Sunday, July 12, 2009

Something unusual in this recession .....

If the US economy did not recover in the last quarter, this will be the longest recession since the Great Depression more than 70 years ago. The current recession started in Dec 2007. The recession for Singapore will be just as long. So this will be the longest recession in my lifetime and yours (unless there are 80 yr olds reading this blog).

Here are the worst past recessions from the US National Bureau of Economic Research:
  • 1929-33: 43 months
  • 1910-12: 24 months
  • 1913-14: 23 months
  • 1920-21: 18 months
  • 1973-75: 16 months
  • 1980-81: 16 months

I'm old enough to remember the 1980s recession and every recession since. Some of you may remember the 70s oil-shock recession....I was around but too young to remember. On paper this is a deep harsh recession, the worse since the Great Depression. You can compare all the post-war American recessions here. The US unemployment hit 9.4% and is almost certain to get to double digits. For Singapore, the numbers from first quarter has been shocking - the decline in Q1 2009 was the worst quarter ever since Singapore became independent. Manufacturing shranked by can read a good summary here. So going by the numbers this is clearly the worse recession since 1933.

Observing people and behavior, I notice, given the severity of this recession, there is something unsual going on. I notice there is a lack of fear among many people compared with other recessions. Among my friends a few were fearful for a few weeks when there was direct and clear risk that they will be retrenched but after that their fear disappeared. I observe that level of fear was far higher in the 80s, 1998 and 2003 recession. Someone observed and posted in the comments section of my blog that people are still spending, shopping centers seems to be as crowded as before and restaurants appear to be doing well etc like nothing bad is happening. Taxi drivers I spoke to tell me that business is off the high but not the 2003 recession quite horrible for the taxi business....people just cut back until taxi drivers were better off giving up driving because they can't overcome the rental. I remember walking around in empty shopping centers, eating in empty restaurants in past recessions. What is going on? I thought about it for sometime and I think I have the answer.

In the 1980s, the way people were employed to do work was completely different. When you join a company, there was a good chance you would stay for a decade or longer. The Japanese companies more or less were still practising lifetime employment and the attitude was to keep workers "come what may". So when companies go bust in the 80s recession, you're laying off people who had been in the company for decades and that was really painful. In the 80s recession, when the company was not doing well workers were really worried because they had been employed for years in the company and looking for another job was something they did not expect to do. Over the next 2 decades, jobs security vanished as companies adopted hire-and-fire policies. IT professionals now are used to 2 or even 1 year contracts. When contract ends, the companies have the option not to renew it to cut costs and retrench people. Many of my friends have had 4-5 jobs over the last 10 years. Looking for another job has become routine for many people so is the experience of losing a job. The only difference between the good times and bad for many younger people is the time it takes to find a job and the income. As there was already 2 recessions before this one in the last 10 years, more people became used to the lack of job security. There is still fear now among people in their 40s in 'unstable' jobs but this fear is existed in the good times anyway so people learn to live with it, hedge against it with backup plans and so on. For the bottom 20%, living in relative poverty, life has been miserable throughout the good years the threshold for pain has probably increased and diminishing expectations of a better life makes this recession just another bad thing that happened to them in a long struggle to stay afloat in Singapore.

Bad things happen often enough people get used to it. It is still just as painful when bad things happen but people are not paralysed by the fear of it happening. This is the 1st time ever that we see prices for HDB flat going straight up to new highs during a recession and COE rising as unemployment goes up. While I've explained that immigration might have something to do with the rising demand but to push prices to record levels during a recession requires a lack of fear. We see the same lack of fear in the private property market - since February 2009, buyers have snapped up as many units each month as in 2007 [Link].

The willingness of Singaporeans to continue to spending will do little to take us out of recession. We are still dependent on western economies for demand and growth. The unemployment rate stands at 4.9% and is still rising, the pain of being unemployed for an extended period is still the same regardless of whether there is fear of it happening or not....


Anonymous said...

Your attribute the lack of fear to the fact that Singaporeans are used to the numerous recession that happens. But what about shopping centers and restaurants that still remains full? Surely the money has to come from somewhere?

LuckySingaporean said...

