Finally, The Economy Seems To Be Improving (December 2011)

By Professor Rick Ulivi, Ph.D.

The good news is that the lingering effects of the great recession of 2008 may be disappearing . . . slowly, but disappearing nonetheless.  What are some reasons to justify this optimism? I will start with a story and continue with some facts.

A few days ago I was walking around Old Towne Orange, and I bumped into a restaurant owner. He was excited because his sales during the Thanksgiving weekend had been excellent, and when compared to one year ago, he said they were fantastic.  He hypothesized that, while things may not be better, people’s attitude and confidence regarding the economic outlook may have improved, so they are spending more.

The next morning I was reading some economic statistics, and I learned that car sales were up strongly in November, that retail sales were also up, and that job creation continues.  In addition, I read that the US has become an oil EXPORTER.  Unbelievable, but we seem to be importing oil, then refining or adding value to it, and exporting it.  All these bits of news are excellent.

Today I also read that bank deposits have grown about 10% lately, so pressure will be put on banks to increase lending. . . another great source of news.

However, we still have some huge lingering problems.  For example, underwater real estate  values, the federal deficit, the trade deficit, the inability of our politicians in Washington to agree on anything, and the European crisis, to name a few.  Thus, we are not totally out of the woods, but there are clearly lots of reasons to be enthusiastic about the economic future.  Here’s another one: the average age of used cars in the US is about 11 years, so there is a huge pent-up demand for new cars.  Car manufacturing is a great accelerator of economic growth.

Finally, the aging baby boomers are going to create an incredible demand for services for the entire health care industry and that will spillover to the rest of the economy.  The spending is going to be huge, in total and on a relative basis as well.  Here’s why: let’s take the example of a typical American worker who is 65, makes $80,000 per year and has few savings and little disposable income.  On the surface, this person cannot spend much so he cannot be an engine for economic growth.  Digging deeper, we might hypothesize that this person did not exercise a lot during his adult life, became heavier than recommended, and therefore is not in good health.  When he goes to the hospital—and he will—he may end up spending hundreds of thousands of dollars in medical care, money he does not have but will spend, thanks to Medicare.  That will bring in massive revenues for the health care sector of the economy and will be a huge driver of future economic activity.

Funny though, that the good news is that our generation is going to hell and it will be good for the economy!  In sum, things SEEM to be improving and will get even better. In the meantime, if you need help with your retirement planning or your investing, give me a call at 714-771-6000 or just reply to this email.

Have a safe and wonderful Holiday Season.