Minnesota Mortgage Blog

All along we have been indicating that the economy is not as bad off as the markets have been forecasting. One forecaster said in the past week that we were already in a recession. Construction spending is up, the service sector is expanding, consumers are still spending cautiously and manufacturing is expanding. Friday’s report on employment was certainly not robust but it exceeded analysts’ expectations, especially considering the upward revision of the two previous months. We are not heading into a recession. So why the gloom and doom? There are three reasons. The first is Europe. The markets are concerned, and rightly so, that a default by Greece and/or failure of European banks could drag us down into a recession. We may not be in recession now–but economic growth is not likely strong enough to ward off such a worse-case scenario in Europe.

Second, slow growth does not dig us out of the hole we dug during the deep recession which started in December 2007. The employment report is the epitome of this fact. A hundred thousand jobs added is much better than where we were three years ago, but nowhere near the growth we need to replace the millions of jobs we lost. Lastly, the government right now is a drag upon the economy. It is great for everyone to call for balancing the budget, however, in the short-term any jobs lost hurts. Those who are losing their jobs include teachers and even those representing our country overseas as our commitment in Iraq winds down. As we have mentioned time and time again, though these reduced positions will prove to be a negative influence upon growth in the short-term, the long-term health of our economy requires this pain. And again we would like to emphasize that we are closer to recovery than most realize. We can’t predict the future. We can’t say if events in Europe or Mother Nature will provide another roadblock. However, we can say that there is much of latent demand within many economic sectors. It is a much shorter jump from adding 100,000 jobs per month to adding 250,000 (where we need to be) as opposed to losing 400,000 jobs per month and getting to a positive of 100,000. At least that is the way our calculators work.