Five Dismal Economic Indicators for 2010

Posted on December 29, 2009

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The past two years have been punishing for businesses and consumers, probably the most painful years since the Great Depression. Things CAN ONLY IMPROVE in 2010, don’t you think?

Not so fast. We yearn, in our heart of  hearts, to return to the comfortable status quo ante. Let the good times roll! Can’t we all share the good fortune of the Wall Street bankers? The stock market has already bounced back faster and higher than anyone could have predicted! Let’s see how fast we can re-inflate housing prices, and the credit bubble, and retirement savings. And of course, good jobs for everybody.

Ignore the truth that irrational financial bubbles led to the economic crisis in the first place.  Experts now claim the recession is over. They may be technically correct.  But this, my friends, is a phony recovery. Just my opinion.  The odds are stacked against a general economic recovery.

Real Estate, Unemployment, Consumer Spending

SIGN OF THE TIMES: This store is at the corner of Montgomery Village Avenue and Clopper Road.

Who can predict the future? Not me. Instead, I will indulge in some idle speculation about economic indicators we might — or might not — see in 2010.

  1. More vacant retail space, and a general oversupply of commercial real estate. Small businesses and large dealer networks are going on a bitter diet. During a prolonged downturn, businesses at first trim their sails and try to ride out the storm. Now that Christmas is past, you’ll see companies giving up. Chains large and small will close their unprofitable locations. Some names will disappear forever. Goodbye, Pontiac, it’s been nice to know you.  Goodbye Saturn, goodbye Saab.
  2. Are residential real estate values nearing a bottom? Maybe, maybe not. One thing is certain, the real estate industry projects that foreclosure sales will not peak until at least the second half of 2010. Interest rates will be resetting on billions of dollars of adjustable rate mortgages (ARMs). The number of ARM resets will increase throughout 2010 and 2011, according to reliable industry reports. Absent a government bailout, some homeowners will not be able to afford their mortgage payments after the interest resets. It looks like the supply of houses for sale at distressed prices is going to be increasing for a while.
  3. Meanwhile, demand for housing is a bit flat. This is the era of Generation X, the age cohort born between 1965 and 1979, with the number of births bottoming out in 1973 through 1977.  Generation X is aged 30 to 44, a prime age for first-time home buyers. But Gen X is a smaller group than the Baby Boomers.  Gen X represents about 48 million folks, and a lot of them already own houses or condos. Not to worry. Coming along right behind is the larger cohort born between 1980 and 1995, known as the Millennials, or Generation Y.  Millennials — 74 million strong — are expected to generate big demand for houses in a few  years. But right now they are age 14 to 29. Many of them are still in high school and college. Unfortunately, Gen Y faces a tight job market at present, and a lot of them are moving back in with their parents. (Thanks to my sister, Eileen Criggar,  for explaining the generational demographics to me.)
  4. Unemployment may be leveling off at about 10 percent. Most of the obvious layoffs have been taken. Now businesses and government agencies are digging in to save what’s left. 2009 was the year of the hiring freeze; 2010 will be the year of the salary deep freeze. We’re not talking about only a freeze on raises. Based on anecdotal reports, I’m thinking companies will be making across-the-board salary cuts. The unpaid furlough days for teachers and government workers already seem less like extra days off, and more like pay cuts.
  5. Hoping for a bounce-back in consumer spending? Not too likely. First, consumers are already staggering under credit-card debt, and recent graduates are stuck with tuition debt. Second, there is no reason to believe that the jobs lost in 2008 and 2009 are coming back — ever. We live in a flat-world economy, with a worldwide oversupply of labor. Just my opinion.

Leading Indicator? Try The Dollar Menu

Long story short, it all adds up to  one less restaurant meal here, one less treat for the kids there, one less frivolous pleasure everywhere. We’re not going to send the kids to school without shoes, but we can live without the piano lessons this year. And cigarettes, can you believe what we’re spending on cigarettes?

Pizza delivery is out. The McDonald’s dollar menu is in. We can still afford cereal for breakfast — Which kind is on sale this week?

— Bernie Hayden

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Posted in: Business, Economy, Work