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2010 1st Quarter Edition
It's anyone's guess on economic recovery
CEO T.R. Johnson keeps us updated in part two of his look at COMANCO's position in the current economy
We live in interesting and challenging times. The current economic environment provides us with a demanding, yet stimulating test of our abilities and resources. Right now, the bulk of economic data points to prolonged periods of sluggish growth.
The unemployment rate remains high. The American economy continues to shed jobs, losing 36,000 jobs again in February. The unemployment rate stands at 9.7%, but the U6 alternative gauge of the unemployment rate, which includes discouraged workers who quit looking for work and those working part-time who would prefer to work full-time, rose to 16.8% from 16.5%, Also, initial claims for unemployment benefits remain consistently above 400,000 each week.
Economists are currently debating where the US economy is headed. There are economists who predict a “V” shaped recovery, meaning a rapid return to growth. Others predict a “U” shaped recover, meaning slow, sluggish growth for at least two years. The third school predicts a double dip recession.
The latest macroeconomic data is poor. On top of the unemployment data, consumer confidence is low, housing sales are anemic and overall construction activity is slow. Also, durable goods orders are down and real disposable income in Q4 and January were negative. Q4 GDP growth was revised to 5.6%, but since 3.9% was due to inventories, final sales were only 1.6%. For the second half of 2009, final sales grew at an average of only 1.5%. At a minimum, there is nothing to show sharp growth.
The Euro Zone is on the brink of a debt crisis – especially in the “Club Med” countries – Greece, Italy, Spain and Portugal. They will be bailed out by other European countries but only after austerity measures are forced on them. This will reduce global demand, including demand for US exports.
The US government is trying to pump money into the economy, with the bulk of the $787 billion “stimulus” money to be spent this year. Even if the money is spent wisely, it will only help in the short term and the private sector will have to grow sharply to revive the economy. Private sector growth will be limited by the government siphoning off more money in higher taxes. Presently, there is insufficient evidence to support an economic recovery. Now is the time to weather the storm of sluggish growth in order to survive until the recovery occurs, which may be at least two to three years away.