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Mon December 24, 2012
The 2012 Economy Brought Glad Tidings To Many
Originally published on Mon December 24, 2012 12:56 pm
After years of recession and slow recovery, maybe you didn't notice. But it turns out, 2012 was a fairly good year for the U.S. economy.
The Standard & Poor's 500-stock index has risen nearly 14 percent this year and the unemployment rate has fallen to 7.7 percent, the lowest point in four years. Inflation and interest rates have stayed low, allowing families to cut their debt loads.
"Consumers are feeling better now," said Nariman Behravesh, chief economist for IHS Global Insight, a forecasting firm. Compared with December 2007, when the Great Recession was just starting, "the burdens on consumers have eased quite a bit," he said.
Final data aren't in yet for the full year, but in the period from July through September, U.S. household net worth rose by 2.7 percent compared with the previous three months, according to the Federal Reserve. Combined with overall economic growth of 3.1 percent in that same period, the pace of improvement — both for individuals and corporations — could be described as decent, though far from robust.
Perhaps the key to the overall improvement has been the fairly steady growth in job creation. Employers have been adding an average of 151,000 jobs each month in 2012.
"Job growth was not great, but it was good enough to make people feel like things are getting better," Behravesh said.
That potent combination of greater job security, lower bill payments and rising wealth sent shoppers heading off to car dealerships, malls and restaurants for most of the year.
To be sure, the fourth quarter had big problems that very likely reduced the growth rate as the year wound down. Hurricane Sandy depressed retail sales and jobs in the New York-New Jersey region, and the budget negotiations drama in Washington depressed consumer sentiment all over the country, said Tom Porcelli, chief U.S. economist for RBC Capital Markets.
He added that the child murders in Newtown, Conn., may have discouraged some holiday trips to the mall as the mood of the country turned somber in the run-up to Christmas. As the year draws to an end, "you have a consumer moving sideways," Porcelli said.
But most economists believe the effects of those recent problems will not linger long into the new year and that when economic historians look back on 2012, they may see it as the year when the battered U.S. economy finally turned a corner.
Here are some of the glad tidings that Americans might want to celebrate.
Consumers went car shopping again, largely because their old vehicles were wearing out. As 2012 was beginning, the average age of vehicles on the road was running at nearly 11 years — a record high.
That meant millions of people were itching to get to a showroom. Sales strengthened throughout the year and by November, the industry was selling vehicles at a pace of 15.5 million a year — the best performance since February 2008.
Home construction started to tank in 2006, and its plunge pushed the country into the Great Recession five years ago this month. The number of housing starts tumbled from a pace of more than 2 million units a year at the peak of the boom to around a half million a year during the worst of the downturn in 2009.
Between 2009 and 2011, housing indicators bumped around on the bottom, with listless upturns quickly fading. But this year, a real turnaround took hold. By fall, housing starts were up to an annual rate of nearly 900,000 units — the best pace in four years.
And prices too have ticked up after the dramatic slide that started in 2006. In the country's 100 largest metropolitan areas, prices rose at an average of 0.5 percent after adjusting for inflation in the third quarter, according to a Brookings Institution economic index.
"The rise in metropolitan home prices indicates that a broadly rooted recovery may be under way in the housing market," said Alec Friedhoff, a research analyst and lead developer of the index.
The U.S. energy industry is suddenly and dramatically expanding, thanks to the new technologies and drilling techniques that are unleashing supplies of oil and gas. As a result, energy companies are gearing up to train and hire many more workers. In North Dakota, for example, hiring has been so strong in the energy sector that the state's unemployment rate has fallen to just 3.1 percent.
For the moment, big energy companies like Exxon Mobil and Shell are seeing lackluster earnings because of relatively weak prices, especially for natural gas. But for workers, the outlook keeps getting brighter as it becomes clearer that America has abundant energy resources. Studies suggest the "unconventional" oil and gas resources could lead to the creation of nearly 2 million jobs in less than two decades.
At least up until December, stores saw more customers in 2012, and did more hiring. In November, the retail sector reported 53,000 new jobs — more than a third of all the jobs created that month. That was up sharply from November 2011, when retailers added just 34,000 new jobs.
Shoppers have been particularly eager to spend money at electronics outlets and clothing stores. They have had a little more money to spend, thanks to lower gasoline prices and tame inflation in general. Overall, consumer prices rose only about 2 percent in the past year.
The National Retail Federation, a trade association, has predicted a 4.1 percent sales increase this holiday season — higher than the 3.5 percent average annual forecast for the past decade. "This is the most optimistic forecast NRF has released since the recession," Matthew Shay, the group's president, said in a statement.
CELESTE HEADLEE, HOST:
With all the anxiety over the looming fiscal cliff deadline, it may surprise you to hear that there was a lot of good economic news in 2012. Joining us now to talk about that is NPR's senior business editor Marilyn Geewax. Welcome.
