Decreased Uncertainty Key in Recovery
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IRVINE, CA-A reduction in the amount of uncertainty among businesses and households has been a key factor in the nation’s economic recovery, according to Auction.com Research’s managing director Peter Muoio, Ph.D. Muoio points out in the firm’s Fall Quarterly Economic and Real Estate Update that many indicators to recovery are trending in a positive direction, and he maintains that the decrease in uncertainty is a significant factor.
“Human nature in the face of uncertainty is to hold back and wait for more clarity before making a decision,” Muoio tells GlobeSt.com. “The heightened level of uncertainty over the past five years or so has engendered caution on the part of both businesses and households regarding investing and spending. The uncertainty of recent years has included how much higher taxes would be, what medical coverage and costs would be, how new financial regulations would alter the risk/return of lending and investing, and what impact changing regulatory policies would have on the cost of hiring new employees.
“Some indicators of the impact of heightened uncertainty include record-level cash holding by businesses, stop-and-go investment spending and new orders for capital equipment, tepid hiring dominated by use of temporary workers, employment agencies and part-time help, unwillingness to commit to home purchases and see-sawing consumer confidence and retail sales,” he continues. “In our view, the sum total of these, and other, fallouts from heightened uncertainty helped shape a recovery that has been the slowest in modern record and one that has seen economic acceleration followed by sudden slowdowns.”
Auction.com’s report shows that while US growth remains constrained, the economy reemerged from its late 2012 stall and has grown in the first half of the year. Second-quarter real GDP growth beat expectations at 2.5%, according to the second estimate. This suggests that the economy is gaining momentum, since it was up from just 0.1% in the fourth quarter of 2012 and 1.1% in the first quarter of this year, Muoio explains. “Employment growth has continued at a decent pace, and uncertainty has continued to ebb, two big potential drivers of future growth.”
Next: RECOVERY BY SECTOR
For an irreverent take on the macroeconomic environment, check out GlobeSt.com's Chief Economist authored by Dr. Sam Chandan.
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