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Bucks Blog: Early Holiday Spending Comes Despite Tight Consumer Budgets

November 29, 2011 by Leave a Comment

Courtesy of CredAbilityA survey by a consumer counseling agency found that the average consumer in the states shaded red or orange is in financial distress.

Continued housing distress and rising prices for food and gas are weighing heavily on American families’ finances as the holiday shopping season begins, a quarterly analysis shows.

The CredAbility Consumer Distress Index, a measure of household financial stability, fell sharply in the third quarter, largely erasing improvements made over the prior three quarters. An uptick in late mortgage and rental payments and higher prices at the grocery store and gas pumps were the chief culprits.

CredAbility, a nonprofit consumer counseling agency based in Atlanta, crunches national data in five different categories — employment, housing, credit, household budget and net worth — to compile the index. A score below 70 indicates financial distress.

In the latest analysis, United States households scored 66.7 on the index’s 100-point scale, a “significant” drop from 69.2 in the second quarter, and the largest drop since the third quarter of 2008, the agency found. The nation’s consumers have now been in financial distress for 12 consecutive quarters, according to the index. (The analysis also measured consumer distress in individual states and found that only 19, as well as the District of Columbia, had scores above 70.)

“The average American family is feeling significant distress,” said Mark Cole, chief operating officer of CredAbility and the index’s author. The unemployment rate hasn’t changed, but the rate of “under-employment,” in which people are working part-time rather than full-time for economic reasons, increased in the quarter.

Despite the gloomy index numbers, indications are that retail sales were up significantly over the bellwether Thanksgiving holiday weekend. Mr. Cole said he did not think that sort of spending could continue, given that the average family has shrinking savings and less left over at the end of the month. People fatigued by living within tight budgets may be looking for bargains, he said, but “It’s hard for me to imaging there’s that much spending power left.”

“The only way those gains are sustainable is if they borrow money,” he said, noting that consumers have been doing better at managing debt. “My hope is they’re not going to borrow money to buy holiday gifts.”

What are your plans for holiday spending? Does your budget allow for gifts, or do you plan to borrow to buy presents?

Article source: http://feeds.nytimes.com/click.phdo?i=25207294c68ddd59451482e7cd0445a4

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Forecast for Economic Growth in Europe Is Lowered

November 11, 2011 by Leave a Comment

BRUSSELS — Europe’s economic outlook received a fresh dose of gloom Thursday, when the European Commission warned that the Continent’s economies were stalled and faced the risk of a double-dip recession.

The commission’s latest growth forecasts intensified concerns that, as some members of the euro currency union take tough austerity measures to appease the debt markets, they are stifling any chance for economic growth that might help pull them out of financial distress. The commission predicted that, as a result of the contraction, the region’s government debt levels would edge up next year.

“The recovery in the European Union has now come to a standstill, and there is a risk of a new recession,” Olli Rehn, the European commissioner for economic and monetary affairs, told reporters in Brussels.

“This forecast is in fact the last wake-up call,” he added.

Mr. Rehn, an unflappable Finn who is rarely prone to hyperbole, was not exaggerating. Even Germany, the economic engine of Europe, is now expected to record just 0.8 percent growth in 2012 — more than a percentage point lower than the European Commission predicted in its spring forecast. And none of the euro zone’s other three biggest economies — France, Italy and Spain — are projected to achieve 1 percent growth in 2012.

At the other end of the spectrum lies Portugal, which was forced to ask for a bailout this year and is contracting so fast that it might not be able to meet its financial goals. The new forecast is for Portugal to have negative growth of 3 percent for 2012 — worse than the minus 1.8 percent predicted earlier.

That would rank Portugal at the bottom of the chart, below even Greece, whose economy is expected to shrink by 2.8 percent in 2012.

“The slowdown in economic activity is compounding investors’ concerns about debt sustainability,” said Simon Tilford, chief economist at the Center for European Reform in London. “In the south of Europe we have very high borrowing costs and no economic growth. That’s a lethal combination.”

Italy, for example, risks being forced into a vicious downward cycle if it has to make deep cuts in public spending to meet its creditors’ demands, and the austerity measures plunge the country into a recession that reduces tax revenue, Mr. Tilford said.

