Posts filed under “Economy”

How Is Your Personal Economic Recovery Going?

Are you not feeling the economic recovery? This could be why.
Barry Ritholtz
Washington Post, May 17 2015

 

 

 

“The future is already here — it’s just not evenly distributed.”
—William Gibson

 

William Gibson’s observation about the future was a reference to the idea that people have different access to new technology based on wealth and location. That visionary quote kept coming to mind as I have been traveling around the United States to meet with clients this past year. My itinerary gave me a good perspective on the U.S. economic recovery.

Like the future, it, too, is not evenly distributed.

Why is that? The economy is, in a word, “lumpy.” It is strong in some regions, anemic in others. Strength by economic sector varies widely. There are myriad reasons for this: Some parts of the country were much harder hit by the real estate collapse; some sectors naturally rebound more quickly; some innovations lend themselves to more rapid growth.

The kind of recovery that you personally are experiencing is highly dependent upon many factors, but today I want to focus on three: education, market sector and geography. The data suggest these elements matter a great deal. Look closely, and you can see how your personal economic recovery is doing — and why.

Let’s take a closer look at what matters most:

Education: If there is a single lesson you need to learn from this crash and recovery, it is that education matters a lot. The data from the Bureau of Labor Statistics makes clear the direct correlation between increased education and lower unemployment rates and higher wages.

We have a full year’s worth of data for 2014. Across all workers (over age 25 and working full time), the unemployment rate was 5 percent. For workers who had a high school degree or some college, the unemployment rate was a little higher than average (6 percent); with an associate’s degree, it was a little lower (4.5 percent). Schooling is where we really see a difference: Workers without a high school diploma had an unemployment rate of last year of 9 percent, double the average of workers with an associate’s degree.

 

ep_chart_001

Source: BLS

 

Have a bachelor’s degree? Great, your peer group had an unemployment rate of only 3.5 percent. Master’s degree holders saw that fall to 2.8 percent, while doctoral graduates were at only 2.1 percent unemployment. Professional degree holders’ unemployment rate was the lowest at 1.9 percent.

Anyone who believes school doesn’t matter should recognize that enormous unemployment range of 1.9 to 9.0 percent.

If that does not convince, then look at compensation. Weekly wages are very similar in their distribution to unemployment: the average was $839 per week for all workers, but only $488 for those without a high school diploma. Those who held a professional degree averaged more than triple that amount at $1,639 per week. Bachelor’s degree holders averaged more than double at $1,101 per week.

Geographic location/market sector: I’m conflating these two together because in my experience they’re so closely related.

Since I have not visited every city in the United States, this is a somewhat anecdotal analysis. My experiences are not the same as a true data read. Even so, it is clear that some areas in the country are doing much better than others and give you a leg up in experiencing a robust recovery. Here is my short Top 5 list:

-New York: Following a huge collapse, there is nothing like a trillion-dollar bailout to jump-start your economic recovery. In the face of an AWOL Congress whose fiscal stimulus was marginal by historical crisis standards, the Federal Reserve became the only game in town. Between TARP, ZIRP and QE, the Big Apple has been the recipient of much taxpayer largesse. Even Fed money that was destined for the rest of the country still passed through NYC. That worked to the advantage of the owner of the corner deli and the Porsche dealer alike.

The actions of the Fed not only cushioned the blow from the collapse but set the stage for the next round of expansion. In particular, finance and real estate sectors have been on fire in New York. Note that this is a theme in every city experiencing a boom. There always seem to be at least two hot sectors: (1) real estate and (2) something else. One drives the other.

-Washington, D.C.: If finance is driving the New York economy, the “business of politics” is driving the District. From lawyers to lobbyists to government contractors, the city is swollen with activity. We see it reflected in the real estate prices in the surrounding communities. Washington may talk about shrinking government, but leaders have been expanding all of the related industries that feed into — or off of — the seat of U.S. power and money.

-Seattle: This could very well be the hottest, fastest growing city in North America right now. It’s much more than just Amazon and Boeing and Microsoft (now in the midst of a Satya Nadella-led turnaround). There is Costco Wholesale, Starbucks, Nordstrom, Nike, T-Mobile US, Micron Technology and Expedia.

Intellectual capital abounds. What makes the place so vibrant is the huge number of new tech start-ups and expanding existing firms. One is reminded of how Silicon Valley was in the early 1990s. Despite rising real estate prices, it is a very civilized place to live, with great outdoor activities and beautiful scenery. Most important of all, there is an energy and enthusiasm and optimism among all of the people I met in town.

-San Francisco/Silicon Valley: Another full-on boomtown. Technology is running on all eight cylinders, or, perhaps more accurately, a fully charged Tesla PowerWall. Whereas the dot-com boom was frivolous and frothy, filled with pie-in-the-sky business models, this is more substantive and functional. Lots of wild ideas are still getting funded, but in this cycle, revenues count. The infrastructure built around software and semiconductors is much more mature than it was back in the 1990s. Apps, alternative energy, big data and relentless innovation are keeping the city and its even more important surrounding technology suburbs humming.

