Is the Economy Getting Better or Worse in 2013?

Sunrise

That’s a question that’s on a lot of people’s minds these days. There are signs of improvement in the economy, but there are an equal number suggesting that we’re doing little better than bumping along the bottom. News reports don’t seem to be adding any clarity to the situation either. Superficially, the statistics are definitely pointing toward improvement, but secondary numbers often tell a very different story.

Let’s take a quick look at the evidence and arguments for both better and worse in the economy for 2013.

Signs the Economy is Getting Better

It seems as if all indicators that have a number attached to them are pointing toward a better economy. There’s been steady improvement across the board since the recession hit bottom in 2009.

Unemployment is dropping. In the most recent report, unemployment has fallen to 7.6%, down considerably from the Great Recession peak of 10.0% in October of 2009 (though technically the recession ended in June of 2009).

GDP is reflecting growth. For better than three years the gross domestic product (GDP) of the U.S. has been reflecting steady if unspectacular growth, ranging from 1.6% to 2.8% per quarter. It’s been strong enough to generate job growth and increase corporate profits without igniting inflation or causing interest rates to increase.

The housing market is showing definite signs of recovery. According to Zillow.com, house prices rose by 5.9% in 2012, and are projected to rise an additional 3.3% in 2013. In addition, the number of foreclosures is in sharp decline.

Look at that stock market! The Dow Jones Industrial Average (DJIA) currently sits well above the 14,000 level. At the bottom of the last stock market crash, in March of 2009, the Dow dropped as low as 6,547. Translation: The Dow has more than doubled in just over four years.

Why the Economy May Actually be Getting Worse

Once we get past statistics, and even if we take a deeper look at those, the story gets more complicated.

There’s still too much stimulation required. We’re into the third round of quantitative easing, also known as QE 3, and this one was only started in December of 2012. Under this program, the Federal Reserve (the Fed) is buying up to $85 billion per month in U.S. Treasury securities and mortgage agency debt in an effort to keep interest rates at near zero levels. We should be asking why such an initiative would even be necessary if economic growth is so solid.

Record low interest rates are telling a very different story. Continuing on that same theme, interest rates are not just low, they’re as low or lower than they were in the depths of the Great Recession, and lower than they were during the Great Depression of the 1930s. These are the kind of rates that the central bank would only implement during a very bad economy. Normally, after four years of steady economic growth, interest rates would be rising as inflationary pressures and demand for credit build. Neither is in evidence.

There are some things the official unemployment number is hiding. The recent improvement in the unemployment rate seems to be even more significant for what it doesn’t reveal. The rate has mainly been falling because potential workers are dropping out of the workforce, far more than because of the creation of new jobs. In March of 2013, the unemployment rate dropped from 7.7% the previous month to 7.6% – not so much because the economy created 88,000 new jobs, but more because nearly 500,000 workers left the job market.

This is a trend that has been going on since the labor participation rate peaked in 1979. As recently as 2000, the rate stood at 67.3%, but is now down to 63.3%. In addition, there is increasing focus on the under-employment rate. This includes people who are working part-time but want to work full-time, and this percentage is somewhere in the 14% range.

The housing market is still weak. While the housing market is showing improvement overall, much depends on location. The fastest price appreciation is taking place in markets hardest hit by the financial meltdown, and may be more a bump off the bottom than anything else. In many markets, price levels are stagnant or continuing to fall. And we have to ask the question, with mortgage rates below 4%, why isn’t the housing market booming across the board?

What does this all mean?

We’re looking at very mixed signals on the economy. While it’s certain that economic conditions are better than they were in 2009 or 2010, the improvement is far less than spectacular. This recovery is moving at a much slower pace than previous recoveries, which is all the more apparent since the last recession was so much worse than it’s predecessors.

There is also the emotional factor – this recovery just doesn’t feel very solid. Job creation is weak outside government, education and healthcare, and job security seems non-existent. Meanwhile, the fiscal cliff tax increases have yet to be fully felt in the economy, and the federal government continues to run on trillion dollar deficits. None of that is the stuff of booming economies, and would seem to leave us in a weakened state going into another recession – which always seems as if it’s right around the next corner.

