Almost two years ago I wrote The Future's so Bright .... In that post I outlined why I was becoming more optimistic.
Now that 2014 is the best year for employment since the '90s, it is time for an update!
For new readers: I was very bearish on the economy when I started this blog in 2005 - back then I wrote mostly about housing (see: LA Times article and more here for comments about the blog).
I started looking for the sun in early 2009, and now I'm more optimistic.
Here are some updates to the graphs I posted two years ago.
Several of these graphs have changed direction since I wrote that post. As example, state and local government employment is now increasing, and household deleveraging is over (as predicted).
Growth for starts in 2014 was slow, but that just means there is more growth ahead. Demographics and household formation suggests starts will increase to around 1.5 million over the next few years. That means starts will probably increase another 50% or so from the October 2014 level of 1 million starts (SAAR).
Residential investment and housing starts are usually the best leading indicator for the economy, so this suggests the economy will continue to grow over the next couple of years.
In 2013, state and local government employment increased by 44,000 jobs.
This year, through November 2014, state and local employment is up 96,000. So, in the aggregate, state and local government layoffs are over - and the economic drag on the economy is over.
As we've been discussing, the US deficit as a percent of GDP has been declining, and will probably remain under 3% for several years.
Here are a couple of graph on household debt (and debt service):
This graph from the the NY Fed shows aggregate household debt has increased for the last 5 quarters.
From the NY Fed: Household Debt Balances Increase as Deleveraging Period Concludes
The overall Debt Service Ratio decreased in Q2, and is near the record low set in Q4 2012. Note: The financial obligation ratio (FOR) is also near a record low (not shown)
Also the DSR for mortgages (blue) are near the low for the last 30 years. This ratio increased rapidly during the housing bubble, and continued to increase until 2007. With falling interest rates, and less mortgage debt (mostly due to foreclosures), the mortgage ratio has declined significantly.
This data suggests household cash flow is in much better shape than several years ago.
Overall it appears the economy is poised for more growth.
And in the longer term I remain very optimistic.
Earlier this year, I posted some demographic data for the U.S., see: Census Bureau: Largest 5-year Population Cohort is now the "20 to 24" Age Group and The Future is still Bright!
I pointed out that "even without the financial crisis we would have expected some slowdown in growth this decade (just based on demographics). The good news is that will change soon."
Changes in demographics are an important determinant of economic growth, and although most people focus on the aging of the "baby boomer" generation, the movement of younger cohorts into the prime working age is another key story in coming years. Here is a graph of the prime working age population (this is population, not the labor force) from 1948 through October 2014.
The prime working age population peaked in 2007, and appears to have bottomed at the end of 2012. The good news is the prime working age group has started to grow again, and should be growing solidly by 2020 - and this should boost economic activity in the years ahead.
These young workers are well educated and tech savvy. And they will have babies and buy homes soon. For more, see from Joe Weisenthal: The Analyst Who Nailed The Housing Crash Is Quietly Revealing The Next Big Thing
Over two years ago I said that looking forward I was the most optimistic since the '90s. And things are only getting better. The future's so bright, I gotta wear shades.