Tuesday, September 20, 2011

Recession: What Impact It Can Have

Today, most people have heard  the word recession, but if you are like me, may be wondering just what does it really mean and how does it actually affect individuals and families. Based on Wikipedia, the free encyclopedia available on-line, the definition is:  “Recession in the context of economics is a business cycle contraction, a general slowdown in economic activity.” “Production, as measured by gross domestic product (GDP), employment, investment spending, capacity utilization, household incomes, business profits, and inflation all fall, when bankruptcies and the unemployment rate rise.” They continue, “Recessions generally occur when there is a widespread drop in spending, often following an adverse supply shock or the bursting of an economic bubble.” For a more in-depth dialog of Recession visit: http://en.wikipedia.org/wiki/Recession
Bottom line is that a recession entails how money is spent and saved in a global economy. From the political arena, in order to avoid a national recession, people and businesses need to spend money – which allows money to flow in and out or exchange throughout the economic system which in turns affects the overall economy.
For the last decade, Americans were very good at contributing to the flow of money. We spend at an average of nearly $50,000.00 per household on everything from entertainment to essentials like food, shelter, and taxes. (Information is based on a 2009 governmental study of 12 million households with a wide range of incomes and included various ethnic backgrounds.) Details can be found at http://www.bls.gov/cex/tables.htm.
The unemployed number is another aspect. Based on the U.S. Bureau of Labor Statistics Report, “Nonfarm payroll employment was unchanged (0) in August, and the unemployment rate held at 9.1%.” The Pennsylvania rate is currently 8.2% and last year it was at 8.5%. Many states are much higher.
Another component is the rate of household and business filings for bankruptcies. The American Bankruptcy Institute reported in August that consumer bankruptcies decreased 11% nationwide from the previous year. Samuel J. Gerdano, Executive Director of the National Bankruptcy Research Center Executive Director stated, “Total consumer filings will be lower in 2011 than the 1.5 million consumer cases in 2010.”
So far, you have read a lot of statistics, but bottom line what does it all mean? In summary, as a nation we have a relative high unemployment rate, it appears people are cautiously spending, bankruptcies are high but leveling off, and recently the Federal Reserve reported that debt levels by consumers has dropped. Revolving debt fell $1 billion in April to $790.1 billion! This is the first drop in several years. It means people are paying down or off their debt.
As a result of the various media coverage about recession and all the other topics mentioned, each individual or family unit along with businesses have to determine what their level of income is, what their spending priorities are and carefully reflect on their financial decisions. Today, more families are talking about having a balanced household budget.  We are all impacted by a recession and everyone must review his or her own money management style to reduce any negative impact a national recession might have. The current often used phrase to summaries  "recession" is "You can't spend what you don't have."

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