Utilize your website, social media, and print materials to publicize National Home Remodeling Month in May!

The National Association of Home Builders provides lots of resources -including the banner ad to the right - to help your campaign. Check them out here: http://bit.ly/1NGqVwE 

Join us for our next Remodelers Council meeting! Thursday, May 12 here at the HBA office - 2424 N. Arnoult Road. Professionals from  AdvantaClean will be sharing information on how to control mold & moisture in buildings - a major issue for our area! RSVP to Lauren if you are interested in attending. 

There exists concern among many that should another recession come soon, the government will have few, if any, tools to bring the economy back towards growth and prosperity because interest rates are already near rock bottom. As a result, it is feared that our economy could quite possibly remain in the doldrums for some time. Fortunately, this is simply not true. There remain numerous tools at the disposal of the Fed and of the Congress. Below are some ideas that are surely being considered should more intervention become necessary.
To begin, the central bank could once again ramp up its purchases of Treasuries and mortgage-backed securities (MBS) through another round of quantitative easing. But rather than sticking to just Treasuries and MBS, this time the Fed could buy a much broader range of assets, including high-yield bonds, stocks, and even real estate to get asset prices up and markets out of the doldrums.
Another step the Fed could take is to push interest rates into negative territory, meaning it would start charging, yes charging, banks to keep money on deposit rather than paying them the current rate of 0.5%. While this seems preposterous, at present central banks in Denmark, Japan, Sweden and Switzerland, along with the European Central Bank are doing precisely this. The aim would be to encourage banks to lend by penalizing them to hold cash. In a similar vein, the Fed could alternatively pay banks to lend money to borrowers. This policy is less harmful than using negative interest rates, as it does not reduce bank profits nor does it encourage banks to charge their depositors to keep deposits on hand to recoup the money paid to the Fed. Paying banks is akin to using a carrot, lower rates; a stick.
In addition to the above, the Fed could also promise to keep mortgage rates at or below a certain level for an extended period of time with the explicit aim being to boost lending activity by enabling more people to qualify for a mortgage. This would boost home sales and residential construction activity.
Another way to boost spending and inflation is for the government to announce a tax cut and issue bonds to finance it. But, rather than selling the bonds to private investors (which takes money out of circulation), the Fed would buy the bonds. This "Helicopter money" (HM) named in honor of Milton Friedman and which fuses fiscal and monetary policy, is as close as you can get to raining cash from the clear blue sky like manna down on households. While HM is not to be rushed into, in a deep recession or global crisis, it might well make sense. And, if it were coordinated by a group of rich countries, all the better.
Lastly, the Congress could surprise us and use fiscal policy and pass structural reforms. Fiscal policy such as large tax cuts or spending on large infrastructure projects would give private sector firms more confidence about future demand and thus make a recovery more likely. Structural reforms could include tax reform and increased deregulation.
In short, the government is far from being out of policies that could be employed to jump-start the economy in the event of a recession in the near future. While some policies will undoubtedly work better than others, the key will be to implement a number of them at once.

Despite all the news to the contrary, the US economy is in pretty good shape, better than the financial pundits think. Sure, the stock market has taken a battering of late, exploration and production activity in the oil patch has been declining, and exports are performing poorly, but the rest of the economy is fine. The service sector continues to grow nicely and construction activity continues to increase. Let's take a closer look at the facts.

The recent tumble in equity prices has nothing to do with a slowing economy and is not the precursor of a recession. Rather, the declines are the result of three quite independent factors. First, as the Fed raises interest rates, the value of financial assets must decline. Remember, the Fed initially lowered rates to boost asset prices and stimulate spending. As this process slowly unwinds, the value of equities must decline. Second, corporate profits have been flat for several quarters, and third, even at today's somewhat lower equity values, P/E ratios remain high by historic standards.

As for exports, the US is much less dependent on them than most nations. Exports of goods to China total less than one percent of GDP, while exports of goods to Europe are about 1.5% of GDP. While exports of services such as movies, music and intellectual property add to these totals, they do not vary much with economic conditions. As a result, while a 10% decline in exports certainly hurts manufacturers and their employees and reduces GDP by about 0.2%, it is far from catastrophic in an economy growing by a healthy 2.5%.

Regarding falling oil and gas prices, the benefits to the economy are just beginning. Until now, the price declines have resulted in large cutbacks in exploration and production (E&P) activity, as well as related manufacturing, construction and oil services activity that supports oil and gas E&P. The key here is that cheaper energy prices have boosted household incomes by about $130 billion or $1,000/household. While to date most of this money has been socked away, I expect that to change and to see increased consumer spending this year and next as households perceive the recent price declines as somewhat permanent.

Most importantly, the rest of the economy is already doing well. Unemployment is at 4.9% and will decline further as the year progresses, and at 4.9%, unemployment is already at one of the lowest levels in decades. Moreover, home sales and prices are up, as is loan demand. In addition, tight labor markets are finally leading to sizable increases in hourly earnings, which will boost household spending further, and inflation, which has been completely dormant for several years, appears to be rising. This is a particularly welcome development given that Japan and Europe continue to fight deflation.

Lastly, services, which account for roughly 84% of GDP, and construction activity, which accounts for about 6% of GDP, both of which are almost entirely domestically focused, are in fine shape and growing nicely. During the past 12 months, construction activity increased by 10.4% and services grew by 3%. In short, the parts of the economy that are inwardly-centered are doing well, and the negative impacts of softer growth from abroad are not nearly strong enough to derail our economy. As for the upcoming election, let's fervently hope that the threats to dramatically raise taxes or increase the deficit do not come to pass.