Reply #25: Unemployment vs. Pent-up demand

[tclambert]

Those are the opposing forces I see working on the economy right now. It looks like the banking crisis has passed, though Option ARMS, Alt-As, and commercial real estate keep that question unsettled.

People put off spending during the past year and half. That should have created quite a lot of pent-up demand. If people start buying the things they put off buying for all that time, it could drive business activity upward.

HOWEVER (big however), high unemployment means fewer customers with money. I keep telling people to remember that the workers of the world are also the customers of the world. When businesses cut costs by downsizing or reducing employee salaries, they also reduce the amount of ready money that the buying public has. That puts serious drag on the economy.

Until we see unemployment significantly decreasing, the economy remains fragile, and could turn worse if a gnat lands on it.