The silver lining may be a ways off. The current storm is unlike the others we have seen in several ways. The duration, the breadth, the sectors involved, an election and the age distribution of the population will all lead to a slower recovery.
This downturn has had several festering sores before the major contagion set in. Michigan had seen a recession well before the rest of us, and it started to spread slowly into other Rust Belt areas as well. The loss of jobs in manufacturing that have not been recovered are unlike other recessions when the local downturn was temporary.
The duration of this slide may be well into two years, if not three. Employment recovery is not expected until mid-2009, and even then it will be a slow transition back to a 4% unemployment rate. Housing will likely not recover until late 2009, and auto sales are expected to be near decade lows for several quarters. Higher fuel prices will not allow SUV, light truck or heavier sedans to sell well. The time needed to replace the vehicle offerings with alternative equipment will take us well into 2010.
This downturn reminds me of growing up in New England when the textiles industry lost its base in that region. The difference was that it moved south and not offshore.
This time, the manufacturing jobs are moving to locations that do not provide the likelihood that they will be recovered here. More importantly, the New England area was slow to recover because the labor force did not move. The unemployed stayed put and portions of this region went into a sustained decline, primarily because of family ties and lack of awareness of opportunities elsewhere. This time around, however, there may not be regions that could absorb that number of unemployed and their skill sets, or lack thereof.
The age distribution offers some interesting twists as several areas of impact can be seen. My son graduates from college this December — perfect timing. There is only so much time that can be spent in school before the real world has to be addressed. Last spring, the hiring rate was well off historic trends for college graduates and this year will be worse. Those younger were finding it harder to get summer jobs to help pay for school, and school loans are getting more difficult to obtain. That leads to more people seeking employment and going to school part-time at a time when hiring is already in recess.
The in-betweens (25 to 45) are coming to grips with unemployment, housing value declines, and a profound lack of household wealth. The buying power of this group is important to revitalize and that can only happen when jobs return, housing stabilizes, and savings are sustainable. It is difficult to see this happening prior to the end of 2009.
Finally, seniors are finding it more difficult to maintain their standard of living and will see further deterioration in the next few quarters as food, fuel and medical costs remain higher than they had anticipated in planning for retirement. As a result, there will be a move to seek part-time employment, further pressuring the entry-level job market for youth.
Without a doubt, taxes will rise and services will be cut. The election does offer alternative approaches, but both candidates will need to rein in spending — especially for entitlements.
Increases in sales taxes, property taxes, fees and cuts in services (such as mass transit) will occur apart from income taxes and capital gains taxes. We spent our way into this and we cannot spend out way out of it.
The chickens have come home to roost — and it is getting messy.
