Economic Growth Projected to Continue

The U.S. Economy will continue to grow in 2010 and this expected strength will help ensure the dollar stays firm, Federal Reserve Chairman Ben Bernanke said Monday.

In a rare move, the Fed chief made several remarks on the U.S. dollar, which has fallen in value recently as global economic activity has picked up and investors no longer seek the safety of dollar assets.

Mr. Bernanke said the central bank will keep a close eye on the dollar’s slide but reiterated that the key federal funds target rate is expected to remain at record lows for some time. More from Bernake’s luncheon speech on US Economy today:

“Today, financial conditions are considerably better than they were then, but significant economic challenges remain. The flow of credit remains constrained, economic activity weak, and unemployment much too high. Future setbacks are possible. Nevertheless, I think it is fair to say that policymakers’ forceful actions last fall, and others that followed, were instrumental in bringing our financial system and our economy back from the brink. The stabilization of financial markets and the gradual restoration of confidence are in turn helping to provide a necessary foundation for economic recovery.

“We are seeing early evidence of that recovery: Real gross domestic product (GDP) in the United States rose an estimated 3-1/2 percent at an annual rate in the third quarter, following four consecutive quarters of decline. Most forecasters anticipate another moderate gain in the fourth quarter.

How the economy will evolve in 2010 and beyond is less certain. On the one hand, those who see further weakness or even a relapse into recession next year point out that some of the sources of the recent pickup–including a reduced pace of inventory liquidation and limited-time policies such as the “cash for clunkers” program–are likely to provide only temporary support to the economy. On the other hand, those who are more optimistic point to indications of more fundamental improvements, including strengthening consumer spending outside of autos, a nascent recovery in home construction, continued stabilization in financial conditions, and stronger growth abroad.

My own view is that the recent pickup reflects more than purely temporary factors and that continued growth next year is likely. However, some important headwinds–in particular, constrained bank lending and a weak job market–likely will prevent the expansion from being as robust as we would hope. I’ll discuss each of these problem areas in a bit more detail and then end with some further comments on the outlook for the economy and for policy.

Bank Lending and Credit Availability.  Several factors help explain the reluctance of banks to lend, despite general improvement in financial conditions and increases in bank stock prices and earnings. First, bank funding markets were badly impaired for a time, and some banks have accordingly decided (or have been urged by regulators) to hold larger buffers of liquid assets than before. Second, with loan losses still high and difficult to predict in the current environment, and with further uncertainty attending how regulatory capital standards may change, banks are being especially conservative in taking on more risk. Third, many securitization markets remain impaired, reducing an important source of funding for bank loans. In addition, changes to accounting rules at the beginning of next year will require banks to move a large volume of securitized assets back onto their balance sheets. Unfortunately, reduced bank lending may well slow the recovery by damping consumer spending, especially on durable goods, and by restricting the ability of some firms to finance their operations.

More of Bernanke’s speech found at Reuters.com Bernanke’s  Economic Speech

US Unemployment Rise

US economy is getting stabilized and has improved in the pace of economic contraction when compared to economy during mid 2008. But there still exist some sort of uncertainty because of the rising unemployment and tight credit conditions. According to the recent news, labor department has said that the number of people getting unemployed is raising more than expected. Unemployment is supposed to rise to 9.6% in the coming months. It is also seen that about 51% of the corporate chiefs are going to reduce the capital spending and about 49% is going to cut the jobs. All these can very badly affect currently achieved pace in the recovery. 

It is found that gross domestic product is now facing an annualized decline of 5.5% from the months of January to march which is better compared to that of the preliminary reports which was 5.7%. The decline in GDP by 5.5% in Q1 2009 is mostly contributed due to the decrease in the business inventory. Most of the economists believe that the pace of downturn is about 2% currently. Investors are also finding a hope with the low pace of recession. It is seen that Dow Jones Industrial average has risen to 2.1% and there is also ascend in other gauges by 2%.  The standard & Poor’s500 Index has recently increased to 34% from the lowest hit it had during the March this year. Most of the businesses and investors are now anxious about the recovery from December 2007.

