It's The Economy...Stupid

So what's the deal with the economy - is it slowing? Are we all going to be out of job? Answers to these questions are hard to come by and can vary from person to person. I'll try to spell out my rationale for why I think we are slowing and support it with some new data that just came out below:

First, Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 0.6 percent in the fourth quarter of 2007, according to advance estimates released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 4.9 percent.

Second, the US economy has been driven by the consumer and in the fourth quarter, consumer spending slowed to a pace of 2 percent, down from a 2.8 percent growth rate in the prior quarter. For all of last year, consumers boosted spending by 2.9 percent, the smallest increase since 2003.

Third, when average Joe can't drive the economy by consuming goods and services the last ditch to see growth is from businesses small and large so it was alarming when spending by businesses on equipment and software slowed to a pace of 3.8 percent in the fourth quarter. For the year, such spending was up just 1.4 percent, the worst showing since 2002.

Now mind you, I am not an economist and I can't go through all of the numbers but to me it's fairly evident the US economy is in a slowdown of significant proportions. I think it's fair to say that our economy has been driven by consumer spending for as long as I've been around and I'll purpose a reason for the slowdown in spending: average Joe can't leverage his house any longer as a credit card to purchase luxuries such as 50 inch HD plasma TV's, trips to Italy or a new SUV. Average Joe is also desperately trying to pay off credit card debt which has grown dramatically over the last 15+ years "about a month ago, the New York Times examined how the use of credit has taken off dramatically in the United States since 1990. While the number of people holding charge cards grew about 75 percent— from 82 million in 1990 to 144 million in 2003— the amount they charged during that period grew by a much larger percentage: approximately 350 percent, from $338 billion to $1.5 trillion."

I am in no way a doomsday alarmist but some of the statistics out there are worrisome; do I have solutions for this? I think it starts with responsibility of the banks out there not to provide people with more credit and more ways to drown themselves - governance is needed to prevent this from continuing forward. More to come...