Housing. A dramatic rise in interest rates could have ramifications for other parts of the economy, including the mortgage industry. The 30-year fixed mortgage rate currently stands at an historically low rate of about 5.1 percent, according to HSH.com, a publisher of mortgage and consumer loan information. Typically, lower interest rates spark more buying in the housing market, but that hasn't been the case this time around. "The combination of difficult-to-obtain financing, the very weak employment market, and a general sense of unease about how strong this recovery is coupled with home prices declining means there's very little incentive to rush out and go do something now," says Keith Gumbinger of HSH.com. In fact, last week new home sales plunged 16.9 percent to a record-low annual pace of 250,000 in February. The Standard & Poor's/Case-Shiller Home Price Index for January also showed that home prices fell for a sixth consecutive month. With such low demand, Gumbinger says a spike in interest rates could make an already bad situation worse. "A 6 percent interest rate in this market, or above 6 percent for a time, would be devastating," he says.
Unemployment. The unemployment rate still remains high at 8.9 percent. In February, the economy added 192,00 jobs, most of which were private sector jobs, which is encouraging news. Friday's highly anticipated jobs report could potentially bring better news. TrimTabs reported Wednesday that the economy created 293,000 new jobs in March. But the latest concern has to do with state and local governments. Many states are facing huge budget shortfalls, and politicians are calling for cuts. Employees of state and local governments (think teachers and firefighters) make up about 15 percent of the country's total employment, Cleveland says. "We've seen state and local governments shedding jobs since 2008, and I expect that to continue as they go through budget cuts," he says.
Sovereign debt worries in Europe. Portugal looks to be the next shoe to drop in the European debt crisis. Greece and Ireland have already taken bailouts from the European Union and the IMF, and economists say it's only a matter of time before the Portuguese government, which recently collapsed, will be forced to accept a bailout of its own. Portugal, like Greece and Ireland, is seen as a small economic player in the overall scheme of things. Economists say the real concern is that the crisis spreads to other areas of Europe. If a larger country like Spain, which recently had its debt downgraded by Moody's, was forced to take bailouts, the impact could be felt throughout the entire European Union. (Spain is the world's 12th largest economy.) "Spain is the Big Kahuna," Cleveland says.
Japan fallout. The most obvious lingering question in Japan is what will happen with the damaged reactors at the Fukushima nuclear power plant. Otherwise, the most pressing long-term issue in Japan is its debt problems. The country's public debt-to-GDP ratio clocks in at 225 percent—more than three times as high as that of the United States. "We've been long worried about the amount of debt that the Japanese government has," Gallagher says. "They're going to have to borrow to rebuild, so it just compounds the longer term issue."