It is noticed that there is only a slight improvement in the rise of home sales and that too is below the expected pace. Reports say that there is a rise in the initial claims for jobless benefits by 15000 in the seasonally adjusted 627000.  But a drop to 600,000 was predicted by the economists. But most of them still expect that the number of the initial unemployment insurance claims will be lowered in the coming months. Even though Wall Street is having a little contentment with the current decline in the economic slump, the situations of the families are still pitiable. The rising unemployment, descend in family wealth and financial misery are posing serious threat to the families. In order to raise the economic security and living standards there needs to have public investments in health care, energy independence, and public education. Only with these, there can be increase in the job opportunities and acceleration in the productivity.

Smart Investments in a Tough Economy

With the economy slow and extra cash slim, investing can be a difficult step to take. It’s always a risk, but during uncertain times like this, investing becomes even more frightening. However, gains are still there to be made, and what better time is there to invest then when you need that extra return?

The first thing you should consider is what you want to invest in. You could invest in property, stock, bonds, jewelry, or perhaps gold or silver. When choosing the area or company to invest your money in, first think about what is essential in a recession economy. For example, a restaurant might not be ideal because most people are trying to cut back on eating out, but a producer of staple foods would be a good bet. Other essential areas that you might consider are oil and gas, health care, and utility companies. Investing in gold and silver is widely considered a good move for weathering an unstable economy.

Once you have decided the best investment strategy you, conducting exhaustive research is necessary to make sure that you are investing your money in the very best way possible. Investing is always a risk, but the best investing makes the risks as minimal as humanly possible. Always be sure to research past trends and future expectations. The important thing is to figure out where your money will be at the least risk, while also maintaining the greatest potential for growth.

Don’t lose hope for your investments during this economic downturn. Gains are there to be made for the smart and knowledgeable investor and those that exercise patience.

Current State of US Economy

The economic crisis that hit US economy in the mid 2008 has now spread to other parts of the world and is continuing to gulp down credit markets and financial institutions worldwide. As per the economic analysis of the present year, the current state of the US Economy is expected to become worse than the last year and may prevail for a few more months ahead.

According to the stock market analysis of economists during the 56th annual economic conference held at the University of Michigan, the present US economy may hit bottom halfway into the year 2009 and the percentage of unemployment in the country is predicted to be of 8 %. If the condition prevails as such it is certain that the United Nation in the next 18 months shall drop about 2.4 million jobs from different companies. The rate of GDP is also predicted to experience pitiful fall of 1 % in the present year 2009 and may continue to fall further by 2 % in 2010. Although various important financial stimulus packages are introduced as a rescue measure, the condition may still be difficult to rise up. Altogether the overall outlook of the US economy shows that it may experience uncertainty. To increase liquidity to the markets, the Federal Reserve of US has implemented numerous measures to satisfy the demand of new homes because of which aggressive monetary and fiscal policies shall be introduced in the present year.

The US economy shows a pitiful downtrodden condition with the ongoing collapse of the domestic automobile industry and numerous companies that supply automobile parts. This browbeaten effect of the automobile industry offers profound economic crisis in the whole nation. As a result of lay-off in the automobile industry, unemployment is at its peak with the dismissal being 18,500 workers in Chrysler (Daimler News) and lesser percentage with Ford News and other popular automobile companies. Similarly lay-off is affecting other area of workers such as with Whirlpool (5,000), DHL (9,500), Yahoo (1,100), Citigroup (50, 000) and many more. In the same way the sinking of banks and other financial institutions are a common sight in the US where lay off of workers are still more critical than anywhere else.

Business investments are also experiencing a fall because of unemployment and cut spends. The oil prices that continue to drop are expected to show slow hike by the end of the year 2009- climbing to $107 a barrel. However, the petrol price is expected to remain in line as in 2008 and heating oil may rise to an average of $3.08 a gallon. The forecast revealed by blue chip shows the contraction of US economy by 0.4 % in 2009 and is predicted to fall to longer and deeper recession, though there are some areas of hope. With the current state of US economy, most economists predict an increase of 4 to 5 % for food and farm inventories in 2009.