What are your thoughts on the economy this year? Better, worse – or something that’s beyond logical explanation? Leave a comment!














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24 Comments
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  1. I’d like to think that the economy is recovering, but because of the points you mentioned above I’m not sure it is. That being said, we are definitely in a better spot now than we were 4 years ago, so I’ll take that as a sign of some improvement. Hopefully we’re on the road to recovery, even if it takes a while.

    • Hi Jake–I’m largely with you, my own situation is better than it was 4-5 years ago, and yet there are still signs in the big picture that are showing weakness, I mean more than you’d expect at this point.

  2. When your unemployment runs out, you are considered “no longer looking for work.” That kind of recording bothers me. Next, we need 100-150,000 jobs a month for population growth. Right now, a lot of employers are cutting full time to part time help so Obama Care will not be required. No one can tell you what the required cost will be for Obama Care. SS in the Great Depression was 1% and that caused a double dip. I was again in Florida and the thousands of 4 sales signs disappeared. Not because sales were so good, but because people were convinced by real estate people that it made people look desperate. I agree. But I still would have my pick of a dozen houses on any block. There is still a “docking dilemma” in Fl for the yachts. So, it depends upon where you are, as in a hurricane, to see if the economy is better for you or not. The cheap Fed. money is to dry up in 2015 and that will mean interest rates will go up. We shall see.

    • Hi Joe–I don’t think the housing market is that bad where I live, howover, the one thing I have noticed is that so few houses are up for sale. In fact in many neighborhoods, the “for rent” signs outnumber the “for sale signs”. I don’t know if people are listing homes without using signs, or if they’re opting not to sell because they’ll lose money on the sale or some other isssue. This is the weirdest economy I’ve ever seen.

      • As I said, it depends upon where you are. My house was worth about $300K at one time. Down the block, a clone of my house sold for $132,000 in 2012. I paid $69,000 in 1979. In my case, it makes no difference, because I’m not moving. My real estate taxes went from $495 to almost $6,000 over those years and a 7% increase by law is almost certain every year. Going from a renter to a home owner is a great move these days. I bonds used to pay 2% over the COLA. Now they are below the COLA. I see the prices in the grocery store. The COLA is a lot more that 2%. We are truly in uncharted waters.

        • You’re highlighting a lot of imbalances, and that seems to be a big part of the problem. Expenses are rising at a time when raises aren’t there, let alone well paying jobs. Meanwhile the elderly are suffering from a lack of dependable investment income. We have to remember that no matter how well the stock market is doing, the elderly are mostly invested in fixed income for safety of principal. But the returns just aren’t there. That’s also a drag on the economy.

  3. S.R. Watkins

    Whatever “recovery” there is, is a false one. It is a matter of “any time now” before we see a MAJOR stock market correction. All of the economic indicators are there. Then, look at it from a spiritual perspective by reading “The Harbinger” by Jonathan Cain. The depression will be here between now and September of 2015.

    • I agree, the stock market is looking top heavy. But we have to keep in mind that it can continue to rise as long as the Fed keeps the zero interest rate policy going, and it’s bond buying program. As long as rates stay low, there’s really nothing to keep money from flowing into stocks. Fixed interest investments offer zero return.

      • The Fed is boasting the market with its $85 billion dollar monthly buy back of bonds. When they stop, the market will drop like a rock as it always does. This “strategy” if you can call it that, is all about short term gain and there will very much be a long term pain. A fallen market with billions of dollars lost and then inflation; big time….

        So what do we do? GET OUT OF DEBT at any cost. Downsize…whatever it takes. (debt is not biblical anyway)

  4. Julie

    I’ve always wondered how do people “leave the job market”?
    Someone here mentioned unemployment runs out, but what are the other explanations?

