Taking the good with the bad

February 27, 2008 12:00 am

By Kelley Atherton

Triplicate staff writer

There's some good news and bad news concerning the economy this week.

Here's the good: the market is finally up. This is the third day in a row stocks were peaking into the positive.

At the closing bell on Wall Street, the Dow Jones industrial indexes were up 115 points or .09 percent. The Standard & Poor's 500 Index was up nearly 16 points and then fell slightly, closing at up 9 points or .07 percent. Finally, the Nasdaq Composite Index was up about 18 points, or 0.7 percent.

Now for the bad news: Some economists are still predicting a recession.

The United States could be returning to the days of the 1970s, when "stagflation" was on everyone's lips. For those who don't remember, this is the brilliant combination of the words stagnation and inflation. Economic growth comes to a stalemate while inflation continues trucking along.

Over the past year, wholesale prices rose by 7.4 percent and inflation went up over 4 percent. An increase in goods prices usually prevents consumers from indulging. When the economy needs people to buy, buy, buy, people are keeping their pocketbooks in their, well, pockets.

What are working men and women supposed to do? The Federal Reserve cut interest rates, the government is giving out money (tax rebates) and economists say people have to spend money to see growth and prevent a recession, but prices are up.

A survey by the National Association for Business Economics states that 45 percent of economists expect a recession this year. However, 55 percent say the country will squeak by without going into a downturn, or two consecutive quarters of declines, in the gross domestic output.

Overall, economists expect the gross domestic product (GDP) to grow by only 1.8 percent in 2008, the saddest numbers in five years. Back in November, the same survey predicted a 2.5 percent growth.

The bottom line is those who are not in the millionaire club are most likely trying to either pay bills or save for the future. They pinch their pennies and drive a hard bargain. Hard-working Americans won't spend their money on something that costs more than what it's worth.

Now for the mixed news. The sales of existing homes has dropped considerably for the sixth month in a row¬óbad for the economy, but good for those looking for a hot deal on a house. However, it's strange that with decreased prices buyers aren't taking this opportunity.

The National Association of Realtors said Monday that single-family homes and condominium sales dropped .4 percent in January, 12.7 percent for 2007. This is the slowest sales pace in almost a decade. The median home price slid 4.6 percent to $201,100.

Another problem is the influx of mortgage foreclosures putting more unsold homes on the market. The inventory of unsold homes jumped to a 10.3 months' supply, meaning it would take that long to sell 4.19 million homes at the January sales price. By comparison, during the housing boom of 2005, inventory supply was at 4.5 months.

The simple solution? Spend money, but not too much of it.

Don't worry though, a recession won't destroy a country that's survived a quasi-revolution, several world wars and a depression. America is only 232 years old.

The Romans ruled the world for well over 500 years, and look how well they turned out.

Reach Kelley Atherton at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it