I thought it might be interesting to take a look at the current state of the economy and see if there are any predictions to make. I’ve been around for quite a few years now, and if there’s one thing I’ve learned it’s that the economy is not really all that predictable. Sure, if you consider the big picture, we know that there have always been periodic business cycles, from boom to bust. But, as it turns out, these business cycles aren’t regular. When it comes to trying to predict exactly when we’ll reach the bottom of one cycle or the top of another, and what kinds of smaller economic events will happen along the way, that’s where things get dicey.
According to many economists, the recent recession is now behind us. However, it is clear that the aftereffects of the recession are going to linger for some time. So while the economy is on the upswing, there is still much pain to be felt by many in our nation. The worst may be over, but happy times aren’t here again, and there’s really no telling when they will arrive.
If you look at the current economic data, there is certainly room for optimism about the future.
According to the U.S. Department of Commerce, real gross domestic product increased at an annual rate of 2.8 percent during the third quarter of 2009, driven mostly by increases in consumer spending, exports, private inventory investment, federal government, spending, and residential fixed investment. Compare this to the second quarter of 2009, where real GDP decreased 0.7 percent. The Conference Board reported that its index of leading indicators increased in October to its highest point since September 2007, 103.8. This is the seventh month in a row that the index has shown an increase. Consumer spending rose 0.7 percent in October, and during the week ended November 21, 2009, first-time claims for jobless benefits dropped by 35,000 to 466,000. This was significantly less than the figure of 500,000 predicted by many economists.
As I mentioned before, there is still plenty of economic pain to go around. The current national jobless rate is 10.2 percent. According to the Federal Reserve, the unemployment rate will remain above 8 percent through 2012. Mortgage delinquencies hit a record high of 14 percent in the third quarter. This represents 4 million Americans who are either behind in their mortgage payments or in foreclosure. And while consumers are spending more overall, early indications from Thanksgiving Weekend shoppers is not encouraging. According to the National Retail Federation, spending per shopper fell from $372.57 a year ago to $343.31 this year.
My personal concern is that much of the good economic news we are hearing has been driven by direct government intervention. The $787 billion economic stimulus has had an impact. The first-time homebuyer’s tax credit of $8,000, which was set to expire today, but which has been extended through April 30, 2010, has had an impact. Cash to Clunkers has had an impact. What will happen when these federal government cash injections and tax credits run their course? Will the recovery crash, or is it strong enough to walk on its own?
What do you think?
— Bob