5 Charts Show the Strength of the Recovery

November 29, 2017

It’s easy to get lost in the negative economic news. First, there’s the constant stream of troubling policy initiatives from Congress — health-care repeal, inadvisable tax policy and the like. Then there’s the persistent long-term problem of rising inequality of wealth and income, the worrying slowdown in productivity growth and the persistence of excessively high costs in construction, health care and education. Finally, there’s the looming specter of machine-learning technology, which some people believe threatens to make much of the workforce superfluous.

What often gets lost in all these dismal stories is that the U.S. economy is actually doing well right now. The Great Recession left its share of scars, but the story mostly is one of recovery. And a few areas are looking even brighter than they were in the years before the crash.

One encouraging trend is the labor market, which seems to be stronger than it has in more than a decade. Unemployment and underemployment are both down to their pre-recession lows:

Back at Work

Joblessness has returned to pre-recession lows

Source: Federal Reserve Bank of St. Louis

Of course, the unemployment rate isn’t the most complete measure of labor-market health. A better yardstick is the prime-age employment-to-population ratio, which tracks the percent of the civilian non-institutional population between ages 25 and 54 who have jobs. This gauge is mostly unaffected by the aging of the population, and by changes in the percent of young people going to college. Looking at this improved measure, it’s clear that while there is still some deterioration from before the Great Recession, most of the damage has now been repaired:

Almost There

Employment-to-population ratio, age 25-54

Source: Federal Reserve Bank of St. Louis

A couple of million Americans left the workforce after the recession and never came back, which is bad. But most of the people who want jobs now have them.

How are these jobs paying? Better than in the past. Real wages for production and nonsupervisory workers now are higher than before the recession:

Here’s Your Pay Raise

Average hourly wages, adjusted for inflation*

Source: Federal Reserve Bank of St. Louis

Another measure of how much people are making is median income. For both households and individuals, this hasn’t changed much since the late 1990s — the bursting of the tech bubble, the stagnation of the 2000s and the Great Recession all took a heavy toll on the average Americans’ earning power. But incomes have recovered, and are now at all-time highs:

The Recovery Takes Hold

Both measures are at all-time highs

Source: Federal Reserve Bank of St. Louis

The wage growth has lifted the middle class, but there are also signs that working-class Americans have benefited as well. In 2016, wages grew faster for the bottom quintiles of the income distribution than for the top. There is evidence that these gains for working-class Americans date to at least 2014. Three years of strong and inclusive wage growth isn’t enough to be sure that the trend is durable, and it certainly doesn’t reverse decades of stagnation. But it’s better economic news than the country has had in a long time. And recent data points to the phenomenon continuing — for now, at least.

The poorest Americans are earning more money in the market — poverty rates have fallen in the last few years. But the poor are also seeing big relief from government redistribution. Child poverty, after accounting for government transfers, is now at an all-time low. The U.S. isn’t just wealthier — it’s spreading some of that wealth around, to those who need it most.

But the good news continues. Home prices have recovered from their post-bubble lows:

The Fountain of Wealth

S&P/Case-Shiller U.S. National Home Price Index*

Source: S&P/Case/Shiller via Bloomberg

Because people who aren’t rich tend to have most of their assets in their houses, this means that the American middle class is building wealth once again. The recovery in housing prices also probably isn’t a bubble, since lending standards have tightened and most of the people in both the financial industry and the government remember the hard lessons of 2008.

Finally, thanks to the Affordable Care Act, many fewer Americans are without health insurance — the uninsured rate among the non-elderly fell from 16.6 percent in 2013 to 10.4 percent in 2016. Since medical costs are the main cause of personal bankruptcy in the U.S., rising insurance coverage means that the biggest source of risk to the average American is being slowly rolled back.

So although the U.S. economy has many problems, and faces plenty of dangers in both the short and the long term, things are going better than at any time since the halcyon days of the 1990s. It’s not a time for complacency, but there’s a great deal to be thankful for.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Noah Smith at nsmith150@bloomberg.net

To contact the editor responsible for this story:
James Greiff at jgreiff@bloomberg.net

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