BLOG VIEW: Learning About The Consumer Economy

I graduated from college more than two decades ago, and I admit to being clueless about the curricula of today's educational institutions regarding economics. Clearly, the ongoing crisis has changed the economic environment so violently that it would make sense for economics reference books to get an immediate update in order to remain relevant.

One place where an update is needed is the popular online reference site Wikipedia, which many students have come to rely upon for quickie information. Last week, a friend of mine pointed out a Wikipedia article entitled ‘Consumer Economy.’ You may think that the recent crisis would be reflected in that article. However, the entire article, as of Nov. 3, looked like this:

‘The consumer economy is the part of an economy directed at end consumers rather than intermediary businesses (i.e., companies which produce things).’

Yes, that is the entire encyclopedia article. Some thoughtful person stuck a tag on the page that noted, ‘This article does not cite any references or sources.’ My friend also noted that the Wikipedia article is currently the number-one point of reference for a Google search of the term ‘consumer economy.’

This oddity came to my attention right after I did an interview with Richard Rydstrom, chairman of the Coalition for Mortgage Industry Solutions. I was speaking with Rydstrom for the annual Year In Review/Year Ahead feature in the December edition of Secondary Marketing Executive, and he states that the consumer economy is much more than a mere ‘part of an economy.’

‘The broader economy is overly dependent upon 'full' employment and sufficient consumer spending,’ explains Rydstrom. ‘Consumer spending or consumption is critical to both economic and housing recovery – it should be responsible for 71 percent of the U.S. gross domestic product. Consumer spending historically increases some 3.3 percent per year, but personal spending decreased in the second quarter by $195 billion, a 1.9 percent drop. Business and construction spending contracted even more.’

Rydstrom is worried that in 2010, a continuation in the lack of consumer spending will see a continuation of current problems for the housing and mortgage banking markets.

‘If the consumer continues to fail to eat its share of the consumption pie, and we don't replace it with business or government spending, the economy and housing will continue to suffer,’ he warns. ‘The pie will be drastically reduced, and the economy, housing and the mortgage banking industry will shrink.’

Rydstrom is also keeping an arm's length from Federal Reserve Chairman Ben Bernanke's assertion that the recession appears to be over, primarily because the consumer economy is not responding to any signs of a turnaround.

‘The technical Wall Street recession may start to recede, but that is not the question as to whether the economy or housing will recover, and when,’ he continues. ‘Consumer spending and unemployment are key indicators of whether Main Street's recession is over. Continuing home-price declines, deteriorated borrower financial conditions – plus lower FICO scores, and unfavorable economic conditions highlighted by rising and significant unemployment – are critical factors that distinguish predictive modeling. There will be further shoes to drop and further declines, with steady stabilization and slow growth.’

Needless to say, last week's announcement of double-digit unemployment is not good news for our industry. Of course, revitalizing the state of the consumer economy is beyond the immediate control of the mortgage banking sector. Loan modifications have helped to alleviate the financial burdens that many homeowners are carrying, but issues relating to unemployment, a stagnant economy and non-housing consumer debt – especially in regard to credit card bills, student loans and healthcare costs – have been a harsh load for many to carry.

Clearly, today's mortgage bankers are well aware of the interconnected nature of the economy and how no problem can genuinely be isolated and contained. I hope that tomorrow's mortgage bankers who are now in school and who rely on Internet reference sites come to recognize this fact.

– Phil Hall, editor, [b][i]Secondary Marketing Executive[/i][/b]

[i] (Please address all comments regarding this opinion column to[/i]


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