By Edward Leone Jr. DMD MBA CFP RFC
Contact Information: leonee@vzw.blackberry.net
Well the election process is complete, but the speculation on what the future holds is still perpetuating. What do you think the economy holds for us as the near future unfolds?
The direction of the economy will be of key concern in many US households. David Francis of Yahoo Finance writes that in 2010 the average American wage index was $41,673.83 while household credit card debt averaged $15,956 along with home mortgage payments averaging between $700 and $1,700 per month. In addition, most Americans borrow to purchase a car. This burden is about 8% to 11% of monthly income. What is left to satisfy other basic life style expenses along with some form of disciplined savings? The challenges in managing cash flows in this time are tremendous. We recognize that 70% of the drive in growth of the economy is a result of consumer spending . It is Robert De Lucia CFA of Prudential’s opinion that we will see a declining ratio of consumer spending to GDP along with similar patterns for government and financial sector spending. He projects that business capital investment, manufacturing, export trade and residential construction will fill the gap and grow the economy. He states that our GDP dynamic will mirror that of Germany and China. He feels that the need for households to continue to deleverage (reduce debt) in the face of declining incomes, potentially higher tax burdens and higher inflation is a reality. He sees a very slow decline in the unemployment rate.
Legislation which will be interesting to track based on comments in the above paragraph is titled the “Sound Dollar Act” which is before the House and the Senate for consideration. It would narrow the charge of the Federal Reserve to addressing inflation and remove the dual mandate to address unemployment also. Rick Newman of Yahoo Finance writes that this legislation would restrict utility of quantitative easing which is counter to control of future inflation and a sound currency.
The Affordable Care Act is constantly in the news. It is apparent that some of the court challenges to sections of the Act still have life. The establishment of insurance exchanges by state governments is developing much more slowly that originally projected. It appears that up to 17 states have flat refused to set up such systems. Many of the mandates contained in the Act will raise premium rates for sure. Elimination of preexisting condition under writing, no life time maximum limit on coverage, restriction on size of deductibles and co insurance payments for qualified plans along with other essential health benefit requirement will have to be paid for some how. We will begin to see the impact of all of this in 2013, but the significant effects will be on us in 2014.
For those with coverage under the Medicare program, the Part B premium will increase from $99.90 per month to $104.90 in 2013. the open enrollment period for those with Medicare coverage wishing to adjust or change some of their coverage will end on December 7th.
Perhaps just one last item addressing a positive side of our current economic situation exists in the commercial real estate market. It appears that vacancy rates in such cities as Boston, Minneapolis, Dallas, Oklahoma City, Denver , San Francisco, Portland and Seattle are declining. The business climate shows signs of picking up. Natural gas and propane prices are tame due to ample supply with the coming winter. This will be helpful for those household budgets discussed earlier.
I extent a wish to all readers for a great Holiday Season!!!
For the Record:
DJIA 13,025.58
NASDAQ 3,010.24
S&P 500 1,416.18
Suggested Reading:
“The Great Depression Ahead” by Harry s. Dent
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