5 Important Things Now Completely Recovered From the Financial Crisis

It's still bad. Unemployment is 9%. Oil just went above $100 a barrel. Housing prices are still falling. The Middle East is in turmoil. States are broke. Don't even get started on the deficit.

But as Oscar Wilde brilliantly put it, "We are all in the gutter, but some of us are looking at the stars." Look closely, and you might be surprised how well much of the economy is doing. Some of the most important parts have actually fully recovered from the recession.

Here are five.

1. Housing valuations

Sources: Cash-Shiller, Census Bureau, author's calculations.

The most recent data from the Case-Shiller housing index shows the ratio between nationwide home prices and median incomes is essentially back to average. Bubble, gone.

Don't get me wrong: Home prices will probably keep falling for a while. But that's only because of excess inventory. Valuation-wise, most homes aren't a bad buy these days. An average wage can now buy an average home at a price that makes sense -- something that hasn't been true for most of the past decade.

2. Corporate profits

Source: Federal Reserve.

Corporate profits were one of the first things to rebound coming out the recession. Businesses quickly figured out how to appease shareholders while the economy was collapsing: Become efficient. Idle factories were closed. Redundant workers were laid off. Holiday parties were axed. Projects were outsourced.

These acts contributed to the recession, to be sure. But they also planted the seeds for recovery. Now enjoying record revenue, profits are exploding for lean businesses that expanded margins. Financially, businesses have hardly ever known a better time to expand, invest, and grow their operations. There's plenty of ammo to fuel a strong recovery.

3. Real consumer spending

Source: Federal Reserve.

To hell with unemployment. Consumers are spending more today than ever before.

Some have smartly pointed out that most of the rise in consumer spending is due to increased health-care expenditures, which might not be something to be proud of. Then again, there are projections for high job growth in the health-care sector -- the downside of higher costs fuels the upside of higher employment. And health care isn't the only sector rising. Spending on dining, clothing, beverages, and recreational services are all higher now than before the recession began in 2007. A better gauge of consumer spending, retail sales, is also at an all-time high.

Better yet, spending is coming back while consumers are saving again. As JPMorgan Chase's (NYSE: JPM  ) Jamie Dimon said this week, "Consumer spending is up about 5% from where it was last year, and the consumer is saving about 5%. If you go back several years ago, their spending was about the same, but they were not saving. So that seems to me to be a stronger consumer." Amen.

4. Exports

Source: Federal Reserve.

Probably the most under-reported story of the past year is the surge in manufacturing and exports. Real (inflation-adjusted) exports of goods and services are now at an all-time high. There's a good chance that trend will endure as federal deficits rise, quantitative easing continues, and the dollar declines.

An equally impressive cousin of exports is how U.S. corporations are deriving profits abroad. About half of S&P 500 profits now come from abroad, up from less than a third a decade ago. Intel  (Nasdaq: INTC  )  generates 85% of its revenue abroad; ExxonMobil  (NYSE: XOM  ) , 66%; Coca-Cola  (NYSE: KO  ) , 73%. There's been a fear over the past few years that the rest of the world would leave the U.S. behind economically -- that we'd become "decoupled." That's almost certainly not the case. The world really is flat, and the U.S. benefits from it.

5. The Google panic indicator
Google
(Nasdaq: GOOG  ) searches for the words "economic depression" have returned to normal, pre-recession levels. Same for the words Great Depression, bankruptcy, lost decade, and how to build a bunker. Fear is dwindling. People are getting on with their lives -- as they should.

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.

Fool contributor Morgan Housel owns shares of Exxon. Intel and Coca-Cola are Motley Fool Inside Value recommendations. Coca-Cola is a Motley Fool Income Investor selection. The Fool owns shares of and has bought calls on Intel. Motley Fool Options has recommended a diagonal call position on Intel. The Fool owns shares of Coca-Cola, ExxonMobil, and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (24) | Recommend This Article (57)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 25, 2011, at 5:30 PM, TheKoz72 wrote:

    You said that consumer spending has returned to pre-crisis levels. But, I wonder is some of the recovery is not the effect of increases in prices (inflation).

    The same with housing in relation with being tied with medium income; the statistic seems to be more reflective of a loss of income than a recovery in housing.

    Both of the above statistics seem to reflect a long-term loss to the economy rather than being an indicator of: "5 Important Things Now Completely Recovered From the Financial Crisis."

  • Report this Comment On February 25, 2011, at 5:37 PM, TMFHousel wrote:

    Thekox72,

    The consumer spending statistic is real, or adjusted for inflation. Same for housing/income -- that's real income.

    Thanks,

    Morgan

  • Report this Comment On February 25, 2011, at 5:43 PM, TMFHousel wrote:

    Furthermore, both real and nominal incomes have risen over the past few years.

