Is the Economy Getting Better?
5 Reasons It's Getting Better, and 5 Reasons It Seems Worse
The economic recovery from the 2008 financial crisis has been slow and unsteady. This is unlike previous recoveries, where U.S. GDP growth was 4 - 5 percent a year. There were also lots of employment ads in the newspapers. Both housing prices and the stock market took off, and people felt like the future was bright.
In this recovery, things are more uncertain. Growth is slower, and the real unemployment rate remains stuck at high levels.
Federal Reserve Chair Janet Yellen points out that there are too many people with part-time jobs that would prefer full-time ones.
Even the full-time jobs that are available are in lower-paying industries, such as retail and restaurants. Most Americans have yet to regain their pre-recession income, household wealth, or 401(k) levels. For these reasons, there are just as many people pointing to a coming collapse as there are saying things are getting better.
Who do you believe? Here's how to sort through the noise, find the truth, and take the steps that will benefit you the most right now.
Is the Economy Getting Better...
Here are the 5 main reasons why it looks like the U.S. economy is getting better:
- The stock market set new records in 2016. It grew faster in 2013 than in any other year. For the most recent high, see Dow Closing History.
- Housing prices are headed in the right direction. Prices in many areas have exceeded their 2005 highs. Houses are selling at the same rate as they were in 2007, nearly 5.5 million units a year.
- GDP has mostly been in the healthy 2-3% growth range. For details, see Current GDP Statistics
- Auto sales are up, thanks to low-interest rate loans. American automakers benefited the most, creating more well-paying jobs.
- Business confidence is at a 10-year high. (Sources: NYT, , September 5, 2013. Chicago Tribune, September 19, 2013)
Here are the 5 main reasons it looks like the economy is getting worse:
- Most people aren't feeling any better off because their incomes haven't improved since the recession. In 2012, the median household income was $51,017. That's about the same as it was in the 1980s once you've adjusted for inflation. However, those making more than $190,000 a year are making the same as they did before the recession (again, adjusted for inflation). (Sources: New York Times, , September 17, 2013)
- Although the unemployment rate is still at 5%, the real unemployment rate is much higher. That's because the official rate only counts people who are actively looking for work. Many people have dropped out of the labor force. In other words, nearly six million fewer people are employed today than just four years ago. We need to create about 200,000 jobs per month for nearly three straight years to get the employment level up to the 2007 level.
- The greatest increase in government spending is “entitlement” spending, mostly Medicare and Medicaid. Our national goal has been to reduce healthcare costs, not increase healthcare spending. Unfortunately, we’ve only accomplished the latter, not the former. Medicare now accounts for 15% of the total federal budget and 21% of total national health care spending. The Affordable Care Act promised to reduce health care costs. So far, the report is mixed.
- The U.S. debt is unsustainable. That's because it's more than America's total economic output. When the debt-to-GDP ratio is so high, lenders wonder whether they will get repaid. They also worry that taxes will need to rise to pay off the debt, slowing economic growth. This debt burden makes a country's economy more vulnerable to weakness.
- The United States is letting its infrastructure rust. This includes roads, dams, and bridges. Many of these were built as part of the New Deal in the 1930s. Investment in the American labor force is also slipping. It's sad but true, but the U.S. isn't graduating enough software engineers to meet the needs of Silicon Valley. Many of these high-paying tech jobs are being outsourced to foreign-born workers instead. That makes it harder to support the entrepreneurship that is America's #1 competitive advantage.