This interesting note was sent to me by a reader who recently visited the USA:
I visited America for another road trip during May and June of 2012. I have visited America on at least 12 occasions since the mid 80’s and estimate with reasonable accuracy to have driven in excess of 130,000 miles there by road. My previous recent trips to USA were in mid 2008 when the term “GFC” was unheard of and again in 2010 when the USA was supposedly “over” the GFC. My trips by road have usually led me into the back streets and out of City areas avoiding the tourist strips, where one can enjoy real America and also form a more realistic opinion of the economic situation. Having driven from L.A to San Francisco to Vancouver then down to Salt Lake City then across to New York visiting practically every town and City en-route, it was evident that America is in a serious downward economic decline and that, regardless of what the Government there does to try and improve the situation, it appears to have no effect. With some 12.5 million workers (that’s twelve and a half million) now unemployed in America, the effect on the economy is really “in your face” now.
Visiting 21 States and scores of towns and Cities, it was clearly evident that things had changed radically in America since 2008 and this became a fascination for me, given that I had visited America on many occasions when it was the global powerhouse of the world. I began to seek out and drive around the out- of-town industrial areas, high density housing areas, large and small industrial and commercial areas, shopping centres, apartment blocks and hunted up the local real-estate magazines of each town and City I stopped at along the way. What immediately caught my attention in most States and Cities was the large number of closed restaurants and shopping malls, empty shuttered-up industrial buildings for lease, closed and abandoned factories, abandoned car dealerships yards and the number of residential properties and apartments for sale. The exception all over USA were the large food supermarkets which were doing brisk business.
General internal traveller tourism has evaporated in USA except for large numbers of Australians visiting places like Disneyland, Anaheim, San Fran and New York City. The tourist busses around those Cities are packed full with Aussies making the most of the exchange rate while our tourist industry here is on its knees. Outside of those tourist destinations, it’s a very different story. Once proud manufacturing towns all over America are dead, the motels are closed, shopping centres are boarded up, commercial premises empty, people are unemployed and empty houses and apartments are for sale throughout. Beggars are everywhere now, at gas stations, outside motels, the KFC and every food establishment asking for money to feed themselves. These are not the slick street corner beggars usually seen in San Francisco, these people are genuinely out of work, desperate and hungry and usually have unkempt young kids with them. The minimum legal wage in America is US$7.50 per hour for those who can get work. Many Americans work for less and “tips” are often included by unscrupulous employers desperate to stay in business and are used to gross up to the minimum wage to the legal US$7.50 per hour. For the first time ever in America, in my own experience, waiters are asking for tips, usually saying “ Would you like to leave a tip please”. The union wage system in America has been torn apart. Unions have been removed by sacking an entire work-force and rehiring non-union labour only, with wages slashed to the bone. All over America there are re-hiring billboards offering $10.50 per hour at big high-end department stores, stores that even have shops on 5th Avenue in New York. Half or less than half what they used to earn. Business owners here in Australia may think reducing wages will have benefits in terms of competition etc, etc, however, the results are clearly evident in America. Slashing wages has reduced public spending to zero. Spending starts from the bottom up, not the top down. If people have no job and or no disposable income, they have nothing to spend. Hence business suffers and business soon goes out of business. That’s what has happened in America. The result is thousands of businesses of all kinds out of business, all across America.
States that appeared unaffected by this economic downturn were Nebraska, Iowa and Kansas, all food producing States. It was immediately evident when driving those States that things were different. Restaurants were open and well patroned, new car dealerships aplenty, people were out shopping, mall car parks full and it was easy to conclude the economy there was in reasonable shape. Move 50 miles to the next State however and one can see the difference. Leaving an apparently wealthy State like Nebraska or Iowa and driving to Illinois, once a huge manufacturing centre, the change is evident. I decided to look at Peoria, Illinois. This is the earthmoving and mining equipment manufacturing headquarters of the world, or, once was. I drove to the Komatsu factory, once the largest earthmoving and mining equipment factory in the USA formerly employing 4-5000 people in its hey-day. The employees car park was less than quarter full and where I have in the past, seen row upon row of finished equipment ready for shipping, I saw the frames of just four dump trucks packed for rail. I then visited the Caterpillar factory across the Illinois River. Same again, employees car park less than half full. These two companies are manufacturing the bulk of the equipment for the so called “mining boom” here in Australia. Just a minute, “Mining Boom”?. These two major factories have not increased production space since I was there last in 2006 and one gets the appearance of a declining market. Their workforces have been vastly reduced. If there was a “mining boom” on here, would they not be frantically filling manufacturing demand with factory expansion and increased employment? Not so. Quite the opposite. The curious part here is that this is a location where wages are still unionised at US$37.00 per hour. But 3 bedroom houses in Peoria are just $49,000-$80,000 each for a nice family home.
