In U.C. Santa Barbara economic professor Mark Schneipp’s 4th quarter assessment for Ventura County, he states 2010 was an up and down year and that momentum has once again shifted for the better. He predicts that our economic momentum shall continue albeit slowly until 2nd half of 2011, when he anticipates significant strengthening.
The business section of the L.A. Times boasts, “Luxury shoppers are back”, which according to the International Council for Shopping Centers is economically significant because “the richest 20% of households represent 40% of consumer spending” and I must confess, I did not know that. (As a quick aside: So, if 70% of our economy is consumer spending, and 40% of that is spending by the wealthiest 20%, according to my math, that would mean 28% of the total U.S. economy is generated by the spending of the wealthiest 20%. So what does that say about taxation at the upper bracket? — hmmm…I’m going to have to chew on that one…)
Retail sales are actually showing signs of improvement everywhere this holiday season which is consistent with my belief that pent up demand, including pent up business upgrade demand, are going to push us out of recession. If you look at the bond market’s movement over the past few weeks, clearly investors harbor the belief that the economy is gaining traction.
As I have argued, I do not believe construction will be the engine that heals our unemployment malaise. I believe technology and general business expansion will. Consumer spending, retail, travel and tourism, plus exports, will be the kindling for our economic fire.
So what about housing? If rates continue to rise, how will the delicate housing recovery hold up? Repeat after me, “Housing is local”. I believe just about everywhere will see improvement except the hardest hit areas like Las Vegas, Arizona, Florida and the center-east of California. The coastal communities will see improvement first. I fact during our breakfast last week, Professor Dan Hamilton of Cal Lutheran’s school of economic forecasting, told me that California is no longer about north and south but about east and west, with west making an overwhelmingly disproportionate percentage of the state’s economy. The effect of rising interest rates on the housing market will ultimately depend on how high, how fast. Since rates are an indicator of economic conditions and inflation, higher rates should mean a better economy and a better economy means more jobs, less stress and ultimately better property value stability. So while our economic recovery is not yet ablaze, clearly it is smoldering.