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Tuesday, October 13, 2009

Recovery? Not Yet!

Over 15 million Americans are currently unemployed and another (roughly) 15 million are under employed or have given up looking. In September, 2009, over 200,000 jobs disappeared. Official unemployment is just under 10%.

The recession will be over when the demand for goods and services begins to grow and the economy begins to expand. That is unlikely to happen in the forsee able future. Here are the numbers to demonstrate the problem.

Typically, our economy is supported by about 20% in government expenditures, about 10% in business expenditures and the remaining 70% is represented by consumer spending. Consumer spending is slightly overstated because rent from your own, owned house is imputed as rent, but never mind. The point is the same. Our economy is driven by consumer spending and therein lies the problem.

U.S. households are carrying a huge amount of debt which they are correctly paying down now, but that is money they can't spend. Household savings are now in the 6-8% range and that is a good thing long term, but a bad thing in the near term.

In addition, we have all of those unemployed people who are not spending anything they don't have to spend. Now add in the people whose unemployment benefits are about to run out. Then add in all the people who are wisely limiting their spending because they might lose their jobs.

When you add all that up, you can make your own estimate of when the recession will end.

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