Five years into recovery--
Europe deals with deflation fears… EU voters elect right wing anti-EU candidates: The talk is Europe finally has started to rev up, but then you read these headlines. Unemployment remains high—it’s even increasing in stalwart Germany and GDP is hardly better than anemic continent-wide.
U.S. housing price increases slow down… Housing starts lag: The talk is housing is improving. Prices are way up in some formerly crash-and-burn markets like Phoenix (still 30% off peak) and Las Vegas (44% off peak), but that closer look shows they remain way off market highs. Prices have recovered to past peaks or above in some less boom-bust markets like Denver and Dallas, but much of the buying action is for all cash with limited available inventories. Higher mortgage rates, the prospect of increasing interest rates, and stricter credit standards all stand as hurdles in the way of many buyers, who just cannot afford to be owners. If the numbers of sellers increase, price escalation probably will slow. So yes, the housing market is better, but recovery is spotty and more Americans must view their home as a nest, not an investment nest egg.
U.S. unemployment rate falls, but wages stay at or near 2002 levels: The talk is realistically mixed and not particularly optimistic. Even though the unemployment rate has dropped, fewer people are in the jobs market and average worker compensation has remained stuck in place for more than a decade. The average Joe or Jan, meanwhile, pays more for health coverage and many college grads entering the workforce are saddled with student debt, eating into their spending power.
China lowers growth forecast: The talk is all about how the government can control the economy so don’t worry about all the bad debt, empty buildings, lowered demand for goods, and rampant air and water pollution. Hey, the growth rate is still pegged at around 7% for this big engine of the intricately-connected global economy. And you believe that? The government indeed controls what it forecasts.
U.S. retail sales are below estimates: The talk is the cause is weather related—the cold winter and all those snow days keeping people out of stores. But let’s face it, the average American continues to struggle and has less to spend, especially since easy credit is harder to obtain. Charging what you cannot afford is harder to do.
Inflation is under control: The talk is the Fed can keep interest rates low, because inflation is under control. But have you been in a supermarket lately? Dairy, fish, meat and produce prices seem to have jumped recently. All the packaged goods shrink in size, but the prices don’t. Health care costs may be slackening, but we all pay more out of pocket. And gasoline prices have spiked again.
Now consider that from the end of World War II until 2007, the average U.S. recession lasted 10 months, while the average expansion lasted 57 months (four years and nine months), for an average business cycle of 67 months or about 5 years and seven months. So based on the averages we may be approaching the end of cyclical expansion.
If we are nearing the peak, it’s not been much of a climb.
For an irreverent take on the macroeconomic environment, check out GlobeSt.com's Chief Economist authored by Dr. Sam Chandan.