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A good reading on the outlook for the U. S. economy can be had by closely watching indicators such as consumer confidence, unemployment, and corporate downsizing. The chances of an U. S. recession will rise and fall with these measures.
For the moment, each is holding their own. The national state of mind has reflected the economy around us. With the economy booming as a whole, so has the individuals view of the economy. The individual is taking advantage of the good times, thus fueling the economy to greater heights. Given the possible split second movements in financial transactions and information, however, this could change literally overnight. With the economy in good shape, a few indicators can easily show why.
The housing market is rising considerably as more and more homes are being bought. With low interest rates more homes are being built, proving that the American people have money and are willing to spend it. Unemployment is considerably down since President Clinton took office. After the period of recession in late 1990, unemployment steadily rose to about 10 million in late 1992. Since then, the rapid decline has brought unemployment to around 6 million and has been a direct indicator toward the strong economy (Gibson). While unemployment has declined over the past 6 years, the civilian labor force has increased considerably since the recession.
In 1992, the labor force was hovering around 127 million, whereas now we are at about 138 million (Gibson). Because of low unemployment and a large labor force the economy is strong. Consumer confidence is another major economic indicator. By looking at the Rappaport 2 consumer confidence, a general understanding of the individuals view can be found. With much controversy over whether or not the economy will falter this holiday season, the Consumer Confidence Reports (C. C.
R. ) give a good representation of how the economy will fare. While some see the economy faltering in December, the reports arent out (its only December 5). Chain store sales remain solid heading into the heart of the holiday season. Novembers sales of $ 40. 5 billion represents an increase of 4. 4 % from this time last year.
Drug stores and wholesale clubs are posting double-digit gains in sales, with apparel, building supply, discount, and furniture chain stores also registering solid growth. Electronic stores have leveled out, after reporting an average growth of 7 % the past 3 months (McIntyre). The Conference Boards annual holiday spending survey, released last week, projects record spending for Christmas gifts this year. American families will spend an average of nearly $ 500 each on holiday gifts, up from last years $ 465. Retail sales are expected to climb by 6 - 7 %, moving into the $ 50 billion range (McIntyre).
These statistics should deny any views on declining consumer confidence. Novembers sales were certainly helped by the stock markets strong rally, creation of more wealth, and the ensuing rebound in consumer confidence. With the Dow near record highs again, households, who have enjoyed several years of steady wealth and income gains, are confident enough to continue spending. Although the pace of job growth has dropped and layoff announcements are mounting, labor markets remain extremely tight, with strong increases in wage and salary income (McIntyre).
Consumer confidence rebounded from a previous 4 month decline with a jump in November. The November consumer confidence readings show that nearly 16 % of Rappaport 3 surveyed families look for business conditions to improve over the next six months, up from less than 15 % in October. Less than 15 % expect job opportunities to worsen compared with more than 18 % in October. Consumers also are more upbeat about their personal fortunes, with nearly 27 % looking for their families income to rise over the next six months, against less than 24 % in October (Koropeckyj). Although it increased, it still remains far below the values reached earlier in the year. The contradictory opinions collide when certain pessimistic views are held by the public, yet spending is up, as is the C.
C. R... Only 40 % of households believe that jobs are plentiful though they are historically high. Households are wary about the future due to the increased layoffs and the continued global crisis, which has begun to impact the domestic economy (Koropeckyj). Although they are weary, low interest rates and low price inflation are maintaining buying plans, with buying opportunity for houses and automobiles being high. The decline in confidence may have something to do with the households that experienced a decline in the market for the first time and were alarmed by it.
One of the keys to the strong economy is the fact that wages are increasing, while inflation isnt increasing much. With interest rates low, it has become increasingly hard not to feel confident borrowing money. The national personal saving rate has decreased dramatically over the past 6 years to just over. 2 % (BEA). This proves that consumers are not saving their money and are fueling the economy through their purchases.
Downsizing is one of the reasons that Americans feel the economy is going to slump. The low inflation environment is making it difficult for many domestic companies to raise prices. With inflation at 2 % at the consumer level and close to zero at the Rappaport 4 producer level, its not surprising that prices arent climbing. At the same time, wages are rising and employment costs are up nearly 4 %.
The result is a developing squeeze on profits (Investors Monthly). Companies are finding that productivity is not increasing as the hours of their workers are increasing. The law of diminishing returns takes place as overlapping and non-essential jobs are eliminated. These lost jobs, along with jobs lost due to technological advancements, are forced to look for work elsewhere. More often than not, these lost jobs are from the manufacturing companies that are the backbone of our economy. With that, some people are wary of the economies future.
Although we have a strong economy, many are pessimistic of job security and the rate of downsizing. For many the future is uncertain because it is unknown. The optimism is present because of low interest rates and low inflation, combined with higher pay which allows more spending and more borrowing. With this, more cars and homes are being purchases which is fueling the economy even more. All of this is like dust in the wind, because turbulence in the stock market, an increase in interest rates, higher inflation, or lower salaries will cripple the economy. Its only a matter of time before some of these indicators shift for the worst, and consumer confidence is lost.
Rappaport 5 BIBLIOGRAPHY Bureau of Economic Analysis. Personal Saving Rate (Chart). Internet. Gibson, Sharon. Labor Statistics Bureau of Labor Statistics. 4 December 1998. Internet.
Koropeckyj, Sophia. Consumer Confidence. Dismal Scientist. 24 November 1998, Dismal Scientist Online. Internet. Market Outlook: Markets Downside Risk Has Been Reduced. Investors Monthly November 1998: 8.
McIntyre, Kevin. Chain Store Sales. Dismal Scientist 3 December 1998, Dismal Scientist Online. Internet.
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