Slow but Steady Economy for Obama

Getting back into the White House this week was only the first challenge President Obama faces over the next four years.  The U.S. economy is burdened by high unemployment, stagnant pay for those who are working, the European financial crisis, slowing global growth and many American companies still too nervous to reinvest and expand.  Furthermore, the economy could sink into another recession if Congress can’t agree on a budget deal to avoid tax increases and spending cuts by January; aka ‘The Fiscal Cliff’.

But the outlook isn’t all grim; many indicators suggest the next four year will bring a vastly healthier economy than the previous four.  The jobs picture has been steadily improving.  Hiring in August and September was stronger than first thought and employers added a solid 171,000 jobs in October.   In addition, cheaper gas and rising home prices have boosted confidence and Americans are starting to spend a little more.  Retailers, auto dealers and manufacturers have all been benefiting.

Although economists surveyed by The Associated Press expect the U.S. economy to grow by 2.3% next year; it is still a little slow to generate strong job growth.  Many U.S. employers are wary of expanding or hiring until the fiscal cliff crisis is behind us.  That is why many analysts agree resolving or at least delaying the fiscal cliff should be at the top of the priority list for the White House.

In the long run, analysts are more optimistic about the U.S. economy.  The American people are feeling better and consumer confidence is almost at a five year high.

This brighter outlook by consumers may be due to the steadily increasing home prices after what has been a painful six-year slump.  Higher home prices help create the feeling of wealth which in affect makes homeowners feel richer and therefore spend more.

In addition, the low interest rates have reduced the cost of debt, this has enabled many Americans to shrink their debt and start to save.   Household debt as a percentage of after-tax income dropped from 125% before the financial crisis to 103% by the end of June.  The same ratio was approximately 90% back in the 1990s, according to the Federal Reserve’s data.   Carrying less debt frees up money for people to spend on cars, appliances and other goods. 

Banks have also been boosting their lending for the past 18 months; according to Paul Ashworth, an economist at Capital Economics, another sign that the passage of time is helping the economy rebound.

Economic recoveries always seem to be painfully slow; however we can see from the numbers that our neighbors south of the boarder are headed in the right direction.

So not all is bad for Obama in his second term, “he is going to have an easier time of it…because we’re further along the road to recovery” Ashworth says.

Have a great weekend,

Tracey

 

Source:  original article by Associated Press, posted on Advisor.ca, November 7, 2012.