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.
-
Stock Market Today: It's 'All Sectors Go' Ahead of Independence DayThe resilience trade continues to work, even for sectors and stocks with specific uncertainties.
-
Nissan Recalls Over 440,000 Vehicles for Risk of Engine FailureHundreds of thousands of cars are being recalled over safety concerns. Here's how to check if your vehicle is affected and what steps to take next.
-
AI’s Rapid Rise Sparks New Cyber ThreatsThe Kiplinger Letter Cybersecurity professionals are racing to ward off AI threats while also using AI tools to shore up defenses.
-
Blue Collar Workers Add AI to Their ToolboxesThe Kiplinger Letter AI can’t fix a leak or install lighting, but more and more tradespeople are adopting artificial intelligence for back-office work and other tasks.
-
Will State Laws Hurt AI’s Future?The Kiplinger Letter Republicans in Congress are considering a moratorium on state AI laws. But it’s likely a growing patchwork of state AI regulations will be here for a while.
-
The Economic Impact of the US-China Trade WarThe Letter The US-China trade war will impact US consumers and business. The decoupling process could be messy.
-
AI Heads to WashingtonThe Kiplinger Letter There’s big opportunity for AI tools that analyze MRIs and other medical images. But also big challenges that clinicians and companies will have to overcome.
-
The AI Doctor Coming to Read Your Test ResultsThe Kiplinger Letter There’s big opportunity for AI tools that analyze CAT scans, MRIs and other medical images. But there are also big challenges that human clinicians and tech companies will have to overcome.
-
The New Space Age Takes OffThe Kiplinger Letter From fast broadband to SOS texting, space has never been more embedded in peoples’ lives. The future is even more exciting for rockets, satellites and emerging space tech.
-
Rising AI Demand Stokes Undersea InvestmentsThe Kiplinger Letter As demand soars for AI, there’s a need to transport huge amounts of data across oceans. Tech giants have big plans for new submarine cables, including the longest ever.
