COLLEGE STATION (Mays Business School) – As much of the nation ponders whether the country is in rebound mode or headed for a “double-dip” recession, Real Estate Center Chief Economist Dr. Mark Dotzour sees definite signs of hope for the economy.
“There are signals that the economy is trying to turn the corner,” Dotzour said. “Consumer confidence has increased from a year ago, and consumer spending has resumed its relentless upward trajectory.”
He says the most important positive indicator is that corporate profits have rebounded.
“In a free-market, capitalistic system like America, profit growth is the key indicator,” he said. “When profits are growing, companies hire employees. When profits flatten, they stop hiring. When profits fall, they start to fire people, and they keep on firing people until profits start to increase again. Clearly, most businesses have right-sized their firms sufficiently to regain profitability.”
So why aren’t they hiring people?
“The answer is uncertainty: uncertainty of capital gains and income tax rates; uncertainty about the cost of health care and the possible increase in energy costs due to ‘cap and trade.’ The prospect of new and increased government regulation makes it hard for business to see clearly into the future,” he contends.
Dotzour points out that businesses can buy insurance against risk, but there is only one way to “insure” against uncertainty–and that is to hoard cash.
“There is now nearly $3 trillion sitting in cash on business balance sheets,” he said. “They have much more capital then the Federal Reserve, the FDIC, Fannie Mae and Freddie Mac combined.”
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