LMU Finance Professor Micah Officer gave an enlightening presentation on the financial crisis and recovery to parents and students during LMU Family Weekend. He had both good news and bad news to share in a talk that focused primarily on the recovery. A few highlights:
Financial markets have more than bounced back
The S&P 500 index is at an historic high. Stock prices are today’s value of future cash flows. Around 15% of American households own shares. Confidence is high for the future.
Housing markets are uneven but have recaptured most of their losses
National housing prices are rising again. In Los Angeles, housing prices jumped in 2005, crashed in 2010 and are gaining again. Two-thirds of Americans own their own home.
The national unemployment rate is down to around 5.5%
The second worse unemployment rate was in 2010 (~10%). It’s improved a lot since then and we’re now hovering around 5.5%.
Wage growth is anemic
National wage growth is staying around 2%. More people have jobs but they’re not getting paid more. The average American has only $12,000 saved for retirement.
Youth (unskilled) unemployment is still very high
The unemployment rate for 16-19 year olds is about 17%. The U.S. is doing far better than Europe, which has a youth unemployment rate of around 50%. Data shows that people are leaving the market and not coming back.
Labor force participation is at generational lows
Recessions force business owners to think about how to make their business more efficient. One way to do this is replacing humans with machines. China is already doing this. Machines are cheaper and nearly fool-proof. Of course, they also lack the emotional intelligence and creativity that only human beings can provide.
New Zealand native Micah Officer joined LMU in 2009 and teaches undergraduate and graduate courses related to M&A, corporate finance and corporate governance. He has published numerous articles in top-tier finance journals such as the Journal of Financial Economics, Journal of Finance, Journal of Business, and Journal of Corporate Finance, and regularly gives presentations at universities and conferences around the world.