15 Years of Economic Growth—And Not

NEW YORK CITY—In many respects, the world was a different place in the year 2000. It was the dawn of a new millennium, the Y2K fears were over (and unfounded) and optimism reigned supreme. In terms of the economy, the US was soaring on growth, as both businesses and individuals enjoyed prosperity coming out of two terms under the Clinton Administration.

As the year 2000 started, the US economy had been growing at an average rate of more than 3.5% annually since 1991, when the expansion began. In fact, as of 1995, US economic growth averaged about 4.5% a year. As of February 2000, the economy had seen 108 straight months of growth, surpassing the prior growth record set in the 1960s.

Employment, too, was booming; with the country adding about 2.5 million jobs to payrolls every year since 1991. The unemployment rate had fallen as well, from over 7% to a 29-year low of just over 4%.

By year's end, however, the mood had changed. The much-debated presidential election was over and the nation awaited a victor far beyond Election Day. The stock market slumped with a mini tech crash, issues in the Middle East increased oil prices, the Fed bumped up interest rates and all economic indicators turned negative. Uncertainty plagued not only those in the political and business arenas, but also the average US household.

One can say that was the beginning of the rift that emerged in both political and social circles in the US. The country started dividing among party lines as the right grew more conservative and the left, (comparatively) more liberal. The economy floundered. By the time we were ringing in 2001, GDP growth had dropped to half of what it was 12 months ago, to 2.2%, and companies across the nation were announcing potential layoffs and cutbacks.

The decade and a half since then has seen its fair share of ups and downs, as the economy expanded, retracted, slumped and soared. Despite the rocky path, commercial real estate has come out in relatively good shape, as investors of all stripes funneled capital into the tangible assets. Real estate became a must-have part of an investment portfolio, rather than a niche alternative.

Stepping back to get a macro perspective, we compiled historical data from the US Bureau of Economic Analysis to gauge just how much—and in what ways—major US economic indicators have changed over the past 15 years.

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GDP was on a roller coaster ride since 2000, but luckily the last severe dip was in 2009, which led to a climb up from the trough. Since 2010, GDP has been steady, with slight upticks and dips.

By the time the revised numbers came in, the BEA reported that real gross GDP fell 20 basis points in the first quarter of 2015, after growing 2.2% in the fourth quarter of 2014. Much of the Q1 dip was due to declines in exports of goods, in business investment and in state and local government spending. That was partially offset by an increase in consumer spending, especially on services such as healthcare and on housing and utilities.

As of May, real consumer spending—adjusted for price changes—saw a 60-basis-point increase after remaining flat in April. Spending on durable goods increased 2.3% in May. 

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According to the BEA data, personal income levels (in blue) have been steadily rising since 2000. However, wages (in gold) have been growing at a lower rate. Combined with unemployment, the US wage growth—and capacity to spend—has been stagnant, at best. In fact, this remains one of the major top-of-mind issues for the economy as we look ahead to the next few years. More telling of the ambiguous nature of our economy is personal saving (in red), which is pitifully low, especially when taken as a percentage of overall income (in gray).

At the end of the first quarter of 2015, real disposable personal income—defined as personal income adjusted for inflation and taxes—increased 5.3%, up from 4.1% in the fourth quarter of 2014. Meanwhile, personal saving as a percentage of current-dollar DPI was 5.4%, compared with 4.7% in Q4. It's currently hovering in the low-5% range.

As of May 2015, personal income rose 50 basis points, the same increase as in April. Wages and salaries, the largest component of personal income, also increased by half a percent in May, after rising 30 basis points in April. Yet real DPI rose just 0.2% in May, just half of what it rose by the prior month.