Many of our readers have recently emailed and asked for an update of my previous economic outlook that I made at the beginning of the year. These days the media is reporting on just about every bit of data and very little makes sense. In fact, we would argue that much of it has nothing to do with the average business owner. In this article we will examine only a few items that do affect our business.
So, here is a brief outlook of where I see the economy at present.
According to the National Bureau of Economic Research the Great Recession started in December of 2007. Although the official numbers have not been released, it is expected that we are going to be seeing gross domestic product coming in at an anemic 1.6% instead of the 2.6% that had previously been reported.
At the beginning of the fourth quarter of 2009 the economy was making reasonable steps to get back to speed. However, in Aprilof 2010 we began to see the modest gain begin to flutter and move back as a result of lack of confidence by businesses and consumers. In large part this loss in confidence is due to high unemployment rates as well as weak residential and commercial real estate values.
If there is one area that is critically affecting the economy it is the lack of jobs. Since 2008
more than eight million jobs have been lost and the U.S. economy would need to add roughly 130,000 net additional jobs each month just to keep the nation’s unemployment rate from rising.
The lack of jobs is affecting everything from consumer confidence (leading to less spending) to commercial real estate values, as employers do not need to rent as much space due to smaller staffs. Currently the nation is experiencing a 9.7% unemployment rate with the “real”or total unemployment rate estimated to be around 16%. Until these rates drop significantly there is not much else that will make as much of an impact on the overall economy.
Is it Inflation or Deflation?
There is a current divide among economists as to whether we will be facing an inflation or a deflation problem. Those that support the inflation argument point to highly aggressive monetary policy and massive budget deficits. In contrast the deflation predictors equate the current economic conditions similar to a Japanese-style deflation unfolding in coming years.
My personal opinion is that it is never all one side or all the other. Nevertheless, there are already signs of deflation around us. Simply ask any residential or commercial property owner and they will attest to the drop in real value of those properties. Similarly, some of the Labor Department numbers are showing that many of the jobs lost at the beginning of this recession are gone for good. In some cases those people who have replaced their positions are working at lower wages.
So, let’s complete this brief review with a positive note. Thirty-year fixed-rate mortgages on conventional loans have been below 4.50% in recent weeks, nearing a 50-year low. With lower property prices and lower interests rates it may be a good time to refinance a mortgage or to finance a new home.
What’s The Bottom Line?
We are and will continue to be dealing with a sluggish economy for the remainder of the year. Some of the issues discussed above may be Exacerbated by the mid year elections and decisions that in the short run will place more pressure on the economy. However, this too will pass…stay tune.
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