Economic Uncertainty

There is currently a great deal of conflicting data and speculation on the state of the economy. Housing starts are up while foreclosures rates also remain high. The stock market is up, but unemployment continues to climb. This confusion is creating both a sense of optimism as well continued apprehension about what lies ahead.

Confusing data is also leading to opposing viewpoints and predictions. Home Depot Chief Executive Frank Blake recently told investors that he didn’t expect a year-over-year increase in same-store sales until the second half of 2010. According to the Wall Street Journal, Blake remarked “We remain concerned by the high level of foreclosure activity, which we believe continues to put pressure on the housing markets.” Target CEO Gregg Steinhafel, however, stated that Target was well positioned to grow profitably. While it is still early in the back-to-school selling season, Steinhafel said those sales “show promise.”

So what is the reality? To get a better sense of where the economy is headed, let’s focus on the most important thing – consumer behavior. This is the one factor that can truly help us predict future economic activity. Currently, people are not spending money like they used to. They are not shopping, they are not going out. This is the root of the problem.

We have gone from an internet economy to – as I am now defining it – a People economy. You and I (and the remaining 329 million Americans) drive our GDP. Given that we are a People economy, it will take a significant shift in consumer behavior before we can begin to climb out of this economic recession.

For this reason, it is my belief that our economy will not stabilize until fall/winter 2010. If you reflect, you will see that people and things work in threes. Three strikes you’re out. Third time’s the charm, etc. This is no accident. I believe that it will take three holiday seasons (from 2008) before our economy returns to normal. But only time will tell.

What do you think? Do you have any predictions of your own?