Credit card?....95% of the people are still employed and get regular income. There is money ...and that is the same in every recession. The difference is the willingness to spend the money vs saving it.

Anonymous said...

Gd morning Lucky
if this is the case, why is US not spending? They seem 2 have similar characteristic

Anonymous said...

There is hardly any incentives to save. Linking this to your previous article on investments (how to invest) and the credit card, whereby you get incentives if you can manage the cards properly, people still throng the malls and spend with interest fee payments if they use their cards on big ticket items, so why not. You can enjoy the luxuries immediately and thats how Courts can do a thriving business. But all this can change at a moments notice. The interest rates on a home loan can spike before you can finish paying it off in 25 years.

I too thought I can manage my bills on timem, but recently I missed one payment. Interest on the 1200 was like 60 dlrs plus a late payement fee of 50 dlrs. It will take an FD of 1 million dlrs one years tenure to earn that 110 dlrs. Think about that.

LuckySingaporean said...

anon 8:40,

The Americans are not spending because they are losing jobs at a much faster rate. Like I said you may not be fearful but once you lose your job, you still get hit by the financial pain. The American economy is hemorrhaging jobs much faster than all the asian economies. Once they lose jobs they are forced to stop spending.

Also, there is additional problems like falling home prices. In LA the home price fells by 40%. Imagine if someone's home lost nearly half his value, he will suddenly feel poorer and won't be in the mood for spending more money.

The US took a direct hit in this crisis. Although Americans were getting used to the hire/fire and lass jobs security, they had other problems to cope with like the type of financing they took for their home which balloon up over time and that read strangled their spending.

Anonymous said...

Do u think the current situation is temporary? Could u guess what will happen in the longer run?

Another strange sign is tt no massive retrenchment from GLC. During good times, they slashed. Now seem to be keeping. Do you it's political? How long will they continue to hold?

LuckySingaporean said...

anon 9:06,

I think if the unemployment rate goes up and property prices which are still at lofty level fall, ...the mood will deteriorate quickly.

As long as the western economies don't improve, I think we are on the path to something bleak. Right now everything is so fragile - the US economy looks like it is going to worsen and Singaporeans may face a harsher reality in the coming months.

Jim said...

I think you are right. We have gone through so many recessions that we have become quite numbed to it.

Besides the lack of fear, from what I've noticed, people are cutting back on non-essential spending. Many stores have to slash their prices to maintain their sales e.g. 40% discount for bak kwa, $1.10 for all breadtalk buns. I am someone who buy things only when there is a discount and there are noticeably more items available.

As for crowded restaurants, eating good food is perhaps the only source of comfort people have left since they are cutting back on other items. Moreover with overpriced foodcourts serving lousy food and small portions, restaurants seem a better deal sometimes.

Increasing COE prices is due to the quota being cut by 26475 (Cat A) and 8143 (Cat B) from May 09 to Apr 2010.

Similarly HDB is limiting the supply of new HDB flats to maintain prices.

middleclass said...

Lucky, great post as usual.
I agree with you about the jobs.
I've kept telling my friends that Singaporeans will continue to spend as long as unemployment rate is low and most people have steady income.
But your point about people getting used to the fear in the new economy is so true.
The difference between Americans and most other countries are many.
But the most glaring to me is that they really have negative savings and have spent over their heads in the past 2 decades.
As a results most of them are already in credit card and housing debts before the whole thing came crashing down.
Singaporeans on the other hands are rabid saves.
Maybe not enough for retirements but maybe enough to last them through another recession.
Therefore the lack of fear.

Anonymous said...

Big item sales,like sales of car and house price (especially private one) only picked up after March following the rebound of stock market. Most people think that the worst is over and economy will recover soon. They also believed that economy will back to previous good old days in year 2006-2007. Since they had weathered through the worst with out scratches, they have to feel optimistic going forward. So what can stop them from spending.

The problem is whether the economy is rebounding. From the US consumer expenditure data, the total US consumer spending is still 25-30% below the peak and stayed there after March even the economy is "green shooting". So, good luck to those buy the house recently.

Anonymous said...

