|
May 17, 2006
Domestic ABCs
Written by Jeff Thredgold, CSP, President, Thredgold Economic Associates
This week’s Tea Leaf is our semi-annual Alphabetic view of the U.S. economy. Global ABCs will follow, presumably on May 31, 2006.
Air Travel—the industry struggles with enormous losses, sky-high fuel prices, low employee morale, and cumbersome security issues. Take it from one who has flown more than 100,000 miles annually for the past 17 years as a speaker…it’s not what it used to be
Bush—very low approval ratings limit his ability to get desired legislation passed. His Social Security reform desire is dead…his prescription drug program ought to be. Immigration reform will be a tough sell, with widespread dissent within his own party
Consumer Confidence—has remained reasonably high this year in response to solid U.S. economic growth. At times, high energy prices have pushed confidence lower. Confidence remains fragile, however, given anxiety about terrorism and bird flu…especially on American soil
Dollar (the)—has weakened in recent weeks versus the euro, the yen, and the Canadian “looney.” Additional modest weakness is actually welcome, as it will help reduce our trade imbalance with the world
Energy—the U.S. imports a record 60% of the oil we use daily. One positive byproduct of high energy prices is greater incentives for research and usage of natural gas, coal, solar, oil shale, tar sands, nuclear, wind, etc. Higher prices also provide greater value in conservation
Federal Reserve—sixteen 0.25% tightening moves since June 2004 as the Fed continues “to ease off the gas pedal.” A likely pause in late June would break the streak, although tightening could return later
Global Economy—solid growth remains the norm, despite high energy prices. Another year of real (inflation adjusted) growth above 4.0% now unfolding would be the strongest four-year period since the early 1970s
Health Care—one of the most important challenges in coming years as America deals with ever rising costs and a rapidly aging population. Tort reform is mandatory. Complete government control is NOT the answer
Inflation—of rising concern during the past 18 months, tied to high energy and commodity prices and higher costs for construction materials. Less of a concern down the road given intense competition, more aggressive consumer behavior in getting “a better deal,” powerful gains in productivity, and the cost-saving nature of the Internet
Jobs—the U.S. added nearly 4.8 million net new jobs since January 2004, with an expected average rise of 160,000 net new jobs monthly through yearend 2006. A return to extremely tight labor availability in coming years is a given
Knowledge—and the Ability to Think—the key to individual success in an increasingly sophisticated economy. Ongoing education and training are now lifelong realities for many to be successful
Labor (Entry & Exit of)—the flexibility of U.S. companies to “hire and fire” workers as needed is one of America’s economic strengths, especially compared to stodgy Europe. Letting an employee go in France or Germany can be very costly. The result? French and German firms hire few new workers and shift considerable production outside the country. French unemployment?…near 10.0%. German unemployment?…around 11.5%
Mortgage Rates (30-Year Fixed)—around 6.60% in recent weeks, the highest level in four years. Higher mortgage rates are the easiest way to slowly deflate a housing bubble on both coasts
National Debt—ours is rising again given the realities of the 2001 recession, tax cuts, surging Medicare costs, the needs of Homeland Security, the global war against terrorism, and a spend-happy Congress. Our gross national debt at $8.2 trillion is 65% the size of annual U.S. economic output (GDP). The Japanese national debt is 150% the size of theirs. Ouch!
Oil Prices—around $70 per barrel in recent days. Reasons? Solid global economic growth; strong demand from China and India; and an oil “risk premium” of perhaps $15-$20 per barrel, in part tied to Iran’s nuclear ambitions. We expect a reasonable decline in prices over the next 18 months
Politics—childish and boorish behavior on both sides of the aisle in Washington is ridiculous…and all too typical. Is cooperation really that difficult? Wouldn’t it be nice to clean house?
Quarterly Economic Growth—solid performance…The U.S. economy grew at a 3.0% or higher real annual rate during the 10 quarters ending last September 30, the first such occurrence in 20 years. A softer 1.7% growth rate in 2005’s 4th quarter was followed by strong 4.8% growth in 2006’s 1st quarter. Real growth near 3.0% is expected in coming quarters
Retirement—the term will take on new meaning in coming decades as more and more people “bridge the gap” (work two or three days a week) between working full-time and moving into full retirement. Most retirement-age Baby Boomers will prefer to keep one foot in the workplace for a long time to come
Social Security—some “tinkering around the edges” (including delaying full benefits until age 68 or 69 for today’s younger workers) will be necessary to keep it financially solvent for coming generations. Note: One Boomer now turns 60 every eight seconds—and can draw Social Security in two years!
Terrorism—the dark cloud on the horizon…the nagging ache in our minds…the limp in our gait…the look over our shoulders. Why can’t we just get along?
Unemployment—has averaged 4.7% this year, versus a nine-year high of 6.3% in June ’03. The unemployment rate could move into the “mid 4s” next year
Violence—can anyone really make a defensible case that all of the violence, killing, and total disregard for life so prominent in today’s movies, TV shows, music, and video games is not harming our children?
Wall Street—simply stated…I remain bullish on stocks. Dow 12000 this year remains our view
Xports—at a record level of $114.7 billion in March. U.S. gains in exports should continue as the global economy remains solid, although we still import way too much!
Youth—my parents “came of age” with Pearl Harbor…my peers with Kennedy’s assassination and Vietnam. For millions of Generations X and Y, September 11 will be forever etched into their consciousness
Zero Sum Game—does not apply to global trade. If you assembled a room full of economists (God forbid!), the only thing we would agree on is anything that promotes building barriers to trade is bad…and anything that promotes building bridges to trade is good. Other than that…take cover!
“Tea”sers
Thoughts on Golf…
• No matter how bad you’re playing, it’s always possible to play worse
• Hazards attract; fairways repel
• The less skilled the player, the more likely they are to share their suggestions about your golf swing
|
