Indicators show a steadily recovering economy

Pasadena Star News
By: Cynthia Kurtz
Posted: 01/03/2013

Remember the “rope-a-dope” boxing style? For readers who may not remember Muhammad Ali, you allow your opponent to throw punches at you as you lean against the rope. The punches don’t hurt you because the rope absorbs much of the energy, your opponent tires from throwing punches, and then you come back with a knock-out punch.

While I couldn’t always tell from day to day which political party was against the ropes and which one was punching, I am pretty sure it is the technique used to resolve the “fiscal cliff”. And it didn’t work as well in politics as it did in boxing.

In all seriousness, left unresolved the fiscal cliff could have pushed us back into recession in 2013. It is good that a last minute deal was approved. But we all know that there is more to do. Our elected officials in Washington DC need to make decisions about spending cuts so let’s hope they keep working on a real resolution.

In the meantime, we should look at what is happening outside of Washington DC for the economic signs that will give us the best perspective on what will happen in 2013 and there are a number of very good signs.

Good Sign Number 1 - Households are getting their balance sheets under control. When the recession hit, consumer debt was almost double the national GDP. This added fuel to the economic meltdown.

The vast majority of the revolving debt was credit card debt. Since 2007, revolving debt has declined 19 percent. By the end of 2013 experts predict long term debt will be close to the long-term average for credit card debt.

Good Sign Number 2 - The housing market is recovering. According to CNN Money, housing prices finally hit bottom in 2012 and started to rebound. Every major index shows asking and sales prices increasing with prices averaging 3.8 percent higher in November 2012 than the same time in 2011.
The Mortgage Banker Association (MBA) predicts a continued rise in prices of 2 - 3 percent in 2013. If low interest rate continue, they believe there could be a16 percent increase in home purchases during 2013.


Other predictions are even more optimistic. Economists at Chapman University say prices may increase by 5.8 - 6.8 percent. Their counterparts at Cal State Fullerton predict 7 percent price increases.

Good Sign Number 3 - The job market is improving. MBA foresees a modest but steady increase in jobs of 125,000 to 150,000 per month in 2013. Tim Mullaney, financial analyst and director of Money Edition, predicted a more optimistic growth of 200,000 jobs per month in USA Today. Regardless of the exact numbers, experts agree that we are steadily getting people back to work.

Combined these three indicators - falling household debt, rising home prices and an improved job market - will increase consumer confidence and consumer spending. Consumer spending is the key to a stronger economy. It spurs more demand for goods and services, gets factories humming again, adds more jobs, and more tax revenue for better public services. That is the 2013 we can all welcome with enthusiasm.