November 19th, 2008
Is a Recession Really On the Way?
After the failed bailout measure and the subsequent tanking of the stock market, concern grew over whether or not a recession is really on the way. For those who remember the 1974 economic tumble, the signs are eerily familiar and disturbing that we may in fact be going down that road again. Let’s take a look at some of the warning signs and where they may be leading.
Housing
Housing is the biggest concern for many financial analysts right now. The sales of new homes dropped significantly, and this is usually a good guidepost that will tell you where the economy is going. New home buyers are finding it hard to get home loans and the amount of people who have the free capital to go buy a home for cash is a lot smaller than it used to be. Continued foreclosures are not helping the situation and many homeowners are facing the real prospect of not being able to stay current on their payments.
If the housing market continues to struggle, this may be an indicator that we are heading for an actual recession. However, a few more things have to happen first.
Consumer Spending
Consumer spending is down and considering what’s on the news, it will probably continue to drop. Incentives are not doing much good and as consumer spending falls, industries across the board are affected. Retailers are looking at a very gloomy holiday season ahead and companies in many industries are already suffering.
If this trend continues, it could be a strong indicator that we are about to head into a recession that will be close to what the country went through in 1974.
What Does it All Mean?
The term recession is often misunderstood and feared. While there are those shouting that the Great Depression 2 is on the way, it is more likely that we will be facing a recession. The one question remains – how bad will it be? The main issue in any economic trouble is the vicious cycle. For example, as housing values and sales drop, and spending follows, tax revenues slide. This leaves cities and states with deficits, and larger companies also start to feel the pinch.
Unless the housing market suddenly turns around and consumer spending bounces back up, a recession may indeed be in the United State’s future. But does that mean that now is a good time to start panicking?
Jim Jubak, a popular financial analyst seems to think that the first part of 2009 may be a little rough. However, he does not believe that full scale panic is warranted at this time. While some things are similar to the crisis in 1974, we are living in a different world right now. There are no guarantees and we may be in for a rough road. The only question is – how long will that road be?
Jubak points out that while some industries will be in trouble, there are more than a few, such as energy and solar power that will do quite well and may have the power to pull everything else through the tough times and turn things around.
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