The conundrum of predicting where the economy is heading this year is about as convoluted as it can get.
First, did the Fed make a mistake in raising the discount rate? Virtually every other country is standing pat or continuing to lower it. Interest rates in many European countries are negative-some approaching -1%. It appears that the sole metric the Fed used in considering the rise was employment. Most other metrics are still very near neutral territory meaning they could easily dip towards the recession side.
Also I believe that another reason for the raise was they just felt they had to. Pressure was building from those who felt the rate hike had just been put off too long. So the Fed caved in and raised it. Was that a valid reason? Not in my book.
Take into account that some major economies, such as Brazil and Russia, are in recession. Then the Chinese government is totally incompetent in handling their stock market and state owned and controlled investments. Plus, their economy’s growth rate is slowing which is depressing commodity prices as they have been the end user of so many and so much of these resources. Some kind of blowup could be coming there.
And good old oil. Pushing $30 per barrel as I write this. Down from over $100 not long ago. No producer nor country is cutting production for two reasons. First is they need the money. Even selling at a loss pays the bills and secondly they don’t want to cede market share to other producers. So we are seeing bankruptcies in the oil patch and also in the coal fields. The effect on employment is unclear because most companies continue to operate during bankruptcy but there will be some jobs which will disappear.
Then there is the U.S. dollar which is quite strong now against other currencies. This, of course, works against us as far as exports go. Not long ago it took $1.40 to buy one Euro. Now it’s only about $1.08. Think what this means in aircraft sales-Boeing vs Airbus. The latest statistics do say that only 13% of our domestic jobs are export dependent but that is still significant.
And of course ISIS, Al Qaeda etc. Turmoil in that part of the world appears to be the norm if you study the history. The good news is that somehow the whole mess will play itself out as it always has done. It won’t be pretty is about all I can say.
So the good news for us here in the Northwest:
- We currently have the greatest housing price increases in the country
- Baby Boomers with good retirement accounts are retiring and coming here
- We have clean air and water and the great outdoors attracting people seeking a higher quality of life
- The tech industry is growing providing more jobs
- The hydrocarbon energy sector is a minor player in the NW
Barring being blindsided by a catastrophe we seem to be positioned to have another excellent year in the housing sector. And as always our team is here to assist you in all your real estate needs. Just give us a call.
