Housing Woes Spread To Overall Economy
The Consumer Confidence Index fell dramatically from an October reading of 80.6 to 64. I believe this is what I have dreaded for months now and that is the mortgage and housing meltdown of 2007 is spreading to the rest of the economy.
The 64 reading was the lowest point for the monthly survey since it hit 61.5 in September 2005, a month when energy prices soared, reflecting the shutdown of Gulf Coast refineries after Katrina struck.
I believe this is only the start of what will be a long and painful negative trend. Read on…
“We have a perfect storm of negative factors affecting the consumer right now,” said David Jones, chief economist at DMJ Advisors, a Denver consulting firm. “We have higher energy prices, declining home prices and a crisis-related tightening of credit.”
Add to this a U.S. dollar that weakens on a daily basis and the perfect storm becomes the perfect hurricane.
Here is Fed Chairman Ben Bernanke’s take on the economy…
Mr. Bernanke said the U.S. economy would grow more slowly in the months ahead as it struggles under the weight of a growing list of challenges - slumping house prices, a credit crunch, a falling U.S. dollar and higher energy costs.
But he believes by spring 2008, we will have bottomed out and things will begin to get better. I couldn’t disagree more and here is one reason why.
Ian Shepherdson of High Frequency Economics in Valhalla, N.Y., said the Fed is underestimating the fallout from the collapse of the housing market.
“Things will be rather worse than this,” Mr. Shepherdson predicted. “Until the Fed gets real and stops referring to the housing disaster as a mere ‘correction,’ they will be behind the curve. The data will force them to ease.”
The housing and mortgage meltdowns are in relatively early stages. Yet they are already trickling over to the rest of the economy. As the meltdowns mature, they will have an even greater impact on the overall economy.
Real wages have been stagnant for years. The savings rate in the country is negative. The nation’s ATM, housing values and easy mortgage money is gone. So is the ability of the ATM to bailout home owners with tremendous credit card debt. The consumer is tapped out and there is no where for the consumer to go keep spending alive.
It’s only a matter of time before we see the consumer and service sectors of the economy (the work horses if you will) start to pull back on hiring and spending. Perhaps leading to wide scale layoffs.
Don’t think it can happen? Tell that to the one hundred eighty plus mortgage companies that have gone out of business and their 100,000 or so laid off employees. They didn’t think it could happen either.
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