Is the economy really getting better? This is the question being debated daily on the daily financial news. Why don’t we discuss it a bit. It is kind of important!
People from both side of the spectrum with different experiences, education, perception, and motivations are debating where exactly we are in the Economic cycle. Are we on an upward swing toward eventual new record highs in the stock market? Is the market trying to find a new equilibrium point? Are we really bloating an over optimistic view of where the markets really are? Already we are on the wrong track. How you ask? Market does not equal the economy. In other words, if the economy is the patient, the “markets” are not the breathing and heart beat. They are functions of the economy as is everything else. The economy is multi faceted and can not be looked at in just terms of what the financial markets are saying.
This is one mistake that happens often. People confuse the “Stock markets” and other “markets” with the real economy. Most people associate them hand in hand. The price of an item in the markets can be determined by the occurrences in the economy, and the economy can be adversely affected by the extreme actions of the markets. In other words, they can affect each other, but the Economy is much larger than just the markets. The markets are actually, in a way, an indicator of the economy, but not the true nature of the economy.
For example company A has been doing great and now has a ton of profits. An investor might see this as an opportunity to make money by assuming that other people will also see this and want part of the action. This is where Supply and Demand come into play. Demand for involvement in that companies profits drives the price up. So if most companies are doing well, then it is safe to say that the economy is doing well. This is also true in the opposite direction. Large market firms generally can cause huge shifts in positive and negative movement. Much more than the individual.
The easiest thing we can do, is to look at the indicators to see where they tell us we are going. Some indicators include orders for durable goods, orders for plant and equipment, new housing starts, change in raw material prices, corporate profits and share prices, business formation and failures, and money supply (M2) (Business Dictionary)
If you look at the current indicator statistics, you will see that it is a mixed bag of ups and downs. Before the late 2008 decline, all indicators were headed in a positive direction. Things have slowed! some items are moving positive, while others are moving more negative. Some of the volatility has gone away, which is a sign of a stabilization of some sort, but there is a question as to how long. That seems to be another question that is anyone’s guess.
So, is the economy getting better? The only truthful answer is that the economy has slowed it’s decline. It is not such a steep fall to the bottom of the ravine. We have reached some sort of plateau or flattened area where there is optimism that we will turn the economy around sooner that later. But there is some concern how all the current administrative changes will affect the natural movements of the cyclical economic trends. Can a true equilibrium be set? Not by this opinion. Natural forces are at work, and they are much more powerful than those of humans who think they are all powerful.
Personally, I am forecasting that we have a long way to go before things get anywhere close to normal again. Housing prices are going to remain low for some time in many areas, jobless claims will remain high, total unemployment rate (a lagging indicator) might slow but will remain high and continue to climb for some time, Big ticket purchases are going to be made by those with the means without credit backing this includes durable goods, there will be some more business failures and merges or acquisitions, interest rates will have to begin to increase by the end of the year and our dollar is going to continue to get devalued adding to an inflationary situation sometime in the next year to three years.
One final note; Unemployment is now at 9.5% Nationwide. The average amount of time that people are staying on unemployment has gone from 15.9 weeks (Just under 4 months) to 24.5 weeks (6 and a half months) (Bureau of Labor and Statistics). This is also trending up to longer periods of time on unemployment which means companies are not hiring people back quickly.
With the actions taken by this administration and the congress, it is unlikely that we will recover any time soon. As soon as the economy turns around, it is likely that the democrats will be tempted to raise taxes and thus hurt the economy further.
sigh…
Left by James Courtney on July 15th, 2009