Falling unemployment, resurgent housing, a resilient euro zone, and more reasons for economic hope this holiday season
It's admittedly trite to use the occasion of Thanksgiving to look on the bright side, but given how rarely we cast an optimistic outlook these days, it's as good a reason as any. With Chapter LXXII of the Middle East conflict playing out in Gaza and the daily soap opera of Washington politics oscillating between sex scandals and fiscal fearmongering, we are once again subsuming the bigger picture to the smaller one and privileging fear.
So, in no particular order, here are six economic points to be thankful for, or at least mindful of, this Thanksgiving:
U.S. housing is on the mend. It took four years, but the long swoon in housing has come to an end. Every housing market metric - new sales, new permits, existing home sales, housing starts and prices - has shown steady and consistent improvement over the past few months. Perhaps the most favorable trend: The inventories of new and existing homes have fallen sharply and is about half what it was at the housing bubble's peak in 2007. Of course, there are regional variations, and average prices are far lower than at the peak of the bubble. That is likely to be the case for many years. But a fluid U.S. economy requires a functional housing market that allows people to take new jobs or retire. Housing should not be a pillar of economic growth, as it was in the mid-2000s, but it cannot be an obstacle to growth. The housing market has been a barrier. It no longer is.
The euro zone crisis has receded. Between the spring of 2010 and the middle of this year, the escalating sovereign debt crisis in Europe - epitomized by Greece and equally destabilizing for Spain and Italy - seemed poised to create a global crisis at least on the order of what happened in the fall of 2008. That didn't occur. Partly, this is because of the efforts of the head of the European Central Bank, Mario Draghi, who labored to guarantee the solvency of the financial system. The result has been a dramatic decline in bond yields for troubled nations like Italy and Spain and a degree of relative calm. Make no mistake, the waning of the crisis is not a cure for the euro zone's ills. Europe still faces a recession that may even engulf Germany. But the worst-case scenarios of market meltdowns, sovereign defaults and global panic are, for now, off the table.
China is resuming its growth trajectory. After a contraction in 2012 that may cause growth to slow to 7 percent, China completed its once-a-decade leadership transition this month with relative ease. Yes, the leadership is confronting public unease over the corruption and venality of many officials, and yes, the path of spend, spend, spend on infrastructure and housing is not sustainable. Yet there are signs that China's leaders and hundreds of millions in the middle class understand this; hence the aggressive push to reform the party, build a new social safety net, encourage small businesses and ease the grip of state-owned companies to invigorate the domestic economy. No one knows how this will evolve, but growth next year looks to be stronger and more balanced than it has been in many years.
Unemployment has crested in the United States. For much of 2012, the unemployment situation in the United States has been stable. Far fewer jobs have been created than many had hoped. The 140,000 or so jobs added on average per month barely keep pace with labor supply and new workers joining the workforce. The unemployment rate hovers at 8 percent, which is wonderful compared with Spain's 25 percent rate, but far higher than Americans expect it to be. The job market, however, is steadily stabilizing, even though there is a structural unemployment challenge that is connected to education levels, globalized labor, and technology efficiencies. Americans are still in some denial of the portent of these changes, and political debate suggests a disturbing belief that the U.S. is only one set of good policies away from massive job creation. The truth may be more complicated, with a generation of unemployed and underemployed workers whose skills are mismatched to an evolving world. This is an issue that will not fade anytime soon, but it is not likely to get worse, barring further global deterioration.