5 Ways Americans Are Surviving the Great Recession
Most of us are familiar with the tragic numbers that tell the tale of this grueling downturn. During the last peak, about 65 percent of Americans held a job; today, that number is below 59 percent. We just saw the largest two-year drop in “labor compensation” – wages and benefits – since the early 1960s, the foreclosure crisis continues unabated, and for the first time, the number of “99ers” – unemployed Americans whose benefits have run out – has pushed past the two million mark.
While Washington remains in the grip of deficit hysteria, these are the real problems the American people face. Being a resourceful people, they're adapting to their new economic situation in a variety of ways. Here are five of them.
1. Waiting to Strike Out on Their own
Getting a new place of your own -- whether moving out of the family home as a young adult, going it alone after living with roomies or getting out of a bad relationship -- costs money. Given the depths of the downturn, it shouldn't come as a surprise that the number of new households being formed has hit its lowest level in 40 years. That's according to economist Scott Sumner, who, citing an analysis of Census data, notes that in 2007 over 1.6 new households were formed, which was more or less in line with the average of 1.5 million over the previous decade. Last year, however, only 357,000 new households emerged, “down 78% from 2007 and down 76% from the prior 10-year average.” This is a major drag on the housing market and the construction industry.
2. Doubling Up
According to the San Francisco Chronicle, “Facing layoffs, pay cuts and furloughs, more people have turned to shared housing to help make ends meet.” Reporter Caroline Said found that listings for shares in the Bay Area on Craigslist are up 60 percent in the past 12 months, and agencies that match landlords looking to rent out a room with tenants eager to find affordable digs are overwhelmed.
Dennis Torres, a professor of real estate at Pepperdine University, told Said that this is probably the beginning of a long-term trend. "People who lost their jobs are renting out rooms in a last-ditch effort to save their property (from foreclosure)," he said. "But once they rent them out, they're not going back. They'll get used to the extra income and that will be the norm, even if they get a new job."
Young college grads, facing dismal job prospects, are also being forced to move back in with their parents in increasing numbers. According to CNN, “a whopping 85% of college seniors planned to move back home with their parents after graduation last May,” a rate that has “steadily risen from 67% in 2006.” Unemployment nationwide is at 9 percent; recent college grads face an unemployment rate of 15 percent.
This week, McClatchy reported that with wages stagnant, more Americans are taking a second job to make ends meet.
According to the report:
- Twelve percent of workers plan to take a second job this year, according to a survey by CareerBuilder.com.
- That's up from single digits during the first half of the decade, before the economic downturn, CareerBuilder.com reported.
- The reason is almost always economic. According to the Bureau of Labor Statistics, the number of U.S. residents who said they had two jobs because of tight financial times was 7.3 million in 2010, up from 4.5 million in 2007, the year the recession began.
4. Running Up the Credit Cards
In June, I noted that, according to a monthly survey of consumer attitudes conducted by First Command Financial Services, "Eight out of 10 respondents said that paying down debt is currently their No. 1 priority.”
According to the survey of 1,000 middle-class households, more than half or respondents say they're cutting back on everyday expenses, four out of 10 say they're “using all of their extra income” to pay down debt and 15 percent are even taking second jobs or working extra shifts to dig themselves out of the hole.
As the shock of the financial crash took hold, these efforts looked like they were paying off. According to Federal Reserve Data, American households lopped 4 percent off of their consumer debts in 2009. They kept it up through the first three quarters of 2010 – paying down consumer debt to the tune of about 3 more percent. But with worker compensation falling since then, the pattern has reversed itself – from last fall until today, households are again running up the credit cards, taking out lines of credit and sinking deeper into the red. And this week, Bloomberg reported on the trend, which appears to be continuing apace:
The dollar volume of purchases charged grew 10.7 percent in June from a year ago, while the number of transactions rose 6.8 percent, according to First Data Corp.’s SpendTrend report issued this month. The difference probably represents the increasing cost of gasoline, said Silvio Tavares, senior vice president at First Data, the largest credit card processor.
“Consumers, particularly in the lower-income end, are being forced to use their credit cards for everyday spending like gas and food,” said Tavares. “That’s because there’s been no other positive catalyst, like an increase in wages, to offset higher prices. It’s a cash-flow problem.”
While people are running up credit cards to pay for the basic necessities, they're also discovering they can do a lot of things for themselves they once paid others to do. The Washington Post reported that the Great Recession has “helped set off a change in behavior so pronounced marketers and businesses have coined a name for it. They call it 'insourcing': doing yourself what you once gladly paid others to do.”
Sales of starter sewing kits have shot up by 30 percent at Wal-Mart as families forgo the tailor. Landscaping companies have suffered a 7 percent drop in revenue over the past year. Procter & Gamble said that it has noticed more questions from customers about how to dye their hair at home to match salon coloring.
This is very sensible in normal circumstances, but bad for the economy in a downturn. Economists call it the “paradox of thrift” – people pulling back on spending when demand for goods and services is in a trough. The instinct to live within one's means helps keep demand down, which is ultimately the cause of our stubbornly high unemployment.
More Americans are also growing their own food, which is healthy, good for the environment and cheap. Seed supplier W. Atlee Burpee & Co. told the Associated Press that sales of “vegetables seeds and starter plants have jumped substantially in the past several years, with 30 percent growth in 2009,” and another 15-20 percent last year. According to the AP:
Forty-three million American households planned to grow at least some of their own food in 2009, a 19 percent increase from the estimated 36 million who did the year before, said the National Gardening Association, citing the most recent figures available. Spending on food gardening — including growing vegetables, fruit trees, berries and herbs — jumped 20 percent in one year to $3 billion in 2009 and stayed at that level last year, said Bruce Butterfield, research director for the nonprofit association.
As food prices remain high, those families appear to be sticking with their home gardens.
So people are doing what they have to in order to make ends meet, but obviously this isn't a happy story. People have a lot of needs that can't be addressed with a second job or a home garden – health care, a decent retirement and some semblance of economic security, to name a few. The Main Street economy needs jobs and rising wages to address the two pressing crises that Wall Street and the Washington Beltway appear to be largely unconcerned with.