Water Cooler Finance: The Ups And Downs Of A Double-Dip Recession
The fact that analysts can't agree on the direction our economy is heading is a sure sign that speculation and trend-spotting are essentially debatable tools used to measure our markets. While one area of the country may be prospering, another can be suffering deeply. (Missed last week's update? Read Water Cooler Finance: A Diving Dow And Rotting Eggs.)
IN PICTURES: Obtaining Credit In A Bad Economy
Double-Down on a Double-Dip?
Growth in our economy slowed to a crawl in the second quarter, as was stated in a report released by the U.S. government. According to the country's gross domestic product (GDP), the growth rate settled lower than initially projected, at 1.6%, as opposed to 2.4%. Naturally, this has re-spawned talk of a double-dip recession in the near future. Sung Won Sohn, an economics professor at Cal State University Channel Islands, told CNN.com that the threat of a double-dip has now risen from 25% to 40% since January. Of course, this could also be nothing more than a slow-down in recovery that will pick up again in the fall - a trend that has been observed for quite some time over the years.
Fears of a double-dip recession began growing when the economic recovery began in the third-quarter of 2009, but analysts in some areas - like Orange County, California, claim that a double-dip recession is "unlikely". Good news for plastic surgeons and manufacturers of hair gel.
However, much to the surprise of economic observers, initial jobless claims fell from 504,000 to 473,000 for the week ending on Aug. 21, 2010. Originally, analysts had projected a decrease in initial jobless claims to 485,000. This is being taken as a positive sign by many that a double-dip recession will not occur. (Though a double-dip recession is possible, if all bricks fall into place, it's not likely. Learn more in Dangers Of A Double Dip Recession.)
Fine the Friendly Skies
American Airlines could be hit with the largest fine ever by Federal aviation regulators. The second-largest airline in the world is being criticized on safety violations that may end up costing the company $24.2 million in civil penalties.
In 2008, FAA inspectors noted that two of American Airlines' MD-80 airliners were not properly inspected. Specifically, that the airline failed to properly examine the wire bundles that can be found in the wheel wells of said MD-80 planes. As a result, the FAA grounded hundreds of American Airlines flights. The company stands by its claim that there were no oversights in flight safety, and will challenge the civil penalty.
The previous holder of the crown for "highest fine" was Southwest Airlines. Also occurring in 2008, Southwest voluntarily grounded 44 of its planes on accusations that nearly 60,000 flights had taken off without proper inspections, according to regulations. Initially, the company was fined $10.2 million, but that number was negotiated down to $7.5 million. (These big-name airlines are no more. Find out what happened in Dead Airlines And What Killed Them.)
The U.S. Census Bureau reported recently that the size of the traditional American home is shrinking. This comes after the explosion of the McMansion trend of the 1990s where quickly-built and oversized homes were in high demand. The report claims that the median home size is now 2,135 square feet, down from 2,300 square feet just a few years ago.
But it's not just the size of the house that is being reduced. The higher-end amenities within the home are also decreasing. Luxury items like in-ground pools, media rooms and jetted tubs are also on the decline, as home shoppers are looking for more practical amenities.
Home builders and real estate agents are taking note, and offering smaller model homes at reduced prices. This will obviously affect resale prices in a few years, when those homes are back on the market. (Learn more about the supersized homes in McMansion: A Closer Look At The Big House Trend.)
The Bottom Line
All other indicators aside, optimists are considering the recession "over," as has been suggested on financial websites and papers in many parts of the country. But keep an eye on trends in the housing and employment markets, for they are two areas that are both easy to follow and directly connected to citizens' budgets.