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Recession: Getting A Lot Worse?

Get ready for things to get worse


The conventional wisdom is that the worst is behind us—sure, there are still way too many Americans out of work, and 6 million citizens have no other income aside from food stamps. But things are not hopeless. Some companies are hiring again; even automakers are looking for new workers. And the Dow is just a few hundred shy of 11,000.

Despite these green shoots, though, many feel that things could get worse… much worse. Click Next to find out why the outlook might not be so cheery.

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No overnight rebounds ahead



Recessionwire, a site launched by a cadre of former editors at Conde Nast, is keeping its pessimistic eye on the economic situation in America. And what it sees is unpleasant. As Recessionwire’s Laura Rich explained to us, “Just as the technical start of the recession in Dec. 2007 didn't feel like the recession for awhile, we'll feel it for awhile even after it ends.”

In a recent post, she provides some rather troubling statistics, among them:

“* 23% of homeowners’ properties are underwater

* 13% of parents of adults say one or more of their grown children have moved back in

* 34.5% of black males between the ages of 16 and 24 are unemployed

* 17.5% of people are unemployed, according to U-6 data, which includes discouraged and part-time workers who are looking

* The Small Business Administration has run out of money to back loans issued to small businesses.”

Those stats are scary, but unemployment and debt aren’t the only indicators that the Great Recession is still in full force...

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Cities face crushing budget shortfalls


As recently reported by Reuters, “U.S. cities will face a collective budget shortfall of at least $56 billion over the next two years, with the current recession not seen hitting bottom until 2011, according to a report on Wednesday.”

When city budgets are in the red, it means they look for ways to reduce costs. That means less cops on the street, even worse public schools (if that’s even possible at this point), more potholes, etc.

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Ongoing real estate issues


Rich is surprisingly upbeat on recent developments in the real estate market, explaining on Recessionwire that “first-time homeowners flooded the market in September, sending the number of home resales up 10.1 percent. The uptick may also have reflected a desire to qualify for an $8,000 first-time homeowner tax credit that was extended to April 2010. Does it matter that those sales were cheaper than a year ago, by 7.1 percent? We think that’s excellent news for the buyers, but from a big-picture view, more money funneling through the economy is what strengthens it, not less. Good news out today, however: The Case-Shiller Index reports that prices are trending upward.”

Of course, real estate is a fickle friend. According to the Associated Press, “a record 2.8 million households were threatened with foreclosure last year, and that number is expected to rise this year as more unemployed and cash-strapped homeowners fall behind on their mortgages.”

Not good for real estate prices… and certainly not good for the millions of individuals and families affected.

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Job market is “sickening”

Rich sees little good news in the domestic job market: “The notion of a ‘jobless recovery’ is comical, and every new person who finds themselves out of work knows it. The main unemployment tally stands at 10.2 percent of the population, a frightening figure made only more sickening when you consider discouraged workers and part-timers who are still looking because half an income isn’t enough to pay the bills. The government recently passed some serious extensions on unemployment benefits, but $405 a week hardly cuts it in high cost of living areas like New York, and the proportion is the same everywhere: not enough to cover basic necessities such as food and shelter.”

And if now seems bad, we may only be scraping up against the tip of an iceberg. According to the AP, those filing for unemployment benefits for the first time “rose more than expected, increasing by 11,000 to a seasonally adjusted 444,000.”

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Aircraft sales slowing


When the economy is booming, airlines need more jets to accommodate greater numbers of passengers. When the economy is in scorched earth mode, airlines suffer and make do with the old planes they already have.

As reported by Flightglobal, the two large airframers have suffered “a significant decline in orders as the industry hit the buffers, and no recovery is expected before 2012.” Even so, aircraft manufacturers’ actual output is at an “all-time high,” presumably since many orders were placed well ahead of time.

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Credit environment still tough


“We don’t expect much relief on this front for awhile. Credit card companies themselves are under pressure after taking a pummeling in excessive defaults, so even people in good standing are feeling the pain, and will likely fight tooth and nail for the status quo. This won’t help pump spending, which is what this economy needs,” Rich wrote.

Exactly right: if consumers don’t have easy access to credit, they can’t buy. And if they can’t buy, retailers and manufacturers won’t make new hires. Which is what would be necessary for a real recovery: more jobs, less debt.

