Thursday, October 30, 2008

And So...The Recession Is Really Here!

Last month, in this blog, I thought we could see a mildly positive Gross Domestic Product ("GDP") for this last quarter that ended in September. However, this morning's numbers proved me wrong with a small contraction of our economy and a GDP number that fell 3-tenths of one percent (See Full Story) . In an economy that is so big and is so diverse as ours, a 3-tenths of a percent fall in growth is a big thing. Normally, a weakness in one or two or more areas of our economy can be covered up by by strength in others. Up until now, our weak U.S. dollar had kept our economy going with increased exports of American-made products. But that all changed in September as the dollar started to strengthen. The strengthening drove oil prices down but, at the same time, it made our products more expensive in the world. Previously, our export strength had masked the weakness in our own consumer's buying habits. Now, as that referenced news article points out, the drop in GDP is clearly seen as being driven by a fall in consumer spending as our export advantage is being reversed. I don't think that anyone can deny that September's revelations of the extent of the credit crisis took its toll by scaring the hell out of America's consumers and the rest of the world.

As a clear example of this, yesterday, I went to one of those big-box-store anchored shopping malls to pickup some prescriptions. At 10:30 in the morning, the parking lot was pretty empty in comparison to just a few months ago. Consumer's are afraid. They are afraid to buy because they just don't know what is happening to the economy and their jobs. I live in Las Vegas and the jobs here are almost exclusively driven by non-essential entertainment spending from consumers visiting from all over the world. More than anywhere else in this country, travel to, and spending in Las Vegas, becomes expendable when the consumer gets spooked. It happened after "9/11" and it is happening now. While the national unemployment is 6.1 percent, the unemployment here is over 7 percent and climbing. To some extent, Las Vegas is truly the canary in the coal mine and this canary is definitely looking sick.

Some experts predict this recession could be deep and very prolonged. Others seem to think that the efforts put forth by the Treasury Department and the Federal Reserve and other world banks will kick in and confine it to a short-lived, two or three quarter event. I don't think anyone really knows what will happen because we don't know what will happen with our new government in January. If taxes are raised in the midst of a recession, it could be a very prolonged event; possibly even a depression. If the Congress and new President show restraint, and possibly provide another stimulus to the consumer, alone, this along with the massive bailout spending could make a less hurtful economic crises. However, if the Democrats decide that "infrastructure spending" would be a good stimulus, then forget it. That is being done for union jobs and nothing else. New projects for infrastructure will literally take months to develop, engineer, bid-out, start, and complete. To think a 1930's style WPA program of infrastructure rebuilding/building will kick-start an economy that is already in recession is totally mindless. These are the "same" politicians who claim drilling for oil will take "too long" to bail us out of an energy shortage! I've got a clue for these people. Excessive taxes and massive federal spending delayed the recovery from the Great Depression and it will delay the recovery from any economic downturn we find ourselves in in 2009.

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