Greece, Deficits, Recovery, & the States

Capital Hill CampusJune 15, 2010

TWO KEY U.S. INDICATORS

Unemployment Rates, 4/2010

10.6% High School Diploma

8.3% Associate Degree

4.9% Bachelors and higher.

The chickens have come home to roost.

Next Three Months?Next Three Months?

1.1. Whew!! I feel like we are getting out of the woods. But that’s not saying we are on the Whew!! I feel like we are getting out of the woods. But that’s not saying we are on the Yellow Brick Road, at least not yet. By June unemployment should have peaked, Yellow Brick Road, at least not yet. By June unemployment should have peaked, perhaps at 10.8 percent and then be in the 9.5% range Retail Sales will be nudging up. perhaps at 10.8 percent and then be in the 9.5% range Retail Sales will be nudging up. Housing will be firmer. But the price of oil will be nudging up too. Inflation, oil Housing will be firmer. But the price of oil will be nudging up too. Inflation, oil included, will be troublesome. 1Q2010 GDP growth will surprise the pessimists. It will included, will be troublesome. 1Q2010 GDP growth will surprise the pessimists. It will be above 2.5%. Dow –Jones? I am still counting on 10,900 by June.be above 2.5%. Dow –Jones? I am still counting on 10,900 by June.

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2. I am not ready to join the ranks of raving optimists yet. I’m not even sure there is a 2. I am not ready to join the ranks of raving optimists yet. I’m not even sure there is a Yellow Brick Road any more. As they say, the light at the end of the tunnel has been Yellow Brick Road any more. As they say, the light at the end of the tunnel has been turned off to save energy. That said, I think we will see the expected pale 2.0-2.5% GDP turned off to save energy. That said, I think we will see the expected pale 2.0-2.5% GDP growth in 1Q2010. The unemployment rate will be hanging at 10.5 percent. Bank growth in 1Q2010. The unemployment rate will be hanging at 10.5 percent. Bank lending will still be in the doldrums. In short, the economy will still be in the pits, just lending will still be in the doldrums. In short, the economy will still be in the pits, just going nowhere.going nowhere.

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Next Three Months?Next Three Months?

1. Europe’s credit earthquakes will continue to disturb world 1. Europe’s credit earthquakes will continue to disturb world economic activity. The dollar will be strengthened by the sick economic activity. The dollar will be strengthened by the sick euro. U.S. exports will suffer because of currency movements and euro. U.S. exports will suffer because of currency movements and weaker global growth. Inflation will be tame, but oil prices will weaker global growth. Inflation will be tame, but oil prices will still be creeping up. U.S. employment growth will continue still be creeping up. U.S. employment growth will continue apace; even construction employment will show stronger growth. apace; even construction employment will show stronger growth. Look for a 9.2% U.S. unemployment rate. The nervous Dow- Look for a 9.2% U.S. unemployment rate. The nervous Dow-Jones will still be trying to reclaim 11,000 territory. Jones will still be trying to reclaim 11,000 territory.

2. It is just one crisis after another. First it was Greece, then Spain. 2. It is just one crisis after another. First it was Greece, then Spain. Now it is Italy. Even worse, three U.S. states are threatening to Now it is Italy. Even worse, three U.S. states are threatening to default on bonds, and three cities—Detroit, Harrisburg, and default on bonds, and three cities—Detroit, Harrisburg, and Birmingham are playing footsie with bankruptcy. As a result of Birmingham are playing footsie with bankruptcy. As a result of this, more default problems, and the end of the big stimulus this, more default problems, and the end of the big stimulus spending, U.S. unemployment is rising again . Meanwhile the BP spending, U.S. unemployment is rising again . Meanwhile the BP oil spill has taken off the edge of economic growth along the U.S. oil spill has taken off the edge of economic growth along the U.S. gulf. While 2Q2010 GDP growth is already in the oven, the gulf. While 2Q2010 GDP growth is already in the oven, the prospects for the rest of 2010 are being revised down. prospects for the rest of 2010 are being revised down. Unemployment is ticking up toward 10%. The Dow is ticking Unemployment is ticking up toward 10%. The Dow is ticking down toward 9,500. down toward 9,500.