The rumors, predictions, and fears surrounding an economic recession are becoming more real. Experts think the odds of a recession are close to 50 percent. Wall Street is on edge. The Dow Jones industrials plunged nearly 250 points on Friday. There is not yet any tangible proof of a recession, which, by definition, necessitates two straight quarters of negative growth. There is also no consensus on the level of severity, if the recession actually comes.
Even though actual evidence is not available until preliminary fourth-quarter GDP growth is reported later this month, conventional wisdom reveals that the U.S. economy entered a recession in December. Last week, Merrill Lynch became the first major U.S. investment bank to claim the U.S. economy in recession. Morgan Stanley and Goldman Sachs predict that a mild recession is now unavoidable.
The fear is that people will clamp down on the spending and businesses will put a lid on hiring and capital investment, sending the economy into a tailspin. Consumer confidence, as measured by the RBC Cash Index, fell in January to its lowest point on record dating back to 2002. The current housing slump, exacerbated by a credit crunch, as well as the weakening job market and rising energy bills have elevated consumer fears concerning economic health and financial wellbeing.
Here are some significant stats contributing to a recession:
o Unemployment jumped from 4.7 percent to 5 percent in December.
o Oil prices recently surged past $100 a barrel, increasing energy costs.
o Gasoline station sales dropped 1.7 percent, clothing sales declined by 2 percent, electronics and appliances purchases dropped 1.9 percent, etc.
o Weakening job market pushed the unemployment rate to 5 percent, a two-year high.
o Overall wholesale inflation rose 6.3 percent in 2007, the worst annual increase in 26 years.
Here are some steps being taken to prevent a recession:
o The Federal Reserve Board has already cut interest rates to prop up the economy.
o The Federal Reserve will cut interest rates to 3.0 percent by June.
Expert advice for short-term solutions include:
o Tax cuts and spending increases to give the economy a short-term fiscal stimulus.
o Increased spending on unemployment benefits and lower tax receipts.
o Increased ability of lower and middle class workers to reinvest in the community.
o Increased jobs, approximately 150,000 jobs must be introduced each month.
Two major events of 2008 - the Beijing Olympics, along with the US election - should have significant impacts on the U.S. (and world) economy in the coming year.
Although this is a tough time, especially for those at the bottom tier of the economic ladder (*ahem* me), it is important for consumers to keep generating capital into the economy. It is important for companies to create jobs, increase marketing budgets, and facilitate development. Hiring people gives more consumers more buying power which in turns generates more money into the economy, increasing confidence and spending. Firing people creates a bigger deficit by increasing unemployment and decreasing consumer spending.
If there was any time to start buying local, it is now. Many countries around the world are feelings the affects of the U.S. economic slump. Let them deal with their own problems. We need to support OUR economy. This is best done by supporting local businesses; local restaurants, local shops, local artists, local farmers, local parks, local venues, local sports, local retailers ... anything LOCAL! (This of course can be applied when traveling to other cities and towns).
We can beat this recession. And that is my prediction.
I recently stumbled upon an unique and interesting concept while reading another local Columbus blog: the270.com.
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