Mortgage And Economic News: Economic Downturn

What is a recovery?  What is a recession?  What is a depression?   Let’s start with the bad before we focus on the good.  In order to be in a downturn, you must have 2 consecutive quarter or six months of negative growth of the Gross Domestic Product. This accounts for the value of all good and services produced within your border or nation.  A depression, is a negative growth or a downward number in six consecutive quarters in a row(18 months).  This nations has had countless recessions and some depressions.  The 1870’s and 1930’s were considered depression decades, but many years like 1921,  the economy was in downturn fo a full year.   When you have a depression, unemployment rates are very high for those seeking work(25% by mid 30s) and inflation can also run high.  In the late 70’s, we had a period of stagflation, which was high inflation, high interest rates, high unemployment, and 
little growth.

Mortgage And Economic News: What Is An Economic Recovery?

 Now what is a recovery?  A recovery is two consecutive quarters of positive growth following a recession or depression.  This becomes a”what does this mean to me” scenario. If the economy is growing, but incomes are flat, less people are participating in the workforce(well cover that), then who is it growing for?  Big businesses? Investors?  Of course.  A growing economy and larger wages means little if your et income after all expenses is down. Here is an example: you live in San Francisco. You make 250k a year, which by number standards, puts you in the top 2-3% of earners in the country. Your tax rate federally is 33%.  Then your state tax rate is about 10%.  Right there your at 44% before you have seen a dollar. Now if you own your own business, and contribute to your own social security, and Medicare, is
about 15.3% up to 100k, which pushes you over 50% on your income.  If you own a home, you pay a Real Estate tax of 1-2% of your home value(average starter home in the Bay Area is pushing 750k-1million.  That’s another 7500 dollars,  which is another 3% of your take home. Then you have sales tax, which I cannot honestly compute because people have different spending habits. The point is it is not what you make, it is what you get to keep.

Labor Participation Rate

Back to this thing called a Labor Participation Rate. What does it mean? People who either are working or seeking employment between the ages of 16-64.  This age demographic should be updated.   For one, people wait longer  to enter the work force and two, people are working longer.    Nevertheless, this number was calculated at 62.6, the lowest level in forty years.    People who are no longer looking for work are not included in this number.   When you say 4% of the population, or 14 million people have given up looking for work altogether by leaving the work force.   This pushes those who are working to work harder to take care of more people dependent on the economy.    You take that with the roughly 7-10% percent on some form of financial assistance,   These figures are described to make you angry, or push you to vote a certain direction, they are merely to give facts to raise awareness of what may lie ahead.   Whether it is debt, or government assistance, which most take at one time, those that do not will hold the upper hand.  Those that can pay for things in cash, own investments that earn income, and do not need retirement from an employer,  a municipality, a state, or a federal government, they will be in a position of greater leverage.  

Ron Granado

This article was written by Ron Granado.  Ron Granado is a veteran real estate and finance expert and is a title company executive with Plymouth Title Guaranty Corporation.  Many real estate attorneys, realtors, consumers, and mortgage bankers seek the professional advice of Mr. Ron Granado on his expertise in all aspects of real estate and title issues.

Ron Granado

Account Executive | Plymouth Title Guaranty Corp

1301 W. 22nd Street | Ste 505 | Oak Brook, IL 60523

630-300-3900 | ron@plymouthtitleinsurance.com | www.plymouthtitleinsurance.com

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