Economic Growth Contracts In First Quarter Of 2015
The economy contracted in the first quarter of 2015, and that suggests the rest of the year isn't going to be very good either.
Heading into today’s release of the first revision of the Gross Domestic Product numbers for the first three months of the year, most analysts were expecting bad news of some sort. Last month’s first report had already shown us that the economy had at the very least slowed to a crawl in the first quarter, and it wouldn’t have taken much to push the economy into negative territory yet again, and that’s exactly what happened:
The economy got off to an even weaker start this year than first thought, the government reported Friday, as economic activity contracted amid a disappointing trade picture and continued caution on spending by businesses and consumers alike.
The 0.7 percent decline in economic output in the first quarter of 2015 was a reversal of the initial 0.2 percent advance for the period reported last month by the Commerce Department.
While statistical quirks and one-time factors like wintry weather in some parts of the country played a role, as did a work slowdown at West Coast ports, the lackluster report for January, February and March underscores the American economy’s seeming inability to generate much momentum.
Much of the revision was spurred by fresh data showing businesses added to inventories at a slower pace than first estimated, while net exports fell slightly more than first thought. A sharp pullback in energy exploration in the wake of falling oil prices is also putting pressure on business investment.
Most experts had expected Friday’s data to show a contraction in the first quarter, and virtually no mainstream economists believe the country is on the verge of a recession. Still, the weakness is a reason the Federal Reserve is not expected to raise short-term interest rates until the second half of 2015, after speculation that a June increase was possible.
Consumers, who generate roughly two-thirds of growth, have also been less willing to open their wallets, despite the windfall provided by lower gasoline prices. Personal consumption rose by 1.8 percent last quarter, down from 4.4 percent in late 2014.
After the economy grew at an annual rate of nearly 5 percent in the springand summer of 2014, some experts concluded that the economy had found its footing and predicted that a healthier, sustained growth rate of near 3 percent was finally at hand.
The new data for the first quarter, and signs of only a tepid rebound in the current, second quarter of 2015, are now forcing some economists to rethink earlier assumptions.
“This isn’t the off-to-the-races kind of expansion we envisioned six months ago,” said Scott Anderson, chief economist at Bank of the West in San Francisco. “More and more folks are coming around to the view that the long-term growth rate of the American economy is 2 percent, at best. We can’t sustain 3 or 4 percent growth for very long, so it’s two steps forward, one step back.”
More from The Wall Street Journal:
WASHINGTON—The U.S. economy contracted early this year as harsh weather and a strong dollar sapped demand for American goods, underscoring the choppiness of an expansion that has struggled to lift off.
Gross domestic product, the broadest sum of goods and services produced across the economy, shrank at a 0.7% seasonally adjusted annual rate in the first quarter, the Commerce Department said Friday. The agency previously estimated output grew 0.2% from January through March.
The revision, which was near economists’ latest estimate of a 1% contraction, showed how the world’s largest economy remains vulnerable to shocks as it struggles to regain its vigor. The dip, expected to be short-lived, marked the third quarterly contraction since the economy emerged from recession in mid-2009.
The latest downgrade came after new data showed a wider trade deficit and a slower pace of restocking by firms than earlier estimates, damping demand at factories and service providers. Those developments added to an already bleak picture of weak consumer spending and a downturn in business investment.
The report also offered the first estimate of corporate profits for the quarter. The Commerce Department said profits after tax, without inventory valuation and capital consumption adjustments, grew 3.1% in from the last three months of 2014. Profits were up 9.2% from a year earlier. The measure closely aligns with what companies report in earnings statements.
Most economists expect the economy to regain steam as the year unfolds, and early signs point to a slight spring rebound. GDP is expected to grow at a roughly 2% pace in the current quarter under economists’ latest projections.
But underlying demand appears to have reverted to sluggishness after a surge in output last summer sparked hopes of the economy finally shifting into a higher gear. Compared to a year earlier, the economy grew 2.7% in the first quarter, though that figure is exaggerated by a sharp contraction that occurred in the first quarter of 2014.
