Lehner: "Economic Drags and the Outlook"

An interesting piece from Josh Lehner at the Oregon Office of Economic Analysis Economic Drags and the Outlook. The introduction:

So far in early 2015, the U.S. economic data flow has been relatively lackluster, including the disappointing March jobs report. As such, now is a good time to take a step back and mark one’s economic beliefs to market, to borrow a phrase from Brad DeLong. As detailed below, there are clear reasons for both near-term economic optimism over the next year or two and longer-term pessimism over the extended horizon.

First the good news. The biggest weights on the recovery were household debt and the nature of the cycle with housing and government being the largest drags. While these issues were holding back the recovery in recent years, these weights have clearly lifted. Household debt, relative to personal income, has declined considerably since 2007 and is effectively flat the past 2+ years. These trends are widespread across states, with few still deleveraging in 2013 according to the latest NY Fed data. One can argue whether or not this is the appropriate amount of household debt, but progress has clearly been made and the deleveraging cycle appears to be over, at least in aggregate. This bodes well for near-term growth.

There is much more in the post (Note: I'm more optimistic than Josh for the longer term - I'll write why soon).