Peter Morici

The economy grew 2.6 percent in the fourth quarter—hardly the 4 to 5 percent needed to provide enough jobs and restore housing prices to prerecession levels.

Throughout 2013, higher taxes on all income classes—President Obama’s levies on the wealthy, higher local taxes on the middle class, and reinstatement of social security taxes on lower income workers—depressed consumer spending.

Consumers coped by saving less but that dampened winter spending, and first quarter is expected to register at about 2 percent. Activity should pick up this spring to about 3 percent the second half of the year.

Jobs Market

The unemployment rate has become a meaningless statistic for evaluating the economic recovery, because so many discouraged Americans have quit seeking jobs and are not counted in jobless statistics. If the same percentage of adults were active today as when the recovery began, the unemployment rate would be 9.6 percent.

Baby boomer retirements are not driving down adult labor force participation. Over the last decade, to compensate for shrinking pensions, the percentage of Americans ages 65 to 69 working has risen from 26.8 to 30.8 percent.

Going forward, the economy will create about 200,000 jobs each month, hardly the 350,000 needed to raise employment to prerecession levels.

Housing Prices

Homes have recovered 43 percent of the value lost during the financial crisis. Speculators scooped up bargain priced foreclosures but that activity is abating.

More young adults are leaving their parents nests. Housing starts should rise above 1 million for the first time since 2007, still less than half the pre-crisis peak.

Comparing household incomes with home prices, homes look quite affordable, but first time buyers are terribly burdened by student debt. Coping with less job security, many are opting to rent apartments.

Those are cheaper to build, result in fewer spin off purchases for improvements and help lift the economy and employment less than single unit dwellings. That’s the hangover from young folks borrowing too much to obtain questionably useful college diplomas.

Stocks

The bull market is five years old, and many analysts believe it is time to cash out some profits. Price earnings ratios are frothy, especially considering weak domestic growth.

However, the Standard & Poor’s 500 earn much of their profits abroad. Since 2000 corporate earnings are up 440 percent, while stocks increased only 21 percent—much less than inflation at 43 percent or housing values at 62 percent.


Peter Morici

Professor Peter Morici is a recognized expert on economic policy and international economics. He has lectured and offered executive programs at more than 100 institutions including Columbia University, the Harvard Business School and Oxford University.
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