What Happened in 2007 and what to expect in 2008
This has definitely been one of the most wild rollercoaster-like years for our economy in a while. Many changes have taken place in the markets, monetary policy and consumer spending. The ride is not over, as the outlook for next year looks to be even more difficult than 2007 has been.
The price of oil started out this year at $60 per barrel. It hit a record high of $97 per barrel after a few months, and it is still climbing.
The infamous housing crisis was the hardest hitting problem this year. In the eyes of lenders, home values were expected to rise. The assumption was probably that sub-prime borrowers could simply refinance with a higher home value in order to continue payments. When home values declined, new homes sales stagnated, and foreclosures escalated through the roof, banks everywhere suffered losses. It wasn’t long before the stock market showed the effects of economic slow down.
The U.S. Dollar hit record lows against the Euro, with the Euro near $1.49. The Canadian currency actually caught up with and passed the dollar for the first time in about 30 years.
The Federal Reserve has made several moves to keep the credit crunch from driving the economy down too far. Billions of funds were injected into the system, and the Fed isn’t done. TAF auctions are scheduled for January for banks with liquidity problems. There have already been two $20,000 billion TAF loans to banks.
The interest rates were lowered again and again for the second half of the year, making the rate 4 1/4 percent. The dollar value suffered and inflation continues even now to be a concern of the FOMC.
The average American expects recession, continued lowering of housing prices, record high gasoline prices, higher grocery bills, and recession.
The Fed hopes that its recent actions will forestall recession, but continued economic slowdown, at the very least is expected. Economists expect rate cuts to reduce the interest rates even further. There may be some growth, but it won’t be much.
If oil barrels reach $120, we will probably start to see $4 per gallon at the station.
Employment may balance out. The unemployment rate has held steady this year, and there might be a modest increase in the overall unemployment rate. Jobs related to the housing industry, like realtors, construction workers, lenders and furniture retailers will all experience some cuts as the housing crisis continues. On the other hand, there is a demand for bankruptcy lawyers, teachers, and executives. Retail jobs in apparel, food, and pharmacy should become more available in the coming year. Many jobs will be overseas, as the global economy seems to be doing well. Exporting is a promising business in the coming year.
Overall, inflation will remain a concern, and the Federal Reserve will continue to make the necessary moves to soften the effects of the housing crisis. Moves to improve liquidity, lending practices, and encourage long term economic growth will be made throughout 2008. Will there be a recession? Possibly. The best thing to do is hold off on big purchases, get out of debt as soon as possible, and save as much money as you can.
Strap yourself in and remain seated, the ride is not over yet.