The last four years are actually fairly typical of a post-financial crisis recession. The overall economic system was burdened with too much debt that had to be paid down (for the latest on this, see this post from NDD). However, there are several positive signs that the worst is over.
No matter who wins the election tomorrow, the economy is on course to
enjoy faster growth in the next four years as the headwinds that have
held it back turn into tailwinds. Consumers are spending more and saving
less after reducing household debt to the lowest since 2003. Home
prices are rebounding after falling more than 30 percent from their 2006
highs. And banks are increasing lending after boosting equity capital
by more than $300 billion since 2009.
“The die is cast for a much stronger recovery,” said Mark Zandi, chief economist in West Chester, Pennsylvania,
for Moody’s Analytics Inc. He sees growth this year and next at about 2
percent before doubling to around 4 percent in both 2014 and 2015 as
consumption, construction and hiring all pick up.
Hiring in the U.S. increased more than forecast in October as employers
looked past slowing global growth and political gridlock at home. In the
last jobs report before tomorrow’s election, the Labor Department said a
net 171,000 workers were added to payrolls, beating the 125,000 median
forecast of economists surveyed by Bloomberg.
Households seem increasingly inclined to side with the optimists,
preferring to see the economic glass as half-full rather than
half-empty. Consumer confidence climbed in October to a more than four-year high as Americans took comfort from an improving job market, according to figures from the New York- based Conference Board.
While U.S. sales of cars and light-duty trucks will suffer temporarily from the disruption caused by Hurricane Sandy,
the industry “will have a strong fourth quarter and continue growing
next year,” Kurt McNeil, vice president of U.S. sales for General Motors Co. (GM) in Detroit, said in a Nov. 1 conference call with analysts.
credit terms are contributing to the rise in consumer spending. Banks
reported that they continued to ease standards on auto loans and credit
cards last quarter, according to a Fed survey of senior lending officers.
For me, the big issue has been the rebound in the housing market which has been occurring all year. The inventory/sales ratio is now far more in line with its historical average. NDD has been focusing on this as well, with both of us agreeing that a bottom is probably in.
Also consider the paying down of household debt and the improving auto sales picture. Both of these indicate that households are getting on a far firmer financial footing, thereby allowing them to spend more. And considering the personal consumption expenditures on durable goods are still strong, it appears that households are more confident in the future.
The big wild card we now face is the fiscal cliff. Of course, we should probably get through the election before we start worrying about that.