Dr. Juan Solana

Hello everyone and Welcome to Hispanic Business Live Chat !!!

GDP Projections for 2005?

Dr. Juan Solana

GDP growth projections for 2005 are 4.1% by the Congressional Budget Office.

Dr. Juan Solana

Also, The Economist poll estimates GDP projections to 3.4% growth for 2005

Is the Federal Reserve concerned about rising oil prices and remember the last time oil prices rose, which was in the 1970's, the economy slumped into a severe recession?

Dr. Juan Solana

Yes, it will result in inflation and then there will be a need to increase interest rates. Each of the past five recessions has been preceded by some form of oil shock.

Dr. Juan Solana

However, now the US economy is less dependent on oil, so that is why the economy has better accommodated the increase in oil prices.

What sets of statistical data are reflecting the true state of the US economy? Unbiased by politics and representative of the whole population.

Dr. Juan Solana

From an economic point of view, the key issues in the future of the US economy are: controlling the budget deficit, the current account deficit (trade) and the rising health care cost. Those should be the key issues you should look for on each candidate's program. The final judgement is yours.

What would be the effect if economic reports i.e. GNP, jobs and consumer consumption continue at the same below expected numbers?

Dr. Juan Solana

At the end the economy will stop growing. Past recession has been moderated because consumer expending has been high, but that seems to be coming to an end. Without creating jobs, consumer demand will slow down.

The price of crude oil has surged past 55-dollars a barrel. How are the high oil prices effecting the economy and what can the Fed do to fix it?

Dr. Juan Solana

The only thing the Fed can do to accommodate its monetary policy is to increase the oil prices. So far, inflation has not gone up so the Fed does not need to increase interest rates as far as it would have if that were to happen.

If we are really 7 or 8 million jobs behind where we should be, how many years is it likely to take to dig ourselves out of this hole?

Dr. Juan Solana

We are growing at a rate of 1.6 million jobs per year (in the current year). That is only the replacement rate. So to absorb those 7 million jobs you say we are behind, it will take almost 4 years growing at double the current rate (at 3.2 million per year). That is difficult.

The news is reporting consumers are more cautious and concerned this holiday season due to continued weak job growth. The holiday season is approaching, what effect could consumers have on economic growth in the fourth quarter and the first quarter of 2005?

Dr. Juan Solana

I agree on consumer caution and I expected lower sales figures than past years. On the other hand, another component of the demand, business investment, is showing some strength. That will replace a lagging consumer's demand.

What impact will the election have on Hispanic businesses? Is one candidate better than the other, as far as the economic forecast for Hispanic businesses is concerned? I'm particularly interested in the "small business" point of contention between Bush and Kerry.

Dr. Juan Solana

Matt, as I indicated above, the key issues looming on the economic landscape are budget deficit, health care costs, and current account deficit. Regarding "Is one candidate better than the other?" That is for you to judge if any of the candidates are providing solutions to those problems.

What is the impact of tax cuts on the budget deficit?

Dr. Juan Solana

There is a total budget deficit of about $415 billion in fiscal year 2004. It is estimated by the COB (Congressional Office of the Budget) that tax cuts are the cause of more than 50% of that deficit.

Should we be worried that the big rise in home prices could create a bubble that may pop just as the stock market bubble did starting in the spring of 2000.

Dr. Juan Solana

Well, while stocks are traded nationally and globally and can be sold and bought easily, the housing market is more of a local market. Granted, house prices are high in many areas but they will depend mainly on local supply and demand conditions. Morever, if resulting prices go down, home owners will restrain from selling and that will moderate the price fall. It is not like stocks falling and everyone running to sell them. You do not do that with your home, do you?

I've heard that WWII was credited with pulling the US out of the great depression. But it doesn't make sense to me how war can improve the economy. Is the war on terror a boon to the economy, or does it hurt the economy?

Dr. Juan Solana

Government borrowed money to increase war production so it put many people to work that were not before. Yes, it generated economic activity, but later you need to pay those bills... luckily (to make the story short), liberated Europe start demanding US products. So, in a way, the after-war economic activity helped cover the US bill-to-pay. Conversely, the end of the Cold War in the early 1990s is one of the causes of economic growth, since less resources were needed to be allocated to defense. In our case now, increased costs on public and private security and in the economy can have a depressing effect.

I've been told the hurricanes are having a negative effect on the economy. Is that true?

Dr. Juan Solana

It goes both ways. Destruction decreases the existing assets while also contributing to the GDP growth. Many companies in Florida are relocating or closed for good, and that is an impact on profit and jobs in that area. Demand for those goods is picked up by other companies elsewhere.

Why is it that gasoline prices are through the roof and the cost of housing continues to rise, yet by the government's official gauge, inflation is fairly tame?

Dr. Juan Solana

Consumer price indexes are calculated by surveys done by the goverment and then come out with an average budget allocation. This is done every 2-3 years, so it may be the case that previous surveys reflect a budget allocation (percent of expenditures allocated to housing, gasoline...) that are not realistic now. On the other hand, gasoline is just a small portion of our budget, so a large increase in a low-weighted item does not affect consumer price index much.

Does the small Hispanic business entrepreneur know that when Republican candidates claim to be “Pro Business,” they are primarily referring to large political contributor corporations and not necessarily the small business entrepreneur?

Dr. Juan Solana

I do not know if they know or not. We follow closely goverment support (or lack thereof) of minority-owned businesses (access to capital and procurement) and report findings in both the print magazine and online - they have information to evaluate your assessment.

How serious is job outsourcing overseas?

Dr. Juan Solana

For a person losing his/her job, it is very serious. For the economy as a whole, the proportion of jobs being outsourced overseas is very small.

I just read that the record level of debt being carried by Americans and the rising cost of housing are not represent a serious threat to the economy. How can that be?

Dr. Juan Solana

They do represent a threat. Debts need to be paid in the future with increased income or reduced consumption. If interest rates goes up, consumer debt payments will increase, thus reducing consumption.

Dr. Juan Solana

Thanks everyone who has participated on this Live Talk !!!