Written by Jeff Thredgold, President, Thredgold Economic Associates
November 23, 2010
This week’s Tea Leaf is our semi-annual alphabetic view of the U.S. economy.
Global ABCs will soon follow…
America—prospects for solid economic growth are still limited, but getting the mid-term elections out of the way helps reduce uncertainty. Any political moves toward cooperation would really help
Budget Deficits—averaging $1,350,000,000,000 each of the past two years…a little less this year. Projected at $1 trillion annually in coming years, which is simply unaffordable. Hold your breath for 25 seconds…the deficit just increased by more than $1 million
Consumer Confidence—still fragile with near double-digit unemployment and soft home values. Expected to rise modestly in coming months as better employment news (hopefully) unfolds
Dollar—has actually strengthened a bit in recent weeks, especially versus the euro, tied to rising anxiety about Irish and southern European national (sovereign) debt levels
Energy—greater use of abundant natural gas, better access to oil and gas in Alaska, greater use of nuclear power, and further progress in “clean burn” coal technology must be part of the equation in coming years…in addition to alternative sources
Federal Reserve—its key short-term interest rate has been at a historic low of 0.00%-0.25% for nearly two years, with no change expected anytime soon. The jury is still out as to the advisability and effectiveness of QE2
Global Economy—emerged from its first post-WWII recession late last year. Global growth is expected to weaken a bit in 2011 as Europe stumbles and China intentionally slows
Housing—many forecasts have average U.S. home prices sliding a bit more before stabilizing next summer. However, bargain-priced properties are drawing multiple offers in many communities
Inflation—financial markets remain split as to whether inflation or deflation will be the fly in the ointment in coming years. Core (excluding food and energy) consumer prices rose 0.6% during the past year, the smallest 12-month rise in more than 50 years
Jobs—less political uncertainty and prospects of slightly better U.S. economic growth could lead to modestly stronger jobs gains in coming months…let’s hope so
Knowledge—and the Ability to Think—the key to individual success in an increasingly sophisticated economy. Ongoing education and training are now lifelong realities for many to be successful. Average annual earnings of a college graduate versus a high school graduate today?...80%-90% higher
Lending—still too tight across the U.S., especially by the nation’s largest handful of banks. At the same time, tens of thousands of small and medium-size businesses are not interested in borrowing, preferring to keep things close to the vest
Mortgage Rates—actually rose by roughly one-quarter percent over the past 10 days. Note: If your financial ducks line up, NOW is a great time to refinance an existing mortgage or finance a new or foreclosed property
National Debt—the gross national debt (yes it is gross!) of nearly $14,000,000,000,000, combined with deficits now exceeding $1 trillion annually, makes concrete moves toward fiscal sanity mandatory in the nation’s capital
Obama—which path to take, given the “hammering” from the November 2 elections…the far left, or more centrist?
Politics—childish and boorish behavior on both sides of the aisle in Washington is ridiculous…and all too typical. Is cooperation really that difficult?
Quarterly Economic Growth—most forecasting economists see a 2.5%-3.0% real (after inflation) annual growth pace during 2011, barring worst case European fears. Third quarter 2010 GDP was just revised up to a 2.5% real annual rate, versus the initial 2.0% estimate
Retirement—the term will take on new meaning in coming decades as more and more people “bridge the gap” (work two or three days a week) between working full-time and moving into full retirement. Millions of retirement-age Baby Boomers will prefer (or need) to keep one foot in the workplace for a long time to come
Social Security—steps taken now to slow down the future growth rate of spending are required…and sooner rather than later. It would be nice if politicians would stop calling it spending cuts!
Taxes—political theater still finds no agreement on income, capital gains, dividend and other tax rates to begin in just five weeks. Extending the Bush tax cuts for ALL taxpayers—even for just a year or two—would be a positive temporary outcome
Unemployment—likely to remain at or above 9.0% during the next 12-18 months, even as monthly job gains could improve. It will likely be mid-decade before we return to more acceptable 5.5%-6.5% rates…and that’s if we’re lucky
Visitors (foreign)—likely to visit the U.S. in big numbers during 2011, especially from Asia. They spend aggressively! Be nice, be kind, and invite them back
Wall Street—simply stated…I remain a long-term bull on stocks
Xmas—retail spending is expected to be the best of the past three years, with roughly a 3.0% rise versus 2009. As before, aggressive discounting will drive consumer traffic
Youth—my parents “came of age” with Pearl Harbor…my peers with Kennedy’s assassination and Vietnam. For millions of Generations X and Y, September 11 and the “Great Recession” will be forever etched into their consciousness
JaZZ (Utah)—we like to think of them as one of the NBA’s elite teams. Can they win it all some time? Like the little train…We think we can…we think we can…we think we can