Consumer spending, representing more than two-thirds of economic output, grew at a 1.8% rate in the first quarter, replacing the initial estimate of 1.9%. That was far slower than the fourth quarter’s 4.4% growth. Household spending on long-lasting manufactured items was the weakest in nearly four years in the first quarter.
Business investment—reflecting spending on construction, machinery, and research and development—fell at a 2.8% pace. That was the biggest decline since late 2009. The agency had initially said it fell 3.4%.
Companies also spent less on restocking their shelves than previously thought, a big factor leading to the downward revision in overall GDP.
Exports declined 7.6%, further than the prior estimate of a 7.2% drop. Exports of goods fell by 14%, the most in six years.
Government spending fell 1.1%, replacing the previously reported 0.8% drop.
Quarterly contractions have been rare during expansions, but the nearly six years since the last recession have been marked by halting progress. The economy contracted at a 2.1% pace in the first quarter of 2014 before bouncing back in the rest of the year. In the first quarter of 2011, the economy shrank 1.5%, then rebounded.
Federal Reserve officials, who are weighing whether to raise interest rates later this year, have indicated they view the latest setback as a blip.
“Economic growth slowed during the winter months, in part reflecting transitory factors,” the Fed said in a statement after a policy meeting in late April. Those factors include unusually cold weather that kept consumers home and shut down business operations, along with a labor dispute at West Coast ports that temporarily halted the flow of goods.
This is the second first quarter in a row that we’ve seen an economic downturn, and as was the case when the economy shrank 3.0% in the first three months of 2014, there are those who are blaming this downturn on the winter weather. The problem with that explanation, though, is that while the winter of 2015 was cold and snowy, it was nowhere near the magnitude of what we experienced in 2014. Additionally, the downturn in 2014 happened in the wake of what had been a relatively robust 4th quarter in 2014, so it was much more of a shock when it happened and much easier to see that it was in fact an anomaly based largely on the impact of a winter that caused large segments of the Northeast and Midwest to grind to a halt for weeks at a time. This isn’t entirely the case this time around. In addition to the fact that the winter of 2015, while strong, was not nearly as bad as the year before, the first quarter of this year was preceded by a 4th quarter in 2014 that was quite weak. Additionally, as noted, the forecasts for 2015 going forward see modest growth in the 2.0-2.5% range for the year as a whole. That’s better than nothing, obviously, but it is also reflective of what we’ve seen for much of this recovery, weak growth that ends up feeling more like marking time than anything else.
Perhaps the most concerning thing about the numbers released today is the fact that they seem to reflect that two most important sectors of the economy seem to be slowing down at the same time. Consumer spending declined in the first quarter despite the fact that both personal and disposable income increased and prices decreased, an indication that consumers were holding back on spending for one reason or another. Similarly, while business spending and investment did increase slightly during the period, it was a relatively paltry increase and a closer look at the data reveals that spending on information technology and other areas by businesses decreased during the first three months of the year. When both businesses and consumers are holding back on spending, that’s likely an indication that people in both sectors in the economy have some reason to feel insecure, and that doesn’t bode well for the economy.
As I noted when the first report came out last month, the biggest question going forward is what impact the economy will have on the 2016 elections. Obviously, a downturn at any point between now and the election would tend to be bad news for the incumbent party. At the moment, though, it doesn’t appear that we are actually headed for a sustained recession, especially given the fact that lower energy prices will likely continue to provide a boost to economic growth in at least some modest respect. At the same time, we’re also unlikely to see a booming economy with 3.0% or higher growth, either. We’ve had one or two quarters of that here and there during the course of the recovery, but we’ve never seen a sustained period of high growth like that and there’s no reason to think it will happen now. What’s more likely is that we’ll see the same piddling two to three percent growth that we’ve seen for most of the recovery, and that things will be roughly the same for most Americans. This kind of economic stagnation is ripe, I would suggest, for much of the rhetoric that we’re seeing from both sides of the political aisle right now on issues such as trade, immigration, income inequality, and the life. It also brings to mind the results of the recently concluded British General Election. As we saw there, the Tories benefited greatly from modest but steady economic growth and Labour had real difficulty in convincing voters to change parties. Republicans may find themselves in similar trouble if the economy stays relatively positive going forward even if the growth numbers are anemic at best.
