A
recession is defined as two consecutive quarters of negative economic
growth. Recent data suggests the economy is contracting at a slower rate
but still slowing. A recovery will begin when the data suggest economic
growth. This could happen in the next few quarters, but most experts
agree it will be slow and steady. Weak housing and job markets, created
by tight credit conditions, must improve before any dramatic improvement can be
made. Here are some updates on the current situation:
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The $700 billion TARP rescue package and the $787 billion infused into the
banking system are beginning to have positive effects. However, some are
concerned about the inflationary effect this spending will have on interest
rates. The Federal Reserve is working hard to fight any such
effect. The Federal Reserve and Treasury Department continue to
participate in the mortgage market to ensure there is enough liquidity in the
system, which keeps rates low.
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While struggling to pull the economy out of the recession, our government is
also struggling with the broader issues which helped create the crisis.
Additional corporate regulation, tax law changes, and changes to major
entitlement programs are all subjects of great debate currently.
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The consumer comprises two-thirds of the economy. Thus, any recovery
necessarily involves improvement in the financial health of individual
families. Jobless claims continue to suggest it could be some time before
consumers as a whole feel better about their financial conditions.
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The housing market also contributes to individual families’ sense of financial
well-being. While many will note a few of the foreclosed homes on their
block have been sold, traditional home sales are still lagging since buyers are
sitting on the sidelines waiting for the next bargain house. Many
adjustable rate mortgages are due to adjust in the next 12 months.
Whether homeowners are able to refinance or modify these loans will have an
impact on whether home prices stabilize.
All recessions come to an end. They are either shaped like V’s, U’s, or L’s.
This recession appears to be shaped like an L, which means that while the
economy is due to stop contracting soon, it will likely not be improved much
for some time. Consumers can plan for this by reducing their debt, controlling
their spending, and taking advantage of the government-subsidized access to
credit while it lasts.
