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August 14, 2011

Economists: Second US Recession, If It Hits, Could Hit Hard

Some economists are worried that the United States is poised for another recession.  They warn that a so-called "double-dip," if it comes, could be more painful for average Americans than the 2007-2008 recession.  Jobs, incomes, output and industrial production are all weaker now than they were then.  One sector that has been hit especially hard is housing.


Mark Hudson is a real estate agent in Washington, D.C., one of the areas that has been least affected by the housing and construction bust.  He peruses the day’s list of homes for sale.

“We are down about 40 percent from June 2005 to June 2011 in home sales.  That affects every potential area of the economy everywhere and we are, frankly, being close to Washington, in better shape then a lot of the areas of the country," he said.

One of the homes Hudson is currently trying to sell is in a historic district in a suburb of Washington.

He says he’ll sell the house for much less than he would have several years ago.  And that reduced housing prices have a real impact on peoples’ personal wealth.

“If they had sold it a few years ago they would have cleared 'X,' now they are going to clear $100,000 to $150,000 less.  That is money they could use in retirement or for buying a new house or for putting their kids in college, so it absolutely affects their personal wealth,” Hudson said.

Robust home sales and construction can help drive an economic recovery.  But economist Karen Dynan says that probably won’t happen this time around.

“The real issue now is that demand is so weak because people don’t want to buy homes when their income prospects are so weak.  When they are worried that house prices are going to fall further and until we can see that demand rise again we are not going to see home-building rise in a way that is contributing to economic growth,” Dynan said.

Many economists say that fear of the unknown is feeding consumers’ hesitancy.  That fear has rocked global financial markets, following a downgrade of U.S. Treasury debt and a long-running and highly fractious political debate over raising the nation’s debt ceiling.

“Pessimism can be self-fulfilling.  If a consumer wakes up one day and is worried about the future and doesn’t go out and spend, then retailers are going to see weak demand and they are not going to hire as much and income will weaken and that in turn will leader consumers to have even less inclination to spend,” Dynan said.

Hudson says that with his personal income down by more than 50 percent, he’s certainly spending less.  And he’s worried about what’s to come.

“If there’s a recession, I don’t know what I would do because I have cut as much as I could, I believe.  I guess I could do more but it would be difficult.  I have cut as much as I can at this point, so it’s kind of a scary question,” Hudson said.