Stagnant wage growth continues to halt economy

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While reading through economic forecasts for 2015, the overwhelming consensus is quite positive. The stock market is flourishing, unemployment is down and the housing market recovery continues. All good news, especially if you’re already rich.

A blogger for the website Economic Outlook 2015 sums it up well in my opinion. “If you’re wealthy, 2015 will probably be another year of celebratory wealth creation. If, on the other hand, you’re not, 2015 will feel an awful lot like [2009 to 2014]. Wall Street and the U.S. government will tell you the economy is doing well, but it won’t feel like it.”

The fortunes of the wood industry are tied pretty closing to the housing market, which tanked during the Great Recession. Overall, the recovery has been modest, up 25 percent since the beginning of 2012, according to the Case-Schiller Home Price Index, but still about 20 percent shy of its peak in 2006.

The National Association of Realtors reported in November that existing home sales are at their highest annual pace since September 2013 and are now above year-over-year levels for the first time since October 2013.

“Buyers continue to be encouraged by interest rates at lows not seen since last summer, improving levels of inventory and stabilizing price growth,” NAR chief economist Lawrence Yun said in a statement.

But interest rates are expected to climb in 2015. This could be offset by strong job and income growth, but that’s kind of a best-case scenario.

“Rising income could help to somewhat offset the effects of rising rates and increased home prices, but we expect income gains to be modest for most families in 2015,” according to Freddie Mac, the government-sponsored supporter of mortgage lenders. “The result is declining affordability, but from very high levels to high levels in most local markets. However, rising interest rates and home prices will undoubtedly create an affordability pinch in much of the country.”

Total construction is expected to increase 9 percent in 2015, following an estimated 5 percent increase in 2014, according to Dodge Data & Analytics. This includes an 11 percent increase in single-family housing units, though the demand will be tempered by a lukewarm millennial generation. Commercial building will increase 15 percent, led by a continuing boom in office construction. Multifamily housing led the residential building category in 2014 and should see continued growth.

On the remodeling front, conditions have continued to improve since the market bottomed out in 2011, according to Metrostudy, which compiles the Residential Remodeling Index.

“Our forecast for the remodeling market to reach full recovery in third-quarter 2015 has not changed, mainly due to continually positive job and economic reports that point to a firming in housing fundamentals over the near term,” according to Metrostudy chief economist Brad Hunter. “Wage growth, which remains stagnant, will be key to watch heading into next year.”

There hasn’t been much wage growth for American workers since the late 1990s. Most have lower inflation-adjusted hourly wages than before the Great Recession. So while the economy has been steadily improving, not everybody’s feeling it. And that’s not exactly great news for your bottom line.

This article originally appeared in the January 2015 issue.

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