Basically, we’re importing too much of what we consume. And that includes importing a third as much oil as we did in 2007 with a gas price at the pump about the same as it was in 2007.
Our largest trade deficits are with China, Japan, Germany, and Mexico. April 2015 was a record month for the U. S. trade deficit.
Meanwhile, unemployment in Seattle is at 3.3%, despite the pending increase in the minimum wage to $15/hr.
http://www.seattletimes.com/business/economy/king-countys-unemployment-rate-drops-to-33-percent/
From which, I can only conclude that it is good to live in an area that voted overwhelmingly for the anti-Colonialist Kenyan Muslim Atheist Communist as he rewards those areas. Either that, or the GDP tells only part of the story.
Actually, trade deficits can be indicative of a healthy economy. Trade deficits tend to be large when the economy is growing, small when we’re in a recession (e.g, early 80’s, early 90’s, the Great Recession). The X-factor is investment. If the trade deficit is growing, that’s a good reason to take this contraction with a grain of salt.
@Hal_10000:
Investment decreased in the first quarter of 2015.
You must have experienced a very different winter than I did if you thought ’13-’14 was worse. This past winter was the worst in Boston’s history, and wreaked havoc across the Eastern seaboard. Particularly New England, but as I wrote the last time you dismissed winter as a significant factor, cities in the South freak out when we get even an inch of snow. Kids were not in school for two weeks, and businesses didn’t keep regular hours.
To be fair, ’14-’15 is also the warmest winter we’ve ever had because the western part of the country saw record high temperatures during the same period. However, it really shut down many large cities in the east, and to think this had a negligible effect on GDP is ludicrous.
It’s good to know we can blame it on harsh winter weather in the warmest year on record, or do,we need to,pick one. Or those pesky ports when imports increased briskly. I’m not worried though, investment was down while inventory growth outpaced consumption. Oh, wait…….
Needless to say, big bank economists and certain OTB commenters will explain it away, while to only sane observer right now appears to be the Atlanta Fed.
Comment deleted for lack of reading comprehension.–NH
@Tillman:
I agree. And the west coast was hit by the port slowdown. If the second quarter comes in bad, then I’ll start to worry. Of course, I’ve always got my worrying shoes on, so it’s not like I’m going out of my way.
For those of you who aren’t familiar with it the Atlanta Federal Reserve has its own GDPNow forecasting model which it most recently updated three days ago. It’s, er, a bit different than what you’ve probably been hearing.
Last month I was complaining that the economy didn’t stall, economic growth stalled. This month, I’ll complain that economic growth didn’t simply contract, but the economy contracted. Economic growth contracting means that there was less economic growth this quarter than last (which is in this case true, but probably not what you were trying to say). The economy contracting means that the economy was smaller this quarter than it was last quarter.
There’s this:
And this:
Nearly half of managers believed high pay to be the driving factor in millennials’ careers. But just 27 percent of young professionals said high pay was the most important component in their jobs.
People have as much or more money than they had, but are spending less.
There’s something happening here. What it is ain’t exactly clear. (Hey, that could be a song lyric.) I’ve been suggesting for some time that there is a paradigm shift in this country and perhaps the west generally. The Baby Boomer ethos – work like a dog so you can die with more toys than your neighbor – is fading. The goal of a giant McMansion? Gone. Millennials are moving back to the city. The expensive German car is no longer the goal. Drive around San Francisco or Cupertino and you’ll be driving past multi-millionaires in $25,000 Priuses. Google employees in SF take a bus to work – a very nice bus, but still a bus. Conspicuous consumption? That’s over.
I’m not suggesting this generational shift is primarily responsible for slow growth, but if materialism is fading as a motivator you’ll naturally see less consumption. There are now millions of people in this country – generally people with money – obsessing over their carbon footprint and prattling on endlessly about just how little they’ve acquired, how little they own. When a guy with a half a billion in stock and options and an income in the seven figures lives in a one bedroom apartment and takes Uber, you’re going to see a softness in consumer demand.
