This is article from Wall Street Journal on JANUARY 29, 2009.
This is kind of depressing but great illustration of how one family's layoff affect entire US economy.... I think US is finally in deflation......
It shows how the job loss of Mr. Smith, businessman living in Dallas Tx area, affect entire town, US corporations and global economy. As result, we see news about massive layoff at Starbucks, AT&T and etc....
70%+ of US economy is made up with "consumption" and it has led global trade and export. However, as you can see from this article, US consumers are seriously cutting down on consumption and also start paying off debt and saving! I think US economy is officially in deflation now.
Under this consumption slump, I see US corporate performance also goes down dramatically --- leading Dow Jones to possible 5,000 level (based on P/E Ratio). So, for stock and 401k investors, be careful blindly hoping for come back.
In addition, US consumption slow down will dramatically affect global economy, especially export-dependent Asia economies.
Lastly, I find it very interesting that, in this WSJ article, one man says "I understand that we need to spend money to get the economy moving, but he doesn't feel like he can afford that."
I think this symbolizes the challenge US is facing. Statistically, US consumers has too much debt and US has too much consumption. So it is good that consumers are finally cutting back the consumption, stop using credit card and house as ATM and start saving (Is it new era of responsiblity?). However, under this circumstance, even Obama administrations drop 800 billion stimulus package, I am not sure how much of these package leads to increased consumption and boost of GDP.
Anyhow, let's take a close look at US economic data!
As for real estate investment, it is increasingly important to invest in the area where there is real demand and brings in good income and buy them at below fair market value.
Happy investing!!!
Article from Wall Street Journal on JANUARY 29, 2009.
A Layoff in the Smith Family Ripples Through Town
By BEN CASSELMANGrand Prairie, Texas
The recession hit Chuck Smith on May 30, after lunch.
The 42-year-old father of four was in his small office in a suburb of Dallas when his boss walked in and closed the door. His troubled look gave away the news before he said a word.
Like many families, the Smiths had to cut back on spending that collectively hurt local businesses.
Mr. Smith knew he had been working on borrowed time. Metrostudy, the housing market research firm where he worked as a staff consultant since 2005, had seen its business drop. A glut of homes prompted builders to stop building, eliminating their need for Metrostudy's market information. That prompted Metrostudy to cut back on its consulting, eliminating the need for Mr. Smith.
The few moments it took for Mr. Smith's boss to relay his company decision to lay him off launched a series of actions that in subsequent weeks and months have rippled through the economy, affecting the lives of individuals and companies -- one as far as Finland.
The Smiths sat down at the kitchen table one evening in early June to crunch the numbers. With a stack of bills and his wife's paycheck, which would now have to support the family, the Smiths laid out their financial life on a white legal pad.
The math wasn't pretty. Mr. Smith had earned about $90,000 at Metrostudy. His wife, Kimberly, earns about the same at a retail marketing firm. The family concluded it needed to cut its spending nearly in half.
The Smiths weren't unusually lavish spenders, but they rarely stopped to think before spending money: new computers at Christmas, new videogames for the kids' birthdays, a new car at the first sign of trouble from the old one. If the money in the checking account wasn't enough to cover it, well, that's what credit cards were for. They accumulated more than $25,000 in credit-card debt.
Now they realized those carefree spending habits were the first thing that had to go. Mr. Smith stopped perusing the list of new video releases and buying DVDs that would go unwatched for months. Mrs. Smith stopped shopping at Harold's, the upscale clothier that had been a favorite since her days at the University of Oklahoma.
Thousands of other shoppers were making similar decisions to cut back, and the drop in sales sent Harold's, already struggling to compete with larger rivals, underwater. The 60-year-old chain filed for bankruptcy in November, and this month closed all 43 of its stores in 19 states.
Among the 50-plus employees listening to the grim announcement at Harold's Dallas headquarters on Nov. 7 was Amanda Martin, a 27-year-old newlywed who had worked for nearly five years as a merchandise planner.
Ms. Martin knew Harold's had been struggling, but the news still came as a shock. Her husband, Kyle, worked for Belo Corp., the local television giant that has faced its own recent financial challenges, and was pursuing an M.B.A. -- a long-term investment they suddenly weren't sure they could afford. So the Martins, like the Smiths, sat down to figure out how to slow their spending.
