Click to join an upcoming live event

Turn off Ads (click)

Click on your language to translate this article:

Afrikaans Afrikaans Albanian Albanian Amharic Amharic Arabic Arabic Armenian Armenian Azerbaijani Azerbaijani Basque Basque Belarusian Belarusian Bengali Bengali Bosnian Bosnian Bulgarian Bulgarian Catalan Catalan Cebuano Cebuano Chichewa Chichewa Chinese (Simplified) Chinese (Simplified) Chinese (Traditional) Chinese (Traditional) Corsican Corsican Croatian Croatian Czech Czech Danish Danish Dutch Dutch English English Esperanto Esperanto Estonian Estonian Filipino Filipino Finnish Finnish French French Frisian Frisian Galician Galician Georgian Georgian German German Greek Greek Gujarati Gujarati Haitian Creole Haitian Creole Hausa Hausa Hawaiian Hawaiian Hebrew Hebrew Hindi Hindi Hmong Hmong Hungarian Hungarian Icelandic Icelandic Igbo Igbo Indonesian Indonesian Irish Irish Italian Italian Japanese Japanese Javanese Javanese Kannada Kannada Kazakh Kazakh Khmer Khmer Korean Korean Kurdish (Kurmanji) Kurdish (Kurmanji) Kyrgyz Kyrgyz Lao Lao Latin Latin Latvian Latvian Lithuanian Lithuanian Luxembourgish Luxembourgish Macedonian Macedonian Malagasy Malagasy Malay Malay Malayalam Malayalam Maltese Maltese Maori Maori Marathi Marathi Mongolian Mongolian Myanmar (Burmese) Myanmar (Burmese) Nepali Nepali Norwegian Norwegian Pashto Pashto Persian Persian Polish Polish Portuguese Portuguese Punjabi Punjabi Romanian Romanian Russian Russian Samoan Samoan Scottish Gaelic Scottish Gaelic Serbian Serbian Sesotho Sesotho Shona Shona Sindhi Sindhi Sinhala Sinhala Slovak Slovak Slovenian Slovenian Somali Somali Spanish Spanish Sudanese Sudanese Swahili Swahili Swedish Swedish Tajik Tajik Tamil Tamil Telugu Telugu Thai Thai Turkish Turkish Ukrainian Ukrainian Urdu Urdu Uzbek Uzbek Vietnamese Vietnamese Welsh Welsh Xhosa Xhosa Yiddish Yiddish Yoruba Yoruba Zulu Zulu
Travel News

Worst is yet to come for US

Written by editor

Los Angeles, California (eTN) – At the America’s Lodging Investment Summit (ALIS) held here January 28-30, 2008, Gene Sperling, former White House National Economic advisor who served during former President Bill Clinton’s term and who is also a former director of the National Economic Council, expects the real downturn in US economy is yet to come.

Los Angeles, California (eTN) – At the America’s Lodging Investment Summit (ALIS) held here January 28-30, 2008, Gene Sperling, former White House National Economic advisor who served during former President Bill Clinton’s term and who is also a former director of the National Economic Council, expects the real downturn in US economy is yet to come. He said the economic crunch will hit sometime around February to April; with the adjustable rate mortgage to reset in the first half of 2008, majority of which are of sub-prime ARMs, with a number anchored on teaser rates that will climb to $1500 a month this year,” he said adding, “The real storm is still ahead of us.”

According to him, it is the US consumer who is the real threat to a recession which today hinges on stepped-up demand. Consumer spending has never been terrific, likewise never weak while remaining steady at around 3 percent

Productivity boom started to double during the second half of the 1990s. It continued rising between 2003 and 2005, but there was no wage growth across the board. It has remained terribly flat at $17.71 – exactly only $0.2 higher since five years. Median family income fell down and has been kept low at $1300 since 2000, showing significant stagnation in income. Private savings have held on negative or flat from about -.05 to -.06. Household debts are higher than disposable incomes for the first time ever in US history. Nevertheless, situations like these have already existed ever since US growth was measured well over 3 percent. However, there remained continued spending stemming up from peoples ‘perceived’ increase in their household wealth. “To think, from 1996 to 2005, family home prices went up 86 percent; people did not truly feel the pinch. That’s why people felt wealthy despite incomes staying flat,” said Sperling. Progress has been enormously dependent on home prices rising at those levels

But if homes in November 2006 were valued at $217,000, in 2007, the same fell down to $210,000. Home prices have declined in the last quarter. Repeat sales of single family homes have gone down and will slide even further with the current pressure on real estate. Construction has slow down everywhere. All in all, the average inventory of existing homes over the last 3 to 4 months with ‘for sale’ signs remained at a disappointing 10.2 months in ‘07, compared to 4.5 months in ’06.

Consumer spending is low. Coupled with this challenge, while the US reported mortgage equity withdrawal at 1 percent of GDP in 1996/97, it rose to 8 percent starting 2006 (of active equity mortgage withdrawal during the first half of 2006). Some 40 to 50 percent in spends were trapped in this equity.

The compounding bad news consisting of lower home prices, ugly credit constraints, the difficulty in extracting equity from homes, the ripple effect on consumer spending growing broader, and that the bottom line has not truly happened yet worries Sperling. “We have not seen the most terrible quarter for consumer spending yet. We’ve not seen it yet but maybe quite soon, in the first or fourth quarter of the year, we will hit rock bottom. Mortgage equity withdrawal is coming too its all time high,” warns Sperling.

It’s not all that bleak. The good news ironically came with oil prices going up. He noticed that oil went up from $60 to $100, gas prices actually went down from $3.13 to $2.80 which did not impact consumers as much. Wholesalers’ profits only got squeezed during that period. People have not really been truly impacted in the real sense of the oil price hike.

Similarly, a certain number of homes is not people’s primary residence; most of the affected households engaged in flipping second homes or investment properties.

Unemployment rate is only 5 percent today, as opposed to 7 percent unemployed levels – if only jobless people were to seek work today. Most of them who have moved out have not come back in the market until today. He said, “The ‘reserved army’ out there has produced low unemployment numbers which are just waiting for pay scales to improve,” Sperling explained.

Finally, Clinton’s advisor homes in to the more obvious, but perhaps ignored. He said, the sub-prime issue has not been contained because of the lack of transparency – thus increasing the degree of contagion. “People don’t understand the different conduits of securitization, thus creating fear in financing and depression in our markets today. There must be a degree of transparency and understanding across all segments of our economy,” Sperling stresses.

If the economy continues to weaken, energy prices will definitely go down, as consequence. This trend will continue to spiral due to some geo-political risks, ongoing problems with Iran, and a weak dollar. Never will energy prices fight with rising consumer prices. Just watch building materials go down since the last months due to worsening market trends across the nation.

If the economy continues to stagnate, tourism may stand to benefit by having a stronger domestic travel market, not willing and able to go abroad.