Predicting the economy today is like flipping a coin. Heads you win, tails you lose. There is an equal chance you’ll experience some good and bad economic impact over the next two years.
With GDP expected to be 3.4% and 3.8% respectively over the next two years, you will likely notice some improvement in the world around you. Auto sales, which have been almost non-existent over the past several years, are recovering nicely and will experience positive gains as consumers replace older automobiles for more fuel efficient ones. Interest rates may increase slightly but should remain near decade lows so those that do borrow will benefit.
Businesses can expense 100 percent of their new capital assets through 2011, plus claim a bonus depreciation allowance of 50 percent during 2012. This will allow businesses to write off their investments in one year, saving them taxes, instead of depreciating the investments over time. With U.S. companies sitting on $2 trillion, the tax cut should stimulate business expansion and spending.
But don’t get too excited. There will be plenty of struggles to offset the gains. Unemployment is expected to be around 9% when the next presidential election occurs. And the housing market will sputter along as many markets continue to see falling home values and foreclosures continue to mount.
State and local governments are facing significant shortfalls in their operating budgets and an underfunding of employee pension plans. Expect to see significant program cuts as well as a reduction of force in years to come.
For most of us, we just don’t know what’s real anymore. We want this to just go away and get back to the way things were. However, the reality is more like the coin flip. Expect good news tempered with bad. If you get down, just flip the coin again and something good is bound to come up.