I just offered my 18 year-old a brand new car to drive to college near NYC. Not really interested. There are buses and trains and Uber. That’s a $30,000 purchase that won’t happen and it’s not a lack of means but a lack of motive.
Look at the sharing economy; look at the micro-house trend and the return to city centers; look at falling birthrates across the developed world; look at the death of the mall and the big box store and the lifestyle built around them; look especially at the general move from meatspace to cyberspace and ask yourself how one displays “status” when your social group is not geographical (neighbors) but virtual.
We have this built-in assumption that the post-war trend of more and more and more would go on forever. I think that assumption is wrong. Post-WW2 materialism is fading, and consumer demand will inevitably drop unless something happens to dramatically alter the trajectory of the largest generation since the Boomers.
I don’t know enough to know whether we’ve ever had a generational shift that moved us from more to less as a consequence not of economic pressure but because of changing attitudes. It’s interesting and I suspect it’s something traditional analysts will miss until they see it in their rear-view mirrors.
@Guarneri: “It’s good to know we can blame it on harsh winter weather in the warmest year on record, or do,we need to,pick one”
I can’t tell — are you pretending to be stupid, or is this the real thing?
@wr:
Guarneri (the former Drew) believes all economic problems can be traced to the fact that Mr. Obama traveled back in time to before his election and caused Obamacare to precede its adoption and thus bring on the deluge that began years before Mr. Obama held any power.
Naw. I’m thinking it’s all Bush’s fault. Maybe Adam and Eves. I’m also thinking it might be time for Obama to pivot to his rich history of foreign policy success.
Of course, if you want a little sanity, you might want to, as Dave S suggests, take a look at the Atlanta Feds material. I doubt you do. So back to your willing suspension of disbelief.
@michael reynolds: It could be a change in “to do or to have”. Young people are valuing experiences over possessions, as they should.
http://www.psych.cornell.edu/sec/pubPeople/tdg1/VB_&_Gilo.pdf
@wr: Gabby Johnson is right!
Another thing to consider is this, from Justin Wolfers at The Upshot:
If this is correct, things aren’t quite as bad as they seem. There are additional links in his post to support the notion that GDP in the winter quarter is understated.
@michael reynolds:
I wouldn’t read that much into this. People stil want things, it’s just that what they want, and what they can afford, have shifted. Forty years ago you wanted to get a cool car and a big house — but back then education was cheap, no one graduated with much if any school loans, jobs offered pensions, you could send your own kids to good public schools, and the cost of medical care was not crushing.
So now of course they don’t want McMansions and BMWs — but that’s partly because they can’t afford them, anyway, because so much of their income stream is sucked up by past (the need to repay school loans) and future (the need to save for retirement, the need to save for their children’s education) obligations.
We’re still creatures of consumption — only now what were’ consuming isn’t material goods, it’s security in the form of education, health care and retirement needs, security in the past that was taken for granted and didn’t cost as much as it does now.
@michael reynolds:
Partly by pictures of oneself doing cool things — eating great dinners, going on vacation to interesting spots, doing fun things like heli-skiiing, surfing, etc.
And how does one afford those dinners and vacations and activities? Money.
@Guarneri:
No, you suggested it and he mildly mocked it.
@Dave Schuler:
Our largest trade deficits are with China, Japan, Germany, and Mexico. April 2015 was a record month for the U. S. trade deficit.
Can someone tell me why Congress is even considering loosening trade restrictions via the TPP?
@edmondo:
Beats me. It becomes even more puzzling when you consider that we already have bilateral trade agreements with countries accounting for most of our trade in the TPP except Japan. What will Japan concede that makes this much hoopla over a trade agreement worthwhile? They aren’t going to open their agricultural market to us. What else do we want them to buy that they’re not already buying as much as we should expect them to buy of?
@Rafer Janders:
But that doesn’t explain what I’m seeing. Doesn’t explain my son blowing off a car. I don’t live in “America” I live in Marin County where college debt is a minor inconvenience – if taking on debt is even necessary. If your income is 500k a 30k debt is not putting a crimp in your lifestyle. And that’s not even getting into the Silicon Valley people who are eschewing 100k cars in favor of 25k cars. Those people are not sweating student loans.
