By Robert Estupinian
As we begin the second half of the year we wanted to take a moment and provide our readers with a view of the economy and our forecasts going forward.There is a lot of economic data being spewed out these days in the media. It is not uncommon for the same data to be reported and interpreted differently by the various media outlets.
Although, there are many varying reports on what is happening in the economy, there are several key indicators that remain the same despite who is reporting the news. We recognize the state of the economy is vitally important to any businessperson actively working and building in a business.
So, in this article we will cut through the clutter and focus on some of the local, national, and international economic issues that matter.
Stock market volatility is the norm and will continue to be the norm
If there is one thing that we can totally count on is the stock market will continue to be a roller coaster of activity. For example, on July 20th, U.S. stocks fell the most in a month, while the euro continued to weaken.
One reason why the stock market and commodity markets dropped was due to Spain stating that the recession will extend into next year. At the same time, Chinese leaders pledged to clamp down on property speculation. These announcements were then interpreted by the market as indicating future worldwide economic weakness that would lead to lower demand.
Then the market began to rise after there was news of potential action by the European Central Bank to buy bonds in an effort to help lower borrowing costs and thereby preserve the Euro. As you can see any news (or rumors), whether or not it is truly significant, can have a massive effect on the direction of the market.
There is a lot more to the European crises than just the recent problems with Greece and Spain. When we look at the totality of the various financial issues involved with the European financial crises it is evident these problems will not be solved anytime soon.
For the first six months of 2012 housing sector of the economy has been rising. We have seen increases in all areas of the sector including: home sales, and housing starts. According to the Case-Shiller index, home prices showed signs of stabilization in May. In our local area, we are seeing lower inventories which is helping to support housing values. The San Francisco Bay Area has seen a 0.6% increase over same time sales last year.
One reason for decrease in inventory is due to the way many lenders are approaching foreclosures. There still remains a large amount of “shadow inventory” that has not hit the market. These are homes where the borrower is in default, but the lender has not foreclosed on the property. Some estimates claim as much as 4 million properties existing in the “shadow inventory”.
In many cases lenders are seeking short sales instead of forcing the foreclosure because the discount taken to make the sale is a lot less. This is because buyers of foreclosed homes are usually investors looking for a return while buyers in a short sales are more often people wanting to live in the home.
Credit continues to be tight as anyone who has applied for home loan can attest to. This will impact the number of transactions. It is important to remember that transactions lead the market rather than price increases. The more transactions the stronger the housing sector will be and the more it will contribute to GDP.
The key to improvement in the housing market will ultimately come down to jobs. For example, recent reports coming from parts of North Dakota are showing a demand for housing that can’t be met. Prices are also on the rise. Homes that were selling for $80,000 only a few years ago are now selling for $320,000. The reason? All the new jobs being formed due to the increased oil production in the Bakken Formation.
Nationally unemployment continues to hover around 8.2% according to most government reports with the real unemployment rising to 14.9%. These levels of unemployment are effecting all aspects of our economy and this is the main indicator to keep an eye on.
In July, the Conference Board published the consumer confidence index which came in at 65.9 compared to 62.7 in June. On the surface this would be a positive trend. However, this reading is still historically anemic and demonstrates that consumers are still not confident or willing to spend.
This conclusion is also backed by a report from the Commerce Department showing personal income gained 0.5% in June when compared to the previous month. Nevertheless, annual growth in personal income was only 3.5% in June compared to 5.1% a year earlier.
Overall our nation’s gross domestic product grew at an annual rate of 1.5% between April and June of this year. It is expected that GDP growth will rise to about 2.0% annual rate in the second part of the year.
The Drain of Consumer Debt
One of the biggest drains to economic growth is the amount of debt and the cost of servicing that debt. This is especially true when we look at the amount of American consumer debt that is currently hovering around $13.8 trillion. Student loans appear to be one of the largest drains on young Americans and a reason why they are pulling back on spending.
What this all means for the small business owner
The economy will not be rebounding as quickly as had been previously forecasted. There are a lot of challenges both domestically with our unemployment, and internationally with sovereign debt problems, that will continue to weigh heavily on the economy.
That being said, there are always opportunities for businesses among this economic malaise.
One bright spot is the emerging global middle class of consumers who are expected to have as much as $56 trillion a year in spending power. This means opportunity in providing everything from goods and services to increases in tourism. We can only imagine what new business models will develop as a result of this new development.
As I have discussed in previous articles, some of today’s most successful companies were started during economic downturns including: Federal Express, General Electric, Microsoft, and many others.
Businesses who win here will dominate their markets in the future and be recognized as a pillar of industry. Yet, this is not to say it will be easy. Sure, it may take a lot longer to find a qualified client or customer, but they are there. Yes, it may take various marketing methods and new approaches to attract customers than ever before, but it can be done.
What is evident is that making it in this economy requires strategic thinking and a willingness to try new things. Continuing to do the same things over and over again will not get anyone the same results, it will get them less results. The good news is that the necessary information to accomplish this is readily available more than any other time in history. It is only a matter of looking for it and then implementing it.
In the end, it is not going to be the economy that will dictate the success or failure of any enterprise, but rather the resourcefulness and tenacity of the business person.
This is a brief glance of the materials and information all members of Bay Area Mastermind receive each and every month. Bay Area Mastermind provides the tools and resources along with the support and accountability that makes a difference to any business. You are cordially invited to Test Drive a meeting and get the tools that your business needs to succeed.