Economy in Limbo

Although economic conditions in the US have improved the rebound in jobs will be slow. President Obama's top economic advisers warned last Thursday that they expected unemployment to climb above 10.0 per cent by the middle of next year and job growth to remain "anemic" through the end of 2010.

The economy has lost 7.2 million jobs since the recession began almost 2 years ago and needs 100,000 new jobs each month just to keep pace with population increases. The US is about 9.0 million jobs short of where it should be.

Unemployment will not come down until there is a sustained increase in GDP growth of 3 per cent. This rate maybe achieved in the July-September period after four negative quarters in a row. However, a consensus of leading economists see a slowdown to around 2.0 percent GDP growth in the fourth quarter as the expansion stalls.

The economy is fragile and could easily fizzle out. Until the unemployment rate comes down the US economy is going to remain in trouble. Only when we start spending again and confidence returns to the private economy will the real recession be over.

So, as I have said all year, this is not the time to show improvements in demand that underlying in business plans, projections and forecasts. Small and medium size business must continue to aggressively focus on retaining existing customers, shed all costs and expenses that are not absolutely necessary, negotiate improved terms with vendors and only invest in new products and services if the amount to be committed is low and there will be some positive cashflow in a very short period of time.