Lane Financial Management
There was good news:
The Conference Board's Index of LeadingEconomic Indicators suggested pendingeconomic recovery with a 1.0% Septem-ber increase that was the sixth consecu-tive monthly rise. The 5.7% increase dur-ing those six months was the strongestsince early-1983 and the index itself wasat the highest level since October 2007;
The GDP advanced 3.5% in the thirdquarter;
U.S. durable goods orders recoveredfollowing declines in the prior twomonths.
and some not so good:
While the advance in the GDP was en-couraging on the surface, virtually all of the gain came from non-sustainablesources: stimulus and other governmentspending and deceleration of the declinein inventories;
Earlier gains in consumer confidencehave flagged with the continued run-up inunemployment. The Conference Boardindicated that consumer confidence dur-ing October fell 10.7% from September
(still nearly double last winter‘s low);
While continuing dollar weakness addsto the economic recovery, the longerthis trend continues, the more dangerousit becomes as an impetus to rising inter-est rates and inflation.I could go on with the good news and that
which is less so, but I‘d rather talk briefly
about my longer term concerns. As aKeynesian, I see the GDP made up of fourparts:
Consumer spending, which has previ-ously contributed about 65-70% toGDP, seems unlikely to rebound aswage growth is stymied and credit istight (among other reasons);
Government spending, which has ac-counted for about 18-20% of GDP, islikely to continue with stimulus spendingcontinuing relatively high into 2011though starting to decline mid-2010(absent any new stimulus programs);
Investment spending, about 8-10% of GDP, will likely be weak except fortechnology and other cost-cutting ex-penditures; and
Net exports, the balance, at about 5%.Based on my research, I currently acceptthe point of view that the domestic sourcesof GDP growth may be constrained to un-der 2%. If this turns out to be true, the im-plications for employment are bleak. And, if that turns out to be true, the political pres-sure for more stimulus spending, especiallyin an election year, will be hard to resist
further exacerbating federal budget deficits.Other than additional government spending,GDP gains will need to come from net ex-
ports. As the U.S. is still the world‘s largest
manufacturer, a declining dollar will facilitateexports, not to mention boost reportable
profits by U.S. companies‘ overseas opera-
tions. But there is the rub: how long and atwhat pace can the dollar continue to slide,and how will it end?
To those critics whoare so pessimisticabout our economy,I say, "Don't be eco-nomic girlie men!"