Is the Economy Really Slowing Down?



May 9 , 2012 | Posted by Adrian Dalsey |

Is the Economy Really Slowing Down?

According to the most recent reports small business lendingslipped in March a (supposed) sign that companies are losing confidence in the economy. This has triggered some rather negative remarks about economic recovery from the naysayers of the industry. In turn this has caused downturns in the markets.

Speed^ Speed^ Speed^ - NARA - 534917

Speed^ Speed^ Speed^ - NARA - 534917 (Photo credit: Wikipedia)

Per an interview with PayNet founder Bill Phelan, “Every indicator on the risk dashboard is positive, and yet smaller business owners are holding back,” he said, noting that interest rates and inflation are low. “They are seeing something in their businesses that is not inspiring confidence and their best instincts are telling them that now is not the time to invest.

So, what’s going on? Lending is down. On the other hand interest rates and inflation remain low and banks are purportedly looking to lend more this year. Economic growth is down to 2.2 from 3.0 for the last quarter of 2011. According to ADP only 119,000 jobs were added during the first quarter, below the expected 160,000, yet unemployment is down to 8.1. This looks like a mixed bag of conflicting information. Let’s take a closer look.

A majority of economists agree that the fluke in the growth statistics is not the 2.2 growth rate that we are experiencing now, but the major jump in spending in the last quarter of 2011. Don’t forget that Q4 2011 also included the day after Thanksgiving, which is the biggest shopping day of the year, and also the Christmas season in general. We must also take into consideration the fact that the end of 2011 heralded the end of certain business tax deductions. Many merchants wanted to take advantage of the deductions before they disappeared, so they bought equipment that they might have deferred to a later date had it not been for the monetary breaks. A warmer winter season supposedly brought out additional shoppers. All this helped to boost 4th quarter growth. Perhaps what we are seeing now is a correction in the extreme spending pattern of the last quarter of 2011.

Shasta Dam under construction, California

Shasta Dam under construction, California (Photo credit: Wikipedia)

On bright note, construction and manufacturing are up. As a matter of fact, manufacturing grew at the fastest pace in nearly a year! On another positive note, consumer debt was down in Q1 of 2012 by more than 11% (somebody must be getting some money from somewhere). Perhaps the trend we are experiencing with falling loans has more to do with trying to mend monetary fences before pushing forward with new financing. On the other hand many borrowers have been turned down by traditional banks because of lack of stellar credit and are now turning to alternate financing companies which may not be being tracked.

The bottom line is that more people have jobs today, fewer are applying for unemployment benefits, and the economy is seeing an upswing in spending. We are definitely better off than we were a year ago!