Let’s continue our discussion of economic fault lines. This week’s topic is government spending. Last year, the economy was infused with a nearly $800 billion stimulus package. This gave help to state and local governments, funded public work projects, and helped troubled industries. Much of that money is due to run out just as state and local governments are nearing the end of their fiscal years and faced with budget-balancing. Lawmakers in several states are considering raising sales tax and property tax, and cutting government programs. At the same time, jobless benefits are starting to run out for some of the long-term unemployed, who are hitting the 99-week maximum. A million unemployed could have their benefits run out by the end of this year. This will not help our economy.
Congress has delayed approving more money to cover Medicaid costs for states. Medicaid, which covers more than 60 million people nationwide, is one of the costliest services states provide. And with the severe recession, more Americans have turned to Medicaid for assistance. State tax revenues were lower last year as well, so deep budget cuts will have to be made. The federal share of Medicaid was increased last year as part of the stimulus program, but this funding will run out at the end of December.
This could mean trouble for the economic recovery. Thousands of state, county and local government workers could be laid off in the name of budget-balancing. More unemployed workers will do nothing to help the economy. Thanks for reading.
This week, I want to cover the topic of, what happens if I'm forced into retirement early? Early or unexpected retirement can happen to any of us. According to a recent survey done by the Employee Benefit Research Institute, about 4 in 10 retirees leave the work force earlier than they had planned. It might be the result of health circumstances for yourself or your spouse, corporate cutbacks, retirement packages or even your own choice where you just don't want to work anymore. What do you do when and if this happens? First you need to take a deep breath and do your homework. Questions that you need to ask yourself include:
1. Can I continue to work at another job?
2. What are my skills as well as what do I like doing?
3. Can I afford not to work? And an even bigger question these days,
4. What about health insurance?
After that take a deep breath, understand what your options are and get moving. Don't sit too long. Action will help you in many ways. Unemployment is usually available and sometimes even Social Security. Unless health is your issue, I almost always recommend another job, even if it's part time. Remember that managing your investments closely, while you are employed, can ensure that you are more prepared for an unexpected, early retirement.
Stay healthy and thanks for reading.
It's the end of the year. 2009 is almost over. Let's celebrate for a lot of reasons. Let's also turn the page on the calendar and look into our crystal ball and see what 2010 will bring.
Here are a few thoughts, or predictions, if you will:
1) The stock market will continue to show positive numbers, not the dramatic increases we saw for 2009, but positive numbers. Historic gains for the Dow Jones are now in the 9% range. Don't look for anything that strong but wouldn't we be happy with 6%.
2) The economy will slowly move forward, again not dramatic movement but we could see GDP growth in the 2½% range. If we head into a slight, double-dip recession, we could see smaller growth but I don't see any numbers stronger than the 2 ½ %.
3) Housing...let's go to number four as there won't be much in housing to cheer about. The housing industry has too much supply out there to see any stabilization yet.
4) Interest rates...a little upward pressure in the third quarter but not a lot of movement. Low interest rates are a function of the weak economy. The Fed is committed to getting the economy going and therefore, low interest rates.
5) Unemployment. Can it get any worse? Probably not. We should see some improvement to the 9% range by September.
In a word or two, a slow recovery but at least it's a recovery. Happy New Year.
The last few weeks we have been discussing what's coming in 2010. We've covered GDP, interest rates and finally the banking crisis. Today, we are going to discuss jobs!
Jobs. They are important to all of us. The national unemployment rate is currently at 10%. It has slowly risen this year and is projected to continue rising into the first half of 2010. Could we see 12%? Maybe. Hopefully not.
Locally in the state line area, we have seen our unemployment rate skyrocket way past 15% in both Rock and Winnebago Counties. I recently read an article that said that the national unemployment rate formula was changed in the early 1990's. The article went on to say that if we still used the old formula, we would already be at a national unemployment rate in excess of 15%. The change in the formula dealt primarily with no longer counting people who have given up looking for a job. This is a large part of the currently unemployed. These people have lost their jobs, are on unemployment and have at least temporarily given up looking for a new job. As they have given up, they are still unemployed. Jobs have now become our #1 economic problem.
Let's hope as the economy slowly comes out of the Great Recession jobs will grow and the unemployment rate drops. Jobs are essential to economic growth, and these jobs need to be private sector jobs, not government jobs!
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.
Every week we get new information on the state of the economy. It is our job to put that information together in a way that helps us get a picture of what's really going on. Let's look at last week:
The U.S. trade deficit widened to $27 billion in June from $26 billion in May. The increase was attributed to higher oil prices.
New jobless claims rose to 558,000 in the first week of August and continuing claims fell by 141,000 to 6,202,000.
Retail sales fell 0.1% in July after two straight months of gains. Sales were expected to increase by 0.7%
Foreclosures continued to rise. There were more than 360,000 properties with foreclosure filings in July which is an increase of 7% from June and 32% from July 2008.
Signs that the economy is stabilizing have more or less lifted stocks since March, with the S&P 500 gaining 50%. The roughly five-month rally hit a roadblock last week after a worse-than-expected consumer sentiment report Friday. Consumer sentiment for August fell to 63.2 from a reading of 66 in July.
The Federal Open Market Committee met last week, holding the target for the fed funds rate steady at 0% to 0.25%. This committee makes decisions about interest rates and the growth of the United States money supply. In its statement, the FOMC said that economic activity is leveling out. Activity is likely to remain weak for some time. The Fed also expects inflation to remain subdued for the coming months.
In a previous post, I mentioned analysts believe there will be a resumption of real growth in the economy in the fourth quarter of this year. This is still true. But, when the economy begins to grow, will you be able to feel it? Probably not. The recovery is expected to be feeble.
The Fed has predicted unemployment will rise to between 9.8% and 10.1% in 2009 before declining modestly next year. The Fed believes that GDP will decline between 1 and 1½ percent in 2009. Hiring of workers is yet to begin, but the rate of firing may have slowed. Jobless claims jumped to 554,000 last week, up 30,000 from the week before. The increase was lower than estimates. Continuing claims fell 88,000 to 6,225,000.
The fuse for our current economic meltdown was the mammoth housing sector bust. Now, there are signs that home sales have bottomed. Housing affordability is still at a record high. Sales of new and existing single-family homes may have bottomed back in January. And what about the production of houses? Is there any sign that production will pick back up? The inventory to sales ratio seems to have peaked and as people buy homes, the inventory will shrink and production will pick up to make up for it. Housing starts rose to an annual rate of 582,000 in June from 562,000 in May. Starts were expected to drop.
How do you feel about the economic recovery? Does it seem to be getting any better for you? Or is it still getting worse? Our area has faced tough times for a while now. Let us know your perspective.
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!