ARBOR WEALTH: Cheap gas, avoiding No. 22 and Red Steagall
“Let’s laugh and dream of better days to come.” — from “The Hard Times Will Be The Best Times” as performed by Red Steagall
Here’s a comforting thought: though we’ve contributed to exporting a few, the United States has never imported a recession. The Great Depression and the recent Great Recession? Homegrown hard times. Global downturns? In the past, they’ve impacted our economy, but never caused recession here.
We’ve certainly experienced our share of recessions. Since 1900, 21 of them. A recession is defined as two consecutive quarters of negative GDP growth. When growth declines from three percent to two percent, that doesn’t technically qualify. A recession means the economy is actually shrinking, and while domestic growth has slowed recently, it’s still marching forward.
The Great Depression, our worst recession, is considered to have begun in August of 1929. Though some economists think we exited that recession and entered another in 1937, it wasn’t until the end of World War II that the economy truly righted itself.
Historical precedent says that if the U.S. can maintain a steady economic footing, it’s unlikely that a global slowdown will overtake us. Of course, history can change. Economies were once more insular, and so past may no longer be prologue.
A lot of recession talk today revolves around China’s slowdown, which was inevitable. No country can continue to grow by 10 percent annually forever. However, American CEO’s who conduct business in China say, rather pointedly, that they simply don’t see the slowdown and that China is still growing faster than just about anywhere else.
But it will take years for a country like China to transition from a government-propelled economy to one like ours, powered by consumer spending. As part of this transition, China’s vast infrastructure construction effort has slowed, and this has caused a decrease in demand for major commodities like oil, steel, copper, lumber and coal. It’s also weighing heavily on countries that export those goods, like Venezuela, Brazil, Russia, South Africa and many others. This is what’s meant by the phrase “global slowdown.”
Despite China’s shift, emerging market woes, and Janet Yellen’s tepid tone when speaking about the global economy, the U.S. seems to be in pretty good shape. Unemployment is low, people are quitting their jobs in large numbers (a sign of confidence that they can land an even better job) and wages are finally starting to creep up. Consumers, who were in bad shape coming out of the Great Recession, shored up their balance sheets and their confidence is considerable. Corporate profits remain solid and most leading indicators are reading positive. Gas, which is needed in roughly equal quantities by both rich and poor, is dirt cheap. Here’s to another $30 fill up at the pump.
Margaret R. McDowell, ChFC, AIF, a syndicated economic columnist, is the founder of Arbor Wealth Management, LLC, (850-608-6121 — www.arborwealth.net), a “fee-only” registered investment advisory firm located near Sandestin. This column should not be considered personalized investment advice and provides no assurance that any specific strategy or investment will be suitable or profitable for an investor.