The "R" Word

Dare we say it? Recession. There are whispers of it on the evening news. It's coming, they say - sort of like Thanksgiving and Christmas. Unlike the holidays, we don't know when Recession, the univited guest, will arrive.

I vaguely remember the last recession - 1981-82, I was still in college and not yet fully-employed. I remember going home during the winter holiday to a house kept a "comfortable" 65 degrees in December and January, an attempt by mother to keep heating costs to a minimum. I also thought it was her unveiled attempt to make me return to college sooner, but that's another blog....

Back to this year's recession...
What do we know about business? Number one - there are business cycles. Just because it's 2007 and a woman may be running for President of the U.S., does not mean the business cycle has been recalled, rejected or repealed.
The housing collapse continues. According to a recent article in Newsweek, New-home starts are now 47% below their peak of January 2006, and still declining. As the inventory of unsold homes continues to grow, their prices come down. Nationally, prices in August were down 4.4% from the previous year, except in Atlanta, Charlott, NC, Dalls, Portland, OR, and Seattle). Go figure.
Oil prices continue to rise. Media-types and industry analysts are predicting $100/barrel before the end of the year.
Credit continues to tighten. The incredible losses being felt on subprime mortgages (typically weak borrowers) are starting to squeeze the lending standards for better borrowers - leading to tighter lending practices.
The good news? Export growth is strong - projected to be up 16% by year's end, and the federal gov't continues to spend - up 7%
So why all the hand-wringing? Is a recession good or bad?
A recession usually means higher unemployment, weaker profits, and more stress at headquarters. According to Newsweek magazine, there have been 10 recessions since World War II, one about every six years, and they've generally lasted 10 months.
There are benefits to a recession - though anyone who loses their job as a result would argue. For instance, a recession will slow inflation. This means prices can't go through the roof, of course neither can wages. Also a recession can help reduce bad corporate investments and risky financial speculation. When credit gets tight, the banks look at investments a little bit differently, don't they? Short-term - a recession can be tough. But long-term, it can make our economy healthier. Quite possibly, it could lead to a reduction in oil prices and further reduce the price of a new home (which could spur new home sales and allow more people to be able to afford a new home).
There are two big questions. What will the Fed do next? What will the big corporations be reporting for profits in the next week or two?