Recession: A self-fulfilling prophecy?

This week our listings saw an average of 2.3 showings each, which is a significant increase over the past two weeks.   Our office saw a tremendous increase in buyer activity with one listing and two buyers  securing contracts.   Much of the activity has been in the first time buyer market and/or the markets under $300,000.   This makes much sense, since many  buyers in the higher price ranges have houses to sell in other markets.   Our listings in these higher price ranges are seeing limited traffic and its really only those that are priced very aggressively who are seeing a result.

I feel  impelled  to comment on some of the media reports this week with regard to employment data and a  ‘coming’ recession.   Friday,  it was released that unemployment has risen to 5% as of the end of March, a significant increase in the first quarter of 2008.   Unemployment has always been a good  precursor to recession when looking at historical data.

A recession is defined as  six months (two quarters) of declining gross domestic product (GDP).   According to the data I’ve researched, the GDP in the fourth quarter of 2007 was up by 0.6%.   I realize that’s not a high percentage, but it was UP nonetheless.   I can’t seem to find any GDP data for the first quarter and can only assume that it hasn’t been reported yet.   In  an article from ‘Market Watch’, economists are predicting somewhere between 0% growth to a 1% decline.   Time will tell.

Okay, so I’m no economist and I would love your comments;   But a recession, by definition, clearly hasn’t occurred  since GDP in the fourth quarter 2007 was actually up.   This tells me that everything we read in the media is simply a prediction.   Don’t these media reports create a self-fulfilling prophecy?   When the media predicts a recession, consumers tighten up their spending, GDP falls, and there you have it.

I know its next to impossible to fight the media.   But  if, as  individuals, we  understand the facts and reality of our economy, perhaps that’s enough not to be guided by people that just seek to be heard?  

Here is a prediction of my own:   As individuals, if we all sit back and wait for the economy to improve, its going to take a lot longer than the opposite approach;   individuals can create their own success in any market.

1 comment

  1. Rob

    You asked for it Scott…

    When Greenspan says we are in a recession- we are in a recession. Self fulfilling or not- once he says it- people listen. Everybody thinks of a recession as such a bad thing, but it really isn’t. The fact is that in the past, after every recession, or slow down if you are into semantics, has preceeded a big "recovery". It is a good time for Americans to rethink about what is important and hopefully get back to saving instead of borrowing like a drunken sailor on shore leave at the brothel where he has a credit account.

    Your definition for GDP is fine- and what you have observed says that we aren’t in a recession, however- how reliable is the actual GDP in a world where most consumer goods are coming from China? See this for more info on the likelyhood that GDP is overestimated:

    I am an optimist, but the run we have had is over. Liquidity is gone from the credii markets and has sprinted to commodities. People are scared and losing real money- so of course it is self fulfilling. But in the not to distant future, the Bears will come out of thier caves as we hopefully have another technology boom related to alternative ways to meet our energy needs.

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