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There are more concrete facts that feed into the situation we are in right now. The DJI Average closed yesterday (14 April 2009) at 7920. 18 which is a positive change from last months closing averages in the lower 6000 with recent rally’s bringing the markets average higher but still dealing with everyday speculations. Still, there has been little progress from the almost 50% decline in averages from the middle of last year, with a 52 week range of 6,440. 08 - 13,191. 50 (Yahoo Finance). The market shows what investors believe things are worth in our economy at present times; unemployment however shows how everyday consumers are living and why most of us cannot feed into the market at such rough times.
The United States Department of Labor has issued an updated March release on unemployment in the U. S. According the CPS review, in March alone there was an increase in unemployment by about 694,000 people.

According to the first quarter results of 2009, the American markets have dropped significantly since 2008. With a focus on the Dow Jones Industrial Averages, the market has fallen around 13% in only a few months with an annual change of -38% after the first quarter of 2008. The first quarter this year has finished already with the DJI Average at 7608.92 showing the economy at a continued decline with investors still losing money and credit markets not back to steady just yet (Lauricella). Some reasons for the current economy include more broad problems like sub-prime mortgages being sold and given higher insurance ratings than deserved and companies like Lehman Brothers, being one of the biggest problems in the financial crisis. Other problems include the solvency of company’s like General Electric having over $800 million in commercial paper come due with nothing to pay it off and looking to the government for help. The market was at a clear turning point of decline when GE, one of the highest rated companies in terms of credit was near default. Looking at the economy today, some may say bullish, tomorrow we may see another bearish rally with hopes for the future.
My opinion on the economy for the next six months is optimistic. The American markets were designed to fix themselves over time and that is exactly what they will end up doing. The billions of dollars being thrown into the markets right now by the government may not help as much as consumers seeing that the worst is most likely over and to place hope back in their government. The housing decline will not be over in the next six months and credit problems may linger past that as well. The inflation rate, interest rates and devaluation of the U.S. dollar have been large problems in the revival of the American economy as well. Some positive growth has already been seen in the T.E.D. Spread which shows the percentage basis in which banks want to be compensated when lending between banks from a high of around 4% back down to around 1% with willingness to loan money more easily and get things back on track. I believe that there will be acceleration of growth in the world markets after short and long-term goals are met but I do not believe that will happen within the next two quarters. Six months from now will be an improvement, not a complete and positive result to the crisis.
There are more concrete facts that feed into the situation we are in right now. The DJI Average closed yesterday (14 April 2009) at 7920.18 which is a positive change from last months closing averages in the lower 6000 with recent rally’s bringing the markets average higher but still dealing with everyday speculations. Still, there has been little progress from the almost 50% decline in averages from the middle of last year, with a 52 week range of 6,440.08 - 13,191.50 (Yahoo Finance). The market shows what investors believe things are worth in our economy at present times; unemployment however shows how everyday consumers are living and why most of us cannot feed into the market at such rough times.
The United States Department of Labor has issued an updated March release on unemployment in the U.S. According the CPS review, in March alone there was an increase in unemployment by about 694,000 people. This has made the average unemployment around 13.2 million men and women out of the workforce or on percentage basis, an increase from 8.1% to 8.5% already in 2009. It also states that the unemployment trend continues to grow upward with 5.3 million people joining unemployment in the last 12 months but half of the increase has been in the last four months alone (Bureau of Labor Statistics). With household surveys pointing out that the unemployment is still on a sharp rise, especially at the end of 2008 and first quarter of 2009, I concur with the upward trend in unemployment. My personal opinion is that there are still many jobs to be lost across every major industry sector and with some of the highest rates coming from the past few months, a decline in unemployment is hard to see in the near future. Some more specific reasons that I believe this rate will continue to increase, besides just a poor economy in a recession include: reduction in financing budgets for research and development, companies relying on improvement of effectiveness and efficiency rather than growth, business cost cutting in any areas possible, consolidation in terms of outsourcing or downsizing human capital to decrease size of business to ensure profitability (revenues>expenses). Many businesses are in fear of termination in a market of sink or float which is why every industry is shaving their business models down to basics and fundamentals of what it will take to survive (Associated Content). There is no room for extra help or training on the job; companies only need few experts in their field to work hard and quick, especially if they would like to keep their own jobs. This will continue until we see light at the end of the crisis, which may not be for awhile.
What rate is the economy growing…new home sales, interest rates, tax rates, other relevant info!!
American small business issues are definitely one of the most important topics to be discussed by government in order to begin fixing the economy. According to the Office of Advocacy (in conjunction with governmental small business regulations), small businesses “represent 99.7% of all employer firms, employ about half of all private sector employees, pay nearly 45% of total U.S. private payroll, have generated 60 to 80% of net new jobs annually over the last decade, and have created more than half of nonfarm gross domestic product” (sba.gov). Many would believe that if there was money to be given for support of business, it should be put into the survival of small business seeing as how they largely benefit the economy and employees of America. Currently, where small businesses would be able to pick up the pieces from large and failing corporations, the government is approving bailouts to keep the businesses living with money backing any chances of defaults to equity holders.
