The FINANCIAL -- The dip in the U.S.
economy in the second quarter to an annualized 1.5 percent from 2
percent was not unexpected. A Bloomberg survey of U.S. economists had
predicted it would fall to 1.4 percent.
In other words, the slowing economy is meeting expectations.
Much of the slowdown is a consequence of reduced spending on fixed investments like houses. Investors, including homeowners with liquidity, are declining to invest. They are putting more money in savings—which is not a bad thing—instead of spending with confidence. They simply have no confidence.
This impacts homeowners insurance companies that cannot issue new insurance policies if new homes are not being built nor new policies for existing homes if homeowners are not buying them as they move up the economic ladder. The same lack of activity is evident among businesses, including homeowners insurance companies, which are reluctant to invest in a shaky economy.
What is reinforcing this downward trend is the inability of government to reassure Americans about the immediate future. Case in point: the so-called fiscal cliff. On Jan. 1, tax cuts dating to the administration of George W. Bush as well as some payroll cuts are scheduled to increase. That coincides with a dramatic decrease in federal spending, mostly in defense programs, that Congress negotiated with itself in budget talks last year. The result will be an economic punch that everyone agrees will be stunning.
Consequently, investors are putting their money in safe places, which is either overseas or in protected accounts. As WebWire reported, homeowners are making do with the homes they have and are wondering if they will have a job next year to pay the mortgage. Homeowners insurance companies are feeling the impact of this homeowner caution. The shrinkage of business activity because of fear is pervasive.
Homeowners and the companies insuring their most important investment are at the mercy of economic forces outside their control. Those forces, in turn, are at the mercy of federal leaders who are at loggerheads about what to do next. The result is a slowed economy that, three years after the theoretical end of a recession, may be about ready to dip into a second one.
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