Many things can be said about the economy these days. But, more often than not those things are overly complicated and obscure what could have been a much simpler explanation. Today, I want to use just 3 charts to explain that the economy is in a fairly stable recovery but still has a ways to go.
Housing: Talk of economic health often revolves around jobs, and they are no doubt important. But this recession is special because of housing. Americans had a lot of wealth tied up in their houses and lost a lot as a result. So far housing has been the big missing factor in this recovery. With a turnaround in housing comes a turnaround in consumers. Buyers on the fence are more likely to make purchases. Homeowners with bad mortgages are more able to refinance. And a construction industry that was hit hard will stir up again. Housing prices are one of the best barometers for the industry and they’re finally trending up.
Unemployment Rate: Of course this is the most important economic statistic out there. It gets the most attention for good reason. The unemployment rate is shown here in red with another measure of unemployment called U6. U6 adds in folks that most would consider “underemployed”, that is they’re working but not as much as they want. It’s a truer measure of unemployment but all that really matters is the trend and it moves in lockstep with the traditional figure. The trend has been great lately. This is a positive on how consumers feel about the economy as well since this is a number even the public is aware of. There’s no reason to think the trend will change either. The fiscal cliff could change the slope of the line but as I’ve said before it’s not something that concerns me long term.
Employment to Population: This is a ratio that fewer of you may be familiar with but it paints a slightly different picture of employment. As you can see the figure has been roughly flat for most of the recovery. That’s because it takes the total number of people employed (of working age) and dividing it by the total population (of working age). So while the unemployment rate may be improving, the pace of population growth shows the gross percentage of people out of work remains mostly the same. That’s because the unemployment unemployment rates don’t include people that just aren’t looking at all. If we want our economy operating at its full potential then this number needs to improve.