GWEN IFILL: The U.S. economy is showing unexpected signs of strength this spring and prompting new optimism.
The most significant development? The accelerating recovery in many regions of the housing market. Home prices in 20 cities rose by an average of nearly 11 percent in March compared to a year ago. The Case-Shiller index also reported yesterday that in some markets, such as Phoenix, San Francisco and Las Vegas, prices climbed by more than 20 percent. At the same time, a separate index of consumer confidence taken in May is at its highest since 2008.
All of this comes as the stock market continues a strong run. During the first five months of this year, the Dow Jones industrial average has climbed nearly 2,000 points, although it closed at 15,302 today, down 106 points.
We look at the ups and downs of the stuttering recovery with Catherine Rampell of The New York Times.
Welcome. Welcome, Catherine.
What are we to make of this housing rebound?
CATHERINE RAMPELL, The New York Times: Well, the housing rebound has been pretty strong going for almost a year now, I would say.
It’s very widespread. All 20 cities that Case-Shiller tracks showed gains, both in the last month reported, which was March, and the previous couple of months. So, it’s widespread and it seems to be here to stay.
GWEN IFILL: Does it shift from region to region?
CATHERINE RAMPELL: Yes, there are big differences.
You mentioned that Phoenix, for example, and Las Vegas had had 20-plus percent growth. That is partly because, as we should remember, those areas had had major plunges in housing prices, so it’s coming off of a very low base.
GWEN IFILL: So, we don’t want to over …
CATHERINE RAMPELL: There’s big growth.
GWEN IFILL: Sorry.
CATHERINE RAMPELL: Right, exactly. There’s big growth, but it’s not exactly as if the prices there are anywhere near their peak, which probably we don’t want, given the unsustainable bubble values that we had in the earth 2000s and mid-2000s. But even now, they might still be undervalued just because they fell so far during the bust.
GWEN IFILL: If you look at the overall picture, the overall economic picture, how big a part are these housing stats in driving what looks like at least a partial recovery?
CATHERINE RAMPELL: It’s a big contributor right now.
We have had major cut in government spending. We have had tax increases earlier this year. As a result, there were a lot of economists who had predicted that consumer spending in particular was going to kind of fall off a cliff come January. And that hasn’t happened. And while it surprised a lot of people, what they’re basically pointing to is the fact that people are feeling wealthier. Their home values are going up. The stock market is also going up, of course.
And that helps a smaller segment of Americans. But, really, there are so many homeowners out there who are feeling a sense of relief and are feeling a bit richer that they’re a little bit more apt to loosen the purse strings a little bit.
GWEN IFILL: I’m sorry
That drives consumer confidence. That drives the stock investments.
CATHERINE RAMPELL: Exactly.
GWEN IFILL: But there — sounds like there’s a “yes, but” in all of this.
CATHERINE RAMPELL: The “yes, but” is that, even though consumer confidence is up and even though consumer spending has been more resilient than people had feared, it’s not particularly healthy.
Consumer confidence numbers, as reported yesterday, were at their highest level in five years, but they’re still at recessionary levels. Remember, we were in a recession five years ago. So, even though we are improving, even though we are in what is technically a recovery, we fell so far and we dug ourselves into such a deep hole, that the incremental improvements that we have had are still not really substantial enough to make us feel like we’re living in a healthy economy, I mean, especially if you look at the job market.
GWEN IFILL: Well, that’s what I was going to talk to you about.
CATHERINE RAMPELL: Right.
GWEN IFILL: Let’s just talk — let’s just look at the jobs market, especially who is rebound — who is getting jobs back and who is not?
CATHERINE RAMPELL: Well, governments are still laying off workers, or at least a lot of them are at state and local levels, so there are people who are actually losing their jobs.
We have seen some strong gains in a lot of the lower-wage sectors, unfortunately — I mean, fortunate that people are getting jobs, but, presumably, they would like higher wages. I’m talking about food services, retail. We actually have the highest share of Americans — or highest share of jobs right now that are in the food services sector than has ever been the case on record.
So there have been gains, but they have not been really substantial enough to whittle down the backlog of something like 11 or 12 million unemployed people that we still have right now. And, again, where we are creating jobs, they’re often at lower wages than the jobs that people had lost.
GWEN IFILL: We were told that there were two factors that were going to drive what happened to the economy this year. One was the sequester here in Washington, where they were going to cap government spending, and the other was the Eurozone crisis, which was also supposed to have some sort of residual effect here. Have either of them done that?
CATHERINE RAMPELL: It’s still a bit early to say what’s going on with the sequester.
The sequester, remember, officially started March 1st, but the way that it was designed, it means that government agencies basically have to cut some of their spending by the end of the fiscal year, which means by Oct. 1st. They didn’t have to do it immediately.
So, there were a lot of government agencies that waited a bit, either because they thought maybe Congress would change its mind and reverse this major cut to federal spending, since, after all, the whole thing was designed basically to get Congress to come to a deal that wouldn’t not force these major across-the-board spending cuts.
So, there were a lot of agencies that decided to wait and they didn’t cut right away. And then there were also agencies that said, well, since we have some flexibility about when these cuts go into effect, maybe we will later.
GWEN IFILL: I’m sorry. And the Eurozone?
CATHERINE RAMPELL: And the Eurozone.
So, the Eurozone is still very much a concern. It’s not as much on the front burner as it had been a couple of years ago, when it looked like Greece was repeatedly on the verge of collapse. Things are still not healthy. There are still countries that are in Europe that are in recession right now.
But the main source of concern from the Eurozone had been another financial crisis, that if Greece went under, then maybe Spain would and Italy would, and all of the banks that are — that have tentacles in each of these places would have major shocks as well.
To some extent, a lot of the U.S. banks have insulated themselves against this because the crisis has been going on for so long. So there’s a little bit less concern there.
GWEN IFILL: So, we’re still waiting.
CATHERINE RAMPELL: As for …
GWEN IFILL: I’m sorry. Go ahead.
CATHERINE RAMPELL: Sorry?
GWEN IFILL: I was just going to say …
GWEN IFILL: Go ahead.
CATHERINE RAMPELL: The other risk from the Eurozone has to do with trade, that Europe is a major trading partner of ours. But it is a relatively small share of the American economy that would be affected there.
So, even though it’s not helping, it’s not a huge drag, at least relative to a couple years ago.
GWEN IFILL: Right. So we’re still waiting for other shoes to drop.
Catherine Rampell of The New York Times, thank you so much.
CATHERINE RAMPELL: Thank you.