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Jobless Numbers Rise Unexpectedly in Early August

The Department of Labor reported last week that initial unemployment claims for the week ending August 7 rose 2,000 from the previous week, to 484,000. This rise was apparently unexpected, and marks the highest rate since February of this year.

The news sent stock markets tumbling earlier this week as job growth remains frigid.

Here’s a closer look at the latest numbers from the Labor Department and what they mean:

• Initial claims rose to 484,000 from 482,000, meaning the unemployment rate will likely hold steady at 9.5 percent.
• The four-week floating average, which includes more data and so offers a check for highly volatile fluctuations, also rose to 473,500 – an increase of 14,250.
• The average year-to-date number of insured unemployed people in the United States was 5.018 million.

And, while extended unemployment benefits were available to people in many states, some analysts are reportedly growing nervous about the implications of such persistently high job loss numbers. In fact, some seem to be worried that the country is locked into a self-perpetuating cycle of unemployment and a weak economy:

• Many business owners and those responsible for hiring new employees are reluctant to do so because of fears that the recession isn’t over yet: They’re reluctant to commit to increased spending because they’re worried that they won’t be able to pull in enough revenue to justify long-term hires.
• Many individuals, worried about losing their jobs or dealing with reduced hours, are also “hunkering down” by spending less money, taking out fewer loans and focusing on saving more.
• Without adequate consumer purchases, some retailers are struggling to pull in enough income to stay afloat or grow. This means that they’re refraining from expanding or making new hires.

The problem is complex and involves all sectors of the economy and now, some analysts are suggesting that the recession will either end up having a “double dip” - meaning we’ll plunge back into recession after a brief period of economic growth - or that the first period of recession never actually ended.

So what can you expect in the coming months? It doesn’t look like any significant changes are on their way in the near future, which could mean:

• Housing market struggles: Many people are still facing foreclosure, underwater mortgages and bankruptcy. So anyone looking to sell, build or buy a house may face difficulties.
• Credit remains tight: Unless you have a squeaky-clean credit report history, you may not qualify for attractive loan terms while the recession slogs on.
• Income options are limited: While jobless numbers remain high, you may have trouble finding additional income, which can be frustrating if you’re trying to pay down debt.
• Saving matters: Whether you’re just beginning to save or working on a hefty nest-egg, now is not the time to blow it – you might need it for tough times ahead.

Posted in Bankruptcy and the Economy, Job Loss, unemployment | Comments Off

New Mortgage Help Announced

Americans struggling against underwater mortgages and those who have lost their jobs may have new government-sponsored ways to stay in their homes and keep up with mortgage payments. Here’s an outline of two new programs, and what they may mean for you:

Help With Underwater Mortgages

If you owe more on a mortgage than the home’s current market value, you’re “underwater.” It can be a scary place, but there may be a way out.

• If you’re current on payments: Assuming you haven’t missed any mortgage payments, you may qualify for a mortgage loan backed by the Federal Housing Administration (FHA) which may help you reduce your monthly payments and the amount you owe. In order to do this, you need to meet regular guidelines for FHA loans, and you need to owe more than 115 percent of your home’s current market value. If you qualify, your debt can be written down so that you owe no more than 115 percent of the home’s worth and your payments do not exceed 31 percent of your income.
• If you’re behind on payments: Borrowers who are 60 days or more late on their mortgages may benefit from a new provision of the Home Affordable Modification Program that allows lenders to reduce a loan’s principal. So, if your lender is participating in HAMP, your loan may qualify to be decreased and/or have its interest rate lowered.

Mortgage Help for the Unemployed

If you’ve lost your job recently and are beginning to worry about making payments on your house, you may qualify to have your payments temporarily lowered or eliminated. Here’s how:

• If you receive unemployment: In order to get this benefit, you must be receiving unemployment pay from the government and be able to prove that you are.
• And if you meet the criteria for HAMP loans: In order to take advantage of this program, you must live in the house as a primary residence, owe mortgage payments that exceed 31 percent of your paycheck, owe less than $729,750 on your mortgage, and demonstrate financial hardship, such as being job loss.
• You get a temporary reduction: If you qualify, you will have a three-month period in which you are only required to pay 31 percent of your income toward your mortgage. After that period, you can initiate a review to extend the program for another three months.

The benefit for homeowners is clear, but lenders may benefit from the program as well. It seems that borrowers who owe more than 115 percent of their home’s value are the ones most likely to walk away from their mortgages or file bankruptcy, leaving the banks with nothing.

Posted in Job Loss, Mortgage Foreclosure, underwater mortgage | Comments Off

What Could You Cut in a Pinch?

With unemployment levels still high, many people are looking for ways to trim their household budgets. Dealing with a sudden loss of income can be difficult, especially if you're used to a certain lifestyle. Whether you're dealing with unemployment, recovering from filing bankruptcy or just trying to create a nest egg, where you spend your money can make a big difference.

A recent post from DarwinsFinance.com encourages readers to explore the financial cutbacks they could make if they were laid off. The author crunched numbers and found that his household could save about a thousand dollars per month.

This concept is useful for a couple of reasons. First, it gives you an idea of what kind of emergency fund you ought to have, and second, it opens the door to potential ways to start saving that money more quickly. Here’s a look at some areas where you might be able to save.

• Television: If you currently get a lot of channels, you could drop to a package with fewer frills. If you already have a fairly minimal setup, you could call your company and indicate that you're considering canceling your television service altogether unless they can offer a lower rate.
• Internet and phone: Downshifting to a slower online connection may work if you don't use the Internet much, and there's a good chance you could trim your cell phone package. And remember: negotiating with your provider (or trying to) is always an option.
• Subscriptions: Whether you receive newspapers, magazines or a cheese of the month, chances are your subscription isn't a bare essential. The good news is that if your subscriptions are mostly for reading material, you can likely find much of the content online.
• "Cheap" out food: Cups of coffee, breakfast sandwiches or lunches out may seem inexpensive (especially compared with restaurant dinners), but when purchased regularly, they add up. Packing lunch and brewing coffee are both easy to do—although, if you do lose your job, you'll probably be less likely to be tempted by on-the-go food, since you won't be at work.
• Clubs and activities: If you have children in extracurricular activities or you yourself have an expensive gym membership (or similar), you could always cut them in a pinch.
• Groceries: If you haven't already explored the glorious world of generic food, now is a great time to start. Many store-brand grocery items are actually produced at the same factories as the name brands—and come at a significant discount.
• Clothing: Dry cleaning can eat up serious funds, and so can shopping too often. And if you have difficulty resisting sales (or non-sales), consider avoiding your favorite shopping spots a bit more often.

Additional Resources

Should Households Establish Emergency Funds? (PDF)

The Decline in the U.S. Personal Savings Rate (PDF)

Posted in Budget, Finance, Financial Literacy, Job Loss | Comments Off