Karl Smith -- Assistant Professor of Public Economics at UNC-CH & Blogger at Modeled Behavior
Last Summer, as the incoming data grew darker, many economic commentators predicted recession. Even the notoriously accurate Economic Cycle Research Institute called a second recession a done deal. At the time I was strongly skeptical.
The fundamentals as I saw them didn't call for that. American's total housing stock was too small for the size of the population. We still had a fairly large number of suburban single family homes, though after years of record low building, not as many as people thought. Meanwhile, our stock of apartments, duplexes and mobile homes was desperately low.
During the single family housing boom, production in these segments actually dropped off, and during the collapse they died. Yet, traditionally they have housed 40% of US families. With so many people moving out of single family homes, these structures - I thought - would be in high demand.
At the same time the stock of cars and trucks in the United States was actually shrinking. We were building fewer cars and trucks each year than we were scrapping. Moreover, the cars and trucks that we had were getting increasingly old, implying that maintenance costs were rising and the scrappage rate was set to increase.