Worst is yet to come for US

Los Angeles, California (eTN) - At the America’s Lodging Investment Summit (ALIS) held here January 28-30, 2008, Gene Sperling, former White House National Economic advisor who served during former President Bill Clinton’s term and who is also a former director of the National Economic Council, expects the real downturn in US economy is yet to come.

Worst is yet to come for US

Los Angeles, California (eTN) – At the America’s Lodging Investment Summit (ALIS) held here January 28-30, 2008, Gene Sperling, former White House National Economic advisor who served during former President Bill Clinton’s term and who is also a former director of the National Economic Council, expects the real downturn in US economy is yet to come. He said the economic crunch will hit sometime around February to April; with the adjustable rate mortgage to reset in the first half of 2008, majority of which are of sub-prime ARMs, with a number anchored on teaser rates that will climb to $1500 a month this year,” he said adding, “The real storm is still ahead of us.”

According to him, it is the US consumer who is the real threat to a recession which today hinges on stepped-up demand. Consumer spending has never been terrific, likewise never weak while remaining steady at around 3 percent

Productivity boom started to double during the second half of the 1990s. It continued rising between 2003 and 2005, but there was no wage growth across the board. It has remained terribly flat at $17.71 – exactly only $0.2 higher since five years. Median family income fell down and has been kept low at $1300 since 2000, showing significant stagnation in income. Private savings have held on negative or flat from about -.05 to -.06. Household debts are higher than disposable incomes for the first time ever in US history. Nevertheless, situations like these have already existed ever since US growth was measured well over 3 percent. However, there remained continued spending stemming up from peoples ‘perceived’ increase in their household wealth. “To think, from 1996 to 2005, family home prices went up 86 percent; people did not truly feel the pinch. That’s why people felt wealthy despite incomes staying flat,” said Sperling. Progress has been enormously dependent on home prices rising at those levels

But if homes in November 2006 were valued at $217,000, in 2007, the same fell down to $210,000. Home prices have declined in the last quarter. Repeat sales of single family homes have gone down and will slide even further with the current pressure on real estate. Construction has slow down everywhere. All in all, the average inventory of existing homes over the last 3 to 4 months with ‘for sale’ signs remained at a disappointing 10.2 months in ‘07, compared to 4.5 months in ’06.

No eTN Insider Tip for this article: Do you have a suggestion?

Click here to apply and nominate your destination, company or service to become THE insider tip for this or another prominent cornerstone articles on eTurboNews. You may be added to the content including a prominent link to your website as an "Insider Tip". Such articles often gain significant interest in social media and the "search world" for an extended time period. Such articles should focus on your destination or your type of services.  Not everyone applying can be approved. 
submit a news tip
Beijing forces Cathay Pacific Airways’ chief to resign over Hong Kong protests

Beijing forces Cathay Pacific Airways’ chief to resign over Hong Kong protests

Aviation News

Rupert Hogg was forced to resign today as Cathay Pacific Airways' Chief Executive Officer, following ... Read More

300,000 told to evacuate, hundreds of flights cancelled in Japan ahead of tropical storm Krosa

300,000 told to evacuate, hundreds of flights cancelled in Japan ahead of tropical storm Krosa

Travel Safety & Emergencies

Japan advised more than 300,000 people to evacuate their homes on Wednesday as a tropical ... Read More

Undiscovered Taipei at OTDYKH LEISURE Moscow 2019

Undiscovered Taipei at OTDYKH LEISURE Moscow 2019

Breaking Travel News

25th International Trade Fair for Travel & Tourism Taipei is a place of numerous renowned ... Read More

Consumer spending is low. Coupled with this challenge, while the US reported mortgage equity withdrawal at 1 percent of GDP in 1996/97, it rose to 8 percent starting 2006 (of active equity mortgage withdrawal during the first half of 2006). Some 40 to 50 percent in spends were trapped in this equity.

The compounding bad news consisting of lower home prices, ugly credit constraints, the difficulty in extracting equity from homes, the ripple effect on consumer spending growing broader, and that the bottom line has not truly happened yet worries Sperling. “We have not seen the most terrible quarter for consumer spending yet. We’ve not seen it yet but maybe quite soon, in the first or fourth quarter of the year, we will hit rock bottom. Mortgage equity withdrawal is coming too its all time high,” warns Sperling.

It’s not all that bleak. The good news ironically came with oil prices going up. He noticed that oil went up from $60 to $100, gas prices actually went down from $3.13 to $2.80 which did not impact consumers as much. Wholesalers’ profits only got squeezed during that period. People have not really been truly impacted in the real sense of the oil price hike.

Similarly, a certain number of homes is not people’s primary residence; most of the affected households engaged in flipping second homes or investment properties.

Unemployment rate is only 5 percent today, as opposed to 7 percent unemployed levels – if only jobless people were to seek work today. Most of them who have moved out have not come back in the market until today. He said, “The ‘reserved army’ out there has produced low unemployment numbers which are just waiting for pay scales to improve,” Sperling explained.

Finally, Clinton’s advisor homes in to the more obvious, but perhaps ignored. He said, the sub-prime issue has not been contained because of the lack of transparency – thus increasing the degree of contagion. “People don’t understand the different conduits of securitization, thus creating fear in financing and depression in our markets today. There must be a degree of transparency and understanding across all segments of our economy,” Sperling stresses.

If the economy continues to weaken, energy prices will definitely go down, as consequence. This trend will continue to spiral due to some geo-political risks, ongoing problems with Iran, and a weak dollar. Never will energy prices fight with rising consumer prices. Just watch building materials go down since the last months due to worsening market trends across the nation.

If the economy continues to stagnate, tourism may stand to benefit by having a stronger domestic travel market, not willing and able to go abroad.

CATEGORIES