Wednesday, Jan. 23, 2008

How recent downturn will affect you

Answers to consumers' questions about the economy:

What is happening to the economy?

The national economy is slowing. A slumping housing market and growing credit crunch are rippling through the economy as consumers and companies curtail spending, which in turn causes retailers to earn less. Economists at Goldman Sachs, Wall Street's largest investment bank, are among those who say these factors will cause a recession in 2008. But, Goldman's economists also say the recession will be short, and they expect the economy to pick up in 2009.

Are we in a recession? What is a recession?

Nobody can say for sure whether the economy is in a recession. The data used to define a recession have not been collected. A recession occurs when the economy shrinks for six consecutive months.

What should I do with my investments?

``The old adage 'stay the course' is easier said than done for those who have watched the Dow drop 14 percent since Oct. 1. However, for people who have planned appropriately, 'stay the course' is exactly what they should do,'' Clay Williams, a Columbia-based financial consultant with Charles Schwab & Co., said Tuesday. Williams is telling investors if an additional 5 percent to 10 percent decline in the market is too much to stomach, they should consider a more conservative approach. ``Risk assessments should be performed regularly and allocations should be adjusted to meet changing risk tolerances,'' he said.< Over time, investors will find a proper balance.<

Is my job in jeopardy, or can I find a job?

The economy is slowing, which means layoffs are likely in some industries, Don Schunk, an economist at Coastal Carolina University, said Tuesday. Manufacturers are most at risk, Schunk said. Even if there are no layoffs, some firms might roll back production, cutting the hours employees work. ``When the national economy slows, South Carolina tends to take a pretty big hit,'' Schunk said.

How is S.C. protected in an economic downturn?

The state's growing health care industry is a bright spot for the economy, Schunk said. During the last recession, the health care industry continued to add jobs. As the state attracts more retirees, demand for health care workers will continue to grow.< Schunk said the S.C. tourism industry also will help the state. Tourism will take a hit, but it will not be as severe as manufacturing, he said. Anyone with a secure job and vacation time still will take a trip, Schunk said. As the high cost of gasoline limits domestic trips and the weak dollar limits overseas travel, South Carolina becomes an attractive option.<

Should I hold off making a big purchase -- house, car, HDTV?

Schunk said anyone considering buying a house should not be turned off by what is occurring on Wall Street. Schunk also said it isnot worth holding out for the best price point and mortgage rate possible. Mortgage rates are near historic lows. As for other big ticket items, the Federal Reserve's rate cuts -- four since September -- can spur more consumer spending, Schunk said. Auto loans tend to react more quickly to a Fed cut. Meanwhile, a proposed $150 billion economic stimulus package, which could include tax rebates, would probably help spur other spending.

Will my credit cards and other interest rates fall after today's action by the Fed?

Cutting the target for the federal funds rate to 3.5 percent means the prime rate will fall by an equal amount, to 6.5 percent. Most Americans have variable-rate credit cards that are tied to the prime rate, and interest rates on those cards will drop in the coming weeks along with interest rates on home equity lines of credit. How much they drop and how soon depend on the issuer. Many card issuers limit interest rate declines to a certain level.

Is this a good time to refinance my mortgage?

Yes, if you have good credit and the value of your home is holding steady. For homeowners with adjustable-rate mortgages, it's a particularly good time to refinance to a fixed-rate mortgage that can be locked in for years.

What can I expect in the next several months?

More ups and downs on Wall Street, Liz Ann Sonders, chief investment strategist for Charles Schwab & Co., said in a report issued last week. If the economy does enter a recession, Sonders predicts investors will experience a series of extreme swings in the market.

(McClatchy newspapers contributed)