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Its been a little more than a week since I was able to update this blog. For those who follow regularly I apologize.
It has been an interesting week. It would appear that Cash for Clunkers is a huge success. Chrysler, who at one point had something like 180 days of inventory on the lots, is now running overtime to refill the pipe lines. Ford actually sold more cars this month (July 09) than they did in July ’08. That’s a stimulus package. If we’d done this six months ago maybe we wouldn’t have added a Trillion dollars to the debt. Germany did it late winter or early spring. But wait, what do they know.
The stock market has jumped up shouting the economy “ITS ALIVE” and the President is telling us that the stimulus is working. Let me put it into context for you. Unemployment is still rising, albeit more slowly than it was. The economy MAY actually grow in the third quarter. Anything less than 1% growth means it contracted were it not for Cash for Clunkers. $3 Billion in car sales equal at least 1% on the GDP. Since the definition of recession is at least two consecutive quarters of negative growth then lets not be fooled by one quarter of artificially contrived positive growth. We have a fundamental problem. It is unemployment. The work force grows at 1% a year fueled by kids that insist on growing up and pesky immigration (legal). America is the home of innovation and productivity is our middle name. Technology and innovation generally improve productivity by about 2% per year. Great stuff. Keep costs down.
That said however, it means that the economy (GDP) must grow by 3% just to keep the unemployment rate steady. At a robust 5% annual growth rate we could get unemployment down to 5% in 2 ½ to three years. If we could generate a 5% growth in each of the next 3 years, in would be very hard to control runaway inflation. Suddenly it would be a sellers market in employment so salaries would skyrocket, costs would spiral as more money chased the goods available and interest rates would explode. Do any of you remember Mr. Carter’s days as President? When mortgages were 16% and a fixed rate mortgage was NOT available. C’mon if you really don’t remember ask your parents, it was only 25 years ago.
So do we solve the problem in three years creating a new problem while doing so or do we live with higher unemployment for 5 or six years. Neither choice is much fun to think about. It may just be the only two options.
On the brighter side, housing is slowly, very slowly, starting to crawl out of the shadows all around the country. This is particularly good news for us here on the Carolina Coast. We are a destination. When people in other places can once again sell their homes they will flock here again. Like the water pressure at the narrow end of the funnel, every little increase in pressure at the wide end increases the pressure in the narrow end geometrically, and we are the narrow end. Things here are getting brighter and will continue to improve more quickly than the country as a whole. We have this time, this respite, to do the things that will make the next surge profitable for our businesses and for our communities. While costs are low, we need to look at schools and other infrastructure opportunities and get them built. It is my belief that if we build it now we can stay ahead of development for the next decade. If not, we will be playing expensive catch up.
Oh, don’t be surprised if some of the information you’ve been hearing turns a bit less optimistic. This was the worst recession since the 1930’s and this time we can’t rely on exports to help us out. It will take a couple more years if all goes well. Longer if it doesn’t. Economics is color blind. It doesn’t care what your skin color, ethnic origin or socio economic classification might be. Every group has been hurt and hurt badly. It will take the co-operation of everyone to help our communities not only survive but prosper over the next five years.
