Impact of the crisis

We’re now months deep into a financial-economic-employment crisis across the country, and it’s especially severe in Michigan. What are some of the real impacts of this economic downturn on ordinary people?

The most visible impacts are on jobs and homes. Michigan’s unemployment rate has increased sharply in the past three months, to a current national high of 11.6 percent in January. There have been large layoffs in the auto-related industries in the state, and non-automotive businesses are now reducing their workforces as well as a result of reductions in business and consumer spending. Restaurants, retail shops, law firms, and accounting firms are eliminating positions, so job insecurity extends across the blue collar and white collar spectrum.

The loss of jobs feeds into a worsening mortgage foreclosure crisis in Michigan. Even before the surge on job losses Michigan had a high rate of troubled mortgages. That number now threatens to increase as a result of families’ loss of income, though there are a variety of new measures designed to help families to hold onto their homes.

A measure of the social distress for families in Michigan is the volume and nature of 2-1-1 calls that have been received over time. (2-1-1 is a growing national service in many areas that provides referrals to agencies and other resources for families and individuals facing difficult issues.) The United Way of Southeast Michigan provides detailed reporting of the volume, subjects, and demographics of its callers (link), and the results over the past 12 months are striking. Calls received in January 2009 are up by 30% compared to January 2008, at 22,518. The top five services for which referrals were provided included utility assistance, food, housing, temporary financial assistance, and employment. And emergency food providers such as Gleaners report a sharp increase in the amount of demand for their services in the past six months.

So how about the 80-85% percent of Michigan families who are still employed? (In addition to the 11.6% of people who are officially unemployed, there is a population of “hidden” unemployed people who are not counted in the official unemployment figures.) How has the crisis affected the majority who have not lost their jobs? It’s pretty clear that just about everyone in Michigan has been affected by the crisis. Anxieties about retirement investment accounts are at the top of the list — especially for people in their fifties or older. But a second major anxiety stems from job insecurity. With all the bad economic news, whose job will be the next to go? There is worry too about employers’ health benefits — will these benefits continue in their current form in the current economic environment? And these anxieties have led people to rethink their spending and consumption habits — leading, of course, to less demand in many sectors and perhaps another round of job reductions. Sales tax collections in Michigan fell by 18% in February from January; this is a direct indication of sharply reduced consumer spending (link). (Here is a report from the Chicago Federal Reserve Bank describing recent trends in Michigan retail sales.) And major purchases like automobiles and trucks seem to be on hold — witness the roughly 50% drop in demand for cars and trucks in recent months.

Another hardship that many families are experiencing is the frozen credit market and the stagnant home sales performance. Families who need to sell their homes are finding that there are few prospective buyers. And families looking to buy a home or a car may have substantial difficulty in finding a lender to provide the mortgage or car loan.

Add all these problems to a chronic American issue — the lack of medical insurance for upwards on 50 million Americans — and you have a rising financial and personal crisis for thousands of households in Michigan: how to pay for medical treatments when health benefits go away, or when you don’t have insurance at all. Unreimbursed care has increased sharply in hospitals in Michigan, resulting in severe financial pressures and the need for further cost-cutting; health systems in Michigan are currently laying off workers to adjust their budgets to current revenues.

So the impact of the current recession is sharply differentiated between people who have lost their jobs and those who haven’t. The first group is in serious, daily distress, having a hard time keeping their families provided with the necessities of life. The second group probably divides into segments with different levels and kinds of anxiety — those who have realistic fears of losing their jobs in the next wave of layoffs, those who are concerned that they may lose lose benefits or wages in the next year or so, and those who are anxious about the future value of their retirement savings. And it all adds up to a set of communities that are being forced to cope with a wide range of personal hardships, almost across the board.

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