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Federal funding has yet to save us


Rich wrote that she sides “with folks like the admittedly oft-shrill Paul Krugman who believe the government needs to invest even more billions into the economy, but there are a lot of people out there who feel we’ve already overspent. They see how we’ll be paying it back for years as a bad thing. I think Enron educated us all on how fluid accounting is and we really shouldn’t worry about payback now, let’s just bolster this baby.

But I think we’ll get some proof soon enough of whether things are working as is or not. … If the stimulus package was sufficient, small businesses who complain will just be squeaky wheels while business strengthens in spite of them. Meanwhile, we just need to get the rest of the $787 billion into the places it’s meant to go.”

I tend to disagree with this one. The money isn’t going where it is meant to go, but it is turning us into a sad debtor nation—wonder why international confidence in our currency is dwindling by the day? Honest Americans are losing their jobs and homes and none of this money is helping them. It is being sponged up by large, savvy contractors who then mete out low-paying jobs. We don’t need more ditch diggers. We need a robust economy again.

The government should be providing major tax incentives to businesses that hire new full-time workers. It should be doing everything in its power to strengthen American small business. $787 billion is useless unless some of it gets into the right hands.

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The recession isn’t boosting innovation


Conventional wisdom has it that despite all the pain, at least an economic downturn cuts off some of the systemic fat and forces us to innovate. Laid-off employees with severance packages start up their own little companies, which become the next Googles or Hewlett-Packards, fueling a new generation of corporate creativity. Of course, this little fairy tale is perhaps not so accurate...

As CNN Money reported, “A study released this week by the Kauffmann Foundation found that the number of new businesses incorporated annually in the U.S. has remained remarkably consistent over the years.”

Recessions: good for nothing at all, it turns out.

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The end of small business?


As Rich wrote on another Recessionwire post, “Yes, small businesses are suffering, and yes, they have provided much of America’s employment. But we think that the rules are changing and new types of working and business will sprout up as we evolve out of this downturn. In that case, we still need small businesses to steady themselves, but we may be able to achieve another kind of recovery that looks little like ones past.”

This is possible. We could see a recovery that involves mostly large companies hiring workers. Small businesses could be left out in the cold, and we could still see improvement. But this is the exception rather than the rule.

Wall Street firms, who I think we can all agree are “big businesses,” received plenty of money from the federal government. And yet they aren’t lending enough. They aren’t hiring enough. Just because you’re big, it does not mean you will help. What’s good for Goldman Sachs is not necessarily good for America.

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Dead bodies piling up


As we recently reported on MainStreet, “Among the more morbid indicators of our economic health is the number of unclaimed bodies left in morgues. Death is expensive, especially due to death taxes and the fact that funerals can cost in the tens of thousands of dollars.”

As CNN Money reported back in October, dead bodies are literally piling up in some beleaguered American cities: “Money to bury Detroit's poor has dried up, forcing struggling families to abandon their loved ones in the morgue freezer.”

Pretty cold news, to be sure.

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Retirees wasted their whole lives… for nothing


As reported by The New York Times’ Bucks blog, “Just over half of retired respondents with at least $250,000 to invest said they wished they had focused more on their ‘life goals’ than on ‘the numbers,’ according to the firm’s Affluent Insights Quarterly, released today."

Oops! My parents’ generation ostensibly sold their lives for a larger 401(k) or nest egg, and then the recession came along and their years of hard-earned wealth rolled away like a bunch of forlorn tumbleweeds in the desert. Now they have less, and it’s too late to go back and do things over again—and good luck finding your new dream career at age 50 or 60, as long as unemployment stays this high. The young ones will be nipping at your heels, and all too eager to do the same job for a quarter of the pay.

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But how about optimism?


Surely, it can’t all be dead bodies and raging unemployment, right? Where can we look for a silver lining of some kind?

It was reported earlier this month that the “UK finally moved out of recession in the final three months of last year, according to latest estimates, but not before Britain suffered it's deepest year of recession for 88 years.” Britain’s economy reportedly fell further last year than during any year of the Great Depression.

Why should we care about Europe? Well, they were hit by the economic crisis first in many respects—so if they are pulling ahead economically, it means we can perhaps expect the same (fingers crossed!) in the coming months.

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What do YOU think?


Is the recession a thing of the past? Or are we in the eye of the superstorm?

Let us know your thoughts here in the comments, or on our Facebook page.

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