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Economic Update: Economy’s Last Hurrah

The US economy has held up for the first half of the year. Even with tough conditions the economy continues to crawl forward. After advancing 0.9% in the first quarter the Gross Domestic Product (GDP) moved ahead by posting a 3.3% growth in the second quarter. However, this does not mean that we are out of the woods with the economy; it is more likely that this is the economy’s last hurrah for the year.

Housing

The national housing market may be finally reaching the bottom. However, a turnaround in the national housing market still appears to be months away. One indication that housing is improving is the sales of previously owned homes which rose by 3.1%. Once housing does begin to enter into a full recovery, we can expect it to be a very slow process where certain areas of the country like Houston, will recover more quickly and areas such as the Mid-West will take longer.

Business Growth

Business growth is slowing and when this occurs it tends to cause the economy to contract. Most notably, manufacturing activity has dropped. However, U.S. exports still should turn in a good supportive effort during the third quarter.

Stock Market

With the recent troubles at Lehman Brothers and AIG it has only caused a volatile stock market to become even more unpredictable and this can only mean more trouble for credit markets. It will be essential for the government to step in and bring in fresh capital to thaw the ever freezing credit markets. This is not a setting for the faint of heart; however, for patient investors it is a good time to pick up some great companies on the cheap.

Conclusion

For the second half of the year we will more than likely see a reduction in business spending as well as consumer spending. This will be in large because companies will try to save profitability by postponing new projects and cutting jobs. But so far, excellent productivity has helped business deal with rising cost and weak demand. As a whole, Americans have not suffered as badly as in past recessions.

Cliff Pape
Home Buddies