Writer’s strike could affect your mortgage rates
Can Ellen DeGeneres really affect the prosperity of the United States economy or cause mortgage interest rates to increase or decrease? As you may have noticed from current reruns of your favorite television show, the Writers Guild of America, with its 12,000 members who write for television and movies, is on strike. While this situation may seem minor or almost a status quo, its economic repercussions have the potential to be quite significant. By examining the cancellation of this one show as a microcosm of the entire economy, potential problems with both the national and global economies and fluctuations of mortgage interest rates can be examined. Lets make an educated guess at the number of people whose livelihoods and prosperity are directly tied to this one show. This list must be in the triple digits, including make-up artists, hair designers, wardrobe consultants, fashion designers, lighting and sound technicians, producers, writers, to doughnut and coffee runners and so on. I would also assume that the cancellation reaches as far as the companies that pay to advertise on the show or the coffee shop providing coffee for the set or the plants producing the clothes for the actors. The point of dissecting the number of jobs tied to the Ellen DeGeneres show is to illustrate that our national and global economies are intricately interwoven. When one sector of the economy starts to sputter or slow down like this, the number of jobs affected is far too many to count or calculate. The effects are far-reaching and will ultimately get back to the everyday average consumer just like you. Other sectors of the economy such as housing and real estate, construction and building are also experiencing a slowdown which is a disturbing signal to say the least. Much like a set of dominos, a slowdown in employment is the first action in a chain of events. A lack of work or employment translates into a lack of income. Less income translates to less consumer spending. Therefore, there is less demand for goods, services and products, resulting in fewer taxes being paid and ultimately in an overall economic slowdown. This is potentially a tremendous problem. A lack of employment and a slowdown in spending can have dramatic effects on both the health and prosperity of our economy, causing dramatic fluctuations for mortgage interest rates. Perhaps as a worst-case scenario, such an economic slowdown could have recessionary implications. Officially, a recession is defined as two consecutive quarters of negative economic growth. This domino theory, illustrated with the closure of one television show, could ultimately lead to negative economic growth for the entire United States economy. While preliminary reports indicate that the economy grew at an impressive pace of 4.9 percent in the third quarter of 2007, when several employment sectors of the economy start to slow down, this could be a harbinger of what is to come. Whether or not the economy is headed towards a recession, or if a recession is needed and healthy, is debatable. What is not debatable is that such actions as these will ultimately affect the everyday consumer in one way or another. Undoubtedly, mortgage interest rates will respond to both a recession and a slow down in consumer spending. If the economy does slip into a recession, short-term interest rates might be reduced in an effort to spur economic growth. Contrary to popular belief, this may actually cause mortgage interest rates to increase. On the other hand, if the economy goes into an abnormal recession as defined by stagflation (increased inflation and decreased growth), monetary policy may actually call for short-term rates to increase in order to ward off inflation. This action may cause mortgage interest rates to actually decrease. Either way, U.S. employment and consumer spending is a major catalyst for economic prosperity or recessions. These are pivotal times for our economy and consumer financing. Twelve thousand striking writers, and the cancellation of the Ellen DeGeneres show (even if only for the short term), certainly have the capability of pushing the economy as a whole in one direction or another. In todays complex and changing mortgage industry, these are the types of events that need to be examined and monitored by loan officers to ensure that their clients take advantage of the right economic fluctuations. William A. DesPortes is a managing member of DesPortes, Selig & Associates, Professional Mortgage Services. He can be reached at 970-949-0653 or firstname.lastname@example.org.