Rx For A Slow Economy
The release of the first quarter’s preliminary measure of economic growth was not a surprise to many economists. Surging oil prices and slow winter home sales were expected to take a bite out of growth. Forecasts had steadily reduced expectations to near the 2.0% range and 1.8% was right in line. This was a significant drop from the 3.1% rate which closed out last year. However, there was some good news in this “slowdown.” For one, few are expecting a “double-dip” recession as was the fear during the pause of last spring and summer. The pace of economic growth is expected to ramp up from here. Secondly, the slower growth helps keep the Federal Reserve Board more comfortable regarding the near-term inflation outlook and keeping rates low for the foreseeable future as per their statement released last week. Low rates are essential to keep the economy rolling.
Regardless of this “good news,” there is no doubt that we need to ramp up growth in order to lower unemployment. We are in a cycle in which high unemployment hurts the economy which then serves as a negative factor with regard to employment growth. This week we will see more evidence regarding whether the cycle is being broken. A third month of moderate job gains could provide the fuel for stronger economic growth later this year. Many economists believe that companies are at the point that they can’t squeeze any more productivity out of their existing employees. In other words, if companies are going to expand in the future, they must hire. And that is the ultimate good news. The real question is, will they hire enough people to get the real estate markets rolling? If that happens real estate could provide a positive contribution to economic growth and we would be looking at moving toward a more positive cycle. Long-term cycles such as these don’t end with one factor or one release. The steps are small–but they must be in the right direction.