Richard DeKaser writes the Practical Economics column for Kiplinger.com and contributes to The Kiplinger Letter and Kiplinger's Personal Finance. He is president of Woodley Park Research and a director of the National Association for Business Economics.
What's your outlook? I'm optimistic. I expect gross domestic product to grow by 3.5% in 2010. Midwestern farm states that avoided the housing debacle and continue to enjoy firm commodity prices are doing well. Areas laden with excess inventory in residential or commercial real estate are flagging, such as Florida, the Southwest and parts of California.
What's driving the recovery? In a recession, businesses and consumers defer discretionary purchases. When growth resumes, there's catching up to do. Take autos. Sales have been below the replacement rate -- the number needed to compensate for retired vehicles -- for over a year. Also, we've seen negligible growth in business spending on plants and equipment. Those are the drivers now: demand for discretionary items and spending on production capacity. We also have a big swing in inventories. Businesses are restocking, and the pickup has been better than expected.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
What are the headwinds? Two financial headwinds are preventing the economy from skyrocketing. First, wealth levels are far below what they were in 2007, despite a nice rebound in stock prices and a stabilization of home prices. Household net worth peaked in the second quarter of 2007 at $65.9 trillion; presently, it's at $54.9 trillion. People feel -- and in fact are -- less wealthy, so they spend conservatively.
And the other? Tight credit is restraining growth, principally affecting consumers and small businesses -- a huge chunk of our economy. As the economic expansion matures, fears of a relapse will diminish and lenders will be more forthcoming. But we will not return to hyper-easy credit conditions for many years.
What's your take on inflation and interest rates? As long as unemployment remains high and compensation gains meager, there is little prospect of higher inflation. But after next year, the Federal Reserve will have to make sure it's not a problem. Long term, interest rates are going higher -- that's a no-brainer.
-
What's Next for MicroStrategy Stock as Bitcoin Nears $100K?MicroStrategy stock is up more than fivefold in 2024 thanks to a furious rally in bitcoin. Here's what you need to know.
-
BJ's Wholesale Pops on Membership Fee Hike, Stock BuybacksBJ's stock is rallying Thursday after the warehouse club raised its membership fee for the first time in seven years and unveiled a big stock buyback program. Here's what you need to know.
-
Kiplinger Outlook: Telecom Companies Brace for Tough TimesThe Letter The telecom industry is entering a new era that threatens profitability. But the coming Trump administration will make it easier for the major players to adjust.
-
Start-ups Trying to (Profitably) Solve the World’s Hardest ProblemsThe Letter More investors are interested in companies working on breakthrough science to tackle huge societal challenges. The field of deep tech has major tailwinds, too.
-
The Big Questions for AR’s FutureThe Letter As Meta shows off a flashy AR prototype, Microsoft quietly stops supporting its own AR headset. The two companies highlight the promise and peril of AR.
-
China's Economy Faces Darkening OutlookThe Letter What the slowdown in China means for U.S. businesses.
-
AI Start-ups Keep Scoring Huge SumsThe Kiplinger Letter Investors continue to make bigger bets on artificial intelligence start-ups, even for small teams with no revenue. Some backers think a startling tech breakthrough is near.
-
Should We Worry About the Slowing U.S. EconomyThe Letter With the labor market cooling off and financial markets turning jittery, just how healthy is the economy right now?
-
New Phones Get All the Hype, but Consumers Still Love Old Models
The Letter Even as flashy artificial intelligence features drive sales of new smartphones, used phones continue to fetch big bucks as demand outstrips supply.
-
Starlink's Internet Beamed From Space Is Taking OffThe Kiplinger Letter Satellite broadband provider Starlink is taking over the space market. Amazon’s mega-constellation will soon join the fray, adding to the unprecedented disruption.
