A Better Decade Ahead for the Economy
A "Lost Decade" like Japan's? We've already done it. But, things are looking up for the coming one.
The past decade was a lost one for the U.S. economy, with almost no growth in a wide variety of measures. Stock values rose, then plunged, with the Dow Jones Industrial Average now at about the same point it stood at the start of 2000. The median income for American households adjusted for inflation stands at $49,777 -- 5% lower than it was 10 years ago. Real GDP gained a mere 20% from 2000 through 2009. And total employment was unchanged from the start of the decade to the end.
The next decade won't be nearly as dismal. The pace of GDP gains will accelerate from the recent annualized growth rate of 2%, as orders continue to rise while productivity increases slow, requiring employers to add workers. The result will be to unleash pent-up demand, boosting growth.
But the pace isn't likely to match those of earlier decades -- the 3.2% average annual growth of the '70s and '90s, the 3% of the '80s or the 4.4% average of the '60s. Downturns brought about by a financial crisis typically slow the pace of economic recovery. Lenders stay tightfisted longer; businesses remain skeptical about the staying power of incoming orders; and consumers face paying down bundles of debt run up during the good times.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Consumers will provide a bit less oomph, reflecting lower asset values this decade. Inflated home values and easy credit artificially pumped up demand for houses, appliances, flat-panel TVs and other goods, spurring consumer spending to a 70% share of GDP. But home values are now back to where they were in 2004. That, combined with the plunge in the stock market from its 2007 peak, has hammered household wealth. It's down 19% from 2007. Although demand will strengthen as the recession fades further into the past, consumer spending isn’t likely to provide the extra juice it did before the recession. As a share of the economy, it will ease back to the neighborhood of 66%, where it rested for decades.
Congressional efforts to tame the federal budget deficit will also dampen growth as spending on roads, schools, etc., is reined in and as taxes increase. Also a factor: the end of rock-bottom interest rates as the economy starts gain some steam and the Federal Reserve tightens credit in an effort to hold inflation in check after pumping billions into the financial system to spark the economy.
Look for annual growth over the next five years to average about 2.75%, with the pace possibly picking up a tad more in the second half of the decade. By the end of the decade, some prerecession peaks will be regained: In a few years, median household income. Stock indexes, a bit later. And near the end of the decade, total U.S. employment, as the 8.4 million jobs lost are finally restored. But unemployment won’t return to its prerecession low of 4.4% until after 2020. Annual housing starts, average home prices and auto sales won't regain their peaks until after 2020, either.
Still, it’s a mistake to be too gloomy. Americans won’t lose their appetite for homes, cars and the latest electronic gizmos. They’ll pare back, but not dramatically. More exports may help. The U.S. gets only 12% of its GDP from sales to other countries, compared with 50% for Germany and about 30% for the U.K.
And don’t discount American innovation and entrepreneurship. What will “the next big thing” be? Maybe alternative energy. Or nanotechnology. Or possibly something no one imagines. A decade ago, few had heard of Google.
To continue reading this article
please register for free
This is different from signing in to your print subscription
Why am I seeing this? Find out more here
-
GM Stock Accelerates After Earnings Beat
General Motors beat expectations for the first quarter and raised its outlook for the year. Here's what you need to know.
By Joey Solitro Published
-
Georgia Has a New Income Tax Rate for 2024
Tax Cuts Georgians now have a tax package containing income tax cuts, childcare relief, and potential property tax caps.
By Kelley R. Taylor Published
-
The Robots Are Coming... But Not For a While
The Kiplinger Letter There’s excitement in the tech sector over the potential of humanoid robots, but widespread adoption is likely to be years away.
By John Miley Published
-
Farmers Face Another Tough Year As Costs Continue to Climb: The Kiplinger Letter
The Kiplinger Letter Farm income is expected to decline for a second year, while costs continue to up-end farm profitability.
By Matthew Housiaux Published
-
H-1B Work Visa Rules Get a Revamp
The Kiplinger Letter H-1B visas allow employers to hire high-skilled foreign workers. Regulators have finalized new rules for this visa program following last fall's proposal.
By Matthew Housiaux Published
-
Woes Continue for Banking Sector: The Kiplinger Letter
The Kiplinger Letter Regional bank stocks were hammered recently after news of New York Community Bank’s big fourth-quarter loss.
By Rodrigo Sermeño Published
-
Are College Athletes Employees of Their Schools?: The Kiplinger Letter
The Kiplinger Letter A recent ruling has ramifications for labor relations and the unionization of student athletes.
By Sean Lengell Published
-
Salton Sea Clean Energy and Lithium Project Gets Approval: The Kiplinger Letter
The Kiplinger Letter California's Salton Sea is due to see the construction of a new lithium extraction and geothermal clean energy power plant.
By Matthew Housiaux Published
-
More Woes for Anheuser-Busch as a Strike Looms: The Kiplinger Letter
The Kiplinger Letter Drinkers of Anheuser-Busch beers may want to stock up soon. A looming strike threatens to shutter its U.S. breweries later this month.
By Sean Lengell Published
-
The Auto Industry Outlook for 2024
The Kiplinger Letter Here's what to expect in the auto industry this year. If you’re in the market for a car it won’t be quite as daunting as it was during the pandemic and after.
By David Payne Published