A ‘solid’ performance review for the economy

It’s employee review time. Need we remind you? It’s becoming a more difficult process, especially when you try to blend the world of “everyone is a winner” with the world of “see you in court.” But I’m here to give the U.S. economy its annual performance review. And in a word, it’s “solid.”

It is not outstanding, but neither is it worthy of being kicked out the door. In many economists’ minds, the U.S. economy is not meeting expectations, but some of those expectations need to be lowered. While lowering our standards can often lead to unpleasant results, I am simply suggesting a dose of reality. The U.S. economy is the biggest and the most productive in the world, but today’s economy should not necessarily be judged by its past. The law of large numbers alone suggests it can’t (or shouldn’t) grow as fast as it did before.

We estimate that the U.S. economy is going to register growth of about 2.5% in 2013. This is a welcome place to be. It means our economy will approach $17 trillion at the end of the year. It suggests job growth will make a dent in the nation’s underemployment rate. Inflation will remain contained. Interest rates will remain low.

We must question policies designed to artificially inflate the economy to levels corresponding to outdated standards. However, these policies may result in stronger short-term economic growth. Our review may move from “solid” to “exceeds expectations.” Perhaps even to “outstanding.” But we will walk right back into the world of false prophets. Uncomfortable unintended consequences will prevail. Inflation. Rising interest rates. Falling productivity.

So what should you do? Stick to your knitting. If you are one of the unlucky ones whose real estate’s value is still 25% below the peak years, focus on effective and efficient asset management.

Invest in yourself and your business. Take a class – Wisconsin is home to a bountiful higher education buffet. Open yourself to the reality of globalization. All of us are going to continue to interact with people from different lands. Embrace this fact. How can your business profit from this by providing a service or product these folks need? Be open to new ideas.

How do these admonishments translate to your investment portfolio? Very similarly. For one thing, keep investing. By that I mean, continue to build that investment account. Save more. Work a bit longer. You’re probably going to live a long time.

 

Globalization applies here, too. The developing world is undergoing the process of urbanization. China’s newly appointed leader, Ji Xinping, has pledged to develop policies designed to spearhead urbanization. Why? Urbanization leads to higher standards of living. Across the globe urban workers earn about 23% more than those in rural locations. This leads to increasing demand for products, which are, in many cases, American. Consider a company’s exposure to this far-reaching trend when you review your investment portfolio.

The road to this “solid” review will not be without some potholes, so expect them. The best defense is a good offense. Our team in Washington will be going through a protracted “storming” phase as it tackles our looming debt ceiling challenge. It may be distracting, but only if you let it.

Remain focused on the issues discussed above and add a little balance to your business and investment portfolio. It is a great way to prepare for that inevitable pothole and earn a “solid” review.

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