Thursday, November 14, 2013

A Five Year History

It's been over five years since the heart of the financial collapse.  The cleverly named "Great Recession" sits well behind us and the economy seems well on it's way towards recovery.  Yet, it's often difficult for individuals to get an idea of what direction the economy is trending.  A variety of groups try to promote the economy as either flagging or healthy depending on their own political agenda. In hopes of bringing a little clarity to the issue here are some unbiased metrics of our progress over the past five years.


Before the financial collapse US unemployment levels were on the decline from 6% and bottomed at approximately 4.5%.  The collapse cause unemployment levels to rise rapidly to nearly 10% in late 2009 to early 2010.  Since then unemployment has fallen to current levels of 7.3%.  

Clearly we're still well above the low unemployment that was enjoyed in the mid 2000s.  However, seemingly we've made it almost half way back to where we were before the fall of Lehman Brothers.  While, the declining rate does seem encouraging there is a large caveat.  Approximately 3% less of the American public is working or attempting to find a job as compared to 2008.  Thus although less people are unable to find a job, less people are trying as well. Therefore the decrease in the unemployment rate is not quite as positive as it first appears.


Between 2008 and 2010 the US experienced negative growth in five out of eight quarters.  In the subsequent twelve quarters (including projections for the current quarter) the US economy has retracted one quarter, experienced essentially no growth one quarter, and grown at a rate of over 1% for the remainder.  

This amounts to rather unequivocally positive news.  In comparison France has had growth rates of under 1% in nearly every quarter over the same period including several periods of negative growth. Australian growth rates have been largely positive but again under 1% for the same period and Japan experienced growth rates over 1% in seven out of twelve quarters (again with several quarters of negative growth). In comparison to other developed nations the US has shown comparatively strong growth over the past three years. 

Arguably the strength of recent US growth is in large part due to the depth of the plummet in 2008 and 2009.  As the US economy suffered far more during this time period it is not unreasonable that regression to the mean would appear as a strong recovery.  There is merit to this idea, however the reason for the recovery is irrelevant when attempting to establish the state of the economy in comparison to itself five years ago. 


The most commonly cited indicator of inflation or deflation in economics is the consumer price index.  The CPI is an attempt to measure price levels of a general basket of goods.  If the price levels of these goods rapidly rise than inflation is thought to be a problem. Similarly if the prices rapidly fall than deflation is a concern.  Many groups have attempted to make a case that the governments current loose monetary policies would lead to a runaway inflationary spiral.

Although current monetary policy remains very loose (meaning the cost of money is very low and the supply very high) there is no evidence that inflation has risen to levels that are cause for concern.  Going forward continued monetary easing may or may not lead to inflation. However, at this point inflation rates are not alarming and are in fact essentially where economists would hope they would be.


Overall the US economy seems to be on the path to a slow but consistent recovery. Changes to the countries health care system are the largest looming issue but otherwise little gives cause for real concern in the near future.  Especially in comparison to most other developing counties the United States seems to be doing well.  Consumer confidence remains lower than mid 2000 levels but has been trending upward since 2009 and if trends continue will return to pre crisis levels around 2015.  

While caution is always wise, particularly during a delicate recovery, there seems to be more reasons to be bullish than bearish.  As always the political climate could send trends askew, but failing that my expectation is that economic indicators will continue to show improvement.

That's all for this week. Until next time stay safe and rationale. 

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