aQuire Advisors » Economy

Production/Collections trends in 2010

Reese Harper CFP®, ChFC, CLU — Tue, 20 Oct 2009 18:48:22 +0000

Many of you have been asking about how unemployment may affect your production/collection trends throughout 2010. Unemployment rates trend upwards, even after a recession is over. That’s because employers don’t usually start laying people off until well into a recession. If their businesses are struggling, they’ll first look at improving their marketing campaigns, sales, etc. Early in a recession, people don’t realize they are actually in one. After a recession is over, employers typically don’t hire people until they have had some stable growth for a while. Fifty economists from various academic and investment institutions recently predicted unemployment rates through the end of 2010 in a survey called the Blue Chip Economic Forecast®. The majority see unemployment at 9.4% at the end of 2010, but it could also be much worse—25% of responders see unemployment over 10% by the end of 2010. To grow practice production in 2010 will likely be more challenging than growing production in 2009. Since recall for most practices is every six months, most of you are just barely starting to see the affects of lay offs that have occurred during the summer months. But hey, economists have been wrong before – just stay disciplined and work hard. I only illustrate this point because many of you have yet to see a decrease in your practice collections; but that’s probably due to the fact that the effects of unemployment have not really come home to roost. As always, I would keep tight reigns on overhead expenses and personal discretionary expenses throughout 2010 and into 2011. We’ll keep an eye on unemployment rates and keep you posted on general trends. If you’re illiquid right now, it’s time to build up those cash reserves and give yourself a safety net for whatever the future may bring.

Gross Domestic Product (GDP)

Reese Harper CFP®, ChFC, CLU — Sun, 18 Oct 2009 18:49:25 +0000

To understand the health of our economy, it is important to understand Gross Domestic Product (GDP). GDP measures all goods and services that a country makes within its borders during a year. It’s an important measuring tool that helps determine the health of a nation’s economy. It’s also a good measuring stick for our standard of living. For example, from 1973-2009, the U.S. economy grew, on average, 2.8% annually. Therefore, we can consider 2.8% growth as normal for our country. Fifty economists from various academic and investment institutions recently predicted GDP growth rates through the end of 2010 in a survey called the Blue Chip Economic Forecast®. Now before I tell you exactly what I’m about to tell you, I’ll preface it with one of my favorite quotes about economists. “An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today.” Generally speaking, this is that far off. However, of these 50 economists, even the most optimistic do not believe that we will be back to this rate of growth at the end of 2010. Some doubt that we will even reach 1% growth by the end of 2010. In short, a sizable group of experts is forecasting that the economy as a whole will grow quite slowly through 2010.

When is this recession going to end?

Reese Harper CFP®, ChFC, CLU — Sun, 04 Oct 2009 18:46:34 +0000

What is a recession? How can looking at past recessions give context today? The National Bureau of Economic Research officially determines the beginning and the end of recessions. In December of 2008, they announced that the current recession officially began in December of 2007. Notice how they weren’t able to identify exactly where the recession began until twelve months after it started. Historically, the committee has been able to identify a recession’s beginning and ending points between 8 and 12 months after it starts. So even if we’re headed out of it right now, we won’t know for sure until 2010. The longest “recession” ever was the Great Depression, which lasted 43 months, from 1929 to 1933. Since then, America has had 12 recessions, the longest of these being the 16-month recessions of 1973-1975 and 1981-1982. If the recession ended this fall, it will have lasted somewhere between 20-22 months. That being said, there were some major differences between prior recessions and this one. For some of you, this recession may not have felt like a “recession.” But for others, it’s been quite challenging. We’ll have to wait and see what the National Bureau says, but it’s worthy to note that we are likely passing through the longest recession since the Great Depression.