January 21, 2008
Is a recession a self-fulfilling prophecy?
I ran into an old friend this weekend I hadn't seen in a couple years. She and I worked together in the late '90s for a mortgage company. The last time we spoke she was working as a loan officer for a local lender, and had her share of bouncing around the industry over the years. At that time, subprime lending was en vogue and she was doing very well.
The first thing I noticed about her this weekend was how happy she looked. "I got out!" were the first three words she said to me. She went on to explain that the mortgage business had become so crippled by the subprime mess that she washed her hands of 18 years in the business and went into staffing instead. She just couldn't take the uncertainty and turmoil any longer.
She's not alone. 86,000 people in the mortgage business lost their jobs in 2007. That number will likely increase in 2008. I would bet that the majority of those people were forced to take jobs making far less than they once made. Lower incomes translate into less money for new cars, computers, new homes, etc.
Not only are these people affected, but their neighbors see them and think "Wow - that could be me." The old saying goes "When your neighbor loses his job, it's a recession, when you lose yours it's a depression." Most everyone knows someone whose job loss was directly affected by the subprime mortgage mess and the subsequent fallout. What is scariest is more recent layoffs of people I know were in industries that have nothing to do with real estate or mortgages.
This all leads me back to my opening question in this blog. Do we exacerbate the problem by pulling back our spending, even if we're still happily employed and collecting paychecks every pay period? Do we put off that new car purchase until CNN tells us the economic outlook is improving? I suspect for a lot of us that our 'survival instinct' kicks in and we become much more rational than when there's nothing but blue skies in the forecast.
A recent report said that consumer spending was the only thing propping up the U.S. economy. Once spending decreases, recession is inevitable. Well, folks - if spending is the barometer, we're already there. This is evidenced by the disappointing retail sales over the holidays. New car sales for 2007 were the lowest in 10 years. I don't need to tell you how homes are selling.
Now, I'm not suggesting you go blow every dollar of disposable income you have to help prop up the economy. Nor am I condeming those who like to be ready for the rainy day. I'm merely suggesting that all the talk about a recession may in fact make it so.
Let's hope I'm wrong and we can all avoid the stormclouds on the horizon. Unfortunately, I think I just felt a drop...
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