Climate Check on the Economy

A sunnier forecast of our stormy recession

The thought of today’s stagnant economy is enough to make consumers tighten their wallet, throw credit cards in the freezer, and brace for more fiscal hard times as we push through the U.S’s worst recession since the Great Depression. But forget the doomsday reports and take a closer look at the good and bad of the recession headlines right now because an understanding of our economy can help you change your personal economy –how you handle your finances– for the better. Let’s take a look at various segments of the economy that are rebounding.

JOBS

The national unemployment rate has been teetering at the 10% mark for some time now, but its primed for change. The federal government’s near $500 billion stimulus plan is powering up for a new media blitz to promote job growth and policies that the administration says will create 20 million new jobs over the next 10 years. The White House reports that stimulus spending has helped create or save 1 million jobs so far, new jobless claims have dropped to lowest levels since January, and economists say the willingness of companies to begin adding jobs is getting close. While the current unemployment rate is still a dark cloud hovering over Americans, job creation efforts hold the possibility of brighter prospects.

HOUSING MARKET

The mortgage rates dipping below 5% is a promising gauge of a stabilizing housing market. Refinancing has been on the rise, the First-Time Homebuyer Tax Credit has spurred traffic in house sales, and the Federal Reserve’s continued purchases of mortgage-backed securities has been keeping the housing market afloat in spite of foreclosures and dropping home prices. Also, buzz of Congress possibly expanding the $8,000 tax credit to apply to all homebuyers may jumpstart the housing market back to pre-recession activity. “The most fundamental argument for the Credit is that nothing works in the economy if housing is falling – it hurts household wealth and credit becomes tight,” writes CNN Money.

RETAIL SALES

Before you cringe at these numbers, this is actually good news. Retail sales in September were down 1.5%, but that’s better than the expected 2.1% fall economists predicted. Outside of auto sales, which plummeted about 10% after the Cash for Clunkers auto sales incentive expired, retail sales are actually up 0.5%, which is also higher than economists projected. And when consumers spend, everyone profits. Stronger-than-expected gain in retail shows a boost in consumer confidence, which is a great omen for the coming holiday season. More spending is both an effect and a cause of a slow, gradual recovery, and may be reflecting broader progress in other areas of the economy.

STOCK MARKET

Even the average consumer has reason to be excited about the Dow’s highest close in a year. Better-than-expected retail sales and strong earnings from some big-name companies have helped drive climbing index points, and continued upward market trends indicate a strengthening economy on a larger scope. Analysts say that while the 10,000 point threshold isn’t a significant technical milestone, it is “meaningful on a psychological level” and will bring more confidence in buying and selling on the floor. While the ongoing problems in the financial industry and a potential stock market pullback make some economists skeptical, growth on Wall Street is a general precursor for good things to come.

CREDIT DEBT

Trends of decreasing credit debt reflect an overall healthy shift in consumers’ financial lives and more responsible credit use in the economy’s current credit crunch. Better consumer management of debt suggests that consumers will also be better customers in the marketplace by being more creditworthy and thus less at risk of defaulting and throwing the economy into another credit spiral. On top of that, credit scores are on the rise for 39% of consumers. Healthier credit for consumers spells more liquidity in the market, more consumer activity, and a healthier, more productive economy.

FUTURE FORECAST

The coming holiday season may be the clearest temperature check on the state of our economy—it may explode into a spending frenzy or it might be another conservative Christmas for many of us, but there is hope for significant growth in a better-than-expected end to 2009 and a recovering 2010 if spending keeps up. By no means is this a concrete financial analysis of our economy, but step back and look at the bigger picture—economic recovery may not be smooth sailing but at least consumers are beginning to look forward. People are gaining back their appetite to shop as the U.S economy slowly but surely emerges from deep recession. Sure, credit is still tight and rising unemployment could stall a full recovery from recession, but consumer demand is up, markets are stabilizing, and there is more reason to hope that darker times could give way to sunny skies in our economy.