MARILYN GEEWAX, BYLINE: Hi. Great to be here.
HEADLEE: So you say not only have some economists pointed to a number of bright spots on the economy, but some even say that 2012 may be the year that the economy turned around. Why are they saying this?
GEEWAX: When you really look back on what happened in 2012 there were some good spots in the economy and we really need to look at where those bright spots are. And a lot of those were tied to energy and agriculture.
HEADLEE: So why energy?
GEEWAX: Well, we've got these new technologies and methods coming on and as the energy companies gear up to really train, hire people, they're creating lots of new jobs. And there are serious studies out there that show that in the next two decades that industry alone could create two million jobs. And those tend to be high-paying jobs.
And we're already seeing a lot of new jobs in alternative energy. The solar industry this past year hired about 119,000 people, mostly involved in installing solar panels.
HEADLEE: Oh, that's interesting.
GEEWAX: That's a very exciting sector to be in right now.
HEADLEE: OK. Well, I understand energy. That makes sense to be. But agriculture puzzles me a little bit. Not only did we have a huge drought across a wide swath of the country, we had a lot of weather events that really adversely affected the agriculture industry.
GEEWAX: You know, the agriculture sector is so sophisticated they really have a lot of risk management techniques now. The drought was the hardest on people in the livestock sector but if you were a row crop farmer, you have federal insurance. You've got all kinds of ways to sort of mitigate what's happening to you. And prices were very high this year. Corn became very expensive and those...
HEADLEE: Ironically because of the energy industry.
GEEWAX: Right. Yeah. So you end up with very high priced corn. And the USDA says that exports between 2009 and 2012, they're up like 50 percent. Even if you didn't have a great year in terms of production, you still could've had a pretty darn good year in terms of your profits. And that all ripples out through the economy and it creates a lot of jobs in the middle parts of the country.
HEADLEE: You know, we heard a lot of talk about the manufacturing sector, especially the auto industry, of course. It was a key part of the presidential campaign. But how much of that is just rhetoric and how much of it is true? Is the manufacturing sector bouncing back?
GEEWAX: Overall it turned out to be not really a great year for manufacturing, maybe 1.5, 2 percent growth. But there were real bright spots within that. And the auto sector is one of those standouts. When 2012 began, Americans who were driving cars, they had the oldest cars ever recorded. Most cars on the road, the average year was an 11 year old car. And that's pretty darned old.
So they went out and shopped this year. Interest rates were low. People could get pretty cheap loans on their cars, and there were about 15 million cars and trucks sold this year. So we're seeing those U.S. automakers rebounding.
HEADLEE: But are these industries, are these corporations that are doing very well, are they actually translating that into creating jobs or are they holding on to the profits, as some other corporations are doing?
GEEWAX: Well, jobs is just a tough situation because companies are afraid to hire, they are still just a little bit hesitant about this whole recovery, they didn't know how the fiscal cliff would end up. Employment has been improving. On average we've added 151,000 jobs every month. But you know, you need two times that at least to begin to really knock the unemployment rate down to a more acceptable level. Is it growing as fast as anybody would like? No. But is there progress? Yes.
HEADLEE: So how do people determine that? Because a lot of times when you read analysis from economists they start talking about how consumers feel. And that feels so nebulous to me. Do we really base our economic projections on the way consumers are feeling?
GEEWAX: Well, yes. And confidence is very much tied to jobs. When you saw your neighbors all losing their jobs, even if you hung onto your job in 2008, 2009, nobody feels like going out and spending a lot of money when their next door neighbor's house just went into foreclosure. It does not put you in the mood to spend money. So confidence does matter. We're not seeing those big mass layoffs like we saw four or five years ago. This confidence factor has come back to a reasonable extent, and retailers expected this to be a pretty good holiday season. They did more hiring. Now, we'll have to see what the final numbers are, but overall, for the most part, consumers came back in 2012.
HEADLEE: But is this a 2012 phenomenon? I mean there are economists that say this was the turnaround year. There is some who say, look, it's still pretty bad out there. Which is it?
GEEWAX: I think as long as we continue to have low interest rates and pretty low inflation - you know, we seen gasoline prices come down a lot lately, but there's that pent-up demand thing that I was talking about with cars. People are still driving cars that are very old. Housing too. Another thing is family formation. People have just put off getting married, put off having children - you can see that in the demographic data that a lot of families kind of got put on hold. Well, there are women who are aging and, you know, you can only put off having a baby so long and pretty soon people start to say, you know, I'm feeling secure enough now and even if I'm not, we better have that kid now because we're running out of time. So that means they want to get their own house, they'll struggle to make it work somehow. And we're starting to see housing really come back - not zooming up, but improving.
HEADLEE: Marilyn Geewax is the NPR senior business editor, and she joined us in our studios in Washington, D.C. Happy Holidays.
Thank you so much. Transcript provided by NPR, Copyright NPR.