5 Reasons to Be Optimistic About the U.S. Economy

We're not out of the woods yet, but pent-up demand and dropping gas prices are reasons to be hopeful.

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Recovering From the Debt Hangover

One major American economic problem prior to the financial crisis, according to Dynan, was widespread consumer debt, with many households having taken on unsustainable debt burdens. Throughout the downturn, many Americans reduced their borrowing, and many others also defaulted on their loans. Though borrowing can help boost economic activity and defaulting is rarely advisable, these two phenomena have combined to create a new trend: U.S. household debt has shrunk significantly. As a result, many households now have more disposable income, even as wages stagnate, says Dynan. "The ratio of required debt payments to income has fallen from close to 14 percent to less than 12 percent. So that is like having 2 percent more of income every month."

Accompanying that drop in debt is a glut of pent-up demand, as many consumers put off spending during the recession. This can be said for everyday items, says Dynan, but also for big-ticket purchases like housing, as people living with their parents or in group houses will purchase homes as soon as they get the means to do so. "When the economy does begin to pick up steam," she says, "then we can see a lot of household formation."

China's Declining Competitiveness

Chinese workers are demanding drastic pay increases. In 2010, wages at the country's small companies increased by 14.1 percent, and in the nonprivate sector, which includes government agencies and foreign-invested companies, wages grew by 13.5 percent. The increased labor costs ultimately help major foreign manufacturers, like the United States, says Werling. "We're already gaining competitiveness vis-a-vis China, because their wages are rising quite quickly. The fact that their wages are rising fast means that they are getting less competitive," he says. This new competitiveness comes at a time when many U.S. economists and policymakers are concerned about the value of the Chinese yuan, which the Chinese government has held artificially low, making for cheaper Chinese-made goods. Even if China refuses to significantly alter the yuan's value, the wage increases help the United States by appreciating the "real exchange rate" of the yuan, says Werling. However, there is a flip side to this trend: Chinese goods will now be more expensive for U.S. consumers.

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