    • It just sounds better to say they are no longer looking for work. If 100,000 people lose benefits and another 100,000 lose their jobs and get benefits, then the unemployment rate does not change. Slick way to make things look better. Business are doing better because they can cut wages and benefits while not decreasing prices so their profits are higher. The market is now the emerging 3RD world. The USA is not a big market compared to 1 billion Indians and 1 billion Chinese. Look up the history on government I bonds that were supposed to pay 2% above inflation. The inflation rate some years was NEGATIVE. Thus no interest was paid. Have you notice negative inflation? Government does not tell the truth.

    • Hi Julie–Joe’s explanation is right on the money. But I think some people actually do give up trying. Job hunting is a humbling experience, and sometimes you can feel so beaten down by rejection that you decide that dropping out of the hunt is preferable to carrying on. I’m guessing that some move in with family, some work “off the books”, and some may even opt for homelessness, but that’s just a guess.

  5. economy seems worse for me. Increasing health care costs and rising food prices.

  6. Joe,
    Old guy here – and I absolutely agree with you. God help AMERICA!

  7. Dick Morrison

    Respectfully speaking……….. This article is nothing more than “common knowledge” to be absorbed by each indidual’s degree of wisdom and common sense!

  8. Hi Dick–I like to think that it’s common knowledge as well, but it’s still worth repeating. In general, the government and the media are putting the happy face on everything, but so many people are experiencing something very different.

    Last week I met a guy who worked in a grocery store who used to be an engineer. And I’m seeing middle aged men waiting tables in restaurants. A friend of mine just got her pay cut in half and her company is on the verge of closing up shop. I’m also seeing neighborhoods with more “for rent” than “for sale” signs, and I live in an area that supposedly has a solid housing market. On the flip side I know of very few people who have gotten promotions in the past year.

    It’s a confusing economy to say the least.

  9. Worse

    My husband and I own an independent house building company. We used to build 4-7 spec homes per year. “Spec” is when a builder builds a home with his/her own money and then hopes and prays it’ll sell.

    For the last 5 years we’ve scaled down to only 1-2 per year because the economy is too unpredictable. Forget how this has effected our income.. let me give you a little perspective on our sub-contractors.

    Our framer is a father of five with a stay at home wife. Now of course he has expenses.. but we used to pay him approx $60k – $105k per year.. and now only $15-30k.

    Now multiply that across the board with all our subs. Also, think of all that money NOT going into the economy via consumer consumption because they don’t have the money to spend now.

    I thank God every day (sometimes more!) for my online business.

    ~ darlene :)

    • Hi Darlene – Those sub contractors prove the point on unemployment. All will be considered as employed (because the still have a paycheck) but at income levels up to 75% less than what they had a few years ago. I’d call them under-employed.

      Your online business is an excellent example of broadening the income base. I think it’s time we all focus on that.

  10. For somebody it is better. There seems to be no shortage of new cars on the road. There is a docking dilemma in FL. I have no clue as to how they prosper. But I have a list of people that are on the rocks.

    • I’ve seen that as well, and that’s what makes it so confusing! I’m going to venture a guess though that most of the new cars are being sold to the top 10% of households. They’re the usual buyers of new cars, but the super low interest rates we have are an additional incentive. Not sure we can consider new car sales to be a leading indicator. Still, it’s not a bad sign either. We’d be in much worse shape if car sales were still in the cellar.

  11. How I wish that the statistics the government is showing through media are true, but there is an irony to all these base on my personal point of view. I see a lot of beggars in the streets and their numbers are rising and I even ended up interviewing some of them. The main reason why they beg is they don’t have a job to sustain their existence.

    thanks for sharing

  12. I think the main reason that unemployment has gone down is because so many people have dropped out of the working world. I have a few relatives that just had it. Fortunately for them, they are eligible for social security since they are all past the minimum retirement age. And they keep mentioning in the media about all the jobs Obama has created each month, but they never stop to think about the number of jobs still being lost is at a much higher number. Obama has been nowhere near as good a president I thought he was going to be. But at this point I don’t know if even the best president ever would be able to fix all of these problems. All we can do is believe in The Lord and hope that he has a good plan in store for us.

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