Friday, September 5, 2008

Today the U.S. Government announced that the jobless rate now exceeds 6.1%. This was an unexpected jump, with most analysts believing we would not see 6% until the end of the year. What might this mean? With this jump in unemployment, the Federal Reserve, which has been worried about the economy all summer, will likely leave rates unchanged after their meeting on September 16th. Also we will likely see consumer-spending decrease substantially in the third quarter, after the rise in spending from the incentive tax rebate of the second quarter. All in all, the economy appears to be slowing down and will likely show little growth, or perhaps a downturn, for the balance of the year. Additionally, the sub-prime loan problems have driven interest rates on bonds to recent new highs. Refinancing of the majority of sub-prime mortgage loans should be complete by February and we may see the housing market begin to pick up again this spring. In my opinion, the inflationary effects of the oil price increases will also take until February or March to totally work their way through the economy. When this occurs, we are likely to see prices stabilize. Perhaps the most important issue is that by November, we should know who has been elected President. The stock market likes to know who will be serving in the White House, and this uncertainty is likely to continue to make the market volatile through Election Day.