Economic News is Up But Your Budget is Down

Over the past several days, economic news has been released that seems to indicate a stronger economy.  ADP’s monthly jobs reports shows an increase in payrolls of 200,000.  The 2nd Quarter Gross Domestic Product (GDP) number – a measurement of the growth rate of U.S. economy – is 1.7%, a rate better than expected (the expected number was 1.5%).  Lately we’ve heard good news about housing – constructions is up, housing prices are rising.  Things seem to feel more positive and there is a better mood in the country.

So why is my budget being cut or reduced?  Why is the executive team talking gloom and doom about spending?  Why are we still looking at cost cutting?

You’re not crazy.  The signals are mixed right now and even economists are scratching their heads a little.  Let’s breakdown what we know and look ahead.

We know that five years ago, when the Great Recession hit and everything tanked, economist talked about how long it would take for the US economy to fully recover.  There was discussion of a “lost decade” – similar to a stalled economy that Japan had suffered.  That lost decade would be reflected in tepid economic growth – or 2% GDP more or less.  The economy needs to grow at a rate of 4% to really be strong, fully recovered and constantly creating new business and new jobs.  Based on the historical numbers over the past 5 years, I say we are half way through our lost decade.

Our economy is heavily dependent on the housing sector – it is a foundational measurement of our economy.  The middle class is the engine that runs an economy – not just ours, everyone’s economy – because they make up the bulk of the spending money in the world.  New houses mean the middle class is in better shape financially and can afford new houses.  New construction means new jobs which feeds more money into the middle class which feed more money – well, you get the idea.  So having housing rebound is a very good thing.  And I know seeing real estate prices rise is water in the desert for many of us.

But – the GDP number – while better than expected is still pretty lame.  1.7% is a far cry from the 4% we need for our economy to be back in 4th or 5th gear.  We are still driving in 2nd.  Sometimes we get into 3rd gear and then it slips back into 2nd.  So future outlooks for budget are still being based on tepid growth.

Add to that the expectation that the Federal Government (a.k.a. The Fed, Ben Bernanke) will stop fueling our economy with extra money (a.k.a. quantitative easing or QE) or begin to taper off that free fuel and start to raise interest rates (the price of the fuel).  So now, not only are we driving at lower speeds, but the gas is going to become harder to find and it’s going to get more expensive.

The result – there is some good news out there – thank goodness!  But we better make it last – there’s a big, long stretch of empty highway ahead of us and our budget has to get us to the other side.  But that is also good news – we are at least half way through!

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>