It seems like a betrayal of the “dismal science” to give a relatively optimistic current economic analysis and forecast. However, it is what it is. Or, possibly, there is more than what the economist sees and, lying behind this new age of prosperity, is a mix of wealth and poverty.
The last quarter GDP grew at an annualized 3.5 percent with the 12-month GDP return at 2.3 percent. The stock market has hit all-time highs, with the Dow Jones Industrial Average — although subject to ongoing volatility — edging toward the 18,000 mark and the S&P over 2,000. The U.S. dollar remains the world’s foremost reserve currency with the euro checking in at $1.23, down 8 percent from October 2013.
Economic growth has helped push the U.S. budget deficit down to the lowest level since 2008, resulting in treasury borrowing declining to its lowest level since 2007. Labor has seen the longest growth period post-WWII.
From its peak of 10 percent in October 2009, the unemployment rate has fallen to 5.8 percent. Productivity in the third quarter of 2014 was up 2.3 percent while hourly compensation increased 1.3 percent. The share of Americans who are working rose to 59.2 percent in October, up a full percentage point from a year earlier. Currently, there are 698,000 discouraged workers, down 150,000 from October 2013. Black unemployment was 13 percent in September 2013 and is now 11 percent. Here in Grand Rapids, employment is up 3 percent from one year ago.
If you’re still searching for bad news, join those economists who love to look beyond the widely published U2 rate to U6, the measure of broader unemployment that includes discouraged workers and those marginally attached to the workforce. This rate fell to 11.5 percent from a high of more than 17 percent in 2009.
On the commodity side, oil is below $50 per barrel ($105 in October 2013) pushing retail gas prices per gallon to $2 from $4.06 in July 2008. Interest rates remain at historic lows with the discount rate at 0.75 percent; federal funds rate 0.09 percent; mortgage rates 4.22 percent; and the prime rate stuck at 3.25 percent since January 2009.
Consumers have benefited from lower energy costs, low interest rates and an increase in home equity (back to summer 2008 levels), resulting in a cumulative effect of increasing the net worth of U.S. households from $73,814 in 2013 to $81,493 in 2014. So everyone, on average, reading this is $8,000 wealthier than last year. It’s no wonder consumer confidence is 94.5 (a seven-year high), rebounding from 72.4 in October 2013.
How could anyone complain about such robustness?
Several major countries are experiencing slow or no growth even as they try to follow the U.S. down the yellow brick road paved with stimulus dollars. The U.S. bond-buying program, while ending in October, has left the U.S. Federal Reserve holding $4.53 trillion, of which $3 trillion comes due in five years or more. Quantitative easing is alive and well in Sweden (zero interest rates), the European Union (balance sheet of 1 trillion euros and the interest rate 0.05 percent), Iceland and Japan. The Russian currency is in a freefall and GDP is forecast to drop 5 percent, indirectly pushing Swiss deposit rates to -0.25 percent in order to thwart Russian rubles flowing into the country.
While both the job market and average wages have improved, most Americans haven’t shared in the gains in equity or pay. Adjusted for inflation, the July median household income of $54,045 was $2,100 lower than 2009; $2,600 lower than in December 2007 when the recession began; and $3,600 lower than 2001.
While we continually experience global economic repercussions, we live and work locally. In Michigan, we’re getting older, not much wiser, and only marginally better off financially. The state has lost population in the critical under-18-years-of-age demographic while growing in the group over 65. Growth in personal income is 1.5 percent, putting Michigan dead center at 25th among states. The percent of children living below the poverty level in Grand Rapids is 26.8 percent, compared to the national rate of 14.9 percent.
For 2015, GDP growth will be 2.5 percent due to ongoing tensions, war, and terrorism in the Middle East; continued turmoil in Ukraine; and worldwide competitive stimulus policies purposely attempting to increase exports alongside building domestic demand.
Central Bank interest rates will remain at or close to zero as the Fed attempts to keep both business and markets calm. Employment will increase, but growth will continue to be in second-choice jobs and part-time work. Stock markets will continue their volatility as they try to synthesize corporate profitability, central bank policy, global influences and expectations, whether rational or irrational.
Finally, what defines our lives and standard of living — or is it all about economics?
If it’s GDP, then we should all want to live in the world’s wealthiest country on a per capita basis: Lichtenstein. If it’s happiness, then we should move to the planet’s happiest country: Costa Rica. If it’s the most religious place on earth, then it’s Vatican City. If it’s volunteering and sharing as a percent of GDP, the Netherlands is the earth’s most philanthropic place.
Human capital is essential to economic growth, and I believe both education and spirituality are important components. In Grand Rapids, 22 percent of adults are illiterate and only 28 percent have a bachelor’s degree. And if attending a place of worship is a loose proxy for spirituality, we are falling backward: 28 percent of American adults have left the faith in which they were raised in favor of another religion or no religion at all. Twenty-five percent of 18-to-29-year-olds say they are unaffiliated with any particular faith today. Just in case you might think West Michigan stands above the rest, the Grand Rapid metro area ranks 51st of 102 major metro areas in religious adherents per 100,000 residents.
Maybe these things don’t matter at all; or maybe they’re all that matters.
K. Brad Stamm, Ph.D., is business department chair at Cornerstone University.