Two recent news items that when taken together explain the conviction shared by many that the economic downturn will continue to deepen through the comings months.
First, sub-prime mortgages. Patrick Duffy of The Housing Chronicles blog picks up on an AP story in a recent post that details what is driving the 48% default rate of sub-prime mortgages. It’s not Florida or California that’s driving the default rate up; its states like Louisiana, Texas, Georgia and others that are suffering rapidly deteriorating economies. People can’t pay. Flat and simple.
When you look at this chart from the Economix blog of The New York Times, it’s easy to see why. While the unemployment rate is at 8.1%, the total rate of individuals who are looking for employment, out of a job or employed part-time while looking for full-time work is 14.8%. Some experts believe it is a matter of time before we reach 1 out of 5 people falling into this category.
It’s a terrible amount of pain, and a continuing drag on any economic recovery. The American consumer is behaving with a lot of common sense when he hunkers down and watches spending. He looks around him and doesn’t see an end in sight to the risk and uncertainty. President Obama’s exhortations to spend sensibly notwithstanding, people are going to wait to see how this all turns out, and hope they are not touched in a direct and painful way.
