Recession Impressions

As I sat through the long wait of filling the gas tank of my 12-seater van yesterday, I noticed that gas prices are still quite high. At the Costco on Overland and Ynez in Temecula, the regular unleaded was $3.119 (can we just round it to $3.12, already?). The damage was to the tune of $92.03.

House prices are dropping. The stock market can't make up it's mind, but seems to be getting lower, yet gas prices haven't caught on to the current economy. I am familiar with all the variables that make the price per gallon what it is. And this isn't going to be a post that rants at the oil companies. The reason that I bring it up is because, as I watched the rushed consumers at the gas station, I thought of dear friends of mine who moved out of Temecula to the mid-west exactly two years ago.

They had two kids in college and he had a great professional career (except for the fact that he would be laid off every now and then). Anyway, they couldn't make ends meet without borrowing from their house every year. They certainly didn't spend an inordinate amount of money, and he made a good living. So, I have to believe that they were not the only family in America who lived this way while the market allowed it. When they sold the house by owner at the beginning of 2006, they were able to make a small profit after using most of the equity. Selling at that time was a good move on their part because they may have been heading to foreclosure now if they had held on to it. My friends predicted that the market would drop, and that's why they sold when they did.

What about everyone else whose timing was not so precise? Are they some of the ones who are in foreclosure now? Since many states didn't appreciate at nearly the rate that California and others did, maybe this isn't a universal issue. But I think the lack of easy access to equity cash when needed is a large contributing factor to why there may be a recession in the near future. Even those who are not at risk for foreclosure feel the impact of a declining real estate market, and are not able to tap into "instant equity". No, I haven't had time to read the doom and gloom blogs lately, and I don't pay attention to the Chicken Little media.

I think one of the variables important to whether or not a recession is imminent is the unemployment rate. Reports indicate that the nation’s unemployment rate has jumped from 4.7 percent to 5 percent, a two-year high (thanks to the lending and construction fields, I'm sure). Retail sales are in the sewer. Manufacturing activity has slowed. The nation’s major banks are piling up big losses and stocks don't know what their doing.

When people aren't able to dip into their equity and spend on cars, remodels, boats, vacations, furniture, exorbitant outdoor landscaping that they never use because they're working too hard--or even necessities--it impacts many sectors. With the weakening dollar and hurting businesses, it seems inevitable that something's got to give. Rumor is that key interest rates will be cut by half of a percentage point at the end of the month. If the low interest rates on long-term lending don't stimulate the housing sector, we could be in for a long haul. Then what? The government is talking about giving every family a $1,600 rebate check. The $600 we received in 2001 must have made an impact, but, even with my seemingly endless optimism, I don't see that permanently helping too many people. And, as much as we'd all like a check in the mail, is it the government's role to hand out money when people have recklessly borrowed too much?

It makes sense that Americans not purchase items that they can't afford. But this rings true no matter what the economy is doing. If everyone starts buying prudently now, many businesses will be shutting down, which only serves to exacerbate the problem. But, if people continue to spend like in the time of the heyday, then we're also in trouble if they can't truly afford it. So, I sit and wait because the ball is rolling, and when it stops is totally out of my control. This too shall pass, so we need to watch carefully and take notes so that we will be more prepared the next time. That's my impression, anyway.