I don’t believe materialism is some immutable human characteristic, certainly not the obnoxious ostentation we Boomers went for in the 80’s and 90’s. I spend way, way more time dealing with teenagers than most people do – 17,000 of them on my Twitter feed, just for starters – and I’m telling you something has changed.
@michael reynolds: The Baby Boomer ethos used to be job satisfaction first, pay second. They would never have believed that they’d be described as “work like a dog so you can die with more toys than your neighbor”. If you remember those song lyrics, you remember that your characterization of the Boomers was the description of their parents, a mentality that they rebelled against.
Then they had kids, and a mortgage, and suddenly old smelly stuff didn’t seem like enough any more.
When the Millenials see their parents go to retirement communities, and they no longer have a free room at Mom and Dad’s, is their attitude going to change?
@michael reynolds:
Sorry Michael, but that’s simply not true. People under 30 are making less than their peers ten years ago, and are much, much more indebted. As for the rest of the population, Paul Krugman cites a poll today that dound that 47% of all Americans can’t withstand a sudden $400 dollar expense without borrowing the money!
The “sharing economy” is simply a way for people to make ends meet by monetizing whatever meagre assets they happen to possess. How you can think it’s all about good vibes escapes me..
@Dave Schuler: They’ll still come up with some reasoning about foreign apples being unsuited to Japanese digestive systems or something similar….
On the other hand, Japan is quite happen to trade off efficiency vs. providing more people with stuff to do and higher prices. As one of my friends said: “The beauty of Japan is that you can go into any mom-and-pop store in Japan, no matter where, and find a miniscule canister of Kraft Parmesan cheese for sale. The downside is that it will cost you 300 yen!”
@michael reynolds:
Ok, but your sample size then is the top half of one percent of the US population. You’re not describing what most Americans are doing, you’re describing what a tiny, geographically and economically concentrated elite is doing.
@michael reynolds:
Are they also eschewing expensive houses with state of the art features, household staff and assistants, wine cellars, luxurious vacations, and first class or private jet flights? I personally know they’re not.
And are they putting their kids into public school, or are they hiring high-priced tutors and spending up to six figures a year on enrichment activities, clubs, trips, etc. for their children in order to give them a leg up in college admissions? My experience among my peers is that their consumption in this area is vast and extensive. Didn’t you yoursef mention recently that you sent your son to a coding conference in Paris?
So we’re not buying the big cars — but we’re still buying. We’re just buying different things.
@michael reynolds:
Oh, I do. And I certainly believe that status signalling, at least, is an immutable characteristic. How we try to distinguish ourselves changes with time and society — but the effort to distinguish is universal.
@Rafer Janders:
More importantly, for these people, living in the San Francisco area, where the cheapest dump rents at 3K or so per month, and Stanford has no way to get its assistant professors (let alone grad students) decent housing because Google, IS the ultimate material benefit..
Like seriously: who is leading a more wealthy lifestyle: a doctor I know who makes half of what he could make elsewhere but lives in a small mansion in a not very fashionable mid-western town, or a high tech guy I know who pays 10K a month for a nice 2 bedroom in SF, where he moved from same mid-western town?
@Rafer Janders:
Status is being signaled in ways that don’t show up as major purchases. Which status item is more important to the average millennial, a $100,000 Benz or a $600 iPhone loaded with $3 apps? Ask the average millennial if he’d rather have my car or my Twitter followers.
But there’s no point arguing over an emerging phenomenon – I’m either right or wrong and we probably won’t know for a while.
@michael reynolds:
I do agree with you somewhat. Among other things, the savings rate has kicked up a bit in the last few years (after cratering during the Bush years). But I am seeing a little bit of that ethos among students: that a solid income in a job they enjoy is more important than squeezing the last dollar out of life. And it’s true that a lot of our new economy is difficult for economists to measure. It improves our lives in terms of happiness and access, but it doesn’t show up in the hard economic numbers.
