Musings on an ?Eeyore? Economy

In the last couple of years, the Great Recession has wreaked havoc on our economy and national standard of living. Worry and fret seems to grow daily. Foreclosures and bankruptcies are headline news locally and nationally. Unemployment rates are at 25-year highs and some believe the real estate market still hasn’t bottomed.

Au contraire! The economy is rebounding and economic activity is increasing. The stock market has exploded off its lows of a year ago and real GDP growth is taking place. Economic forecasters are starting to lift their forecasts as consumer spending is starting to increase.

Why the economic doldrums then? Average recessions do not touch the masses like the latest one did. So even with the economy moving forward, there is plenty of worry and fret. Even as one bad scenario after another comes and goes, there seems to be more and more that come about. The general consensus seems to be that there is another shoe to drop. A commercial real estate collapse, the “real” unemployment rate, more foreclosures and bankruptcies, adjustable mortgage rate resets, the uncertainty of our House and Senate on issues such as health care or cap and trade. What about bank failures and the general lack of bank lending? Looming tax hikes, inflation, Dubai and Greece’s debt issues. On our own huge budget deficits and don’t forget the stimulus package that is starting to wind down.

That’s a big list and there are problems out there, but most are overblown. It’s almost as if the better the economic data, the more things people have to worry about. The economic Eeyores of the world are everywhere. Remember credit card fears? Delinquency rates and balances are declining now. What about Credit Default Swaps? Companies are reported to be increasing their value.

The national office vacancy rate is 17 percent. High, but still lower than it was in the 1990-91 recession. One would expect that rate to be high with unemployment around 10 percent. However with unemployment rates starting to fall, vacancy rates should fall as well.

The “real” unemployment rate is 16.5 percent. True, but this rate is always above the official unemployment rate because it includes marginally attached workers.

Historical data suggests the economy cannot recover and expand without bank lending. Yes, bank lending has declined substantially over the last two years. However, at the end of 2009, total loans and leases held by commercial banks stood at $6.76 trillion, which is above the year- end 2007 levels. 

Deficits are high and government spending is out of control. It is true that government activity is creating uncertainty, but this has stirred political energy rarely seen in the U.S. Hopefully the public’s awakening to this will finally force Congress to address the issues of its long-term unfunded liabilities and its out-of-control spending. 

Bottom line is if you want to find things to worry about, you always can.  It’s like Eeyore walking around in the 100 Acre Wood mumbling. Most leading economic indicators are trending upward. Plus the financial panic from 2009 is over, the Federal Reserve’s monetary policy is still very loose and GDP numbers are positive once again. The recession is over. It just hasn’t been officially announced yet.

I believe there are two things we can take control of now. The first is regarding government spending. Get out and vote. Let’s send Washington a message that if they don’t listen to the majority, they’ll get sent home.

The other thing we can do is plan. You can take control of your finances by putting a sound financial plan in place and taking action on it. Don’t let the good news about the economy that is coming lull you into thinking you do not need to review and plan. Coordinating your investments so you have a well-balanced portfolio adjusted and monitored for your risk tolerance is within your control. 

These are boring but basic truths of financial success. If you have a plan in place that is being executed, you’ve done all you can do. You have taken control of your personal economy and your attitude about the economy in general is much better. I can’t promise you will turn out to be a Tigger, but you certainly will not remain an economic Eeyore any longer. 

Troy A. Kestner, CFP, is a Financial Advisor with Arvest Asset Management and Vice President with Arvest in the Private Banking office in Fayetteville. He can be reached at 479-684-4232 or [email protected]