Economic Recovery Is For Real

Popular Economics Weekly

We are already in July, and can now see that the US economic recovery is for real, in spite of the past winter. Even economic growth is picking up, so that second quarter Gross Domestic Product might surpass 4 percent, cancelling out the minus -2.9 percent decline in Q1. Many economists believe that Q1 was an aberration, or may even have been in error to be revised upward in coming months.

gdp-1

Graph: Marketwatch

Consumer confidence is also returning to normal, though its index was as high as 110 in the 1990’s the index has yet to return to 90, which prevailed before the housing crash. The final Reuters / University of Michigan consumer sentiment index for June increased to 82.5 from the May reading of 81.9, and was up from the preliminary June reading of 81.2.

sentiment

Graph: Calculated Risk

Consumer incomes and spending have also to increase, since they are the largest component of economic growth. Right now, so-called Real Disposable Income (after taxes and inflation) is just at 2 percent, and it must rise at least to 3 percent to increase the GDP to 3 percent plus, and so fuller employment.

income

Graph: Econoday

How soon may that happen? Much will depend on GDP growth in the coming months, and that will depend on a continuing housing revival. Existing-home sales are back to 5 million units annually and prices in the West are rising most sharply, according to the latest New York Federal Reserve consumer survey, with cities such as San Francisco, Los Angeles and San Diego up double digits.

So there is no problem with upper income buyers. It is the entry-level, first time homebuyers that are having the most difficult time, says NAR chief economist Lawrence Yun.

“The flourishing stock market the last few years has propelled sales in the higher price brackets, while sales for homes under $250,000 are 10 percent behind last year’s pace. Meanwhile, apartment rents are expected to rise 8 percent cumulatively over the next two years because of tight availability,” said Yun. “Solid income growth and a slight easing in underwriting standards are needed to encourage first-time buyer participation, especially as renting becomes less affordable.”

Even better news was that perceptions on earnings and the job market seemed to improve. Median earnings growth expectations increased to 2.5 percent from 2 percent, driven mostly by respondents with no college education. The mean probability of finding a job in three months among the currently employed (if current job was lost) rose to 51.8 percent, a new 13-month high, the New York Fed said.

Harlan Green © 2014

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

About populareconomicsblog

Harlan Green is editor/publisher of PopularEconomics.com, and content provider of 3 weekly columns to various blogs--Popular Economics Weekly and The Huffington Post
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