Following the recession’s ripple effects
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TESS VIGELAND: Cleveland was one of the first major cities to be hit by the foreclosure crisis. The local economy also relies heavily on the auto industry, which as we know, is still up on that hydraulic lift. That means a lot of people here are out of work. And when workers lose their jobs, they naturally cut a lot of expenses.
Reporter Dan Bobkoff of WCPN tells us that’s having big ripple effects throughout the local economy.
Dan Bobkoff: John Kraizel’s 10-year-old Pontiac could use some work.
John Kraizel: It’s got 132,000 miles on it. It just needs general maintenance a lot of the time.
Car repairs and a lot of other expenses will have to wait, since he lost his job.
Bobkoff: So we’re driving by … I see a big Dirt Devil sign. This is where you used to work, right?
Kraizel: Yes. I personally had mechanical engineers, electrical engineers, technicians that reported to me.
Kraizel is 48. He had been heading a team developing a robotic vacuum to compete with the likes of the Roomba. But the company pulled the plug in January, leaving Kraizel and about 130 others there out of jobs.
Kraizel: I’d say we were leading a comfortable life. Not extravagant, but comfortable.
John Kraizel’s car may need work, but his home is spacious and tidy, sitting in a development in Solon, one of Cleveland’s wealthier suburbs. There’s an in-ground pool in the backyard. A comfortable life means he had a pile of bills — from the many businesses that get a piece of his income.
So when Kraizel was cut in January, a lot of those companies got cut too.
Kraizel: We go to no movies. We got rid of Netflix, Blockbuster, everything. We don’t do any of that.
But that’s just the start. Kraizel cut expenses down to the essentials. No dinners out. Fewer haircuts. Definitely no lawn service. And the house cleaners? He pushes his own vacuum now.
All told, Kraizel estimates he’s cut about $1,000 from his monthly budget. That’s $1,000 out of the local economy — places like Blue Canyon, one of his favorite restaurants.
Brandt Evans: People just stopped going out. People were really scared. They didn’t know what tomorrow was going to bring.
Chef Brandt Evans is a co-owner at Blue Canyon, and he’s talking there about the lowest point of the recession — right around the time Kraizel lost his job. Since then, the restaurant slashed the prices on nearly all entrees. And Evans had to get creative to keep diners spending.
Evans: I started actually offering smaller, bite-size desserts. Instead of an $8 desert, I cut my desserts down in fours.
Kraizel’s pool service is working to keep its customers too. They lost John Kraizel this year. He got the pool ready for the summer himself, saving upwards of $1,000 in maintenance for the season.
That’s money not going to Cathy Sotka and her husband. They run the pool servicing company, and while business is mostly holding up, she’s nervous about revenues this year. So now she’s cutting back, hurting other local businesses like her favorite shoe shops.
Cathy Sotka: Yes, no shoes. We’re just cutting back on groceries. We don’t eat as well as we used to. And you know, I’m not getting my nails done anymore.
Now, you might think all companies will hurt when their customers suffer. But the thing with ripple effects is that there can also be unexpected benefits, as Sotka’s business found.
Sotka: I think a lot of our customers may have cut back to keep the pools open. So instead of them going on vacations, at least they had the pool to jump in in the backyard.
John Kraizel and his family had to skip their vacation too.
Kraizel: We used to take a vacation pretty much every year. We used to stay at Wild Dunes, which is up on the East Islands up outside Charleston.
So I called up that South Carolina resort to see how it’s faring.
Andressa Chapman: We do feel people like John’s absence on the resort.
Andressa Chapman is in charge of marketing at Wild Dunes. She says the typical guests who did come back are staying fewer days or down-grading their accommodations. But Chapman says Wild Dunes is also seeing a surprise: an influx of wealthier customers this year.
Chapman: We’re getting in a guest who potentially would have traveled abroad for vacation, but instead has chosen to stay closer to home and save a little bit more on their vacation.
That doesn’t surprise Justin Sydnor. He’s a behavioral economist at Case Western Reserve University.
Justin Sydnor: Businesses normally lie somewhere on a spectrum of sort of high end to low end. And what we expect in a recession is that most of that middle zone, it’s hard to say what’s going to happen to them because there’s substitution — the people who ate caviar are trading down a little bit and the people who used to stay at the nicest possible hotel room are likely to come down a bit.
But these companies shouldn’t expect to see John Kraizel’s money again soon. Even if he does land a new job, he’s not ready to spend like he did before the layoff.
Kraizel: I’d probably say about a year before I would do that. I need to re-establish financially.
And that’s why it could be a long time before the economy looks like it did before the crash.
In Cleveland, I’m Dan Bobkoff for Marketplace Money.