Tom Thong wasn't smiling. Very strange. The owner of my neighborhood dry-cleaning shop usually is laughing, bouncing around his shop and greeting customers, with Vietnamese pop music blasting in the background and shiny plastic bags of clothing shimmering all around.
So why the long face, Mr. Thong?
"No customers! It's dead!" he complained this week. "Down 30%, 40% in the last two months; people aren't dressing up to go to work! Bad for business! Big problem!"
No kidding. It's one thing for New York economists to forecast a 5% contraction in the U.S. economy for this quarter, followed by the potential for a rebound later this year as fiscal and monetary stimuli kick in, but it's quite another for owners of small businesses, not to mention recent college grads and laid-off retail workers, to actually make it that far.
In conversations here in Seattle and across the country, as unemployment rolls swell and foreclosure lists lengthen, it's becoming clear that the ashen face of recession is beginning to look more like depression for companies and individuals not privileged enough to merit immediate government relief. This is not our grandparents' depression, with black-and-white newsreels of bread lines and Hoovervilles, though they may come, but the modern sequel, lit by LCD TVs bought on credit not too long ago and with a soundtrack via iPods that haven't downloaded new 99-cent songs in weeks.
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Lowered expectations
It's uncomfortable to engage in these conversations because you hate to pry and it feels perverse. But ask a few questions and listen a moment to voices all around -- whether it's Mr. Thong behind the counter or my niece, a recent top 10 law school grad furloughed from a big Los Angeles firm after just six months on the job -- and you'll get a crash course in reverse prosperity. It's a humbling of the American dream -- one wretched pink slip, eviction notice and customer receipt at a time.Investors can still prosper in this environment if they're willing to work a little harder than they're used to, but it wouldn't be much fun, and the funds definitely wouldn't pile up fast. I'll give you a few new ideas in a moment. But first, let's take a quick look at the current perils and prospects.
At a time when government leaders appear hellbent on shoveling billions of dollars' worth of taxpayer money to miscreant banks and bondholders, companies are ratcheting down to lower levels of output and employment. First-quarter earnings reports of giants such as Alcoa (AA, news, msgs) this month are coming up well short of already much-lowered estimates, and commercial construction was just reported down 40% from last year.
Headlines last week said joblessness hit 8.5% in March, but Mr. Thong will tell you it must be far worse than that to account for the collapse of his business. And he'd be right: When you add adults so discouraged about their situation that they've left the work force, and part-time workers who would prefer to work full time, the real unemployment rate is more like 16%. Five million people have lost jobs over the past 15 months as the lagged effects of the credit crisis and higher oil prices have pummeled the confidence of business owners who would normally prefer to hire and expand.
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Problems for pensionsUnderfunded state and local pension plans are likely to be the next things that are going to cost taxpayers, MSN Money's Jim Jubak says. (April 8)
Shrunken employment weighs on the wages and spending habits of remaining workers, which in turn weighs on factory production in an increasingly nasty negative-feedback loop. State spending on a handful of infrastructure projects over the next two years might boost employment by 2.5 million jobs and gross domestic product by a couple of points off the negative 6.3% level to which it crashed in the last three months of 2008, but new forecasting models suggest that overall growth will improve, at best, to a crawl as new workers flood into the work force from colleges and high schools and senior citizens stick around because of their depleted nest eggs. Many of these jobs will be temporary and lacking benefits, not to mention well below workers' skill potential, as companies send more high-value tasks to cheaper countries.
Continued: Not as green as it seems
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It is VERY easy to feel depressed. All around me I hear and read nothing but bad news with unemployment. And to make matters even worse I live in the Inalnd Empire, CA where we are the highest in the nation. Im taking this very personal even though I shouldnt. But I have never been this scared or concerned but how can you not when within a six month period I havent even received one phone call back from the countless applications and resume I have sent out. Something has to happen here cause we are really in for disaster!