  • Report this Comment On February 25, 2011, at 5:52 PM, xetn wrote:

    "Don't get me wrong: Home prices will probably keep falling for a while. But that's only because of excess inventory." Do you mean that prices are due to supply and demand? Wow, whoda thunk.

    But I believe there is also the estimated 1 million homes that will also be added to the foreclosure inventory in 2011 that will further fuel price reductions, not to mention the level of existing debt load of consumers. Instead of shedding debt, they seem to be taking one more.

    As for the "inflation adjustment" we should probably use this one:

    http://www.shadowstats.com/alternate_data/inflation-charts

  • Report this Comment On February 25, 2011, at 6:16 PM, xetn wrote:

    "Don't get me wrong: Home prices will probably keep falling for a while. But that's only because of excess inventory." Do you mean to suggest that prices are based on supply and demand? Wow, how da thunk!

    But there are much more coming on the housing front's increasing inventory:

    http://blog.mises.org/15772/home-prices-decline-past-sales-d...

    and the banking sector:

    http://blog.mises.org/15798/banking-turnaround/

    As for "inflation adjustments" maybe we should look at the following:

    http://www.shadowstats.com/alternate_data/inflation-charts which shows the inflation rated based on the original "un-massaged" calculation.

    and:

    http://mises.org/daily/5061/Inflation-is-Here-and-It-is-Goin...

  • Report this Comment On February 25, 2011, at 9:23 PM, OneLegged wrote:

    Really? I literally know 5 people who are working full time. In 2006 my income was in the very low 6-figures ($101,690). In 2007: $44,000 In 2008: $36,000 2009: $13.390 2010: $21,505 So far in 2011: $2,400. Savings; gone. Retirement; gone. Health insurance; gone. Dental insurance; gone. Cell phone; gone. TV; gone. Vehicle insurance now at legal minimum. The house is kept at 60 degrees (or lower). The only thing left is internet service.

    Happy days are here again.

  • Report this Comment On February 25, 2011, at 10:47 PM, Alfredodos wrote:

    One Legged- Well at least you have the internet! (just kidding) My salary peeked in 2004 and has gone down some but not like yours. I guess it depends where you live but here in the NYC area I haven't seen it so bad. Home prices are still way too high and and the malls are packed. Hopefully this article is right and recovery is ahead. I hope things improve for you. Good luck!

  • Report this Comment On February 26, 2011, at 1:30 AM, qcw wrote:

    "Don't get me wrong: Home prices will probably keep falling for a while. But that's only because of excess inventory. Valuation-wise, most homes aren't a bad buy these days"

    Um this is an interesting statement. At first glance I want to say ... and Valuation-wise they will be a better buy tomorrow"

    But your statement suggests that high inventory has nothing to do with valuation. For me valuation is what someone will actually pay for my house, not what they can afford to pay. AND a large overhang of inventory certainly does not provide support for current valuation -- unless everything I read about Supply and Demand is pure Junk.

    Im going to read #2 now and see if it makes as much sense as #1.

    Anyway only think I own now is Silver/Gold/Oil, and a tiny bit of AAPL - Just cause I like em!

    -Q

  • Report this Comment On February 26, 2011, at 4:43 AM, cgicon wrote:

    Sorry, I don't experience it that way. It amazes me how data and statistics can be spun to support just about any argument. So I'll spare the numbers. The reality experienced in my circle (NY Tri-State area) is: people are saving more, spending less, unemployment is probably closer to 15%, under employment is probably another 25%, paying more for goods and services and prices are rising, consumer confidence is negative. Jamie Dimon received compensation of $17 million for 2010 vs $41.2 million in 2006 - even he's feeling the pinch.

  • Report this Comment On February 26, 2011, at 7:51 AM, Stonewashed wrote:

    Corporations outsourced and then didn't pay the people they outsourced to for almost a year, in some cases, particularly the banks. Even though they were in breach of contract, they paid no interest and in many cases forced discounts on those that didn't have a house full of lawyers (who I guess the corporations didn't lay off) to keep from paying the agreed contract price.

    Sure consumer spending is up. They are right back to living from paycheck to paycheck.

  • Report this Comment On February 26, 2011, at 8:48 AM, wax wrote:

    What's the deal? Does everyone start their day with a Foolish pledge of allegiance?

    Your references to Intel, Exxon, and Coke were just silly. You should explain their structure and how their profits get from point A to point B.

    Perhaps Fooldom should get back to what it does best...educate, amuse, and enrich, instead of trying to get folks to become a number on the sign-up list for newsletters and premium dribble.

    This piece for which you actually got paid, should be flushed.

