Does the Improving Economy Offer Opportunities to Raise Social Mobility?

The word “economy” is on everyone’s lips.  Things are looking bright for those who have a stake in the economic system. Markers in the service and manufacturing sectors are progressive and provide opportunities to put people to work while lowering the nation’s growing income disparity. The new economy offers the possibility to resize an unbalanced ship so that it finds benefits in hydroplaning to new levels. 

The Institute for Supply Management’s non-manufacturing index increased to 58.7% while sixteen U.S. non-manufacturing industries led by construction and education also experienced growth (1).  To complement this growth the service sector also realized expansion adding further strength to the recovery and providing higher levels of employment.

According to the Commerce Department manufacturing also received positive growth numbers (2).  The U.S. is moving into a stronger competitive position that furthers its ability to maintain momentum. Manufacturing increases employment opportunities and heightens income opportunities for families that need a solid wage and opportunities.  

A particular problem rears its head when the cost of education is increasing thereby creating a class of people who do not have the skill to go to college or the financial resources to finish a degree program. The inability to obtain a meaningful education leaves them out of many highly skilled manufacturing jobs and thereby locking them out of Middle Class lifestyles. 

Despite the positive economy there are some serious risks if the income is not spread properly among varying social classes and peoples. According to a new report by Standard and Poor income inequality is reaching extreme levels that may hamper future national growth (3).  The problem has become so pronounced that it retards future forecasts by 2.5% creating a drag on the economy.

The benefits of improving on middle class wages and raising people out of poverty outweigh many other expensive programs. Those with financial resources and high incomes are becoming wealthier leaving behind the masses causing instability. Changing public policies and avoiding poor economic decisions is important for encouraging higher overall human development to meet national needs.

The S&P report also mentions that raising minimum wages is not the answer as even though income rises the opportunities may decrease leaving less total jobs. It could also push inflation rates where the dollar is worth less tomorrow than it is today. Part of income disparity is based in actual earning power beyond the amount of dollar bills obtained.

Education is a major component for social mobility. Traditional sports arena oriented college models have become unsustainable with its expensive tuition, declining state budgets, large buildings and the re-shifting of financial responsibility onto families. Reforming higher education will help in bringing more people forward with the necessary skills to work in this century helping them reach Middle Class status and creating greater social mobility that helps raise opportunities for the future of everyone.

Fitch Ratings Report Suggests Independent Economic Growth

Fitch Ratings released a report entitle Mapping a Subpar Economic Recovery: What Can History Tell Us? that details the differences in historical economic recovery and growth.  They analyzed various recoveries in countries like Germany, U.S., U.K, and Japan and found similar trends that define these recoveries. Many of the eras of recovery saw the wealth effect, lower inflation and interest rates, higher government spending, new technology, changing consumer preferences, global competitiveness, trading relationships and currency effects. Today’s recovery has some unique differences that challenge basic economic assumptions. 

Interest rates are at historic lows and have been for some time. It is not believed that continued low interest rates will add much more to the economy. The same can be said of the stimulus policy. Each of these naturally has an influence on growth but can become increasingly burdensome after their initial shock impact.  

Exports often rise during a recovery and some small signs of growth are spurting upwards but are not yet conclusive enough. There have been some indications of growing health in the global economy but many developed nations do not yet appear to be sucking in American products. The trade deficit is still in the negative but has improved slightly indicating a potential better market.

The stock market has outperformed expectations and is doing better than during many other recoveries. They are at triple the level of recession bottom and there is some indication that growth will continue. Stocks are a sign of investment and wealth generation that help show that company positions are growing. 

Manufacturing within the U.S. is growing as more companies return to home soil. The increase in productivity, technology, and energy costs is helping to drive growth in this sector. The authors cannot state conclusively whether or not growth will continue but do highlight that services seems to be a bright spot and lower energy production costs seems to be making its way into the economy from a macro perspective. 

The report is inconclusive as the nature of economic forecasting can be a little like looking into a crystal ball or throwing darts onto a map to determine the best vacation spot. However, after reviewing the report you can see that there is a slight upswing in each of the sections such as share price, home values, manufacturing, and exports. The interest rate is slightly rising and government spending appears to be moving downward while unemployment is declining. The higher stock returns and improvement in home based manufacturing are extremely important in supporting long-term investment and growth. It is often the multiple markers of upward trends that hint to a possible re-emergence of the American economy based upon its fundamental merits.  

Positive Economic Indicators Point to a Brighter 2014

The economy looks bright for much of the next year according to the Conference Board, Bloomberg’s poll of leading economists, and the International Monetary Fund. After a prolonged decade of slow down any positive market news is welcomed. However, with increases in multiple measurements one can get a better feeling for growing trends and how those trends will impact national investment opportunities. At present, the market appears to be increasing in growth and opportunity for both the U.S. as well as other nations which could encourage further growth.

The Conference Board used broad based measures that included the labor market, interest rates, factory orders, stocks price, and construction. The Conference Board’s Leading Economic Index for the U.S. rose .8% in March to 100.9 indicating a substantial increase in the U.S. economy (1). The economy has put away its winder mitts and gloves and significant improvements in the market are possible.

The Conference Board was not the only one to make optimistic predictions. Bloomberg polled 42 leading economists and came to the conclusion that an advance of .7 (estimates ranged from .3 to 1) in the leading index could be realized (2).  Six of the ten leading index estimates are higher and it is projected that there will be an economic increase of 2.7 % this year when compared with 1.9 percent in 2013.

Acceleration in the global economy is also expected. According to the IMF, global growth is expected to realize an increase of 3.7% in 2014 and 3.9% in 2015 (3). It is believed that there are still some risks due to poor economic management and shaky internal structures. Emerging economies will receive a push from demands in the advanced economies that will help with stabilization.

The outlook is bright over the next two years. Assessment of the economy requires reviewing indicators from different vantage points and perspectives. Generally, the more measurements that can be incorporated into an assessment the better the overall assessment assuming these measurements are not just “noise”. A single increase in one sector of the economy doesn’t have broad implications or validity in the same way that multiple measures across different sectors of the economy have.

The multiple indicators may also raise optimism on a number of different fronts. Optimism is important for business investment and consumer spending that support growth. When people feel that the economy will grow, and their personal financial well-being is positive, they are more likely to invest and spend the nest eggs they have been putting away. This means they believe that there will be more opportunities in the future as well as more opportunities and respond by rewarding the market with investments and purchases.