The Economy.... and Looking towards 2010....

I wanted to give my opinion on the economy as it stands going into the new year... I've perused many different articles, and heard all the financial gurus of our time and I have come to the following conclusions...

For the next few months, I think the economy is likely to feel fairly good. After four straight quarters of contraction, third quarter growth pegged at an annual rate of 3.5% will buoy the spirits of consumers and business managers, raising hopes that layoffs are over and net job gains are imminent. Joel Prakken, chairman of Macroeconomic Advisers, says the U.S. has escaped what could have been another Great Depression.

But by early spring: A test of the recovery as well as of the credit system, 18 months after it teetered on the edge of collapse. Not to mention another trial of the Federal Reserve’s skill, as officials try to keep nurturing the credit market with low interest rates, without providing so much monetary slack for so long that a new financial bubble develops.

Second, inventories will need more replenishing. Over the past five quarters, businesses cut back production and sold off inventory to meet recession-reduced demand. Now, available supplies have gotten too low and there’s evidence that factories are starting to hum again. Industrial production has posted three straight months of solid gains.Several upward forces are at work. There’s the federal stimulus of $787 billion. It will continue to prime the pump, adding about $90 billion a quarter to GDP next year and creating jobs that will help lift consumer confidence.

Low interest rates remain a key support, not only encouraging would-be home buyers to take the plunge, but also spurring companies to sell bonds, raising money for investment in plants and equipment. Odds are slim that Fed policymakers will hike rates before the middle of next year.

The recent pickup in housing construction should continue into 2010 and even enjoy a bit of a seasonal increase come spring. In addition to the attractive interest rates, a likely extension of the first time buyers’ tax credit -- and possibly an expansion of the credit to long-time homeowners who opt to buy a new abode -- will help buoy new-home starts.

For any questions regarding this article, e-mail me @ StJamesEst@aol.com

-Cristie