The Cure Forwhat Ails You - Page 2 of 3

The Cure Forwhat Ails You

that companies are becoming more confident,” he says, “and the revival of business investment is the key to this recovery.”
For the recovery to have solid legs, several things have to improve-not the least of which is lack of jobs. Here are a few important things to look for in 2004:

Unemployment: Boston expects employment rates to increase. “The economy will finally start growing fast enough to create new jobs and absorb the large numbers of unemployed workers.” But he cautions against expecting a hiring binge similar to that of the 1990s. In the past three years, the unemployment rate has increased from below 5% to around 6%, in October 2003, while official statistics show job losses in the millions.

Cecilia A. Conrad, a professor of economics at Pomona College in Claremont, California, says African Americans may face some difficult employment-related issues.

“We’ve had a weak economy for several years,” she says, “which has caused budget problems for many state and local governments. In some areas, even teachers are being laid off. African Americans make up a disproportionate number of public sector employees so these cutbacks will be painful.”

Inflation: A weak job market, in turn, may keep a growing economy from triggering much inflation, which could be bad news for retailers. “I think the overall price index will go up 1%-2%,” says Spriggs. “Poor employment prospects may lead to less demand from consumers so you might see continued discounting from auto dealers, for example.” Boston also says inflation will increase to around 2% in 2004.

Real estate: Buying a home could become less affordable if long-term interest rates rise, as many expect, because mortgage rates are likely to increase as well. But an increase in supply of rental properties could stabilize housing prices. “Some owners of vacant office buildings are converting office space to residential space. This would allow people who could not afford housing to be able to do so because of the new supply, which, in general, reduces the cost of housing,” says Dwight McRae, vice president of Kennedy Associates Real Estate Counsel in Seattle. “Vacancy rates will start to decline as the amount of available residential space decreases. Economic demand is not so robust that commercial rents are likely to spike.” For a business owner, this might be a good time to lock in current rents on existing space or to expand into additional space. Make your plans and negotiate with your landlord; you may get incentives such as free rent for a number of months.”

For employers, Spriggs recommends restructuring debt. “Short-term interest rates probably will be much lower than long-term rates, so it makes sense to stay short.” Even though Spriggs has his doubts about 2004, he thinks a more robust economy is in the offing, perhaps in 2005. “While others are retrenching, this is the time for business owners to position their companies for the turnaround. Do whatever capital spending is necessary to strengthen your company’s brands. Work on developing new products and get ready to move into