How Bad Will The Economy Get?

Over the past 2 weekends I have collected sections of the newspaper relating to the economy to create another article on the current condition. The general consensus is the economy is getting worse. For three consecutive months the national unemployment rate has increased, now 5.1% - and here in NC, the unemployment rate is 5.2%, up .2% since February. It’s hard to believe that the bank situation could evolve into such a national crisis; economists believe the rise in unemployment relates to tighter credit on the construction and housing industries. It’s harder for developers and other companies to get loans; in return they don’t have as much money for projects or to employ as many workers. The higher cost of fuel and fear of a recession are also causing businesses and consumers to cut back, which slows economy growth.

North Carolina in the month of March alone, trimmed 8,400 jobs, in all industries. Citibank plans to cut 9,000 jobs and AT&T plans to cut 4,650 jobs. AT&T is reducing operations, in part, because last year alone 1.6 million landlines switched to the cable and wireless phone services. Citigroup experienced an enormous first quarter loss of $5.1 billion in 2008 and $10 billion in losses posted in the 4th quarter of 2007. Write offs keep climbing for mortgages, credit cards, auto and other types of loans. Citigroup expects more workforce reductions. Other companies have been cutting back as well. Merrill Lynch, the world’s largest brokerage is cutting 4,000 jobs, JPMorgan Chase has released information that jobs will be cut. Wachovia will cut 500 jobs and Washington Mutual plans to lay off about 3,000 workers.

Oil prices set another record high today, 4/22/2008, at $119 a barrel. The average gallon of regular unleaded gas is $3.51. Prices are expected to continue to rise to more than $120 a barrel before investors begin to sell. With that said, does that mean people investing in oil are actually contributing to the extreme prices we are paying at the pump?

Healthcare is also a big issue that is crunching the budgets of Americans. From my research, the average family pays about $12,000 a year on healthcare, nearly double since 2000. For the people without healthcare, the average cost of an emergency room visit is $1,000. Many people are postponing care because they can’t afford the bill or the cost of healthcare. The amount of out-of-pocket expenses we pay are expected to double again by 2017. If people that can’t afford the treatment seek attention anyway, it can drive them to bankruptcy. A study by Harvard shows that 50% of bankruptcies were linked to medical bills.

I wrote an article about my rent going up, the summary being that the range between the rich and the poor is growing. If you own a house or rent and you have healthcare, what can you afford? Not much else, food prices are rising due to gas hikes. With all of the daily necessities being so expensive, how can anyone spend money on luxury things or go out to relax on the weekends?

Now there is always a positive side to every negative. With the American dollar declining, investing overseas beneficial – of course you need to play your cards right. Businesses understand this and are benefiting. For example, Coca-Cola can sell a can of Coke for $1 in the US, but sells for almost $2 in the UK, this means the US Dollar is worth about half of what 1 British Pound is worth. When the currency is converted from the British Pound to the US Dollar, Coca-Cola makes almost twice the profit. Other companies that benefited this week from overseas profits are IBM, Google and eBay, just to name a few. There are a few companies that plan to take advantage of the profits from overseas, which does not benefit Americans, but when the dollar begins to strengthen again, economists believe the changes will shift back to growth in jobs in the US.

Everybody is trying to get the best deals with purchases they must make, such as the grocery store trip for example. The companies that sell the inexpensive, off brand-name items, must be making a good amount of money right now. I would expect the dollar menu at fast food restaurants to be a big hit as well as fast, easy, cheap meals such as ramen noodles. It seems like the things from that tried to get us out of the recession of 2001, such as easy to get mortgages, are coming back to hurt us. My previous question arises again…how bad will this recession get and how long will it last? The government has not officially said we are in a recession, but it is pretty obvious it will be coming soon. The sad part is in recessions, the unemployment rate will most likely increase. The candidates running for President really have their hands full. I believe if one or two of the nation’s problems were addressed, other problems will correct themselves or at least not make the whole economy seem as tense as it is.