Economies do well, then they do very poorly, that is just the nature of economies. Right now it appears that we are in a rebounding economy, which is of course great news. When an economic recovery starts happening, businesses spend more, unemployment goes down, and the under employed get back to working in their field. Furthermore, businesses and people come up with new technologies and ideas, including making already existing products more efficient. But, not everyone truly understands what a rebounding economy is and what it isn’t.
Sentiment is Key
Consumer sentiment is so important in a rebounding economy. The way people feel dictates how they act. When times are good, people are spending money, investing in new businesses, and businesses are hiring and producing new products. Sentiment has improved greatly in the last few months, as the recovery has started, people are starting to spend their extra income instead of stashing it. This helps get the economy going. To understand the recovering economy you must follow and understand consumer sentiment.
A lot of businesses in the United States have been sitting on a lot of money, or giving dividends. Though they have been afraid to invest in new products or ideas, this is slowly changing. Now businesses are starting to invest in new technologies, new ideas, and most importantly, people. This has a domino effect on the economy since money sitting in the bank does nobody any good. This is especially true for business; interest rates are so low, leaving money in the bank does nothing for their bottom line.
We have seen the stock market reach highs over the last months and weeks. This is a good sign people have faith in companies and in the integrity of the system. Capital gains taxes are good for state governments too as this can help fund badly needed projects that may have been neglected in the financial crisis. Not every large company has had their stock come back, but well run companies have largely come back stronger than ever.
In the United States, the dollar became a lot weaker, which in itself is not bad. But over time, during this recovery, the dollar has certainly strengthened against the Euro and other currencies. What needs to be watched out for is whether the dollar is gaining strength because we are fixing our problems or because Europe is getting worse.
The nation’s unemployment situation is slowly improving, which is great. It should be noted that, in a recovery, these things can take time. A hiring boom may be several months away; companies need to prepare for this. Many companies cut their staff to the bare minimum. Now with investment dollars flowing and the economy improving, they certainly will be hiring in great numbers. Employment is ever so important in any recovery.
One way to notice the recovery is to notice gas is still not cheap. This is because consumers obviously can afford this. Although this is not good news, it is certainly the truth. If the economy were on more shaky ground, the price of oil would be much lower.
The economy is certainly improving at a rapid rate, and we are way better off than 2008. But this recovery could stall and lead us back to square one. Looking at most of the indicators, it does not appear this will happen. (Top image: Flickr | petesimon)
* Dawn Caruthers writes about economics, finance & mortgage quotes.