The results of GBR poll #3 on the road to U.S. economic recovery are in!
- Half of participants think we’ll be back on track by 2010
- 20% think we’re already on the road to recovery
- 30% think all the initiatives to stabilize and grow the economy so far are only making things worse
The GBR Blog asked Peggy Crawford, PhD, Professor of Finance, and Terry W. Young, PhD, Professor of Economics at the Graziadio School of Business and Management, to comment on the results and offer some practical advice on how to take advantage of the current economy. They wrote:
Federal Reserve Chairman Ben Bernanke coined the phrase green shoots” of recovery and we agree that some indicators suggest signs of economic improvement. Stocks have rebounded off their lows—at least for the time being—but job markets, a lagging indicator, are still weak.
Consumers—the major driver of economic growth—remain on the sideline. Households are saving—at a healthy rate of 5 percent versus the disastrous negative rates prior to 2008—rather than spending. This to due partly to the decrease in the value of their homes and stock portfolios, partly to deleveraging as they reduce their high levels of debt, and partly to uncertainty caused by high unemployment rates.
U.S. businesses are reluctant to jump on the recovery train until they see “real” growth.
Instead companies continue to aggressively cut costs and lay off workers. Unemployment has increased to 9.4 percent, a 25-year high. However, there is a “green shoot” here as the rate of job losses has declined significantly over the last few months.
U.S. exports have been hammered as the global recession decreased demand. The recent depreciation of the dollar may boost exports, but also puts upward pressure on oil prices, which could increase the trade deficit. Oil prices recently hit 2009 highs, raising the specter of inflation and putting upward pressure on long-term interest rates. It is difficult to find a “green shoot” in this data.
The recession began with the housing sector and true recovery will start there.
We need to see stabilization in the housing markets—in the supply of unsold houses and in the prices of homes. We observe a hint of a “green shoot” here as housing prices are beginning to stabilize and housing sales are beginning to increase in some areas of the U.S. The stock of unsold homes dropped to less than a 10-month supply by the end of March.
So, how do we thrive in this uncertain environment? Why not…
1. Look at this as an opportunity. Firms can hire from a pool of more highly talented individuals than ever before; the opportunity cost for education is way down and individuals can increase their marketability by going back to school; and investors can find some real bargains.
2. Recognize the stressful environment and be emphatic. Some companies have successfully reached out to skittish consumers by offering support if they lose their jobs.
3. Emphasize your value add. Take the time to show what you bring to the table, whether you’re a firm noting the value add of your goods or services, or an individual pointing out the increased productivity of your labor.
So, don’t go out and buy a lawn mover yet. While we do believe there is light at the end of the tunnel, those “green shoots” have not yet blossomed into a luxurious lawn!
Related in the GBR
Investing for Income in a Down Economy by Steven R. Ferraro, PhD, CFA
Owner-Occupied Commercial Real Estate for the Entrepreneur by Alphonse Lordo, MBA, and Michael Kinsman, CPA, PhD
Leveraging Opportunities in the Current Economic Climate-Audio Interview with ICE Chairman and Founder Jeff Sprecher by Danielle L. Scott