Small businesses are not thriving like they once were because there is no room for creativity and innovation in a market that just needs the basics. These smaller firms initially were met with problems to finance capital, including loans from banks at the beginning of the crisis which put a damper on the openings. Minimum wage standards set by Rod Blagojevich are supposed to rise to $8.00 in Illinois by July 1, 2009 which gives no choice to some small businesses but to continue lay-offs (IDOL). Regulations and taxes have also forced many small businesses to close their doors for good in the economic crisis. One of the newest problems for small businesses is their source of funds after lay-offs. The American Recovery and Reinvestment Act of 2009 states that “eligible former employees, enrolled in their employer’s health plan at the time they lost their jobs, are required to pay only 35 percent of the cost of COBRA coverage” (IRS) with employers being forced to pay the remaining 65% for health care coverage. There are employer entitlement for credit on payroll tax return but the cost upfront is weighing down on small business owners and may be too much to tolerate considering certain jobs may have been terminated due to cost cutting to stay alive in the market. This has been one problem for a few small business owners that I know personally as all of their businesses seem to be unraveling with little means to continue existence in rough times.
The biggest problem without a doubt is that hardly anyone is spending money in this crisis. Products are at a stand still because there are no buyers. Recovery Act and credit problems aside, where there is a seller, there needs to be a buyer for succession in any business. Buyers clearly do not have the means to purchase right now which is hurting all businesses. “Consumers continued to retrench in December, capping off the worst year for consumer spending since 1961” (CNNMoney.com). Many ideas have been passed around to fix the problem but the stimulus plans worth hundreds of billions of dollars (with tax cuts in the plans as well) is the only band aid large enough to work on consumer spending even though income percentages are dropping and there is no assurance that the stimulus will directly fix the economy.
“December marked the sixth-straight month in which consumers cut back on their spending, a decline that accelerated dramatically in the last three months. For the fourth quarter, spending fell a record 8.9% - the worst quarter for spending since the Commerce Department began tracking that statistic in 1947. Spending for the full year rose just 3.6%, the lowest increase in 47 years.” (CNNMoney.com)
Although small businesses are doing what they can to stick it out and stay afloat, the prospects for future small businesses look promising (staying optimistic about the $888 billion stimulus and further tax cuts may help as well). There has been changes to the financial assistance programs for small business to promote a “Start, Grow, and Succeed” approach by using the 2009 Recovery Act (the U.S. Treasury Department) to commit around $15 billion to help unlock the frozen credit markets and guarantee as close as 90% of the loans for businesses that most could not achieve before. There are also fee reductions for borrowers in place, business stabilization loans, microloans, and refinancing available to small businesses along with the credit for COBRA as mentioned before (SBDC).
Another trend supporting a positive outlook for small businesses comes from the devastation Americans are currently facing with job cuts and retirement setbacks. The 8.5% of unemployed workers have the chance to back away from traditional employment opportunities which were not working before and use new forms of innovation to start their own fight for success with a small business. Those who have been out of a job for a long time may try something new, as historically, small business openings increase after recessions with stronger formation and even now with easier financial entrances into the market. Generation Y will be more inclined to become entrepreneurs as their risks are low and other options are limited. My opinion though rests on the shoulders of baby boomers who have been faced with unexpected disappointments in their pensions, house devaluations, retirement funds, and other investments or savings (Small Business Labs). The 9th Annual Milliman Pension Fund Study found that the top 100 Pension funds have lost over $300 billion in 2008 (UPI.com) which is a convincing enough number to give support to the idea that the baby boomers may be working longer to be able to live comfortably when this crisis is over. Although they have lost out on potential retirement funds, most have also either lost their jobs because replacement employees were more efficient, or will soon lose their jobs. In such a scenario, they have some of the highest opportunities and likelihoods to use their money to open a small business and work through their retirement at their own pace.
As for global issues considering the American economic recovery plans, the European Union’s voice of opinion was heard through Mirek Topolanek, Czech Prime Minister. “He warned the European Parliament that the Obama administration’s stimulus package and financial bail-out “will undermine the stability of the global financial market”” and also stated that “All of these steps, these combinations and permanency is the way to hell” which were agreed on by strong global countries such as Germany and France (Waterfield). Many other countries have criticized Barrack Obama’s spending habits in the United States, arguing opposition to the idea of spending too much money which is likely to lead into inflation for America. Although Mr. Topolanek holds presidency of the EU currently, many spokesmen from other countries in the EU have stated that his comments were crude and impolite, but there hasn’t been much opposition to what his main idea was (Erlanger, Castle). The United States needs to plan for the future with the global economy in mind and needs to work with the European Union on decisions that will benefit everyone in the long run.

Tags: 2009, Current, economic, Find Free College Essays, March, situation

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