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.