Who Will Benefit From the Slowing Economy

If you've got a secure job, the economic downturn has some upsides.

By SHARE

It's bad news for many Americans — but not for everybody.

The economy has hit the skids recently, with a sharp slowdown in growth triggering anxious flashbacks to 2008 and reviving fears of a double-dip recession. Economists have been slashing their forecasts for the remainder of 2011 and for 2012, on account of weak spending, a shortage of jobs, debt problems in Europe, and political dysfunction that seems more likely to hurt the economy than help it. Most forecasts now call for meager growth of about 2 percent for the next 18 months, which is far lower than the robust expansion that usually follows a recession. There's nothing on the horizon that's likely to help 14 million unemployed Americans find work. The economy is more vulnerable to shocks than it was a year ago, and most economists peg the odds of another recession at an uncomfortably high 40 percent or so. The nauseating volatility in the stock market these days reflects the anxiety of investors as they lower their expectations and prepare, once again, for tough times.

[See 10 ways to create jobs.]

It's grim-sounding news, to be sure. But economic slowdowns usually have some collateral benefits as well, especially for those lucky enough to have secure jobs. Here's who will benefit from a teeter-tottering economy:

Borrowers. Interest rates usually rise in the aftermath of a recession, as spending picks up and the demand for loans increases. But that's not likely to happen anytime soon. The Federal Reserve recently announced it will keep short-term interest rates at record lows until 2013 at least, which means businesses and others reliant on short-term borrowing will continue to enjoy remarkably cheap money. Other Fed policies, combined with the dynamics of a weak economy, ought to keep longer-term rates low, too. Forecasting firm IHS Global Insight predicts that long-term rates will dip slightly in 2012 and end up back where they are now by 2013. If the economy turns out weaker than expected, rates could fall even further.

[See how the debt fiasco damaged the economy.]

That's good news for car and home buyers and, to a lesser extent, for people who carry credit-card balances. Mortgage rates, for instance, now average less than 4.5 percent, the lowest levels in more than 50 years. The catch for many potential home buyers is that tougher lending standards prevent them from getting the best rates, or even getting a loan at all. That's one big reason housing remains in such a slump. But banks have gradually been easing their lending standards as they adjust to the aftermath of the 2008 financial panic. More people should qualify for loans over the next few years, which will help revive the housing market at some point. And an extended period of low rates will allow more people to take advantage of the record affordability of homes.

Drivers. Oil prices can gyrate wildly, but in general they go up when the global economy is strong and down when it's weak. And sure enough, the weakening economy has brought oil prices down from a peak of $113 per barrel in May to about $85 today. Drivers should not—repeat, NOT—get used to the idea that gas prices will fall below $3 per gallon any time soon. That may never happen again, since global demand for oil will only rise over time. But gas prices have fallen from nearly $4 in May to about $3.55 right now, and they'll probably fall further to catch up with the recent drop in oil prices. If drivers are lucky, gas prices will stay below $3.50 for another year or two. Once the economy starts to improve in earnest, expect gas prices to drift back up.

[See a collection of editorial cartoons on gas prices.]

Shoppers. Inflation is unlikely to be a problem as long as the economy is weak. It's true that inflation has picked up recently and is now running at slightly more than three percent. As usual, the cost of healthcare, education, and some food items is rising faster than other things. But recent inflation readings are due partly to gas prices—which had been rising but are now falling—and temporary hikes in the price of cars caused by the Japanese earthquake earlier this year. IHS predicts that inflation will fall back below two percent for most of 2012 and 2013. That's largely because labor costs, one of the biggest inputs for many goods and services, are unlikely to rise by much as long as unemployment is so high. Shoppers will benefit from stable and even falling prices on many everyday items. The trick for many families will be wrangling pay increases that keep them ahead of inflation.

People with cash on hand. If you've saved money over the last few years, it may soon be time to put it to use. Some analysts think stocks, for instance--which have fallen 17 percent from their April peak and are down about 10 percent for the year--are undervalued, with smart investors gradually adding to their stock portfolios over the next several months. If there's more "quantitative easing" by the Fed or surprise fiscal stimulus out of Washington, it could even produce a modest stock-market rally. Cash will also help home buyers who are able to muster a sizeable down payment, since they're more likely to qualify for a mortgage and take advantage of terrific housing affordability.

[See why fears of a fresh recession are overblown.]

Exporters. A chronically anemic economy will probably keep the value of the dollar low against other major currencies, which would be a boon for exporters and anybody selling goods priced in dollars to foreigners. That includes the U.S. tourism industry, which benefits when it's cheap for foreigners to travel to America, as it is now. Washington could help by making it easier to for foreigners to get U.S. visas.

Republicans. It goes without saying that President Obama's chances of getting reelected depend heavily on the direction of the U.S. economy. The odds are tilting against Obama, since it now seems very likely the unemployment rate will be at least 9 percent—and possibly 10 percent—on Election Day in November 2012. No president in modern times has had to run with a record that includes so much economic distress, and Obama's Republican opponent will be the chief beneficiary. Republicans must be careful, however, not to appear intent on damaging the economy further to advance their own political aims—as some critics claim they did in the recent fiasco over raising the debt ceiling. The economy is already bad enough on its own, with no need for politicians to make it worse.

Twitter: @rickjnewman

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