Economic Review

6/08/09

After all that positive hype following last week’s employment report…let’s take a look at reality.

Oh my, non-farm payrolls only dropped by just over 300,000 which was much less than forecasts!... and the spinners are out in full force mentioning that we’re turning the corner and the worst is behind us. Well, here are a few issues to consider when doing a reality check on the status of economic activity.

US Treasuries posted a horrible week for those hoping to refinance at lower rates (both banks looking for revenue from the activity and individuals looking to lower their monthly costs). 30 Year fixed rates have jumped over 5.25% and what that really means is that the struggling real estate market will probably struggle even more. Also, despite the slightly lower rate of increase in unemployment illustrated in last week’s report, the rate has now topped 9%, and if one considers the more traditional way of calculating unemployment, the figure quickly jumps into double digits. On the currency side of the equation, the US$ has depreciated at a rapid rate over the past weeks which has helped increase prices for a variety of goods imported from other countries.

All these factors have increased the pressure on the average American to meet their daily expenditures. Yes, some recent economic data have alluded to some stability in consumer spending, however if the factors just mentioned continue to exist, reality is that the strained, tired and tapped US consumer will most likely begin to cut back on expenditures at notable pace. And the negative economic cycle would simply continue.

Stephan Kudyba (MBA, PhD) THE MARKET DOCTOR

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