The State of the Economy

by w3woody

Summary for Week ending January 27th

The key story last week was that the Federal Open Market Committee (FOMC) noted that “economic conditions … are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.” This was a change from mid-2013.

In general the economic data released last week was disappointing.

The interior of the BEA report showing a decline (0.93 point decline) in government spending is good news to me: it shows that the economy is starting to stand on it’s own two feet without government life support.

I do agree we won’t see solid signs of recovery until at least Q1-Q2 of 2013: ARM resets are still resetting, which drags down housing (note the sluggish new home sales). Housing construction employs the majority of small business activity, and there are a lot of other industries directly affected by this, including the sales of construction materials, furniture, kitchen appliances and consumer electronics (large television sets, stereo systems)–all the things that goes into a new home when someone moves in.

I also believe when the economy does actually recover, we’ll see massive demand in health care (driven by the baby boomers reaching old age) and in software (driven by corporations needing to streamline operations and create more interactive internet presences). Software development demand may be offset by a collapse in venture capital spending on social media software projects, which in my opinion represents an unsustainable bubble.