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The Broad Economic Recovery

It is hard to imagine more than five years have passed since the United States economy and equity markets crashed in late 2008 and early 2009. Although the stock market has recovered from the great recession, it is worthwhile to review the extent of our overall economic recovery.

From the market bottom in early March of 2009 through August of 2013, the Standard and Poor’s 500 has provided a total return of 175% including dividends. Interest rates measured by the 10 year U.S. Treasury note are about 1% lower than in the summer of 2009. Clearly the financial markets and the U.S. banking system are much improved from 2008. Strong Federal Reserve and Treasury Department emphasis towards recapitalization and stress testing have strengthened the financial system.

Progress has been mixed in more cyclical sectors of the economy, with the automotive segment showing a strong recovery. Both light vehicle sales and Real Capital Goods orders have returned to slightly above the 20-year average. The recovery in housing is decidedly mixed, however. Home prices began to recover in 2012 and, according to the Case Shiller 20 city price index, home prices are up about 9% for 2013. But new housing starts are still 33% below that long-term average—an important point as housing starts have a strong impact on employment.

Consumers have also used the past few years to deleverage and repair balance sheets. A household’s net worth in the second quarter of 2013 exceeded the previous peak in the third quarter of 2007, and while net worth is rising, debt payments for the consumer as a percentage of disposable income have dropped to the lowest level since the mid 1990s.

The least effective recovery can be found in employment. Although 6.9 million jobs were created since the recovery began, 8.8 million jobs were lost during the recession—leaving 1.9 million Americans still seeking jobs after five years. Unemployment stands at 7.4%—not counting those who have abandoned the workforce—but unemployment rates are further split along educational levels. 11.1% of individuals with less than a high school degree are unemployed versus 3.8% for those with a college degree or greater.

The data shows this recovery has not been broad or deep, and suggests a sub-par recovery will continue. The Federal Reserve has pumped as much money as possible into the economy to very little appreciable effect. Main issues—like wages and income—will only improve once employment recovers. Business leaders see uncertainty and companies do not want to embark on long-term hiring until a stable outlook is achieved. In a slow-growth, volatile economy, it is more important than ever to partner with a team that can help ensure you meet your goals. Contact your Busey Wealth Management representative today.

 

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