Hi middleclass, singaporeans has -ve saving too. Look @ our housing debt v cpf.
On paper our saving is high like cpf is 34.5% of salary. But in a sense, this money has no use except for housing n medical. This can be wipeout by high housing n medical cost. This so call high saving result in mean testing n mkt subsidy hdb.
We are no different fr US in term of debt except tt the bubble has not fully burst yet. It depends on the direction of unemployment, which Lucky has pointed out.
But fr the way he talked @ US, it should be bleak

czj11 said...

For me, I see 2 different reasons -

First, the pace of retrenchments is still low relative to the slowdown in GDP - thanks to the government's massive salary subsidy. If that is not renewed, then there will be much, much more pain.

Second, people have still got a lot of "fat" stored up from the past few good years. So they still feel secure.

Anonymous said...

After reading these interesting comments here, I gather that there are in fact 2 dimensions of life people are dealing with.

One is the hard reality. The other is the psychological.

People's beliefs impact greatly on how they act. For instance, it is almost a trite saying that the stock market is subject to investors' moods - their positive or negative take.

Right now people generally have positive feeling, so the train is still chugging along quite merrily.

On the other hand there are the real issues like the prices of public housing shooting through the sky thanks, no thanks to Mabok Tan, the enemy of the people.

The difficulty involved won't change just because people have very positive attitude when buying the HDB flats.

You still need to service your flat loans taking into account the interest with the banks for another 30 or 40 years.

Same for credit card culture that PAP is encouraging and making our society an increasingly debt-ridden society.

So I am of the opinion that the PAP govt is now rotting away morally where all that it has in mind is profit even under current global recession circumstances.

middleclass said...

Hi Anon@10:34AM,
actually most Singaporeans save way more than most Americans who have negative savings.
The last few decades of Americans taking loans against their houses is a form of credit debts.
Hence when the housing prices crashed they are in big troubles.
I'm not ignoring the Singaporean problem of housing loans using CPF leverage.
Which is why I said we don't save for retirement because of the huge debts we owe.
However short term most Singaporeans save enough(or so they think) to outlast the recession.
Remember that we still don't have big job loss numbers, yet.
HDB prices also wouldn't crash because of govt action.
So we're not suffering like the Americans.
But since we are export based economy so I suspect there's much more pain to come.

Anonymous said...

Actually Singapore is small. There are only so much HDB Flats, private housing, rich people, poor people, locals, PRs and foreigners, shopping malls, restaurants, etc.

SO it maybe likely that those who are OK are 50 to 60 % of the population. And get some foreign rich and super rich to come and things will look good even if there is a recession.

The second reason is that people here are law abiding and don't organise themselves to protest, riot or do other illegal things. So there may also be many who suffer in silence, out of public sight.

Hence things look good even in a recession. And of course if you put all of them to a vote, there will be 66% mandate for PAP.

66% vote is quite representative because each constituency is quite homogeneous in terms of rich and poor. Thre are no urban or rural areas like in other countries.

FT said...

This recession is different because there is BRIC, led by China to see us through this recession.

With such a loose immigration policy in Singapore, domestic spending could help offest the export plunge.

Anonymous said...

As for crowded restaurants, eating good food is perhaps the only source of comfort people have left since they are cutting back on other items. Moreover with overpriced foodcourts serving lousy food and small portions, restaurants seem a better deal sometimes.

how true. nowadays my spendings are all on food, basic groceries & transport, and essential IT products. Have not bought a new shirt, new shoe, or watched a movie in cinema for over a year! then again i have no other financial committments.

Jim said...

Don't forget there are still rich people in Sillypore unaffected by the recession.

One group is our gahman top civil ministers & their cronies, and the GLCs mgmt. who are still getting million dollars salaries and bonuses, recession or no recession.

Another is simply the mass increase in numbers of the foreign trash the gahman let into the country !! Many of these took away the good and high paying jobs of our fellow locals !

Anonymous said...

as i see it..

1) a stable property market anchoring the economy
2) lessons well learned from past recessions
3) leaner and tougher, people have learned to better manage their finances or reserves until the next rebound
4) most live through the recession anyway so what is there not to be optimistic?
5) finally, a smart government.


middleclass said...