@michael reynolds:
Ask the average Millenial if he’d rather have your income or your Twitter followers.
Having the reserve currency has been described as the exorbitant privilege but realistically it’s an exorbitant punishment. The dollar is too strong relative to other currencies and has cost the country tens of millions of jobs over the last three decades. A rise in the Fed Funds rate, as Chairwoman Yellen insists will happen this year, amounts to professional malpractice when both Europe and Japan are engaged in devaluations.
Also, government consumption and investment are the second-biggest component of GDP. Holding them down doesn’t make other components bigger.
@humanoid.panda:
Well, both equally — they’re just expressing different spending preferences. A dollar is a dollar, it’s just that a dollar of value is expressed differently in the Midwest (big house, big garden, car) versus SF (where the value the dollar buys is access to everyone and everything else in SF).
@michael reynolds:
Assuming he can sell the car for list price, he can use that money to pay off student loans.
Again, don’t think of the car qua car, think of the economic value, and then reframe the question: which would the average Millenial value more, repayment of $100,000 in student loans (or, if he didn’t have student loans, $100,000 in cash), or a $600 iPhone?
@Rafer Janders: Yeah- this is why I think Michael is grossly wrong on this thread.
@Rafer Janders:
Circular logic. The reason I have my income is because I’m a greedy, money-driven boomer. Ask them if that’s the life they want and the answer is clear in the polling: no. No they are not interested in the relentless search for money, they prioritize different things. Meanwhile we money-grubbing boomers are aging and dying, taking us out of the acquisition business. The new largest cohort is stating quite clearly that they have different priorities and at the same time we boomers are buying less. How could that fail to soften demand for consumer goods?
@michael reynolds:
Sure, they prioritize different things because they’re young. Because they’re in their twenties and don’t have kids and responsibilities and mortgages. Let them grow older, get into their late thirties and forties and fifties, and they’ll be just as concerned with material things as anyone.They’ll want — they’ll need — money to buy security.
But remember, you Boomers didn’t start out money-grubbing, did you? You were the flower children, you were at Woodstock and at Dead shows in the Summer of Love, you lived in communes and rejected the Man. You, too, stated back then that you had different priorities. But ten, fifteen years later many of you had sold out and became yuppies. So to with these kids…just give it time.
@michael reynolds: As a student loan debt ridden Millennial I both agree and disagree. Consumerism isn’t what drives me, neither is substantial pay. I am glad I enjoy my job and don’t have to fight myself daily just to show up. I wish it paid better, in the same way I wish my student loan payments each month weren’t almost the same as my rent is. When I have extra income I choose to spend it either repaying debt or going on vacation. Luckily my friends are scattered to the four corners of this great nation since it gives me opportunities to visit new cities as if I lived there.
That said I save in a savings account, very little money since the interest rates are less than those for my debt so comparatively I will eventually have more money the faster I reduce my debt. What all of these discussions fail to take into account is the changing face of the American workplace. My dad retired after 37 years full pension, nice 401k and full benefits. My second year into my job they stopped giving pensions. Every year they reduce our benefits including vacation time. The work your ass off to have a nice house and car isn’t as much of a possibility currently. I use my income to pay down debt, save for retirement and some leisure. But at work we are told what our raises will be yearly and they have been atrocious the past few years, this year they aren’t kicking in until July instead of January like normal. The company I work for has whole departments on talent acquisition and retention but we are told that if we want any sort of real promotion we should apply for another job within the company. This would set my group’s research back at least a year while they get a new person up to speed, and dampen the new group I would move to while they get me up to speed.
The corporations don’t invest in keeping their employees, they find every way they can think of to reduce what they take home. Then the old timers finally have had enough and leave and they hire a new crop of kids who don’t know better because we aren’t used to better. Then when we finally have taken enough bull over the years and go to another company the trend starts all over again. Then these same corporations who have spent the last 20 years squeezing everything they could out of the maximum amount of people they could so their shareholders could afford another vacation home, they lament that the kids these days have no loyalty. I keep hearing it’s the employees who now lack loyalty to their companies and the 30 year employment, gold watch and retirement is gone because of us when they sowed the seeds with this being the only viable outcome.