Over all, the European Commission’s revised forecast showed growth of only 1.5 percent this year for the 17 nations using the euro, before slumping to 0.5 percent next year.

The commission had previously expected the euro area’s economies to expand 1.6 percent in 2011 and 1.8 percent next year.

Debt levels in the euro area are predicted to increase from an average 88 percent of gross domestic product in 2011 to 90.4 percent in 2012 and 90.9 percent the following year.

The debt of Greece, the region’s outlier, next year is expected to reach a more staggering level than the 162.8 percent of G.D.P. this year. The forecast is for 198 percent of G.D.P. in 2012, and even marginally higher than that the following year.

The next highest debt ratio in the euro zone is Italy’s, at 120.5 percent of G.D.P. — and the sheer size of its debt, 1.9 trillion euros, makes it a much bigger worry for Europe. The commission forecasts growth of only 0.1 percent for Italy in 2012, with its debt ratio remaining stable.

The commission’s report underscores the risk that European leaders have begun to acknowledge in recent months — that austerity measures could send euro zone economies into a downward spiral. To stimulate growth, the European Commission wants to press structural reforms like liberalizing labor markets and relaxing restrictions that can create market inefficiencies.

A separate document prepared before a summit meeting of European Union leaders last month noted that through changes like freeing up services and integrating the energy sector, Europe could add 3 percent of G.D.P. by 2020. But those ideas still face resistance in many euro zone nations and would take years to put in place.

So Mr. Tilford argues that the euro zone’s healthier economies should be stimulating demand.

Article source: http://feeds.nytimes.com/click.phdo?i=6d4050d9a23d021098776079e8ff8831

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Drop in U.S. Birth Rates Reflects Recession, Pew Center Says

October 13, 2011 by Leave a Comment

According to preliminary data from 2010, the rates dropped to 64.7 births per thousand women ages 15 to 44, from 69.6 births per thousand women in 2007, the year the recession began. The report analyzed data from the National Center for Health Statistics and the Census Bureau.

The link between financial distress and lower rates of childbirth surfaced clearly in the regional data. North Dakota, with one of the lowest unemployment rates in 2008, about 3 percent, was one of two states to show a slight increase in its birth rate from 2008 to 2009. The other was Maine.

In all other states, birth rates declined, said Gretchen Livingston, the lead author of the report. Arizona had the deepest decline in its birth rate, down by 7.2 percent.

It is not unusual for child bearing to fall in times of economic hardship. Birth rates dropped 26 percent in the decade that ended in 1936, Ms. Livingston said, during one of the greatest economic calamities in American history. But the rates later pick up. “What people seem to be doing is not so much deciding not to have children, but postponing until things start to recover,” she said.

She pointed to the difference in age groups as evidence: the only one whose birth rate rose was the 40- to 44-year-olds, who could not delay childbirth any longer. All other age groups’ rates fell.

Hispanics, who were particularly hard hit by the recession, saw the largest decline, with birth rates down 5.9 percent from 2008 to 2009. Rates dropped by 2.4 percent among black women and by 1.6 percent among white women, the report found.

Article source: http://feeds.nytimes.com/click.phdo?i=e5077ee1cee6756f01394dc7f92e717e

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Despite Fears, Owning Home Retains Allure, Poll Shows

June 30, 2011 by Leave a Comment

Nearly nine in 10 Americans say homeownership is an important part of the American dream, according to the latest New York Times/CBS News poll. And they are keen on making sure it stays that way, for themselves and everyone else.

Support for helping people in financial distress over housing is higher than support for helping those without a job for many months.

Forty-five percent of the respondents say the government should be doing more to improve the housing market, while 16 percent say it should be doing less. On the politically contentious issue of direct financial assistance to those having trouble paying their mortgages, slightly more than half of those polled, 53 percent, say the government should help. And almost no one favors discontinuing the mortgage tax deduction, a prized middle-class benefit that has been featured on some budget-cutting proposals.

President Obama, who has been criticized for both doing too much to help the housing market and for not doing enough, was given poor marks. Only 36 percent of those polled approve of what Mr. Obama has done, while 45 percent disapprove.

