Thursday, September 20, 2012

Things are Starting to Improve on the Economic Front


First, a warning. The U.S. and many of the rest of the world's governments have boatloads of debt, both on the books and off the books, and no real plans to bring it under control. If we don't start dealing with these issues, eventually they'll spin out of control. The key word in that last sentence is eventually. I have no answer as to how long "eventually" is.

But to be forewarned is to be forearmed, and we're being forewarned each day. Let's take up our "live within our means" arms and rid ourselves of this unaffordable government waste and unnecessary spending.

To repeat, we're playing unnecessary, reckless and dangerous games with our children's futures if we continue to pretend our financial condition is not the biggest ignored elephant in the room in our lifetimes. And the naive and sick relationship between the Democratic Party and the public sector unions isn't going to make coming up with a realistic and lasting "live within our means" solution any easier.


Now I feel better. So let's talk about some developing good U.S. economic news herein. We're getting out of the woods economically. Too slowly, of course, but we're getting there and should see positive economic growth and a better employment situation for many years to come. Not fast but lasting, assuming we deal with the aforesaid financial elephant and the rest of the troublesome herd as well.

This week Microsoft increased its cash dividend by 15%, and late yesterday McDonald's announced a 10% increase. Meanwhile, Yum raised its dividend by 18%. That all signals confidence in the future by these and many other companies, too.

On top of that, housing is getting a bit stronger and household wealth in showing gains as well. The stock market continues to make solid progress in September, which historically has been a month of disappointing market performance.

While we're by no means out of the economic woods and won't be for a long time to come, it sure looks like things have bottomed with respect to economic activity and housing prices and sales activity as well.

The jobs market will remain difficult for the foreseeable future but is expected to make slow and meaningful improvement over time.

Housing-Market Gains Help Balance Sheets has the good news on the housing front:

"A strengthened housing market is lifting property values and helping Americans repair their balance sheets, a trend that could spur the economy by making households more willing to spend.

The value of Americans' real-estate holdings jumped about $400 billion, or 2.1%, to $19.1 trillion, in the second quarter, the Federal Reserve said Thursday, the highest level since the final three months of 2008. The increase follows a similar leap in the first quarter and raises the amount of equity that owners have in their homes to a high since the third quarter of 2008.


Since the recession, sliding property prices have made Americans feel less wealthy and less willing to spend on everything from home renovations and appliances to restaurant meals. That weighs on the recovery, because consumer spending fuels two-thirds of the nation's economic activity. With real-estate values now rising—and housing chalking up more gains recently in sales and construction—Americans are seeing their critical assets rise in value as their disposable incomes also climb. That helps in rebuilding wealth and makes even heavier debts more manageable.

Rising home values are "very helpful," said Harm Bandholz, chief U.S. economist at UniCredit Bank, who estimates that stabilizing home prices could boost America's gross domestic product in 2012 by more than half a percentage point. "I think the fundamentals for a stronger pickup in consumer spending are in place." . . .

The Fed report also showed that borrowing inched up, with household liabilities, mostly debt, rising 0.1% to $13.46 trillion.

The salutary effect of housing-market gains on Americans' balance sheets could reduce the risk of recession, some economists said. Home prices rose 6.9% in the second quarter from three months earlier, according to CoreLogic Inc. Last week, the data firm said that in the first half of 2012, rising prices lifted more than 1.3 million homeowners who owed more on their homes than they were worth above the water line. The Federal Reserve's program of buying $40 billion in mortgage-backed securities a month, announced last week, could further boost housing by keeping interest rates on mortgages low.

"The ongoing climb by home prices can only enhance the economic outlook," Moody's Analytics economist John Lonski wrote. This "will help household expenditures grow by enough to contain recession risks.""

Summing Up

While things aren't going gangbusters for sure, neither are they getting worse. We have a long climb back, but at least we're in the process of climbing now. That's nice to observe.

In fact, economic activity has stopped slowing, as have housing sales and housing prices, and most private sector companies are continuing to manage their businesses responsibly.

As the consumer gains more confidence, the possibility of another recession anytime soon fades into the background, at least in the U.S.

Meanwhile, Europe is headed toward recession, and China is slowing from its rapid growth pace.

My guess is that here in the U.S. we'll keep our heads above water and keep growing, and after the election we'll begin to address our financial issues as a nation.

Maybe I'm being a bit too optimistic about our prospects, but that's the way I see things today. On the other hand, maybe things will improve faster than I expect. Wouldn't that it be a nice surprise?

It's been a long hard struggle for too many Americans, and that makes it tough for all of us.

No, happy days aren't here again, but the worst is over, and now we'll see how fast we can get those happy days back. "Eventually" they will return but how long it will be before eventually comes is the question.

As with the earlier "eventually" question, I have no answer to this "eventually" question either.

Thanks. Bob.

1 comment:

  1. The "eventually" question will be answered, to a great extent, on the first Tuesday this November. If America re-elects Broke Insane Obummer, we'll know the last exit on the Interstate to Hell has been passed.