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March 12, 2013

NEWS AND TRIBUNE LETTERS — For March 12

(Continued)

Entering our fifth year of this economic cycle, it’s tempting to imagine that it will all soon be behind us, but many signs demonstrate that normalcy is not on the immediate horizon. Consider the following facts from just one day’s — March 1 — collection of news releases. 

The Institute for Supply Management’s February survey shows that manufacturing in the U.S. was up more than expected, but prices manufacturers must pay for raw materials are rising sharply, a sure sign of inflationary pressure.

According to the Federal Reserve Bank of New York, after five straight years of American households reducing debt, borrowing is again on the increase. Some would argue that the borrowing reflects a renewed confidence resulting from the stock market’s near record high. The borrowing, however, is likely related to the fact that during January the U.S. household income dropped 4 percent, the greatest one month decline ever recorded. Ever.

A drop in household income when combined with increased borrowing dictates that Americans are saving less. In fact, the individual saving rate fell to its lowest level since the Great Recession began. 

Construction spending was expected to increase but instead has nose-dived. One in every nine student loans outstanding is now in default. These federally guaranteed loans total nearly $1 trillion.

What does all of this mean for Hoosiers? Simply this, be increasingly cautious. At the very least, increase your rate of savings even if it means you must cut back on those items you’d really like to have. Saving is always better than borrowing. Saving for college, retirement and future health care expenses are a must.  

If you haven’t already done so, consider refinancing your home mortgage. If inflation occurs, as most predict it will in the near future, you’ll be able to pay off that debt with more available dollars.

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