Hi Jim,
I have to admit I'm two minds about this.
On one hand I believe that the govt has gone overboard with opening the floodgate for FTs that depressed salaries and took jobs that Singaporeans could have done.
At the same time not understanding the hardships these policies caused, not controlling the costs of our basic housing and utilities and not providing any safety nets.
But on the other hands I also believe that the big corporations are the ones that really run the show.
It's their money and they can bring it to anywhere in the world they want.
I doubt any govts in the world really has any power over what the corporations can do.

Anonymous said...

Coe and new car sales are the result of changing old and much more expensive coe with new and cheaper ones.
Sars was more deadly than the current H1N1.
The government is proping up the system. How long can they last ?
Worst is yet to come. Be prepared.

lim said...

I think GE is probably in the pipe-works, and after that, we will see the true picture.

Anonymous said...

There is nothing unusual.
A larger % of Sinkapooreans are .. sinking.

However, population have increased from 80s. almost doubled. by influx of FTs.

In absolute numbers, still plenty of bodies to throng the malls. In addition, the new generation is less averse to spending money they dun have. and their parents are happy to indulge them. As noted by some, the stock market since Mar have helped to.

Anonymous said...

FYI I am born and bred here. I disagree with FT getting into our hihg paying jobs. If you can compete @ global level, FT or no FT, you will be able to survive.
The impact is on the lower skill workers where manual labor is necessary. FYI, cleaners are still in the sub-1K salary range, despite inflation.

and there are also ppl out there with the cash hoards in their account, coming out to "hunt". You will not believe the crowd attending bankrupcy auctions.

Anonymous said...

Yeah, the PAP also has in its pipeline how you Singaporeans gonna pay for their humongous losses in the Wall St bank games....once they remove the illusions of prosperity.

Anonymous said...

I think one has to be careful when looking at past history to determine the future trend. If I am not wrong, the empty restaurants and shopping centres were the result of SARS which happened at the tail-end of the 2001-2002 recession. So it might not be useful to use that as a yardstick to measure the "recession-ess" as it was due to health fear rather than concern for the economy.

Putting things in perspective, we should not use our experiences during 2001-2002 recession to compare with the current one. The 2001-2002 recession was the result of the tech bubble that wiped out the tech companies (and the venture funds, loans etc), resulted in unemployment for staff mostly in that industry. So it is one-off thing and the economy recovered, albeit it was slow. Hence if you look at NASDAQ chart, it did not peak in 2007, compared with Dow Jones or S&P.

This time around, not only the recession affects all sectors, but it affects globally as well. The only comparable situation is the 1930s Depression (deflationary pressure, bank failures, high employment etc), but again, there are differences.

So we must be cautious, just like the adage goes:"Hope for the best but prepare for the worst."

LuckySingaporean said...
This comment has been removed by the author.
LuckySingaporean said...

Anon 2:49,

I agree with you that the potential for more pain and widespread pain is there. That is why I find the HDB price hitting records level, the apparently 'normal' levels of sales at shopping centers....all very unusual given the severity of this recession.

People are either complacent or more used to instability. I think you have a point when you said the previous recession 2001-2002 being concentrated in the tech sector might have missed the general population...and coming out of it people think that recessions are "not that bad".

We don't really know until we get further along. My gut feel tells me the 'recovery' is not what it is made out to be....

Anonymous said...

I think there is a smokescreen.. or its calm before the storm.

Fearful said...

I think there are a couple of factors at play here. Firstly, the current generation view to saving is very different from those in the 80's or 90's. I believe most do not save enough, in fact many have big debts hanging over their heads. They are living for today not realising that in a few years time their quality of life will drop when their credit line runs out and a big portion of their earnings will be used to pay down debt. Most of these people start accumulating debt when they are single or newly married. When kids come along there will be more financial strains as they try to keep up with the Joneses. The lucky ones will have their parents bailing them out. Their parents are from the generation in the 80's and 90's who have lived through the hard times. Most of us have not been tought how to handle our money wisely and have to learn the hard way. Perhaps MOE should do something about this.

