Financial Thanksgiving
It's that time of year and in addition to giving thanks for the big stuff - health, loving mate, wonderful family, great country - it's appropriate to express thanks for some of the positive developments in the financial world.
1. The economy is advancing. While the financial crisis and recession were painful, there has been significant progress in the recovery. Economists Carmen M. Reinhart and Kenneth S. Rogoff, authors of This Time Is Different: Eight Centuries of Financial Folly, have warned "that recessions associated with systemic banking crises tend to be deep and protracted." How protracted, you ask? According to Reinhart and Rogoff, it could take 7 - 10 years to return to the pre-crisis peak, which was reached in Q4 2007. The U.S. economy is five years into the mission and there are some encouraging signs that this recovery could occur on the lower end of the range.
2. Housing is bottoming. Because the epicenter of the crisis was housing, that sector has been a significant drag on economic growth for nearly 6 years. But the market is showing signs of life: prices have stabilized and are starting to increase nationally; housing starts are up sharply; new home sales are rising; and existing home inventory is falling. The recovery in housing should start to make a direct impact on the economy via construction of new homes, improvements and alterations, and broker commissions on sales of new and existing homes. Economists also note that as prices start to rise, refinancing and borrowing activity increase and confidence improves. Taken together, housing could add 0.3 percent to total GDP next year, according to Goldman Sachs. Considering the economy is only growing by an annualized rate of 2 percent, we'll take what we can get.
3. The jobs market is (slowly) improving. As of October, average monthly job creation this year is 157,000, slightly ahead of the 2011 pace of 153,000, though the jobless rate remains stubbornly high at 7.9 percent. The Great Recession vaporized nearly 9 million jobs and thus far, the economy has recovered about half of them. With over 12 million Americans out of work, there is no doubt the labor situation remains dire, but given where we have come from, it's worth acknowledging the gains.
4. Consumers have learned painful, but valuable lessons. After living through a credit boom and bust, many people have become more responsible about debt management and living within their means. This is the most encouraging development of the financial crisis and has been helped by the advent of much-improved money management tools and smart phone applications, which have helped people better keep track of their financial lives.
6. Consumer advocacy has arrived. The Consumer Financial Protection Bureau (CFPB) has consolidated most federal consumer financial protection authority in one place in order "to make markets for consumer financial products and services work for Americans." The CFPB has created a Consumer Complaint Database, a Consumer Response Center and launched Know Before You Owe for borrowers who are in the shopping phase of the mortgage process. Additionally, the CFPB has begun oversight of the credit reporting industry and as of next year, will monitor debt-collection companies.
7. Retirement savings getting back on track. During the financial crisis, many Americans put retirement saving on hold and employers reduced their matching contributions. But that trend has finally reversed and retirement saving is back on the front burner. Fidelity, the nation's largest 401(k) provider, recently announced that the average 401(k) balance reached $75,900 at the end of the third quarter, the highest it has been since the company began tracking the data more than 12 years ago. Average annual employee contributions grew 7.3 percent over the past five years to $5,900 at the end of the third quarter, up from $5,500 ending the third quarter 2007. Meanwhile, average annual employer matching contributions have increased 19 percent since the third quarter 2007.
Clearly, there is still a long way to go before the economy is on firmer footing. But given the depth of the recession and financial crisis, we should be thankful that we are moving in the right direction.
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