Low interest rates will prevail through most of 2010 as the U.S. economy expands modestly and the unemployment rate remains stuck in double digits
We see real Gross Domestic Product settling into a 2 percent path for much of 2010 and be closer to 3 percent in 2011. With such sluggish growth, the unemployment rate will likely peak at 10.8 percent in the first quarter and remain at or above 10 percent for almost all of next year.
For many, the tough jobs market will obscure how the economy will be regaining its footing. While many national economic statistics will show improvement, “Main Street” is not “Wall Street” and we will not see people spending aggressively as their overwhelming concern will be for their jobs. In short, this recovery will be a long, slow healing process.
Signs of economic recovery may be illusory since policy makers are seem to be medicating the economy with record federal deficits and a zero interest rate policy coming from the Federal Reserve.
It is uncertain how much strength the economy has without that support although we do not see the Fed tightening rates until late in 2010, as inflation is around 2 percent. Nor do we expect tax hikes, except for healthcare, beyond those already scheduled for 2013.
Consumers who had been stashing cash and reducing debt during the worst recession since the Great Depression will continue to spend cautiously for some time. Real consumer spending will grow next year and in 2011 at 2 percent, well below its more historical 3 percent to 3.5 percent rate, as the labor market remains staggered by layoffs and weak hiring.
In prior recessions marketing, finance, research and administrative employees were generally immune to layoffs. However, today their jobs appear vulnerable and employers are in no hurry to rebuild payrolls in the face of a potential surge in regulation.
Such previously recession-resistant industries as finance, advertising and media have witnessed an unprecedented amount of job cuts. Further exacerbating the employment situation is uncertainty about tax, healthcare and energy policies coming out of Washington.
Many construction workers who lost jobs during the extended housing slump may be rehired as the homes market, propped up by bargain-basement mortgage interest rates, is finally on the road to recovery.
With nearly 25 percent of the nation’s houses with mortgages underwater, foreclosures continue to rise; but that may already be factored into the decision making process of both buyers and sellers, though not necessarily in Las Vegas where home prices continue to decline.
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