Secondly, most people today use CPF to pay off their mortgages which is usually 25 - 30 years. This is actually saving for retirement which need to be called upon when one has retired and has no more income. By then, you would have to sell your house to live on the proceed. Unless, your children is willing to support you as the government is strong encouraging. If that works the the day of reckoning will never come but I won't bet my life on that. So essentially, most people are living in the myth that the party will go on forever and one will always have a job and the income stream will never end. Frankly, it is very scary to see what will happen 20-30 years down the road when the bulk of these people stop retire and need to call on their CPF which is tied up in properties. Some may even still have not finished paying off their mortgage. This is like a ticking time bomb.

R said...

Fearful - yes indeed the perspective of the current generation is different from the previous generation(s) - which explains the crowded malls & apparent spending. If you look at the stigma of bankruptcy, I think the current generation feel less stimatised should one have to declare a bankrupt. This is generally not the view of the previous generations. Coupled with a debt load over their heads, I feel the current generation feels they can continue to spend - or perhaps spend beyond their ability.

Fearful said...

R,it is one thing to be bankrupted due to failed business venture. It is tragic if the bulk of bankruptcies are due to overspending/living beyond ones means. It would be disastrous for the country. The government reformed bankruptcy legislation in recent years to encourage entrepreneurial spirit. If the people take this as licence to go spend until the banks come knocking on their doors then the future for the country is bleak. Sure in the US many people are doing that. But then the US has lots of natural resources and Singapore has none. If we live like them we'll be in pretty deep sh*t soon. What we have today is due the hard work and sacrifices of the previous generations. What are we going to leave for the next generation? I hope it is not a mountain of debt.

Anonymous said...

This political game to control the masses and secure a party's political stability and future has been played out many a times in England. A reason cited by a member of the House of Lords is that the government intentionally wants the people to be in debt, so that they won't have the confidence to speak out against it. Financially free citizens are a huge threat to a party's political stability. So, it was no surprise that we see this palying out in a more educated populace in Singapore.

Anonymous said...

It is my observation that the government shiled the full impact of the current recession from the public for too long. So each time the government tells you something, add 12 months to the projection.

Anonymous said...

Recently, the governmnet passed a new law that prohibits even one person to demonstrate for his rights. This law was implemented in light of the current recession. What is going on is that the real shit of the recession is comin' up and the government knows that more and more people will start demonstrating. This is what the government has observed from the many recent demonstrations on the streets and at the Speakers Corner. The Burma embassy episode, the Tak Boleh Tahan demonstrations, the APEC demonstrations by the foreigners here, the NUS students demonstrations at Orchard Road, etc. Albeit they are not a massive scale, they have the potential to put pressure on the government. So it starts banning even an individual's demonstration. We are being politically suppressed here. And when we can't voice our disagreement with their policies, that we should always agree with them EVEN when they are WRONG, we are going to leave a legacy of generation who is gonna ask us: "How the fuck did we let this happen?"

Anonymous said...

HAHA~~Then the next thing for the government to do is this: "The situation is really bad. Which party do you think have the experience to lead Singapore?" And your guess is as good as mine. They held back the bleakness of the situation and the full impact of it from the people via media suppression. So that they can leverage the value that a "late recession" can bring to them in terms of political gain. By the time, they revealed the real shit of the current recession, it would be surprise! surprise! Election TIME! And the "The situation is really bad. Which party do you think have the experience to lead Singapore?" will be used against an inalert and too-busy to notice people! And they get voted in with the same policy that is weighted to them. If this goes on long enough, no one is gonna question why they should even be paid BILLION dollars salary in the future.

Matilah Singapura!

Anonymous said...

When you pay them that amount of money, we should expect some creativity in their problem-solving skills. Given that there is NO ACCOUNTABILITY on their behalf, they can do what they like. They can design a system that this two-tier, one for them and one for us. And it has already happened. THE MAIN ISSUE WITH THE GOVERNMENT IS NOT THAT THEY ARE CONCERN WITH THE "HAVES AND HAVES NOT" IN OUR SOCIETY. WHEN THEY LOOK AT ALL THOSE WHO ARE EARNING MORE THAN THEM, THEY STARTED THINKING ABOUT "The Haves and Have MORE". They have become complacent and greedy now.