The last of the economic fault lines is the international economy, so we will finish up with a discussion on that today. The strength and pace of the U.S. economic recovery is affected by international economies. And many countries across the globe are facing difficulties that may make recovery difficult. Let’s look at Europe. Greece’s debt equals 115% of its gross domestic product. Its government initiated austerity measures that cut spending and government benefits, but current debts still remain. Investors fear a default or a crisis of confidence that would threaten other eurozone countries.
The euro isn't stretching as far as it used to. The currency has fallen substantially as Portugal, Italy, Greece and Spain deal with huge sovereign debt problems. So why should we care? Depreciation of the euro will hamper U. S. exports. The European Union was the biggest market for U.S. goods last year and a stronger dollar makes U.S. exports more expensive and less competitive across the globe.
Besides Europe, other countries are having their own recovery issues that will affect how strong our recovery will be. Take China for example. China relied heavily on government stimulus to keep itself afloat during the recession. Now China will struggle with the transition from a stimulus-driven rebound to a self-sustaining expansion. Growth in the global economy needs to become more consumption-driven. Thanks for reading.
This week we are going to cover some positive and negative points in the economy.
Let's start with some positive trends that are occurring:
- Consumer sentiment has slowly risen from its low in November 2008. This means that we, as consumers, are feeling better about the future than we were a year ago.
- Jobless claims, although high, have been declining over the summer months. A few months don't make a trend but they are headed in the right direction.
- Interest rates- We remain at historically low levels and until the economy recovers, they will remain low.
Now, let's look at the barriers that currently exist:
- Federal spending, which I have covered in the past and will discuss again next week, is a huge problem. This deficit will cause future problems if we don't get it under control. Inflation will be an obvious problem as a result of runaway spending.
- The banking crisis is not going away and will continue for some time. We have had 92 bank failures as of last Friday, though not the record yearly total of 181 in 1992; this remains a problem. There are currently 416 problem banks in the FDIC's watch list, up by 117 from the same time last year. Stimulus money has helped but it will not solve the problem. This banking problem means that credit will remain tight for quite some time.
- The third issue is still jobs. Unemployment on a national scale is hovering in the 9% range and is expected to hit double digits by year end. For the job picture to improve, we need the economy to improve.
Some good news and some not so good news. Hang in there, business cycles will occur and the economy will improve.
Last week we talked about your finances and health. I emphasized that your health plays a major role in your financial picture. This is especially true as you age. Many of us over the age of 55 will be forced into retirement due to health issues and most of those people with health issues could have prevented their early retirement through regular check ups and physicals.
Let's talk about your finances and health and some steps that you need to take for yourself and your loved ones.
Step 1 - Check out your health insurance policy. I'm sure you know the deductible and extent of your coverage but do you know what happens if you go on disability both short and long term? Do you know the COBRA rules? Is your spouse covered? Lots of questions, check out your policy!
Step 2 - Disability insurance - Do you have it? If so, what does it cover and for how long? How do you qualify?
Step 3 - Retirement plan - How will it be paid? How much? And who are your beneficiaries? Can you afford to draw from your retirement before you qualify for social security?
Step 4 - Life insurance - This, of course, is a last resort but you need to know what your options will be, who your beneficiaries are, and if you have it at work, will it stop when you leave?
Lots of issues. Deal with them sooner rather than later. Because unfortunately, insurance must be purchased before you need it. Don't wait until you get sick. You and your family will be better off.
If we look at the economic tea leaves for the remainder of 2009, here's what economists are generally predicting:
The worst is over! The economy is transitioning from a steep recession to recovery. Let's hope they are right on this one. Here's a break down of their projections:
- Jobs - Unemployment, currently in the 9% range, will creep up to double digits in the 10+ range. There appeared to be a leveling off of initial claims in May, which suggests that yes, people are still losing jobs, but at a slower rate than earlier this year.
- Interest rates - Possibly bad news for homeowners. Even though the Fed is committed to keeping rates low, it looks like they are going up before year end. It certainly appears that they could be up by 1% or 100 basis points.
- Home sales - the free-fall in home prices has stopped, but sales will remain slow.
- Economic growth - The economy shrunk at an annual rate of 5.7% in the first quarter of 2009. Projections are that this is the worst quarterly drop for the year. We should start to see some growth by the fourth quarter.
- The stock market - No matter how we measure the equity markets, they are all up significantly since their March 9 bottom. This is definitely a leading economic indicator.
Good news? Definitely some. We could use some, especially if you are one of the unemployed.
For the next few weeks I'll try to tackle some of the issues that are keeping us up at night. Things like keeping our jobs, the struggling economy, having enough money to pay the bills, our shrinking retirement accounts, keeping our homes, health care and our standard of living. These are enough to keep me up!
Right now, I think employment is on all of our minds, and understandably so. Here are the facts: the national unemployment rate is currently 8.1%, a 25 year high. This time last year, the rate was almost half its current level. The Stateline area has been hit particularly hard. The jobless rate for Winnebago County is approximately 12%, Beloit 15% and Janesville 12%. These numbers are higher than the national average due primarily to our reliance on the auto industry. Projections tell us that the unemployment rates will continue to grow for a few more months.
While these figures might seem grim, it's important to remain optimistic and remember that there are ways to help protect your job if you have one and to get back out there if you've been laid off. Believe it or not, companies are hiring. Check out these links for some helpful tips:
CNN: 8 Ways to Recession-Proof Your Job
ABC News: Tips on Securing a Job During Tough Economic Times
If you have any employment tips of your own that you'd like to share with other readers, please feel free to post them here!