In a market driven by fear and greed, generalizations are common. With stocks rising and falling so quickly, it’s easy to panic and think a double dip is not far away. Do we appear to be in a slow period? Yes. Does this mean we’ll double dip? I don’t think the probability is very high. Why? We are in a very different time than we were in 2008. Take a look at these five facets of the economy with me and see if you agree.
Business Investing & Manufacturing The Purchasing Managers Index (PMI) is an excellent forecasting variable. It shows when a company is gearing up and ordering more goods or ordering less and gearing down. In 2008, it dropped as low as 35 as the manufacturing industry contracted. Business after business laid off employees. They were cash strapped and stopped ordering and producing goods.
However for the last year, manufacturing has been expanding. Businesses are showing record profits and cash flow. As of August 2001, the national PMI was 50.6.
In 2008, multiple factors made the manufacturing industry contract. One of the biggest problems it faced was a lack of hard currency. For a period of time, even banks were experiencing a cash flow problem. Banks were being pushed into mergers because they didn’t have enough capital. Rather, they had toxic assets on their books. Now, the banks are stronger. They have money. The problem is, they have more money than people want to borrow.
There are definite concerns about government spending. While the federal government appears to be cutting back, it is the state and local government who are feeling this impact. Their spending is down 3.5 percent over the first half of this year, which has taken three quarters of a percent off the Gross Domestic Product (GDP). A large portion of this decrease has come from laying off government employees, like teachers. Over six thousand teachers have been laid off. However, there is talk of jobs being created and putting people back to work. If this happens, the states will benefit from a boosted economy.
Trade is higher in 2010 than 2009, and 2009 was higher than 2008. However, the European debt is a major concern for our trade industry. With the introduction of austerity programs in Britain, Greece, Spain, Ireland, Italy, and other countries, the value of the Euro is decreasing. As the United States dollar becomes stronger, we can expect to see less exporting. This doesn’t mean our manufacturing production will see an extreme hit because the majority of our production stays in the states.
The housing Market used to be six percent of the GDP. In the last five years, it dropped significantly, falling as low as two percent. Now this drop is bottoming out. Houses are beginning to sell and prices are starting to rise.
Consumption is continuing to increase. It’s not going gangbusters, but customers are still making purchases. Furthermore, since 2008 the consumer has reduced their debt by over a trillion dollars. It’s now less than the average they carried in the last 30 years.
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