It was the summer of 1969; do you remember where you were? Two important events occurred; the Apollo Moon Landing and Woodstock. I also celebrated my ninth birthday that summer. While I remember listening to Walter Cronkite reporting on the historic lunar landing, there wasn’t much interest in Woodstock on my part at the time.
In the ‘60s there was a band called Buffalo Springfield who sang “For What It’s Worth” at Woodstock. The first line of the song was “There’s something happenin’ here. What it is ain’t exactly clear ... ” (Go ahead, keep singing!).
Although I was listening to this music on the eight-track player in my mom’s care at the time, their words stuck and remind us that the concepts of clarity and transparency are just as important today.
It is perhaps a more fortunate destiny to have a taste for collecting shells than to be born a millionaire.
Robert Louis Stevenson (1850-1894)
In an attempt to provide some clarity here are six economic outlooks and their traits. Movement from one to another is not always clearly defined and there are as many forecasts out there as there are cable news channels.
Deep recession:A severe economic contraction. Concerns for unemployment of 10-12 percent, heavy deflation, continued low interest rates and a contraction in wage levels are at the top of the list. Very conservative investment selections would be the norm.
Recession: Economic contraction, unemployment between 8-12 percent and slowed economic growth. The textbook definition of a recession is a decline in the Gross Domestic Product (GDP) for two or more consecutive quarters. Decreasing productivity is also occurs.
Zero growth: No growth or flat growth with unemployment levels between 6 and 8 percent. Stagflation is a term that describes both inflation and stagnant business activity. Stagflation occurred in the 1970s while there was an increasing unemployment rate and inflation. Wages are flat and productivity is low.
Low growth: Mild economic growth and lower unemployment typify this phase. Mild inflation, rising interest rates, along with small increases in wages and productivity.
Bull market: Poised for strong economic growth, average unemployment and inflation with rising interest rates. Wages and productivity begin to move up.
Strong global expansion:Low unemployment, above average inflation rates and high interest rates. These factors often lead to strong rises in wage levels and record productivity.
Take a moment and cast a spotlight over the course of your lifetime with the purpose of identifying different economic phases. It’s interesting to review individual economic behavior and how our lives may have been influenced by the economy. For instance, I’ll always remember the purchase of my first home in 1985. Mortgage rates were sky high at 12.50 percent. Since I was just starting out in life, nothing was going to deter me for purchasing that first home. Or maybe I just didn’t know any better.
As a country we’re changing our spending habits. The Opinion Research Corp., of Princeton, New Jersey, conducted a study showing that women are currently reducing spending more than men.
In fact, 86 percent of women are spending less on discretionary items such as dining out and buying clothes. Only 78 percent of men are spending less in these categories.
The real question is whether these changes are temporary or if they could last. The answer is a determining factor in how long this recession will last. Were and how we spend is changing too. Forty-eight percent of women are shopping more often at discount stores, compared with 37 percent of men.
Economic decisions are based on emotion and logic. Logic takes into consideration the opportunity cost of a dollar spent versus a dollar saved. In other words, is it more important for you to save money or spend it? This impacts overall economic activity and reduces the amount of money in motion.
The Fed Funds Rate is the rate banks charge each other to borrow money. To give you a historical perspective, the Fed Funds rate was at 6.25 percent during August of 2007, and reached a high of 20 percent in 1979 and 1980. Last Tuesday the Fed met and decided to keep the rate at 0.25 percent.
With interest rates at record lows, which phase of the economic cycle do you think we’re in or moving towards? There is no right or wrong answer when dealing with such a dynamic subject. Invest accordingly!
Darcie Guerin, Financial Advisor & Branch Manager, Raymond James & Associates, Inc. located at 606 Bald Eagle Drive, Suite 401, Marco Island, and FL 34145 provides this article. Gulfshore Life magazine named Guerin as one of the Best Personal Wealth Managers in The Southwest Florida Area for 2009. If you have questions please contact Darcie Guerin via e-mail at Darcie.Guerin@RaymondJames.com. Phone 389-1041, toll free (866) 343-0882 or at RaymondJames.com/Darcie. Past performance may not be indicative of future results.