Barely perceptible, behind the cacophony of the Egypt & Zimmerman news cycle, you can make out the steady drumbeat of good news about the economy. Consumer confidence at a six-year high. About 200,000 new jobs per month in the last quarter. A 20-year low in credit card delinquencies.
And for this, the U.S. economy has two things to thank. Cars and houses.
Before we go forward, let's go backward. After practically every recession going back 50 years, cars and houses have led the recovery. They're big. They're expensive. And when people buy them, they drag the economy back to normalcy. With data from economist James Hamilton, Jordan Weissmann showed that growth due to cars and home purchases accounted for more than half of the recovery in the 1970s, a third of the "Reagan Recovery" in the early 1980s, a sixth of the recoveries in the early 1990s and 2000s, and a vanishingly small one-tenth of this, our special non-recovery recovery. As the car and home sales have dried up, the bounce-backs have been steadily less bouncy.
The Great Recession was "great" because the avalanche started in the housing sector. Financial crises last longer because they leave consumers and companies with debt they have to unwind before they get back to buy big ticket items. The Federal Reserve pushed mortgage rates to historic lows in an effort to peel the housing market off the floor. But without an appetite for new homes, this was like pouring premium gasoline into a car without an engine. Until now.
Driving the Recovery
Speaking of cars, new vehicle sales are on pace to hit 16.5 million this year, their highest since 2006, according to TrueCar. Domestic auto production has also hit a seven-year high ...
... but the real turn-round in the last year has been in houses. Housing starts (very simply: the number of houses where construction has started) rose to a five year high this spring. Meanwhile ...
... the Case-Shiller Index, the leading measure of home prices in the 20 largest metro areas, is on such a tear, it's actually forcing CNBC talking heads to wonder aloud whether we're creating a second housing bubble. (Please consider the graph. Not exactly the stuff of bubbles, yet.)
The upshot is that two anchors on economic growth for the first three years of the recovery -- residential investment and construction employment -- are suddenly perking up and headlining this little era of good feelings. For years, consumers shedding also debt shed points from GDP growth. Suddenly, it seems the age of deleveraging might be over. (Construction job growth in RED; residential investment in BLUE.)
If cars and houses are back, why does the overall economy still fell so ... meh? We're still chugging along around 2 percent annual GDP growth. We're still pulling the unemployment rate down by micro-ticks every quarter. We're still struggling to produce a semblance of real wage growth for the bottom half of the country. What's holding us back?