The recession has ended and the economic outlook is improving. GDP growth may be tepid but it is growth nonetheless. Jobs are being created and the Dow Jones is back above 10,000. Credit is flowing to credit worthy borrowers. There are so many things to be positive about. So, why do so many Americans seem pessimistic about the United States economy?
The answer is simple. The reason is fear. The year 2008 is still too fresh in many Americans minds. Too many people remember the stock market dropping to the 6000’s, the crash in housing prices, and the massive amount of employee layoffs. Things were so bad that there were fears of the Great Depression Part II.
This fear still plagues the lives of too many people. Anytime the Dow drops 200 points, people fear that the next market crash is coming. Since housing prices have not recovered, then people figure that they never will. Since unemployment is high, people believe that there will never be job growth again in the United States. The truth is things are better than people want to believe.
Here are a few reason why.
1. Americans are getting out of debt.
One of the best things about the last two years is that it made all Americans take note of their debt levels. We spent, spent, spent money and never gave thought as to when it would need to be repaid. Once the recession hit, most individuals started to seriously address their debt problems. Credit card debts are being paid down and are at their lowest levels in 15 years. Individual savings rates are going up. This is a positive since the savings rate was actually negative earlier in the decade.
2. Housing prices are falling more in line with income levels.
A rise in home prices is a great thing if you are a homeowner. However, it is a terrible thing if you are a homebuyer. During the 2000’s, housing prices had risen just too quickly. If housing prices continued to rise at their torrid pace, almost no one would be able to afford buying a home. It may not seem like it but the drop in home prices is a good thing over the long term. Housing prices needed to drop because they were outpacing wages.
3. Job growth is on the horizon.
Every economist worth his salt knows that employment is a lagging indicator. Job losses come once a decline in economic activity has taken place. So, the most jobs are lost at the end of a recession. Conversely, unemployment will remain high even after the economy starts to improve. The same employers that postpone firings until the last moment possible during a recession also postpone hirings until they are absolutely necessary.
Do you agree or disagree?