Bill Handel, Raddon
LOMBARD, Ill.—Look for ongoing economic improvement through the remainder of the year, with real estate spurring growth, but be wary of “structural unemployment” potentially stalling advances.
That’s the forecast from Bill Handel, VP of research at Raddon Financial Group, who is optimistic about what the remainder of 2015 holds even as he sees some potential threats to could slow the economy.
“There has been continued improvement in the labor markets, although this is in many ways an illusion—the improvement in the unemployment rate is largely due to how it is measured, not significant gains in actual employment,” said Handel in the latest issue of The Raddon Report. “Moreover, our concern is that what was a cyclical unemployment problem is morphing into structural unemployment. The mismatch between the skills employers are seeking and the skills potential employees possess continues to widen, and labor costs continue to escalate. At the same time, automation and technology are allowing employers to produce what they need with lower labor costs. Although this is a trend that dates back to the height of the Great Recession, it is likely to continue to escalate.”
A second concern, he said, is household debt.
“Since the 1980s, there has been a long-term, sustained run-up in consumer debt, including real estate and personal debt,” explained Handel. “Consumer debt accelerated in the 2000s, which ultimately contributed to the financial crisis. The debt-to-disposable-income ratio doubled from the 1970s to 2007, when it peaked at 130%. While the current ratio is down from its peak, it remains significantly elevated relative to historic norms.”
Handel said other economic concerns center on global financial health.
“Many parts of the world continue to experience very modest growth, and austerity programs are wearing thin, as evidenced in Greece,” he said. “While the reduced price of oil is generally positive for U.S. consumers, it is damaging for countries whose primary export is oil, such as Russia and Venezuela. Weakness in the global economy often has a ripple effect on the U.S. economy.”
The long-term bright spot in the economy continues to be real estate, noted Handel.
“Optimism is not due to government programs which have spurred improvements, but the rebalancing of supply and demand. There have been fewer than one million housing starts per year in the U.S. since 2008; prior to 2008, there were never fewer than one million starts, with data first collected in 1959. This massive correction in the housing supply comes at the same time Gen Y is beginning to make home purchases. The end result is that real estate markets are likely to continue to move into a more fundamentally sound position. This is not to suggest there are no risks; it is simply to suggest the interplay between the supply of housing and the demand for housing is better than it has been in some time.”