Monday, February 23, 2009

Up next ...

Over a year ago I predicted on our podcast that the economy was going to be one the biggest issues in the 2008 Presidential Election. I also said that the economy was going to get really bad, and sadly it has.

I'm not going to argue the merits or failings of the most recent stimulus package. I'm simply going to point out what I think are the two key indicators to keep your eyes on for the time being.

Unemployment and Inflation.

Unemployment is the bigger of the two. At last look, it was around 7.3%. If this number gets up around 9% or higher, this downturn can easily become a depression and things could get really bad. As long as it stays below 8%, I think America can ride out this "downturn". Unemployment is key because if people are working, people are spending money. Our economy is based on money changing hands - consumer to business, business to business, lender to consumer, etc. and as long as that process continues in sufficient quantities, things won't get too bad. No other economic indicator is more telling of the health of our economy that unemployment.

Inflation is a tougher nut. Since a lot of organizations are freezing wages, rapid inflation devalues the currency we earn. The higher the rate of inflation, the faster it becomes devalued, and devalued currency has a similar effect to high unemployment. That's why the government prime lending rates are almost non-existent, to keep inflation down and keep the currency moving.

Food for thought, no more, no less.

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