The relatively slow economic recovery over the last eight years leads some people to argue about the poor state of the U.S. economy; tepid economic growth indicating to them that we are in the middle of a period of secular stagnation. At the same time, others claim that “slow and steady” growth is a good thing, unlike prior recessions when the economy would start with a strong burst of growth only to peter out shortly after.
Naturally, the question arises about which of these two alternatives is closer to the truth. Has the slow and steady pattern given us a better recovery than our previous experience? Or is the current recovery in fact the beginning of long period of economic stagnation? The chart below helps to get a clear answer to these questions.
The chart displays the total growth in the nation’s Gross Domestic Product (GDP) for each of the last five “long” economic recoveries since the early 1960s. The current recovery, denoted by the red line, tells us that GDP has increased by less than one-fifth since the beginning of the recovery in the 2nd quarter of 2009, that is a total of 18.5% growth in eight years. Also, we can readily see in the chart that the recovery that began at the turn of the century, in the 4th quarter of 2001, had reached similar total growth in only six years.
Similarly, we can see that each of the three “long” recoveries of the last half of the 20th century far exceeds the growth of the current recovery. The best is the one that started in the early Sixties, the top line in the chart: 32 quarters into the recovery, GDP had grown by 50%. This was a truly remarkable performance.
Not included in the chart are two “short” recoveries, one from the 4th quarter of 1970 through the 4th quarter of 1973, and the second one from the 1st quarter of 1975 to the the first quarter of 1980. Although we should note that both of them, at the respective ends of their recovery, exceeded by far the growth of the current recovery at the same stage. For instance, GDP had grown 16%, 12 quarters into the recovery that started in the 4th quarter of 1970. At the comparable period in the current recovery — that is, 12 quarters or three years — we saw GDP grow only 7%.
Another key measure of an economy’s performance is its ability to generate employment. Here, too, we see that the current recovery has not done as well as previous ones, with the exception of the first starting in the 4th quarter of 2001 in the chart below. The chart displays the growth in total employment in each of the last five major recoveries.
At this stage of the current economic recovery, marked by the red line, we have seen employment grow only 11.7%. We can readily see that all previous long recoveries exceed this growth. The only exception is again the recovery that began in the 4th quarter of 2001, which peaked six years after its start with only 5.7% growth in employment.
Mortgage rates eased down a bit more last week. This reflects, no doubt, relatively weak demand for mortgage loans. Sales of homes, both new and existing, continue to remain rather flat, signifying that the main source of demand for mortgage credit is not putting pressure on mortgage interest rates.
At the same time, as we have pointed out previously, low mortgage rates are not an impediment for consumers’ ability to purchase a home.
Manuel Gutierrez, Consulting Economist to NKBA
Explanation of NKBA’s Economic Indicators Dashboard
The dashboard displays the latest value of each economic indicator with a colored triangle that highlights visually the recent trend for each of the drivers. “Green” is a positive signal indicating that the latest value is improving; “Yellow,” as it’s commonly understood denotes caution because the variable might be changing direction; and “Red” indicates that the variable in question is declining, both in its current value and in relation to the recent past.
Note that all the data, except for “mortgage rate” and “appliance store sales” are seasonally adjusted and are represented at annual rates.
Remodeling Expenditures. This is the amount of money spent on home improvement projects during the month in question. It covers all work done for privately owned homes (excludes rentals, etc.). The data are in billions of dollars and are issued monthly by the U.S. Department of Commerce.
Single Family Starts. It is the number of single family houses for which construction was started in the given month. The data are in thousands of houses and are issued monthly by the U.S. Department of Commerce.
Existing Home Sales. These data are issued monthly by the National Association of Realtors, and capture the number of existing homes that were sold in the previous month.
High-End Home Sales. This series are sales of new homes priced at $750,000 and over. The data are released quarterly by the U.S. Department of Commerce, and are not seasonally adjusted. Thus a valid comparison is made to the same quarter of the prior year.
Mortgage Rate. We have chosen the rate on 30-year conventional loans that is issued by the Federal Home Loan Mortgage Corporation (known popularly as Freddie Mac.) Although there are a large number of mortgage instruments available to consumers, this one is still the most commonly used.
Employees in Residential Remodeling. This indicator denotes the number of individuals employed in construction firms that do mostly residential remodeling work.
Building Materials Sales. These data, released monthly by the Department of Commerce, capture the total sales of building materials, regardless of whether consumers or contractors purchased them. However, we should caution that the data also includes sales to projects other than residential houses.
Appliance Store Sales. This driver captures the monthly sales of stores that sell mostly household appliances; the data are stated at an annual rate. We should not confuse this driver with total appliance sales, since they are sold by other types of stores such as Home Centers, for instance.
We hope that you find this dashboard useful as a general guide to the state of our industry. Please contact us if you would like to see further detail.
