Signals to keep tight grip on the purse strings
It pays to be cautious about the economy — especially with government budgets. Prudence means tax money is not spent today but could be spent tomorrow, or even returned to the taxpayers. But foolhardy spending almost guarantees that with the inevitable next recession, huge deficits will lead to painful budget cuts and calls for tax increases.
So a note of caution comes from Chapman University’s California Composite Index of Consumer Sentiment, which in the first quarter of 2016 dropped to 90.9. A reading below 100 indicates more consumers are more pessimistic than optimistic; a reading above 100 indicates more consumers are optimistic than pessimistic. The 90.9 reading is a drop from 94.6 in the previous quarter.
“Unfortunately, it has been sliding down for the third quarter in a row,” Raymond Sfeir, a professor of economics and management science at Chapman, told us. “It’s not disastrous yet. Things still are fine in the economy. There are no indications it will be otherwise. The stock market has recovered half of its losses” from January, when the Dow Jones industrial average plunged 5.5 percent, the worst January performance since 2009 during the depths of the Great Recession.
He said the U.S. economy is on track with Chapman’s December 2015 economic forecast, which anticipated a 2.8 percent gain in real gross domestic product in 2016. Although the recovery during the Obama presidency has been one of the longest on record, beginning in June 2009, it also has seen the slowest growth, with no year so far above 2015’s 2.5 percent gain. By contrast, President Ronald Reagan’s recovery, which began in 1983, shot upward at 7 percent growth.
Sfeir added that it’s not clear what Federal Reserve Board policy will be on interest rates, which were boosted 0.25 percent in December, getting some blame for the January market drop. Further hikes might be off the table.
These facts tell us that more caution is needed. It’s unclear who will be the next president and what his or her economic policies might be, regardless of campaign promises. State and local spending should be tightly controlled. Better to have surpluses than deficits.
Reprinted from the Orange County Register
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