This is a good look at some major components of the US economy over the last 16 years. There are a few insights that are particularly meaningful in understanding why overall job growth has continued to be disappointing.
Two of the areas show strength since the bottom of the recession in 2009: Exports and Business Equipment Investment.
We often hear the belief that the US doesn’t make anything, much less make things that the rest of the world wants. But we can see from the black exports line that exports have grown over the last 15 years. We can also see that since the bottom of the recession in 2009, exports have recovered. So this is an area of the economy which is doing surprisingly well.
The blue line shows that companies have been investing as business equipment investment has recovered well from the low point in 2009. However businesses won’t invest significantly more until the overall economy is stronger since businesses invest and hire when they have more customers.
Two of the areas are not helping with the recovery: Government Purchases and Residential Construction.
The green line for government purchases relative to the economy shows that such purchases have been declining for the last 15 years. While this was not a negative when the other areas were strong- like from 2003 to 2005, and from 1995 to 2000, this was because the other three areas were strong. With the most recent decline, it occurred while only two of the other areas were increasing.
The biggest reason we have high unemployment is clear from the red line- Residential Construction. If this area had started recovering as government purchases started falling this year, then we likely would not be in our current slowdown.
Fortunately, there are good reasons to be optimistic about construction getting back on track. We believe this will be what ultimately brings unemployment down to reasonable levels. Basically we are currently under-building residential units. We explore the reality in this post.