    Wax

  • Report this Comment On February 26, 2011, at 11:08 AM, ET69 wrote:

    What is all this nonsense that medical care is a growth industry? I work in the geriatric business and all we are seeing is huge cutbacks from state governments and the Feds. Our census keeps going down and no one has had a raise in 3-4 years!. We are laying OFF nurses and others.

    So you may say well people are getting older - they need more health services so you must be growing- right? WRONG!

    The people are getting LESS rehab and treatments like dental and optometry exams etc. Why ? Because the state simply cut those funds off. People are getting LESS medical care. so wake up and smell the roses folks! This is not a growth industry. Only the rich will get adequate care.

  • Report this Comment On February 26, 2011, at 11:35 AM, canadacomments wrote:

    Morgan

    Please explain to me how spending can be up by 5% and savings can be up by 5%. Is take-home pay up by 10%? I thought that only Ben could create money out of thin air?

    Stu

  • Report this Comment On February 26, 2011, at 12:04 PM, TMFHousel wrote:

    Canadacomments,

    I think you misinterpreted Dimon's quote. Compared to a year ago, spending is up 5%, and the savings rate is roughly the same at about 5%.

    Then again, since 2006 -- the "several years" frame Dimon references in the next sentence -- real disposable personal income is up about 9%. Some of this is from tax cuts (making work pay credit; recent payroll tax cut), the rest is real wage increases.

    ET69,

    I don't think your personal situation is indicative of the broader industry. Healthcare jobs rose 2.4% annually from 1999-2009, which was the third fastest behind computer engineers (2.5%) and management consulting (5.1%).

    As for projections (take 'em as you wish), here's the BLS:

    "About 26 percent of all new jobs created in the U.S. economy will be in the healthcare and social assistance industry [from 2008-2018]. This industry—which includes public and private hospitals, nursing and residential care facilities, and individual and family services—is expected to grow by 24 percent, or 4 million new jobs. Employment growth will be driven by an aging population and longer life expectancies."

  • Report this Comment On February 26, 2011, at 12:10 PM, slopshid wrote:

    Stu (canadacomments):

    Go back and re-read that section. Then read it again, and check your math.

    Income doesn't need to be up 10% for spending and saving to be up 5% each from last year. Let's say you brought home $50K last year, of which you saved $5K and spent 10K. If spending and saving are both up 5%, that makes $10500 spent and $5250 saved. That's an increase of only $750, or 1.5%.

  • Report this Comment On February 26, 2011, at 1:21 PM, motleylorenzo wrote:

    Morgan, #1 is a totally irresponsible statement. "Valuation-wise, homes aren't a bad buy these days".

    Are you kidding? You've got 3.2 million REO's out there, just waiting to hit the market. Valuation-wise, homes are a terrible buy. The excess supply is going to drive that graph a lot lower.

    The Google Panic Indicator? Really? That's an indicator of recovery? The Fool hates Technical Analysis, but let's this one slip in?

  • Report this Comment On February 26, 2011, at 2:35 PM, TMFHousel wrote:

    motleylorenzo,

    Keep reading. Supply is mentioned in the next paragraph.

    There will be volatility. Prices will probably fall. Agreed. But "An average wage can now buy an average home at a price that makes sense -- something that hasn't been true for most of the past decade." I stand by that.

  • Report this Comment On February 26, 2011, at 4:04 PM, showmethefacts wrote:

    I have trouble with the idea that everything is getting back to normal. Our nation faces a problem that is far greater than massive debt (the conservatives' mantra) or fear of slipping back into deep recession (the liberals' excuse for not wanting to ever cut any spending):

    a complete lack of political will to address structural issues that are darkening the nation's future. It's driven by money. Bribe money. Our democracy has mutated from one in which shared sacrifice and common sense were valued (as when we pulled together and defeated the Axis powers on WW II) to a myopic frenzy of voting ourselves more and more goodies (government benefits and services, defense contracts, tax breaks for the super-wealthy, etc.), with no corresponding will to pay for these generous benefits. Unions and liberal organizations fund their loyal politicians. The wealthy and the corporations they control pay massive sums to political action committees and directly to politicians to ensure that they protect their interests. Politicians of BOTH parties shy away from touching "third rail" golden cows like social security and medicare. Nobody is willing to face the fact that there's no free lunch. Government benefits -- whether for free health care for the elderly or for planes, helicopters, guns and missiles that the Pentagon doesn't want or need -- all cost money. You cannot lower taxes forever and still pay for everything our elected officials have voted to obligate the government to pay for. Both sides employ blatant lies:Nancy Peolisi/Chuck Schumer liberals say we can solve all the nation's problems and add even more government benefits by taxing the "rich" and corporations. Really? How high would tax rates have to go to do that? The Limbaugh-logic Fox "News" right wing promotes the blatant lie that if you just lower taxes enough, it will unleash a great wave of innovation and productivity that will cause overall tax revenues to rise and pay for everything. It's simply false as EVERY non-political objective study has found. The debt is just too high and the money doesn't trickle down.

