Sunny with Dark Clouds?

Sunny with Dark Clouds?

If that headline feels like a weather forecast contradiction, you’d be right. The same can be said about the forecast for the U.S. economy, which might read something like “Super Positive. But Doesn’t Feel That Way.” As 2014 winds down, I’ve been spending some time researching and thinking about what 2015 might be like, both for BlueSky and for our clients. My basic question was, where is the U.S. economy headed? The answer I arrived at was surprising. It was full of contradiction. And it represented a sharp contrast between what the numbers said and how most of us feel.

Job creation and hiring are typically cited as key indicators of the state of our economy. A snapshot of the unemployment rate in the U.S. covering the recent past would show that the jobless rate is generally trending down. More people who were once out of work are finding gainful employment. That should help create a sunny economic outlook, right? Yes, it should.

There are other positive economic indicators adding even more upside to the statistical optimism. The Dow and the S&P are at all-time highs, climbing nearly 100% over the last five years.  Housing, in most regions, has recovered to pre-recession levels. In conjunction with the falling unemployment rate, things should be looking pretty good, right? Yes, they should.

So with all that sunshine why do things feel so dark and gloomy? All the numbers paint an optimistic picture yet for your average American, times still feel tough. Yes, unemployment is down and American businesses are creating new jobs. But for some key segments of the population, finding a job is still a major challenge. The stock market has soared over the last few years yet investors remain skittish and uncertain. Do they know something the rest of us don’t? And the housing market is also somewhat of a mystery. The numbers show a recovery to pre-recession levels but if you ask anyone who has recently tried to buy or sell a home, it’s not all roses.

So maybe the contradiction in what the economic indicators say versus what many Americans are experiencing day to day is the contributing factor to that feeling that something’s just not quite right with the economy? I’m no economist, but I decided to dig a little deeper and see if I could identify some fundamental issues that were raining on an otherwise positive economic parade. Here’s what I came up with.

  1. The young, educated work force is struggling. While it’s true that general unemployment is down, it’s not true for all segments of the population. At BlueSky, we’ve never seen a time when it was more difficult for recent college grads and educated mid-twenty somethings to find a job. Young people are our future business leaders and represent a rich source of innovation and positive change. They also comprise most of the first-time home buyer segment and their ability to secure a career and purchase a home is a key stimulus that drives spending and our economy forward. There is some good news here, however, as the job market is getting more active for a couple of reasons. Information Services is revving up and represents the hottest recruiting sector with a projected 51% increase in jobs over last year. And Baby Boomers are on a mass exodus from the work force, retiring at a rate of 10,000 people per day. A source at Georgetown University projects that changing of the guard will help create upwards of 30 million jobs by 2020.
  2. Wages for many Americans are flat or falling.  If you compare the first half of 2014 with the first half of 2007 you will see that wages for the vast majority of American workers are relatively stagnant at best, declining at worst. This fact applies to nearly all segments of the job market including those with a bachelor’s or advanced degree. At the risk of over-simplifying things I will fall back on the old adage “You have to spend money in order to make money.” Poor wage performance means that many Americans have less disposable income to spend. Spending drives our economy. Some experts would argue that this stagnation of wages is the central economic challenge in pushing our economy forward. Again, there is some good news here but it comes with some less than good news. Four states have passed ballot measures to increase the minimum hourly wage and other states are considering similar legislation. The dark cloud to that silver lining is that even with the increase the new, higher minimum wage still won’t catch up with the rate of inflation.
  3. Credit remains difficult to get. This is especially true in the housing market where obtaining a loan is still incredibly difficult for most Americans. Looking at some stats from Ellie Mae, the average rejected mortgage borrower offered an 18% down payment and had a credit score higher than 40% of the population. Yet banks are not writing loans for people who have cash on hand and reasonable credit even though the risk is very low. The housing segment is in sharp contrast to the automotive sector which has bounced back largely due to more readily available credit. Here too, there is some potential good news for home buyers. The federal government is set to step in and clarify rules around lending for Fannie Mae and Freddie Mac. This clarification should improve the ability of potential borrowers like the ones cited above to secure a home loan.

More jobs, more disposable income and more people obtaining credit and purchasing homes will definitely have a positive impact on our economy in 2015. These are real world, everyday things that each of us deals with at some point in our lives. For most Americans, they are far more significant and meaningful than statistics or macroeconomics. They are proof positive that there is room and reason for optimism for both the U.S. economy and our own personal economic situation. My hope is that what we hear about our economy and what we experience on a day to day basis reach a greater level of alignment in the coming year. Here’s to a 2015 that not only looks brighter, but feels brighter.

 

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