The Dow Jones Industrial Average has begun to recover. Financial Institutions may see deposits flow out and back into the stock market. When confidence improves, investors are willing to accept more risk.
The ISM Manufacturing Index hit it’s lowest point in decades. However, the index has rebounded and has moved to over “50”. This is indicative of an expanding economy.
The Feds are purchasing debt and, in effect, printing money to finance record deficits. Once “slack” in the economy is taken up, inflation becomes of greater concern.
Treasury rates continue to be low. In six months, even less, rates will begin to increase. They easily could move 3-4% in a few years. Mortgage rates will rise in concert.
GDP growth is expected to continue at 2.5% - 3.0% through 2010. It will likely be at least three years before the unemployment situation is mended. This is based on historical recession recoveries since the depression. Historically, though, the deeper the economic decline, the faster and steeper the recovery.
Consumer spending is 70% of GDP. Any recovery will depend strongly upon consumer confidence and increased spending.
For the first time in history, all the new jobs created during the last economic expansion were wiped out during the recession. The Wall Street Journal estimates that a net zero jobs will be lost during the next twelve months. This is an improvement.
The “Core” Consumer Price Index (CPI) is expected to be around 1.8% through 2010, this is within the Feds target of around 2%.
U.S. government spending vs receipts is at levels not seen since WWII. Ditto Government spending as a percentage of GDP, at 11%, a record. Ideally, this ratio should be in the neighborhood of 1%. Some improvement is projected over the next few years, but the ratio is not expected to be better than 3% through 2019.
As a result of government spending, treasury debt is also at an all-time high. This is the main cause of the weak U.S. Dollar. Economists are conflicted regarding whether a weak dollar is good or bad for the economy. This is a major discussion in itself. However, if spending is left unchecked, inflation is a major risk in the longer term.
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