— “Calling the Trend” Column, by George Leong, B.Comm.
By the time you read this, President Obama would have delivered his second annual State of the Union address on Wednesday at a time when there has been much debate of how effective he has been as commander and leader in his first year in the oval office. The President took office at a very difficult time, when the U.S. and global economies were slowing and entering a recession. Over seven million jobs were lost in 2009, and the homeowners continue to see their home values fall. In fact, it will be a difficult speech to make as he tries to express to Americans the challenges he is facing and how he will continue to try to fix things.
Yet there has been no job creation yet, although the government’s massive economic stimulus spending has saved jobs from being axed. The question is: how effective has the spending been to actually generate real and sustainable employment? CNN has been doing its own research into the cost-benefit of the many economic stimulus projects and, quite frankly, some have been questionable as far as the success. Some actually appear to be more of a waste of funds, yet you would expect wastage when spending nearly a trillion dollars. President Obama has hoped the economy would improve and lessen the need for further spending, but so far it has been a difficult road.
The reality is that the country has grown its debt and deficit levels and this is a growing risk, but it’s required to jumpstart the economy out of the recession. Fiscal spending will slow, as many incentive programs have come to an end or are about to, so the economy must produce. I sense that more incentives may be required to avoid a relapse. The Federal Reserve will likely hold interest rates at record lows for at least the first half of 2010 and then take a close look at the economy. Inflation remains a non-issue, which plays well for rates.
Adding to the concern is an estimate setting the deficit at a whopping $1.35 trillion this year. Add in the mounting debt of $12.32 trillion or $40,000 per citizen and you’d understand the immensity of it. The national debt has increased at about $3.89 billion per day since September 2007. President Obama is looking at cutting some costs, but given the still fragile state of the economy, it could backfire. The reality is that the country faces financial hurdles going forward and the President will likely indicate this.
Jobs and housing and their impact on consumer spending and confidence will be the key variables to monitor this year. Given the lagging jobs, there will be pressure for the Obama administration to reverse the losses and generate jobs in 2010. Only through job gains will consumers become more confident when deciding to make that next non-essential purchase. The reality is that corporate America is likely hesitant when thinking about adding jobs until the economy begins to show more life, which is not good.
Let’s hope that the economy picks up, or there could be more hurt going forward for both the government and Americans.