Shortly the Thanksgiving holiday will be here, the Christmas season will move into high gear, and the year of 2009 will close its books for good. For millions of Americans 2009 will be remembered as a year of high anxiety and looming uncertainty. The economy at the start the year was in a free fall, near to total financial meltdown, and shedding jobs by the millions. By year’s end, the economy has pulled itself back from the precipice of disaster, re-established a degree of financial stability, and found a new equilibrium level of production and employment. Unfortunately, the new economic equilibrium levels are far short of those needed to make even a small dent in the unemployment rate. Although the Economic Stimulus Package has had a short term impact with programs such as Cash for Clunkers and the $8,000 tax credit for first time home-buyers, these programs have not been enough to effect economic growth in any significant way.

What will the year of 2010 have in store for the beleaguered American economy? To start off with, most economists believe that economic growth will stall from the 2.5% rate experienced during the last two quarters of 2009 to around 1.0% throughout most of 2010. This stalling will be largely due to the winding down of government supports that were present in 2009. Federal Reserve Chairman, Ben Bernanke, has warned that tight credit and a weak job market will make consumers cautious in their spending. In fact, many economists are now predicting that the jobless rate could climb to 11 percent by the middle of 2010, before beginning a very slow descent. Some economists have gone so far as to say that it may be four years or more before the unemployment rate returns to more normal levels.

All these dreary economic predictions spell bad news for the Obama Administration, which has been overly-optimistic about the ability of the American economy to rebound from the mess it inherited from the prior administration. There is little doubt that continued high unemployment rates will have a major impact on the 2010 mid-term elections, and may hamper Obama’s ability to accomplish other major campaign initiatives. The truth of the matter is that there is very little the Obama Administration (or any administration) can do to effect the economy in any significant way without changing the American capitalistic system. At this point, the best governmental action is “no governmental action”. The American economy must be left alone, with no further stimulus programs, to find its way back to prosperity. Time has come to put Adam Smith back in the drivers seat, and to let the “invisible hand” guide the economy back to good health.

—Rich

Hold on to your hats, America, the recession’s not over yet.  Although the economy grew at a healthy rate during the July to September time frame, causing many economists to announce the end of the recession, it seems that the “recovery party” is over; at least for the time being.  The Labor Department said on Friday that the American economy lost about 263,000 additional jobs in September, which was worse than the 201,000 lost in August, and way above Wall Street’s expectations of losses amounting to 180,000.   With the additional job losses, the September unemployment rate rose to 9.8%, the highest it has been since June 1983.  Believe it or not, the 9.8% unemployment rate is actually the good news; the bad news is that the “real” unemployment rate (taking into consideration those individual whose unemployment comp has run out, and who have given up trying to find a job) is more like 17%.  Given this sad scenario, Federal Reserve Chairman, Ben Bernanke, said the unemployment rate is very likely to remain above 9% throughout the entire 2010.

The main driving force behind the growing legion of the unemployed (about 15.4 million of them) is a continuing and unrelenting slump in retail sales.  The lack of demand at the retail level, of course, directly impacted manufacturers, who saw a drop-off of almost 1.0% in September.  Overall, the mood of the country can be summed up in one word, “uncertainty”.   Americans have not seen any significant changes in the economy or in the political realm that has given them reason to become optimistic about the future.  For example, the country is still engaged in a costly military engagements in Iraq and Afghanistan, there has been little to no significant tax reform, the Congress is hopelessly split on the issue of health care reform, the country is running trillion dollar deficits, and the value of every one’s 401K is still in the tank, along with the Dow Jones Industrial Average.  Combine all the negatives mentioned above with a nervousness concerning future employment possibilities, and it is not hard to see why a general feeling of malaise has fallen over our land.

One thing that most economists agree upon is that economic recovery in America will take a lot longer than originally anticipated, and that the path to recovery will be a bumpy road.  As the fourth quarter of 2009 begins, we are all witnessing one of those “bumps”.

—Rich