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.