In assessing blame for the housing crash, people are increasingly seeing financial institutions as the central culprit. Amid the swirl of recent disclosures about banks following improper and illegal procedures in pursuing foreclosures, 42 percent blame lenders, while 29 percent blame regulators. When the question was asked in early 2008, as the crisis was still building, the numbers were reversed, with 40 percent blaming regulators and 28 percent blaming lenders. Only a handful of respondents at either moment blamed the borrowers themselves for taking loans they could not afford.

“I believe the financial institutions willingly and knowingly allowed people to apply and receive credit at a rate higher than they could afford and this has degraded our economy,” said Steven Goode, an environmental health manager in Las Vegas, in a follow-up interview.

Making an offer for a house, something often done in past generations with little apprehension, is now riddled with worry. Only 49 percent call it a safe investment, while 45 percent feel it is risky. In a market where prices are consistently dropping, there is no easy exit.

“For the average person, it might not be a good idea today to buy,” said another respondent, Beth Lovcy of Troutdale, Ore., who bought a year ago. The value has already shrunk, but Mrs. Lovcy is unfazed. “It works out better financially than renting now because we can claim the interest on the mortgage.”

As the housing market slumped over the last few years with a speed and magnitude not seen since the Great Depression, aspects of homeownership have been debated as never before. There are tough questions about the role the government should take. These include how much of a down payment lenders should demand, whether lenders should be restrictive or expansive in granting new loans, how much assistance to give those on the verge of foreclosure, and whether real estate will ever again be the retirement savings vehicle it once was.

While the debate has been loud, there was little evidence of people’s views that went beyond the anecdotal. This poll offers a window onto widespread opinions at a critical juncture.

Before the crash, housing was widely deemed one of the safest possible investments. Few experts thought there was the possibility of a nationwide downturn. But after it happened, the effects were widespread and painful.

Diane Sherrell, a substitute teacher in North Carolina who retired on disability, traded up to a bigger house four years ago to accommodate an adopted son. “It’s been very difficult since then and we’re barely making it,” she said.

Half of those surveyed say the market’s continuing downward spiral has affected their long-term plans. One in five people say the crisis has prevented them from moving to another city or taking a different job. Nearly one-quarter of homeowners say their home is now worth less than what they owe on their mortgage, a condition known as being underwater. Families in this predicament are much more prone to foreclosure if they suffer job losses or other setbacks.

Over all, people are bleaker about the economic outlook than those surveyed in October. While most still think the current downturn is temporary, those saying it is permanent rose to 39 percent, up from 28 percent.

In the last two years, the stock market has recovered strongly while house prices have gone sideways at best. Yet those polled dismissed stocks as a long-term savings vehicle in favor of a savings or money market account (22 percent), a house (26 percent) or a 401(k) or individual retirement account (41 percent).

Who should be helped to buy is another contentious issue. Whether buyers need to come up with a 20 percent down payment — the standard for decades, but beyond the reach of many families now — is hotly debated. Fifty-eight percent of respondents say lenders should require this, while 36 percent say they should not.

People who cannot pay their mortgage are foreclosed upon. If they can pay but feel that doing so is pointless on a property that has lost so much of its value, it is called strategic default. While two-thirds of Americans say strategic default is not justified, 28 percent think that it is.

When houses are abandoned for any reason, it causes trouble for the neighbors. Three-quarters of those surveyed say foreclosures are a problem in their communities.

“Our home is worth much less now because houses are foreclosing around us,” said William Mack, an assembly line worker in Taylor, Mich.

Beyond all these ills, however, a persistent belief endures that the market will eventually improve and housing will regain its traditional importance.

Donna Boyd, a transportation supervisor in Cuyahoga Falls, Ohio, acknowledged “it might take a long time” for property values to go back up.

“But I don’t think I’m throwing my money away,” she said in a follow-up interview. “I rented for years when I was younger, and I just don’t like the idea of putting money in someone else’s pocket for something I will never own.”

The nationwide telephone poll was conducted June 24-28 with 979 adults and has a margin of sampling error of plus or minus three percentage points for all adults.

Marina Stefan and Marjorie Connelly contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=e438b43a4fdde8041ba617c8943d8d87

Filed Under: Business News Tagged With: , ,