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JUNE 1, 1796

SEPTEMBER 8, 2008

It's a two year slowdown

By Hugh Willett

THE GOOD NEWS: IT’S NOT A RECESSION,

THE BAD NEWS: IT’S A TWO YEAR SLOWDOWN

Is the U.S. Economy in recession? It’s a good question, one that occupies the minds of many economists and media pundits during the election year.

The best answer I’ve heard to the question about recession came from University of Tennessee Economist William Fox, director of UT’s center for business and economic research.

Fox’s opinion… “Who cares?’

Fox wasn’t being flippant. He pointed out that while some have been arguing about the technical definition of a recession for the past year, economic conditions have continued to deteriorate.

Economists have a technical definition of a recession that is based on two consecutive quarters of negative growth. That means our economy could suffer under the burden of practically no growth for six months or a year and we still couldn’t say we are in a recession.

Back in Silicon Valley they had a saying “It’s a recession when your neighbor loses his job, but it’s a depression when you lose your job.”

Fox is making the same point. The economy is slow and people are hurting, so who cares what they call it; a recession or a slowdown, it still hurts just as much.

In Tennessee the slowdown has hit the housing industry and foreclosures are on the rise.
According to UT’s Fox, housing starts in 2008 will be at the lowest point in the 50 years since the numbers were first tracked.

Job growth has been slow and personal expenditures are way down. People are just not spending money like they did a couple years ago. When it comes to things people have to spend money on, like food and gas, prices are climbing through the roof.

When you combine the slow growth with the high inflation, it really doesn’t matter if we are in a recession or not. Regardless of what you call it, a lot more folks are feeling more financial hurt than they have in many years.

And it’s not just the people; it’s the government that has also been affected. Slow sales of big ticket items mean slow tax revenues. In Tennessee this has resulted in lower funding for education. If county school systems are going to be getting less money from the state, they will have to get more from county residents.

Some local governments are feeling the shortfall in education funding and looking toward higher property taxes and instruments such as wheel taxes to make up the difference.

Putting it all in perspective… we have slow job growth, higher prices and higher taxes. With a combination like that… Fox is right…who cares if we are in a recession or not?

The good news for those in Tennessee is that things could be worse. Housing markets in Florida and parts of the Northeast are much weaker. Manufacturing jobs continue to grow in Tennessee and overall cost of living is lower than most other parts of the country.

The bad news, for just about everybody, is that economists such as UT’s Fox and investors such as Warren Buffet are saying this “slowdown” is going to be longer, perhaps, than any slowdown since World War II.

According to economists like UT’s Fox, the Bush Administration’s economic incentive plan might provide a short term boost to the economy in 2008 but will do little to ease the pain as the slowdown continues into 2009.

 

 

 

SOURCE: Pinnacle Consultants

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