Dayton Ohio is an example like many major Cities across America. I stayed at a well known motel chain which is my favourite, reasonably cheap and clean with an average of US$40-50 per night. The complex had 140 rooms. On arrival there were 9 cars in the car park at 6.30 at night, peak check in time. This was very common across America this time round. Motels are empty, night after night. The owner was seated on the visitors couch looking sad. Greeting me, I booked in and got talking to him. Turns out he was a franchisee. I asked why there were no cars in the car park. “No customers” he said, (obviously). He said he was not sure if the next car in would be a customer or the Sheriff’s Bailiff. All over America this situation was repeated. Many motel chains had simply shut shop or gone broke, even big motels with 50-100 rooms and an accompanying but now closed restaurant belonging to (a now defunct) restaurant chain.
Shopping centres were another story. In big Cities in locations such as California, (all over) Washington, Salt Lake City, Dayton Ohio, Denver Colorado, big shopping centres and malls were deserted of customers. Usually, it was possible to park a car in the first row after the handicap parks in a 5-acre car park. I went into a huge Target store in Denver. There were 20 cash registers, one was open and I was the only person in line. The store was empty of customers. A walk around the out-door mall complex revealed many small and large stores closed up and empty. This was common all over America. In some Cities, entire shopping centres, the size of Toombul on Brisbane’s north side to give an example of size, were completely closed up and gated off. Factories, large and small are deserted, all with the names of the former occupants intentionally painted over or removed. Car dealers are offering nothing down and zero interest for 2 years followed by 1.2% p.a after that for new cars. Some still have brand new 2010 inventory at giveaway prices. Still, no buyers. Philadelphia, Pittsburgh, Columbus, Detroit, some of Chicago and Cleveland are the same. Detroit, home of Motown music, steel mills and big car manufacturing factories is a fascinating place. Scores of factories are simply abandoned, thousands of homes are deserted, many partially burned down, unemployment is rampant and the downtown CBD is deserted at 5.00pm in the afternoon. Large 20-story office blocks are empty in the downtown CBD. Where are the thousands of office workers that once worked there one may ask? Nowhere to be seen, they are now unemployed. Motown music has survived though. Bethlehem Pennsylvania, was once the home of steel mills, each miles long, employing 15,000 workers. Now they are closed. Allentown Pennsylvania is the same, steel mills closed, thousands of people out of work and no money to buy anything.
House prices in America have fallen and continue to fall. There are no buyers for many reasons. I spoke with a number of real-estate agents there. Some were reluctant to discuss anything but a specific property and would not be drawn on the state of the market. Others were more willing to talk outside the square and predicted falls of another 30% and no capital gain for 5 years, perhaps 10 years. Reasons given were: no buyers, potential buyer inability to accrue a deposit, bank reluctance to lend, high unemployment hence inability to obtain a mortgage, high stock numbers on the market and, an undefined but large “secret sales market”. This secret sales market they claimed, comprised millions of homes and apartments for sale but which were not advertised for fear of bringing down the housing market in entirety. Agents told me to take no notice of the asking price. Many houses and apartments are publically displaying a higher sales price than sellers will accept so the financier doesn’t see the real lower price being asked by the seller and grab it before the seller defaults. The rising unemployment obviously has a flow on effect. Reduction in take home wages and increasing unemployment certainly have had a very detrimental effect on the U.S housing market. Rental affordability is also declining as the more wealthy tenants also become unemployed, making investors nervous and they are selling up rental properties and apartments as their ROI falls, placing further downward pressure on prices.
Where this will all end is not my guess. Stalled spending is detrimental to an economy. Low inflation and interest rates may appear on the surface to be prudent economic management however, these two factors coupled with increasing unemployment and pressure on wages which reduce individual spending also cause a stalled economy. America is a stalled economy with almost zero inflation and near zero interest rates. People have no disposable income, and those who do will not open their wallets, regardless. It is often said in Australia that we follow America in economic matters. Our stock market proves it so daily. I hope not.
It is sad to see a once proud and productive nation in such decline. I hope we can choose our own path here in Australia, make our own decisions and avoid the same mass unemployment and social decline America has today.