Millions of Americans cut their spending as they worry about keeping their jobs and their homes. Yet spending helps drive the economy. Transcript of radio broadcast:
Welcome to THIS IS AMERICA in VOA Special English. I'm Steve Ember.
And I'm Barbara Klein. This week on our program, we turn our attention to the economy.
A lot of people have thought for months that the United States is in a recession. But the economy is not officially in a recession until a private research organization says it is. Guess what? Last Monday the National Bureau of Economic Research announced that the United States has been in a recession for the past year.
Economists on the Business Cycle Dating Committee met by conference call on Friday, November twenty-eighth. They decided that economic activity reached a high point in December of two thousand seven. It peaked after eight years of expansion.
The United States was last in a recession from March to November of two thousand one. Some economists say the current recession could last into two thousand ten. But how long, and how bad, it will be is really anyone's guess.
The United States has the world's largest economy. Japan has the second largest. It, too, is in a recession, officially announced on November seventeenth. That was four days after Germany confirmed a recession in its economy, the largest in Europe.
One way to measure an economy is by the value of goods and services produced within a country -- its gross domestic product. The latest estimate shows that America's G.D.P. fell by half a percent between July and September. It also shrank at the end of last year.
But in between it grew. Recessions are commonly defined as at least six months in a row of decrease in G.D.P. The committee does not use this definition. Instead it uses a number of different reports to identify a recession.
The economic crisis began with the collapse of property values, the bursting of the housing bubble in the United States. Investments built on high-risk mortgage loans became "toxic." No one wanted to trust banks that owned them. Credit markets froze.Governments around the world have had to intervene aggressively to support their financial systems.
Barack Obama has to wait until January twentieth to become president. But he has already moved faster than most newly elected presidents to name his economic team. He wants to get an early start on an economic recovery plan big enough to contain the recession. His goal is to save or create two and a half million jobs by January of two thousand eleven.
He wants Congress to have legislation ready for him to sign into law soon after he takes office.
Last Tuesday President-elect Obama met with the nation's governors in Philadelphia, Pennsylvania. He said he wants their help in designing his economic recovery plan.
State and local governments are collecting less tax money as a result of falling property values, rising unemployment and other problems. Most of the fifty states are required to balance their budgets. Most are now facing deficits. So that means they have to cut services or raise taxes, or both.
Last Monday, Governor Arnold Schwarzenegger declared a "fiscal emergency" in California. He acted under a constitutional amendment passed by state voters in two thousand four. It requires California to balance its budget.
The declaration lets the governor call a special meeting of the legislature to pass measures within forty-five days to deal with the budget crisis. He wants a combination of spending cuts and tax increases in the nation's most populous state.
Early estimates show that over the next eighteen months, California's budget deficit could reach twenty-eight billion dollars. That is more than double the current shortfall.
Governor Schwarzenegger warned that without quick action, California could be out of money in February.
Motorists are happy at the drop in fuel prices. But economically speaking, there is not much else to be happy about.
Stock prices climb one day, then fall the next. Investments and retirement savings have shrunk. The economic downturn has millions of people worried about keeping their jobs and their homes.
Americans have cut back on spending, and not just for things like travel and entertainment, or new cars. Some are limiting medical and dental care to only the services they need most. They may be saving money, but also taking a risk.
One family trying to save money is the Jeffries of Carbondale, Colorado. Sarah Jeffries and her husband, Wayne, have two children: a son, age five, and a daughter, age two.
Wayne Jeffries is a manager for a construction company. Sarah says other builders in the area are letting workers go because of weak demand. She says her husband's company has projects through the middle of next year. But no one knows what will happen after that.
Fear of losing a job is a big reason why people are looking to save money. Sarah Jeffries says she buys things only when the price has been reduced. She gets all the children’ s clothes from used clothing stores.
She says the family does not eat at restaurants as much as they used to. Sarah also says she looks for money-saving coupons to use at the grocery store because of high food prices. And she makes an extra effort not to waste any food. One or two times a week the Jeffries have what they call “picnic night."
That is, the kids call it picnic night. To the parents, it provides a way to use foods left over from meals earlier in the week. But Sarah serves the leftovers on plates on a blanket on the floor, and says the children love it.
Saving money is also a goal this holiday season at the Jeffries’ house. Sarah says the family used to spend about one thousand five hundred dollars on Christmas gifts and decorations each year. But this year, she says they will spend between seven and eight hundred dollars.
One way they are cutting back is by reducing the number of gifts they buy. Sarah and Wayne generally exchange Christmas gifts with each other and with her parents and brother who live in the area. This year, the adults have all decided not to buy each other gifts. Instead, they are each putting fifty dollars toward a Nintendo Wii video-game system that they plan to share.
Personal spending is a big part of the American economy. It represents about seventy percent of the gross domestic product.
For many businesses, anywhere from twenty-five to forty percent of their sales all year normally come during the winter holiday season.
The shopping season traditionally begins on the day after Thanksgiving. The day is called “Black Friday." The name comes from the tradition of recording profits in black ink and losses in red. Black Friday is when stores hope to return to the black for the year.
Many stores now open before sunrise and offer extra special deals for early shoppers on Black Friday. The National Retail Federation found that almost one-fourth of shoppers this year arrived at stores by five o'clock in the morning.
Black Friday used to be the biggest shopping day of the year. And it still may be the day when the largest number of shoppers visit stores. An estimated seventy-four million people visited stores and Web sites on Black Friday this year. But Black Friday is no longer necessarily the day when shoppers spend the most money.
With the economy down, shoppers are thinking carefully before making holiday purchases and looking for the best values. Black Friday this year was better than expected. But stores were offering big price reductions -- sacrificing profits, and possibly risking their futures.
Americans are better known for spending money than for saving it.But now, some are trying to save by reducing the debt they owe on credit cards. Others are trying to avoid taking on new debt. Still others have had their credit limits reduced as a result of the financial crisis.
The Coinstar company reports that almost one-fourth of Americans say they are paying for purchases with cash more often than they did a year ago. Using cash, they say, helps them manage their money better and reduce credit card debt.
Recently we asked some shoppers at the big Potomac Mills Mall, south of Washington, D.C., how the economy is affecting their lives. Erica Scott lives in Culpeper, Virginia:
ERICA SCOTT: "We have our own business. So, we’re feeling it there.Calls are slowing down. So, we’re just trying to cut back wherever we can. We’ve had to let a few employees go. We do a lot of contracts with the Virginia Department of Transportation and they’ve cut back on their contracts, so we’ve had to cut back. We’re eating out less, cutting more coupons out, shopping for cheaper gas, going to outlet malls instead of normal malls ... "
Some shoppers are waiting to see how the economy does under the new administration. Dennis Aanderud of Spotsylvania, Virginia, put it this way:
DENNIS AANDERUD: “My wife would like to get a large-screen TV, and maybe a car. We’re just going to wait and see which way things are going. Things are in a very volatile situation right now and I think people are just waiting to look and see what President-elect Obama does.”
Our program was written by Nancy Steinbach and produced by Caty Weaver. I'm Barbara Klein.
And I'm Steve Ember. Transcripts, MP3s and podcasts of our programs are all available -- free of charge -- at voaspecialenglish.com. Join us again next week for THIS IS AMERICA in VOA Special English.