DES MOINES, Iowa -- The new norm will be the same as the old norm for
most American households this year: financial suffering and a continued
slow recovery from the Great Recession.
Americans can expect
price tags for many goods and services to increase faster than take-home
pay again this year. Higher costs are expected for food, airline
flights, rent, housing prices, government fees, shipping costs and
college tuition. While gasoline prices are expected to fall by a small
amount, they'll do so after two consecutive years of record prices at
the pump.
Many households will be confronted by the additional 2
percent payroll tax included in Tuesday's political deal to avert the
fiscal cliff.
When it comes time for raises, workers will continue
to compete with the higher prices their employers expect to pay for
health insurance, which rose 7 percent in Iowa last year, according to
David P. Lind Benchmark, an employee benefits research firm in Clive,
Iowa.
"We can't afford for anything else to go up, but I can't
think of anything that's not going up - from water to car insurance,"
said Cheyenne Paullin, 27, of Des Moines. "The price of gasoline is
really insane. Instead of costing us $25 a week to fill up each of our
two cars, it's costing us $40, and that takes away money that we would
otherwise spend on household items like groceries."
Gasoline prices averaged a record $3.63 a gallon nationwide in 2012.
Paullin
said her family budget is being stretched to the breaking point. The
mother of three children, ages 1 to 5, said her monthly municipal water
bill rose from $50 to $70 last year.
Meanwhile, husband Jason, the
family's sole breadwinner, has seen his hours cut from more than 40 a
week to 28 to 30 at the Titan Tire plant in Des Moines.
It's not
all bad news. Several experts predict the economy will shift into higher
gear in the second half of this year due to improving home and auto
sales and rising home prices. Climbing home prices are a positive for
economic growth and consumer spending because they create wealth for
homeowners.
"It's going to take awhile for the U.S. economy to
recover, but we're gaining momentum," said Anthony Chan, chief economist
at JPMorgan Chase & Co.'s private wealth management unit. "We're
starting to see the stars align in a way that is consistent with
improvement in consumer markets. Main Street America really benefits
from higher home prices, because they have a bigger chunk of their
household balance sheets in housing."
Unemployment, low wages persist
More
than a quarter of the nearly 190 million non-disabled Americans, ages
16 to 64, did not have a job in November, according to the Bureau of
Labor Statistics.
Once the data are adjusted for active members of
the military and people in prison, the number of healthy, working-age
Americans without an above-the-table paycheck surpasses 54 million.
"There's
a great deal of economic shock in the U.S. because so many people are
unemployed," said Bob Baur, chief global economist at Principal Global
Investors in Des Moines.
The percentage of likely workers without a
job - about 29 percent - is nearly the same as in the final year of the
recession, which ended in June 2009. That rate differs from the
mainstream national unemployment rate, which was 7.7 percent in
November, because it includes people who are not considered part of the
civilian labor force because they're not looking for work.
The
recession eliminated about 8.2 million nonfarm jobs during the 18 months
that ended in June 2009. About 90,000 jobs must be added to nonfarm
payrolls each month just to keep pace with population growth, Chan said.
Once that figure is calculated, the total shortfall balloons to 9.84
million jobs.
The Bureau of Labor Statistics announced Friday that
the U.S. economy added 155,000 jobs in November, which translates into a
net gain of 65,000 jobs using Chan's modifier.
"I look for U.S.
nonfarm payrolls to increase about 125,000 jobs a month on average in
2013," he said. "In terms of bringing the national unemployment down to 5
percent to 5.5 percent, we're talking about 2018 or later."
The national glut of people looking for work means that employers don't have to be as generous to secure new talent.
"Wages
are the real lagger," said John Silvia, chief economist at Wells Fargo.
He's forecasting a 1.9 percent to 2.1 percent increase in wages this
year and a 2.1 percent to 2.4 percent increase in the consumer price
index. The CPI is widely viewed by economists as an inflation gauge. It
rose 3 percent in 2011 and was up 1.8 percent during the 12 months ended
in November.
Social Security benefits are scheduled to rise 1.7 percent in 2013.
"More
things are going up than down, and salaries are not keeping pace," said
Ryan Burlage, a 31-year-old business analyst from Lost Nation. "I used
to get $60 to $70 an hour for a project. Now it's $50 to $60."
Burlage
said the cost of taking a date out to see a movie and have dinner and
drinks has also gone up, from $60 or $70 to $100 to $120. He's seeing
higher prices for everything from bacon to road salt to movie tickets
and food.
Emphasis on housing market
The U.S. economy is still the largest in the world, but it changes direction with the nimbleness of a mammoth cruise ship.
Economists expect the recovery from the financial crisis that began
in 2007 to continue until at least 2015 and possibly 2019. They're
watching the housing and labor markets closely for signs of momentum.
Key interest rates remain near historic lows, but economists expect them to rise as the housing market and economy recover.
Higher
home prices support increased consumer spending, which accounts for 70
percent of the U.S. economy, as new homeowners purchase everything from
lawnmowers to barbecue grills.
Construction of new homes creates
jobs. And higher home values make it easier for homeowners to take
advantage of today's historically low interest rates to refinance their
mortgages or to sell a home when they need to relocate for a new job.
"The housing market is gaining critical mass," Silvia said.
New
home sales rebounded to 338,000 units in the first 11 months of 2012,
from a record low of 282,000 during the same period of 2011, according
to the U.S. Commerce Department. The average sales price in November was
$299,700, up 17 percent from a year earlier.
Yet many American
families can't qualify for low mortgage rates because of the damage done
to household balance sheets. The Great Recession wiped out 20 years of
net worth accumulation for poor and median income households in just 18
months, University of Chicago finance professor Amir Sufi said.
Signs of hope
For
businesses, getting past the uncertainties of the presidential election
and the so-called "fiscal cliff" is a big step toward encouraging
investment, economists say. U.S. businesses are sitting on $2 trillion
of liquid assets, which is tinder for future economic growth, according
to Jim Chessen, chief economist of the American Bankers Association.
"That's a lot of money sitting on the sidelines," he said.
Principal's Baur says the worst is over.
"We
think the reasons that spurred the 'new normal' idea are coming to an
end," Baur said. "The underlying fundamentals of the U.S. economy are
probably better than people realize."
Victor Epstein, The Des Moines Register