Round about way to say it isn’t solely a rejection of materialism but a sea change in how we can function. I would instead suggest you are kind of correct in that these things mean less because the opportunities to have them are less. This is more of coping with a new reality and trying to find a comfortable way to live with the cards we have been dealt. Neither is right or wrong. I wouldn’t argue that we as a cohort consume less, but I would argue it is all because of personal choice. Most of us read the tea leaves, and when you start your adult life with insane amounts of debt, going into more debt to have nicer things seems really dumb when you can spend and have less and still live a meaningful and enjoyable life. My two cents anyways.
TLDR: I agree and disagree.
@Dave D:
Which is my point: it’s not that you wouldn’t want these things if you could get them, but you recognize that you can’t, so you re-orient your desires. That’s a normal coping mechanism. In the same way, I don’t obsess about having sex with Sofia Vergara.
But, if sex with her was a strong possibility, I’d start throwing a lot more effort into the chance….
The rejection of materialism didn’t come first — it came in response to straitened economic circumstances. It’s the symptom of the disease, not the cause.
@Rafer Janders: The issue is that I can’t tell if I don’t want these because at this point it is beyond the pale or because I truly don’t want them. Either way I’m much happier to spend my disposable income doing things than having things. I do know my desires aren’t oriented around striving for that, which will be achievable in a couple years. I was lucky enough that my job paid for grad school, and I used that time to pay off some student debt while it wasn’t garnering interest. When I no longer have these payments will I opt for mansion and sports car ownership? Unlikely, I’ll probably max out the tax free 401k deduction so I can live off my retirement longer. Maybe take more vacation days than I get but take them unpaid and do more stuff. I don’t see myself as a mansion owner, but you’re correct in that I don’t have that option so I don’t know. But getting back into crazy amounts of debt for a too big home or too nice car is something that at 18 I might have been dumb enough to do but at 28, I’m only going to accrue more debt for something that will pay off. I don’t foresee that in the housing market. It is so unlikely that a 27,000 dollar house will be worth 100,000 30 years later. Those days are gone just like the days of manufacturing jobs and cheap tuition. Saddling that amount of debt onto oneself for a mediocre investment is insane. The one thing I think may be a real issue down the road is when none of us want to spend on homes or truly do not want homes. Equity is meaningless when no one wants to live there.
@Dave D:
Sure, but like I said, that’s also a thing — it’s an asset. It represents money, purchasing power.
Oh, no, it’s very very likely, given compounding — it’s just that everything else will also compound, so 100,000 30 years from now will have less purchasing power than 27,000 does now.
@downvoter(s): Finally! Someone had the balls to downvote references to (in descending order of credibility) MIT, the Weather Channel, and Wikipedia, that bastion of easily-edited public information! 😀
@Guarneri:
You can make the argument that Obama is a so-so foreign policy president. Compare that to the horrific catastrophe that was President Bush, and I am pretty happy with Obama at the helm.
Personally, I am quite happy to see Obama reverse our idiotic policies towards Cuba and Iran.
The job market around here is still slow, and the available jobs are usually in such lucrative fields as telephone sales, roofing laborers, sidewalk sweepers, and door to door vacuum cleaner sales. People lose good paying jobs and then finally find a job at a hamburger joint, if they are lucky. So then the government comes out and says unemployment is down.
Utilities raise rates – and lay off employees. Even the school systems have laid off teachers, bus drivers, janitors, and secretaries: these were once considered “safe” jobs. The local leaders seem to keep waiting on the textile industry to return, which was destroyed by the trade deals of the 80’s. There are a lot of empty buildings and store fronts. The only thing that seems to be growing are churches.
The new head of the Federal Reserve should realize that raising interest rates could decrease personal spending and home building even more. My credit card rates are already too high – that is what they should do something about if they want to help people.
These economic reports often overlook the “misery” index: too much month and not enough check.
“Professional” athletes get millions of dollars a year while a lot of people can’t afford medicine or food.
“Take this job and shove it, I ain’t workin’ here no more” (Paycheck)