past quarter. We know income is down in relationship to the rising cost of consumer goods. We know American manufacturing is down. And we know some retailers didn't meet projections for the Christmas shopping season.
However, we also know that unemployment figures, as reported by the federal government, don't take into account overall unemployment or underemployment -- only new unemployed. And we know that Internet sales, though still only a margin of in-store sales this past holiday, have climbed and could be one non-economic factor for why in-store sales aren't as high as they used to be.
We also know that recessions have come and gone over the past half-century, totalling about 10 (from mini-recessions to more dramatic ones) since the 1960s.
"Each recession has brought with it a painful rise in unemployment and a decline in personal incomes," writes theorists Martin and Kathleen Feldstein in The Boston Globe after 2001's near-recession brink. "Fortunately, though, the average recession has lasted only 11 months from the peak of activity, when the recession began, to the eventual trough when the recession ended and the economy turned up. Even the longest of the downturns only lasted 16 months while the shortest was over in just six months."
So, even if a recession is either a) in sight or b) already here, even the most pesimistic economist says it will be over and done with, and recovered, by 2010. Keep your eye on the consumer confidence surveys released by The Conference Board. According to Bill Connerly, formerly chief economist of Northwest Region for First Interstate Bank, that's the survey that will signal a rebound. "If the outlook is positive," he said in a Monday radio broadcast, "the stock market will improve."
For real advice for your situation, check out Connerly's book "Businomics: From the Headlines to Your Bottom Line ... How to Profit in Any Economic CycleFour Steps for Planning for a Recession" or MSN Money's "Four ways to recession-proof a 401(k)" and "Five rules for surviving a bear market." With know-how, all of us can make it through whatever this next year or two brings, while still protecting our own bottom lines.
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| Jennifer D. Meacham, Gather Money Correspondent | ||||
Jennifer's column, "The Bottom Line," is published every week to the Gather Essentials: Money channel. Jennifer is a business and personal finance columnist who covers money matters for RedwoodAge.com and real estate news for RISMedia, and co-authored the best-selling retirement investing guide "IRA Wealth: Revolutionary IRA Strategies for Real Estate Investment" (Square One Publishers, New York). Keep up on the latest news and analysis into how you can take control of your business and personal financial future by joining Jennifer's "Self-Directed Investing 101" network. | ||||
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Comments: 26
I'm also brainstorming with a local-currency group.
A fellow parishioner at my church remembers when her parents, who were school teachers, received scrip for pay. They could buy food and rent with it, but not much else.
Thanks for the posting.
Nice article, now if the rest of the country would read it!
Thank you, Jennifer!
I look at the sagging real estate and stock markets and all I see is opportunity. I look at the globalization of financial markets and I see more opportunities.
The business cycle is your freind if you learn how it works.
I think your take is balanced and sane.
Warren, thanks for the "compliment": "Your article was more useful than most." I had a good chuckle over that.
Pat, you're indeed correct. A down market does signal opportunity, but only for those with a) the dough and b) the vision. Many of these here on Gather appear to be somewhat stuck in a catch 52: lots of vision, no disposable cash. That's one of the reasons that I've covered self-directed retirement account investing as an option, since those accounts often just site there until retirement but are ripe for investing now while the market is down in everything from stocks to retirement funds.
Jill, you're observance on consumer expenditures is right on. That's why the consumer confidence index is so key. It's only when consumers feel that things aren't getting worse, and when they feel they can actually afford the basics like health care and groceries and fuel, that the outlook will improve.
Now you should run with this one, too! Lots of people stayed home and used Ebay to raise extra cash. We did, once, when I was a young parent. I have memories of my boys learning about sales and hauling boxes into the post office in their little red wagons. I'd even go so far as to say they got a dose of financial literacy.
Thanks for the link. I'll definately check it out. In the meantime let me share that eBay's fees have kept me from going back there to sell my items, which is a shame given it's broad audience. I've been using Craigslist.com to post items (it's free, but only open to locals). However, when you think about even 8.75 percent isn't too much to pay if it makes the difference between selling an item, or giving it away. I may go that route for the items leftover from my Craigslist posts ... though I'll definately have to check out the no-customer rating policy first!! That could really hurt sellers there.
I certainly don't hold out much hope the way things are going.
So, the real key in the housing market is to get the 300,000 or so surplus homes sold and off of the market so it's no longer considered "flooded" and maintain interest rates so that even if housing prices go up the monthly payments will be ones that the average consumer can afford (coinciding with the disposable cash factor). It's going to take a predicted six months to two years to sell those surplus homes. Even though mortgage interest rates are at a reasonable 6.5 percent (with points) the typical house search takes several months per buyer. It's really a waiting game right now, and will be for a while.
Keep holding on Shannon. With frugal living and careful saving, the end of the economy's recovery could coincide with a healthier bottom line for each of us here on Gather.
I'm also using an amazing run of food freebies to augment the week's menu planning. Every so often Safeway runs a $10 off a $50 grocery bill coupon, which entitles me to feel good about getting $10 in otherwise "frivolous" items like wine and sweets. Also, Dominoes just sent out a free medium pizza deal for online orderers, and Papa Murphy offers free cheese bread sticks for those filling out a survey on a past order. Watch for these deals, and make use of them. In this way I've been able to still experience the "luxuries" without a penny off the bottom line.