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.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free 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.
-
Stocks Keep Climbing as Fed Meeting Nears: Stock Market TodayA stale inflation report and improving consumer sentiment did little to shift expectations for a rate cut next week.
-
Your End of Year Insurance Coverage Review ChecklistStop paying for insurance you don't need and close coverage gaps you didn't know about with this year-end insurance review.
-
Crypto Trends to Watch in 2026Cryptocurrency is still less than 20 years old, but it remains a fast-moving (and also maturing) market. Here are the crypto trends to watch for in 2026.
-
Amid Mounting Uncertainty: Five Forecasts About AIThe Kiplinger Letter With the risk of overspending on AI data centers hotly debated, here are some forecasts about AI that we can make with some confidence.
-
Worried About an AI Bubble? Here’s What You Need to KnowThe Kiplinger Letter Though AI is a transformative technology, it’s worth paying attention to the rising economic and financial risks. Here’s some guidance to navigate AI’s future.
-
Will AI Videos Disrupt Social Media?The Kiplinger Letter With the introduction of OpenAI’s new AI social media app, Sora, the internet is about to be flooded with startling AI-generated videos.
-
What Services Are Open During the Government Shutdown?The Kiplinger Letter As the shutdown drags on, many basic federal services will increasingly be affected.
-
The Economy on a Knife's EdgeThe Letter GDP is growing, but employers have all but stopped hiring as they watch how the trade war plays out.
-
Apple Readies for AI Upgrade with New iPhonesThe Kiplinger Letter The tech giant has stumbled when it comes to artificial intelligence, but a new batch of iPhones will help it make headway.
-
Japan Enters a New Era of Risk and ReformThe Kiplinger Letter Japan has entered a pivotal moment in its economic history, undertaking ambitious policy and structural reforms to escape from decades of stagnation.
-
How Consumers Are Tinkering with Cutting-Edge AIThe Kiplinger Letter Companies launching artificial intelligence tools are jostling for consumer attention. Some products are already building a deep connection with users.