In the end, the M.B.A. program stayed. But Ms. Martin's weekly shopping trips to J. Crew "just to see what's new" did not. Nor did the couple's frequent Wednesday night dinners at Café San Miguel. Ms. Martin, who had watched the slowdown in spending ruin her former employer, felt guilty about the decisions she was making -- though she had no choice.
"I kept thinking, I'm cutting back my spending, which is hurting this store, which could put them in the same position we were in," she said.
At Café San Miguel, co-owner and Chef Hugo Galvan already had noticed his regulars were becoming less regular, and when they did come, they weren't ordering as many $7.50 pomegranate margaritas. So Mr. Galvan made savings adjustments of his own, buying less liquor, cutting back orders to his food suppliers and asking kitchen staff to carefully watch portion sizes.
So far, Mr. Galvan has been able to avoid laying off workers, but only by cutting back their hours by as much as eight a week. But that might not be enough.
"Most of my people, they've been with me since the beginning," Mr. Galvan said. "When it gets slow, someone's got to go home early."
At the Smiths' kitchen table, it was clear that cutting back on their impulse purchases wasn't going to be enough to make the numbers balance out.
The Smiths took a hard look at one of the biggest expenses after their mortgage: child care. Between day care for their two- and three-year-old children, after-school care for the six- and 10-year-old, and summer programs for all four, the Smiths were set to pay $22,000 in child-care expenses last year. Now, with Mr. Smith free to stay home with the kids, those expenses are gone.
The Smiths' savings are Marty Kidd's loss. Mr. Kidd runs the day-care center where the Smiths had been sending their younger children, and said he has been losing five families a month to the economy as many make alternative arrangements to save money.
"Grandmas are coming out of the woodwork," Mr. Kidd said.
The local Boys and Girls Club, which runs the after-school program the Smiths' older kids had attended, is even more vulnerable. Enrollment has fallen 7% in the past year, and almost all the losses came from the 60% of children who pay the full, $180-a-month fee. That has made it hard for the program to pay for the 40% of students who receive financial aid -- the needy children the program exists to help.
Steve Wurm, the club's president, said the nonprofit already has cut its annual budget from about $2.5 million to just over $2.3 million. So far, the agency has instituted a wage freeze, cut back hours of part-time workers and laid off one clerical worker -- setting off yet more ripples through the community.
Some of the Smiths' smallest cuts reached the farthest. One of the first expenses to go was Mr. Smith's $43 monthly membership to 24 Hour Fitness, a local gym. The chain of more than 400 clubs in 16 states has been trying to cut its own costs as customers scale back. So the company has pressured vendors such as fitness equipment manufacturer Precor to slash prices. That has hurt Precor's profits, which in turn hurt the profits of its Finnish parent company, Amer Sports Corp. Last month, Amer Sports warned investors that it would miss its 2008 earnings target in part due to Precor's poor performance.
Mrs. Smith has been more reluctant to cut out her own fitness spending, $40 sessions with her personal trainer, Kurt Moore. She has reduced them but she warned Mr. Moore she may have to stop. "He knows that he is still a luxury that is on the chopping block," Mrs. Smith said as she sewed up a torn pair of pants.
Mrs. Smith wouldn't be the first customer Mr. Moore has lost to the economy. He lost a banker and an insurance agent, and other remaining customers have reduced their sessions. The 42-year-old and his wife are watching their spending, putting off plans for a $20,000 addition to the house and thinking twice about having a second child. "If I lose a couple more clients, then I will definitely be concerned," Mr. Moore said.
By many measures, the Smiths are fortunate. They can cover their mortgage for their modest, two-story brick house. They now buy generic cereal at Wal-Mart instead of brand names at Target, but they aren't worried about putting food on the table.
Still, the family embodies the downshift in consumer spending. "I understand that we need to spend money to get the economy moving," Mr. Smith said, but he doesn't feel like he can afford that.
The family has appreciated the one luxury Mr. Smith's layoff does afford: more time together. "We'll make it work," he said. "We have to make it work."
