While I know that I might hear a collective groan from the readers of this article, I have to say that the U.S. economy is actually doing well. It’s a topic I consistently discuss and write about, and I’ve noted many times that we’ve experienced a significant economic bounce over the past several years.
For those of you that see neighbors out of work for months at a time, are discouraged with stagnant wages, or may still be trying to recoup what you lost in the crash, I can whole-heartedly understand why it’s hard to understand this rosy outlook on the economy. But it’s important to keep in mind that as important as those anecdotal indicators are, there’s also extensive data that support the fact that we are experiencing economic expansion.
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Warren Buffet and the Economic Pie
Before we go into the actual statistics, I want to talk about one of my favorite Warren Buffett analogies, which you may have heard before. Buffett relates the U.S. economy to an “Economic Pie.” As the pie gets bigger, investors will, over time, participate in that growth. While not every slice of the pie will get bigger or grow at exactly the same time, it’s the total sum of that pie growing bigger that matters.
The real world works in a similar way. We rarely see every economic indicator move up at the same time. At any given point in the economic cycle we will see unemployment numbers fluctuate, consumer confidence jump up and down, the housing market zigzag and manufacturing move in fits and starts. But, the data tells us that the sum of the all the pieces are moving together in an upward trajectory, and that’s really where our focus needs to be.
Key Data Points
Here are a few important data points to note the economic progress that we have made since the recession ended in 2009:
- Unemployment – Peaked at 10.1% in 2009; the Bureau of Labor Statistics reported in June that unemployment now stands at 5.3%
- Housing- Housing starts bottomed in April of 2009 at close to 450,000. Today we are building close to 1.036 million new homes a year.
- Manufacturing – The ISM manufacturing index has risen from below 35 (indicating severe contraction), to nearly 60 today (any number above 50 spells expansion)
What Happens Next?
What can we expect to see over the next 6 to 12 months? Economic forecasting is a difficult business; however, building on where the economy stands today, the outlook is healthy:
- Lower energy prices = increased consumer spending
- Lower energy prices = continued low inflation
- Low inflation allows the Federal Reserve to be patient about raising borrowing rates
- Continued low rates are a tailwind for the economy, jobs, housing and the stock market
Again, it’s easy to look around and see all of the things wrong with our economy. There will always be changes that need to be made and areas that need improvement. But if the expansion continues as it has over the past 5+ years, and the pie continues to grow, then it won’t be long before you too will be able to enjoy a big slice!
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