    These politicians of left and right are essentially bribed to repeat these lies. The US Supreme Court, in a 5 to 4 vote along the same ideological divide, employed the utter falsehood that corporations are "persons" who have "freedom of speech" to spend unlimited money paying politicians to behave the way they direct. What crap. Corporations are not people and they have no "freedom of speech" to bribe politicians. As long as money floods in, and pays "news" outlets to preach propaganda of the left and right, we'll never develop the political will to stop the slide into national decline.

    People need to challenge the assumptions they hold. Question what politicos of left and right say. Only fundamental change of the corrupt system can set the nation back on course. We should have no sacred cows -- we should put everything on the table. Yes, lefties: health care, social security, and Planned Parenthood. And yes, smug Repubs: defense spending, government give-aways to big Pharma (Like Bush's OUTRAGEOUS give-away called "prescription drug benefit reform" which in fact just transfers more taxpayer dollars directly to Pfizer, Merck and other huge donors to Bush's party). Yet lefties only want to cut the right's pet projects and righties do the reverse, while demanding lower and lower taxes. Everyone listens to what they want to hear and no one challenges the logic of what their own side promotes as reality.

    We should scrap the loophole-ridden, special interest minefield called our tax code. Abolish it. No more income tax, at all. After all, only honest people pay it. No drug dealer, topless dancer, Chinese restaurant, or any other seemingly legit business that deals in a lot of cash pays tax anyway. We should instead tax sales, because everybody buys stuff. Exempt a few essentials so it's not too regressive (no tax on generic milk, diapers, etc.). How many people smoke dope? Millions and millions. Where do they get it? Do the dealers pay income tax? Think about it! Repeat that thought for everyone who deals in a lot of cash. Do they accurately report their income o the "honor system?" Give me a break! Just by bringing everyone into the tax system we could dramatically increase government receipts. Sure, the special interests who get tax breaks now will scream, but their cries to keep their privileges should be ignored.

    Would you pay 15% tax if you had no income tax and no IRS? We could probably fund everything that we need that way.

    So, I'm not comforted that some metrics show we're getting back to normal. We need to get the money out of politics (it may take a constitutional amendment since 5 out of 9 Supreme Court members seem to be bribed by their "side" to say corporate money is "speech."). Then scap the tax code. Then put everything on the table and resolve to live within our means, storing up surpluses in good times -- as Bush should have done with the surpluses he inherited, only to squander it on tax cuts for the well-off -- so that when recessions hit, we can spend a little more to stave off depression. It's really all pretty simple. But as long as the politicos are bribed, simple solutions will be ignored.

  • Report this Comment On February 26, 2011, at 7:36 PM, mcross23 wrote:

    "Make money when the market is dropping or not moving at all." That does indeed sound like an incredible pitch. Much like this one I received in January:

    "Imagine making money whether the market is up, down, or even dead flat..."

    It continued.........

    "Click here to discover a proven strategy to make

    money in up, down, even rollercoaster markets!

    Good Investing!

    Tom Gardner

    Co-founder, The Motley Fool"

    The approach might be different, but the pitch (Which was for Motley Fool PRO) is way too similar.

    And I'm a fan and subscriber of the Fool.

  • Report this Comment On February 27, 2011, at 9:04 AM, Shoothappy wrote:

    showmethefacts

    I have to say I completely agree.

  • Report this Comment On February 27, 2011, at 11:44 AM, martinitrader wrote:

    Showmethefacts,

    I also completely agree with your comments. So called Capitalism without morality does not work in the long run. Item #2 Corporate Profits is a load of crap. How much money do these corporations have to make? How many employees do they have to layoff to keep there profits. They announce record profits while at the sametime laying off employees, eliminating pensions and profit sharing and reducing health benefits. These profits are up at the cost of US employees. They layoff employees in the US only to hire abroad at lower salaries. These profits are not going to be used to hire more US employees, they are used to make the rich richer. Jamie Dimon is even feeling the pain, give me a break. It is amazing how people believe everything they hear.

    We need major reform and morality in our leaders!!!

  • Report this Comment On February 27, 2011, at 1:08 PM, rob1fitz wrote:

    showmethefacts is right on!

  • Report this Comment On February 27, 2011, at 6:36 PM, shorty011 wrote:

    showmethefacts,

    What a succinct appraisal of our current situation. Thank you.

  • Report this Comment On March 01, 2011, at 11:23 AM, rhutmacher wrote:

    @ slopshid

    Where did the other 35k go, it was either spent, saved, or paid into taxes.

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