Friday, August 1, 2008

The Good, The Bad, & The Ugly of Our Economy

Yesterday, the Gross Domestic Product (GDP) numbers were released and they showed that our economy "grew" at a rate of 1.9 percent for the quarter. This was a doubling of the previous quarter when we only had a nine-tenths of a percent growth. And, before that, the fourth quarter of our economy had a "contraction" of six-tenths of a percent. Simply speaking, the GDP number reflects all the "stuff" we producing for sale in the in the United States and for export.

At this point, it is worth mentioning that the classic definition of a "recession" is two consecutive quarters of negative growth (a contraction) for the GDP. For those politicians who keep saying we are in a recession, two positive quarters of .9% and 1.9% (both "growth") doesn't hardly speak to that declaration. We saw a "dip" in the fourth quarter of 2007 but, there was no follow through. That's the "Good" about our economy. We are still growing!

Yesterday, the stock market toppled by 200 points. That was not in reaction to the GDP number; a number that looks backward at the business activity in the months of April, May, and June. Instead, the market was reacting negatively to the "Jobless Claims" number which jumped by 44,000 claimants in a single week and that was nearly quadruple of what could normally be expected during a soft economy (See Full Story). And, that high number came in on the heels of a nearly 30,000 person rise in the unemployment claims of the previous week . As I had said in one of my "blog entries" of yesterday, I think these high numbers are a result of the new rate for the minimum wage.

This morning, the Federal Employment Report came out. That showed a loss of 50,000 jobs in the last month and the unemployment rate in America rose to 5.7 percent. Many had expected job losses of over 100,000 but, the number came in softer with half the loss. On a positive side, we are still below 6 percent unemployment.

The "Bad" of this economy is that people are losing jobs. They are jobs because we aren't growing at the previous 3 or 4 percent on the GDP. Instead we are below 2%. Businesses are adjusting to the softening economy. They aren't selling as much. Just as you need more people to handle new business activity, you need less people when business is less robust or contracting.

Lastly, the "Ugly" of our economy is the housing market that has been almost struck down by the sub-prime loan crisis. This "ugly" will only get uglier. It will get uglier because inflation for energy and food prices will continue to rise . Adjustable rate mortgages will keep adjusting upwards because there were just too many "teaser" rate loans that were given to people who could only marginally afford to buy a house. With prices and mortgages both going up at a faster rate than salaries, a lot more people will be forced to default and foreclose on their homes; and, the recent Congressional action isn't going to save them. Even if Congress does keep their mortgage rates the same, people living on the margins still won't be able to afford to drive and eat as they see their monthly expenses rise above their salaries. For a lost of people, this economy will be a lose, lose situation.

Image by timetrax23's photostream on Flickr with Creative Commons Licensing that allows adapt/modify/build-on activity and was modified by Cranky George (Click to View Other Works of the Original Creator).

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