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By New_Deal_democrat December 30, 2013 2:29 pm
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12 important economic trends of 2013
With only one day left, let's take a look back at the important economic trends of 2013.  If there was a theme, it was a year of muddling along, positive but still disappointingly subpar.  In particular, there were notable changes in energy, housing, and interest rates.
Here are 12 important economic stories of 2013, starting with five positives:

1.  The Oil choke collar loosened.

From its recession low under $1.50 a gallon in December 2008, gas prices rose to $3.95 a gallon in both 2011 and 2012.  But the highest gas price in all of 2013 was $3.74.  For the entire year, gas prices averaged $0.10 less per gallon than in 2012.  With the exception of 2009, this is the first time in over 10 years that the YoY average price of gas has outright declined: 

As has been noted many times by many people, gas prices act like a tax on economic activity.  With this "choke collar" loosening, even if slightly, other types of economic activity can pick up, for example ...

2.  Real average hourly earnings of American workers increased slightly

Here is a graph of average hourly earnings of nonsupervisory workers, adjusted for inflation:

During most of the last decade, average earnings stagnated.  The steep decline in gas prices in the latter part of the Great Recession had the effect of causing them to rise, but with the increase of gas prices again, average real wages actually decreased into 2012.  In 2013, they made up about half of their lost ground.

3.  New house building picked up

Both housing permits and starts continued to increase in 2013, rising to near 6 year highs in autumn:

New housing construction served as a tailwind for the economy all year.

4. The increase in Social Security withholding didn't kill consumers.

Almost everybody, including me, expected that the 2% increase in wage withholding for Social Security (a reinstatement of a stimulus-related decrease) would cause a serious knock to consumer spending.  In fact I went so far as to forecast that it might cause an actual decline in jobs in the spring of this year.  That didn't happen, as American consumers proved again that they are champions of the art

5.  The pace of employment, production, and sales also improved slightly

In addition to real wages, the other three primary coincident indicators of where the economy as a whole is:  production, sales, and employment -- all picked up the pace of their growth slightly in the second half:

Not a big increase, but the slow fade of 2011 and 2012 was reversed.

Two mixed blessings:

6.  House prices rebounded as well.

This is a more ambiguous call.  Rising house prices gave a lot of families positive equity in their houses for the first time in a long time.  On the other hand, this made first time houses less affordable for buyers:

7.  Stock market made new all-time highs

The S&P 500 had on of its 3 best years since the turn of the millennium:

This is a mixed blessing as well. as the profits which ultimately must drive stock prices were only up about 6% YoY through the third quarter.  And while I remind Progressives that the one thing they may hate more than a rising stock market is a declining stock market (which usually means layoffs), the fact is, even at their current low levels, corporate profit gains are still outpacing wage gains.

Two big negatives of the year:

8.  Interest rates spiked about 1.5% above their 2012 lows.

This happened suddenly as soon as the Fed started talking about "tapering" their long-dated bond purchases.  Rates, which had been as low as 1.45% in July 2012, and were still about 1.66% at the beginning of May, spiked to 2.8% or higher in a hurry -- and pretty much have stayed there ever since, crossing 3% last week.  This has caused a spike in mortgage rates, which means ...

9.  The refinancing of household debt at lower rates has come to a screeching halt.

Here is a graph of mortgage refinancing vs. interest rates:


Refinancing came to a crashing halt with the sudden increase in mortgage rates, and is now even lower than it was in the crash year of 2009.  Typically since 1980, if mortgage rates fail to make a new low in 3 years, and there is no other asset class to leverage into loans (stocks in 401k's, housing bubbles), and if there is no increase to a new high in wages, consumers pull in their horns and a recession ensues.  We are nearly half the way through that period.  Which brings us to ...

Three poor long term trends are still intact:

10.  Median wages are still stagnant, and are still below their end of 2008 levels.

While average earnings did increase this year, and real median wages have increased slightly, they are still about 3% below their end-of-recession peak:

This is tortuous progress.

11.  There is still too much unemployment and underemployment.  

Even the most optimistic measure of unemployment puts us at 7%, which is still above the old metric of 6% that was typical for a post-World War 2 recession.  Including those marginally attached, it is 13.2%.  When we include those who say they haven't looked, but would like a job now, both of those measures go up  ~2%:
While the economic picture has continued to improve, the absolute measures of unemployment and underemployment remain poor.

12.  Finally, with the fruits of an improving economy going almost exclusively to the capital gains class, labor's share of productivity gains fell to new lows.  Inequality in the US is now worse than it was even before the Great Depression.  An argument could at least be made that it is acceptable if it were a case of a rising tide lifting all boats, but instead we have the majority of American households just keeping their heads above water, while the wealthiest pull away, and literally there is a different application of the law for the wealthy compared with everybody else.

In summary, 2013 was a year of decent economic data, with the rise in interest rates casting a shadow over 2014 and 2015.

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