Let's take a look at our struggling economy and where it might be headed. The strength of the economy is measured by GDP, or Gross Domestic Product, which is a combination of consumption, investment, government spending, and net exports. An increase in GDP means that the economy is moving in the right direction, while a decrease means that the economy is contracting. Nominal GDP is measured in current prices, and real GDP is adjusted to account for inflation. A recession is considered by many to be two consecutive quarters of decline in real GDP. However, most economists agree that we were in a recession for all of 2008, even though the economy showed positive numbers until the 3rd quarter. It looks like 2009 is going to be worse than 2008 from an economic perspective. This year's economy is expected to contract for the first 3 quarters before the light at the end of this long tunnel starts to shine.
If we are looking for bright spots (and we certainly are!), the index of leading indicators has been up for the last two months, suggesting that the economy may improve. We are also in the midst of the lowest interest rates that many of us have seen during our lifetimes. If you're investing in fixed income securities, make sure you keep short because rates will most definitely be higher two years from now when we will be fighting inflation and not a struggling economy.
If you haven't refinanced your mortgage, do it now! It also looks like there may be some life in the stock market! Maybe like spring, the economy will begin to grow as the temperature warms up.
If you have a job, keep it. If you are looking for one, take comfort. Jobs will increase as we get into the summer season and as the stimulus dollars get out there.
This week, let's talk about retirement accounts. Investors in the U.S. Stock Market have lost more than $10.4 trillion since its peak in October 2007. American workers lost an average of 27% in their retirement plans in 2008. The average balance declined from $69,000 in 2007 to $50,000 in 2008.
Face it. There are only 2 ways to pump up the balance in your retirement account: earn more on your investments or save more money. And you can't count on supersized gains in stocks and real estate anymore. So, try to pump up your savings. Investing just enough for the company match doesn't cut it. Push yourself as close to the limit as you can. The limit is $16,500 for a 401(k) and $5,000 for an IRA. Don't stop contributing! The AARP reports that 20% of workers 45 and older have stopped putting money into their retirement accounts. I'm telling you right now, that is a huge mistake.
And for those of you trying to save for a child's college tuition, do not forgo saving for retirement to save for college. Retirement comes first. You can't take out a loan to retire.
Try to work longer. The average age Americans retire is 60. If you can work until 67, when anyone born in 1943 or later qualifies for full Social Security benefits, you'll gain time to save more and you'll cut down the number of years you'll be tapping your nest egg.
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!
On February 17, President Barack Obama signed the $787 billion stimulus package into law. Let's take a look at this package and its potential to lift us out of economic recession.
I'll start by saying don't point the finger at anyone to blame for this mess. It's not George Bush's fault, it's not President Obama's fault, and Alan Greenspan is not to blame. Let's just accept the mess we are in, roll up our sleeves, and get through this! Remember, this is not a political event; it's economic.
Now let's talk about spending. This package is almost 800 billion dollars. Taxes, infrastructure, education and healthcare are the focal points of the package. The spending should create new jobs in all of these areas but it will take some time to implement. Wall Street does not like the package. Wall Street sees this as a declaration of war on prosperity by Washington. Wall Street sees this as another pork barrel for both Republicans and Democrats. Tattoo removal is not a stimulus and blackbird and beekeeping studies will not help a desperate economy.
Jobs are what we need. Tax cuts should give 95% of us more money to spend. I've seen a proposal to eliminate the FICA tax for the remainder of 2009; this would help even more. If we as consumers get it, we need to pay off debt or spend it. Remember, jobs are priority number one.
Let's support the President and the stimulus bills, but let's keep an eye on pork and vote out all purveyors of pork in 2010. Fiscal responsibility is required during these times. Let's start with ourselves and work our way up!
Curious about the future implications of today's market turmoil? Let's take a look at the stock market meltdown we've been experiencing over the last nine months and put it into perspective over the long term.
From December 1972 through December 2008, there have been 6 downturns of the S&P 500 characterized by at least a 15% decline. All six of these market lows saw a dramatic recovery within three years. The average low was -32% (from peak to trough based on monthly returns) and the average three year recovery was 72.4%. We don't know if this market has finally bottomed out, but history suggests that the subsequent upswing will probably be large. Don't make the mistake of waiting for the market to recover its losses before getting your money back in. The market may recover moderately this year, but 2010 and 2011 will be crucial for long-term investors.
Because this market downturn has been more severe than any in recent memory, many people are making comparisons to the Great Depression. You should know that we are nowhere near the economic meltdown of the 1930s and more importantly, we are not expected to approach those numbers.
The number one issue for the consumer today is faith in the economy; consumer confidence is currently at an all time low. As a consumer, you can help by slowly returning to your previous spending habits, as much as possible, and believe that the economy will recover.