While presenting to members of a 401(k) plan that we advise in Auburn Hills, we were revisiting our economic forecasts from back in the first quarter of 2012 and found that many of our predictions came to fruition. We predicted we would begin to see signs of a strengthening economy, but that policy would hold back the private sector. Sure enough, failed policies from the federal, state and local levels have resulted in a temporary freeze in the economy.

Manufacturing, retail sales and housing prices and activity are all up in the reporting period, however hiring has leveled off and jobless claims have ticked up slightly. Unemployment has continued to be an issue during this recovery for two main reasons: We lack skilled labor and future employee costs are unknown.

The markets and public policy have a very close relationship; one tends to mold the other. The fact of the matter is that the Affordable Care Act has many employers terrified to take on new staff. This is not a comment on socialized medicine, the current administration or the health care industry, this is simply commenting on documented responses of business owners to the law as it is written. If the Affordable Care Act carries on as is, expect unemployment to remain high for an extended period of time.

Private sector business owners have also noticed a frightening trend when hiring; finding skilled workers has proven to be very difficult. Between younger generations’ lack of interest in engineering studies and many apprenticeship training programs closing their doors, finding the right people for the manufacturing jobs that have been moving back from overseas has not been an easy task.

“Onshoring” of manufacturing jobs is another trend that we predicted well over a year ago. Between rising labor costs abroad and the inability to protect product patents, many manufacturers have decided to shift their factories to North America (Bose and Honda are two big ones).

Adding to the solid economic numbers, “industrial production” was up 0.6 percent year over year and “home builder confidence” turned in at the highest level since February of 2007. This shows us that the bottom of the real estate market has likely come and gone, and buyers are now looking for new construction homes instead of older model homes from the ’40s, ’50s and ’60s.

One cause for our concerns has been an increase in food, energy and housing costs, or what is known in economics as inelastic goods. These are items that even when the price increases, their demand stays relatively constant. When prices increase for inelastic goods, consumers have fewer dollars to allocate towards discretionary spending, e.g., entertainment. Historically, when these prices increase and the economy fails to grow, we have what is called stagflation, a term tightly associated with the “misery index” under President Jimmy Carter.

On the whole, the economy is improving, slowly but surely. In our opinion there are many policy choices that could be made to speed up the recovery, but all things considered the U.S. economy is getting stronger, even if the numbers do not always reflect it.

Correction

In my Aug. 12 column, “Corn is king,” I quoted the price of corn as being $800/bushel. Corn is quoted in cents, not dollars. The current price of corn is just over 800 cents/bushel, or $8/bushel. I would like to thank my readers for pointing out my mistake in a courteous and professional manner.

Ben Treece is a 2009 Graduate from the University of Miami (FL), BBA international finance and marketing. He is a partner with Treece Investment Advisory Corp. (www.TreeceInvestments.com) and a stockbroker licensed with FINRA, working for Treece Financial Services Corp.

Tags: Ben Treece, Treece Blog

This entry was posted on Thursday, August 16th, 2012 at 8:33 am and is filed under Toledo Business Link, Treece Blog.
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