Of course there is some froth, as that is inherent to the venture investing process. On occasion, silly ideas get funded and good ideas see ludicrous valuations (and vice versa). Most technorati will admit — after you pour enough alcohol into them — that venture investing looks like a huge crapshoot. For each Uber there are still 100 Pets.coms. But so long as the community of engineers and programmers keeps finding new and disruptive ways to do things better, the economy here is going to keep growing.

-Boston: With about the same population as Seattle, Boston has quietly managed a very nice economic recovery. It may not be quite as booming as some of the others I’ve mentioned, but it is growing smartly. Boston has a foot in biotech, medicine and health care, finance, high-technology research and development, and education. About the only things that are not nicely inflated in this town are the New England Patriots’ footballs.

Of course, this is a very biased sample set: I visit cities where we have clients, and, by definition, wealth management clients tend to be fairly wealthy. Hence, my sample set of cities is likely to be doing better than a randomly selected group of metropolitan locales.Iowa, which also enjoys a diverse economy plus a huge agricultural footprint, also maintains a very low unemployment rate. Utah, Colorado and Minnesota have also been strong. So too has Texas, which is no longer as energy-centric as it once was. In the 1980s, a fall in oil prices was catastrophic; its diverse economic base is better able to weather a commodity crash these days.

That said, lots of other parts of the country have also been doing well. Warren Buffett’s home state of Nebraska boasts the lowest unemployment rate in the United States, at 2.6 percent. (It eclipsed North Dakota, which has seen a modest uptick in unemployment as crude oil prices were cut in half since last September). The state has a big agricultural sector and food processing, notably beef production. But the state is fairly diversified, including electrical machinery and manufacturing, telecommunications and information technology.

So if you can put it all together — if you have a good education, choose your field wisely and live in a thriving area — the economy’s looking pretty good to you right now. If not, well, my experience suggests that you should take a hard look at those factors.

~~~

Ritholtz is chief executive of Ritholtz Wealth Management. He is the author of “Bailout Nation” and runs a finance blog, The Big Picture. On Twitter:@Ritholtz

Category: Apprenticed Investor, Economy

What If Something Goes Right in the Economy?

  The preoccupation with all of the things that could possibly go wrong has been a persistent characteristic of this economic recovery. It was termed recession porn in 2009. It has been a focus of websites, pundits and, of course, goldbugs. When an economist picks up the nickname “Dr. Doom,” it suggests an obsession with the negative. Recession porn…Read More

Category: Cycles, Data Analysis, Economy

Unsteady Footing

NA-CF826A_ECONO_16U_20150515153014
Source: WSJ

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Category: Economy, Federal Reserve

Why Not Everyone is Feeling the Economic Recovery

    My Sunday Washington Post Business Section column is out. This morning, we look at why the economic recovery is so unevenly distributed. The print version had the full headline Not everyone is feeling the economic recovery while online the headline was Are you not feeling the economic recovery? This could be why. Here’s an excerpt:…Read More

Category: Cycles, Data Analysis, Economy

Now-Tracking: GDP

From Torsten Slok: More and more clients bring up the Atlanta Fed’s real-time tracking estimate of GDP and it has become a benchmark for discussions of current quarter GDP after they did a great job capturing the low GDP number that came out for 2015Q1, see chart below. The average absolute forecast error since they…Read More

Category: Data Analysis, Economy

World’s 20 Largest Economies in 2030

Source: Bloomberg

Category: Digital Media, Economy

Millennial Disruption Index

Source: Millennial Disruption Index

Category: Digital Media, Economy, Markets

We Know What’s the Matter With Kansas

@TBPInvictus When pushing his tax cuts for Kansas in July 2012, Governor Sam Brownback wrote: “Our new pro-growth tax policy will be like a shot of adrenaline into the heart of the Kansas economy.” Art Laffer and Stephen Moore wrote that “many states like Kansas, Missouri, and Oklahoma are seriously considering abolishing their income taxes…Read More

Category: Current Affairs, Data Analysis, Economy, Politics, Really, really bad calls

Cheap Oil Winners and Losers

Source: Bloomberg   Based on the state sales tax data that came out today for 2014, I would suggest that is the USA ex Alaska, which is more like Canada than the US when i comes to energy.  

Category: Digital Media, Economy, Energy

Will Détente with Iran Create a Peace Dividend?

The possibility of a deal to limit Iran’s nuclear capabilities and end the international trade sanctions against the country raise a fascinating question: Will there be a peace dividend? A look at history may provide some insight. Based on what we have seen in the past, it is possible that an agreement would have a…Read More

Category: Economy, Taxes and Policy, War/Defense