The True State of the Economy

in Economy

The true state of the economy depends on who you talk to. Optimists look at figures and say that things are looking better. Pessimists look at the same figures and say that things may look a little better right now, but it is a false positive. What do the realists say who are looking at the same figures?

Sometimes, figures can be interpreted to "prove" what one wants to say. For example, in December, 2008, the National Bureau of Economic Research (NBER) announced that the country was in recession. Recession, by standard definition, is a period when the Gross Domestic Product (GDP) has declined for two quarters. However, the decline that the NBER was basing their announcement on was actually less than 1/8 of one percent per quarter. This is not considered significant enough, because it could very well be due to the validity of statistical analysis. So, are we in recession or not? It depends on who you listen to.

Trends were going along pretty smoothly, showing a virtual straight line on graphs, until the downturn in the last quarter of 2008. Trends were down for that quarter, but back up for the following quarters. However, the reporting of rates of change by annual change instead of quarter by quarter change may have skewed results. It has even been suggested that the federal powers may have encouraged figures to be interpreted in such a way as to show the recession as being over.

Some aspects of the state of the economy have improved and some have not, and may even get worse. One area where economic trends are improving is in the rate of disinvestment, which is where businesses sell off inventory without ordering replacements. An area where the economy is still poor and threatens to stay that way or get worse is in the area of unemployment.

Disinvestment got really bad in the last quarter of 2009. However, it has begun to improve, showing pretty good results at the end of the first quarter of 2010. The change in inventories went from a negative 19.7 billion in the fourth quarter of 2009 to a positive 31.1 in the first quarter of 2010, meaning a growth of 50.8. This was significant, and brought a more positive view of the economy.

Even though disinvestment improved, unemployment has not, and it doesn't look like it may show any significant improvement in the near future. Decline in employment held pretty steady through all of2007 and 2008 at about 0.1 of a percent, until the disaster of Sept 2008, when it dipped to over 0.5 of a percent. It climbed back up to 0.3 of percent, it has held pretty much steady, varying less than 0.1 of a percent from month to month. It appears that it may hold steady for a time, though it is not back to the pre-2008 level.

It wouldn't be a complete look at the state of the economy and economic trends if we didn't consider the reasons behind those trends. Basically, state and city governments are going bankrupt, and businesses are not hiring. The reason for this is the lack of assurance to the businesses that increased business will be profitable. As a result, middle income employees are not getting jobs, thus not supporting those governments. They are not like the federal government, in that they cannot borrow or print money. The only recourse is to raise taxes, which neither want to do. In addition, housing costs are staying low. This is a source of income for cities, one which they are hurting for in the present downturn in housing costs.

Many factors are involved in determining the true state of the economy, but, depending on your outlook, may seem to be improving. For sure, it appears that the economic state is not as poor as some would have us believe. There is some cause for hope for improvement.

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Stephen Huston has 1 articles online

Your way out, due to the State of the Economy, could be to work from home in your own business. For more ideas on working from home, and free training, visit my blog at Stephen

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The True State of the Economy

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This article was published on 2010/12/15
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