Robert Barr, an economist in the Washington, D.C. area, and frequent contributor to the SAF Floral Trend Tracker offered the following comment in the latest issue:
These are confusing times for consumers and businesses. Gas prices are way up, home prices in many places are dropping, and employment has shrunk in each of the first five months of the year. If we’re not in a full-blown recession now, we’re just skirting past one.
So this has been a time of fear and concern. Our economic health is vulnerable, and we know it. But while we batten down the hatches, keep in mind how resilient our economy has been. Economic conditions aren’t as bleak as you probably imagine them to be, or as the popular media usually suggests. Growth was at a low 0.8% annual rate in the six months ending in March, surprising many experts who expected to see an outright contraction. Despite all of the problems and concerns, the economy continues to expand, albeit it mildly.
Naturally, consumers are holding back, as purchases of big-ticket items are being deferred, particularly in real estate and autos. On the other hand, business owners are more encouraged, as durable goods orders outside the auto sector are doing quite well. And, and in a big switch from recent years, net exports are contributing to, not detracting from, economic growth (actually accounting for most of it lately).
Feds to the rescue? One important development in early June suggests that the Federal Reserve will be acting soon to counteract one major economic threat: the weak dollar, as Chairman Bernanke cited the weak dollar as a major culprit in pushing up consumer prices. That’s reassuring, as the Fed needs to reassert itself as an inflation fighter. As discussed in this column in the last issue of the Floral Trend Tracker, a few months ago the Fed was cutting interest rates to help cushion the economy from the fallout from the credit crisis. But those low rates were causing the foreign-exchange value of the dollar to slide. Now, the Fed has signaled no more rate cuts for a while, as it waits both for its previous rate cuts to have their peak impact and for the tax rebates to course their way through the economy.
No short-term solution. A shift to inflation-fighting policies probably won’t have much impact in the short run for consumers and small-business owners, whose day-to-day buying and selling decisions will ultimately determine whether the rest of 2008 is able to improve on the low growth of its opening months.
Part of the answer will lie with oil prices and our adjustment to gasoline at $4 a gallon (as we write this. We hope that price doesn’t sound like a deal as you read this). On the other hand, a recommitment from the Federal Reserve to maintaining price stability could quickly boost financial markets. They would need to realize that the Fed is more satisfied with a smoothly functioning credit market and that its concentration is back on suppressing inflation.
On net, we expect to see sluggish growth in the rest of 2008 and well into 2009. Most of the current problems holding down the economy – residential real estate, high (and rising) energy costs, and the credit crunch – will take time to reverse. Meanwhile, the recessionary feeling of today will probably linger in many big-ticket consumer industries.
I particularly appreciate Bob’s comment regarding the resiliency of the economy and despite how things look, we have managed some growth overall. As I have said before, the impacts of this economic contraction are not universal and are quite worse in some areas of the country than others. The next several months leading into the fall will be interesting to track as far as economic indicators are concerned.
Stay tuned for more commentary about fall marketing strategies in light of these economic trends.
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