MONEY

Higher Gas Prices Keep Inflation Just Above 2%

Gas nozzle and hose line graph
TS Photography—Getty Images

Inflation steady as pain at pump is offset by slower growth in food costs.

The Consumer Price Index increased 2.1% for the twelve months that ended in June, reports the Bureau of Labor Statistics. This is the second month in a row that the CPI broke 2%.

The index, which estimates overall inflation by measuring price changes in a “basket” of consumer goods, also showed .3% month-over-month growth from May to June of this year. That number is slightly down from May, which saw a .4% month-over-month increase.

Because food and energy prices tend to be volatile, many analysts and economists also look at the “core” consumer price index, which excludes those items, to get a sense of underlying inflation trends. The core CPI rose 1.9% since last June, says the BLS. This increase is roughly on par with last month’s year-over-year core CPI increase, suggesting inflation remains relatively steady.

According to the BLS, the CPI’s increase this month was primary driven by higher gasoline prices. The cost of gasoline rose 3.3% during the month of June and accounted for two-thirds of the entire index’s increase. The price of food, which had jumped in May, rose more slowly in June, increasing by only 0.1%

Investors watch inflation numbers closely because they may offer a clue about when the Federal Reserve may begin to raise key short-term interest rates, which the Fed has held near zero since the 2008 financial crisis. Chair Janet Yellen has said the central bank intends to hold rates down at least until inflation runs at 2%.

But though the closely watched CPI has notched above 2% for the second month in a row, it’s not the inflation number the Fed uses for its 2% target. Instead, it uses a number from the Bureau of Economic Analysis called the personal consumption expenditure, or PCE, deflator. This index covers a broader selection of goods and is also calculated somewhat differently. It also has been running lower than CPI recently—the latest reading was 1.8% for the twelve months ending in May, or 1.5% for the core number excluding food and energy. The BEA will release updated PCE numbers on August 1st.

The CPI typically runs 0.30 to 0.40 percentage points higher than the PCE index, says Mark Zandi, chief economist at Moody’s Analytics, speaking to Money.com on Monday evening before the release.

“The target CPI is 2.3% or 2.4%, somewhere in that range,” said Zandi. If so, today’s numbers suggest the Fed is getting closer to it’s target, but isn’t there yet.

Update: Due to an editing error, the story originally misstated the amount CPI typically runs above the PCE index. It has been corrected.

TIME trade

It’s Time for Europe to Get Tough With Russia

European Union Foreign Ministers Meet On Ukraine Crisis
Flags of the European Union seen in front of the headquarters of the European Commission on March 03, 2014 in Brussels, Belgium. Michael Gottschalk—Photothek/Getty Images

Europe has a history of coming together in good times but not in bad. Think about the creation of the Eurozone, and the launch of the single currency, juxtaposed with the piecemeal policy reaction over the last few years to the Eurozone financial crisis. This tendency has been on tragic display recently, with the shooting down of a Malaysia Airlines jet that carried numerous European passengers. This event should have strengthened European resolve to put more and tougher sanctions on Russia. Instead, it’s led to half-hearted measures doled out on a country-by-country basis. France is even going ahead with big deal to supply warships to Russia.

The key issue, of course, is that Europe is in very deep with the Russians economically, much deeper than the U.S. Or China, for that matter; The recent Russia-China gas deal was small potatoes compared to the business that the Europeans do. Europeans get about 30 percent of their gas from Russia, and are dependent on other natural resources, like oil and minerals, from Russia too. Indeed, the Netherlands, which lost more people than any European country in the crash, took in the largest share of those exports from Russia last year. They aren’t alone—German banks and multinationals do lots of business with Russia, and countries like the UK are a big destination for oligarchs looking to stash cash outside their home country.

That’s why it’s so crucial that European foreign ministers come together at their meeting over the Ukraine situation and Russian sanctions in Brussels. Until they are on board with more serious sanctions, particularly in the energy sector, it’s unlikely that the current rounds are going to make a serious dent in the Russian economy, which, as a recently Capital Economics report pointed out, still has a strong international investment position.

The bottom line is that Europe needs a much smarter and less Russia-centric energy strategy. As I’ve explained before, that’s a need that’s unlikely to filled by the gas rich US anytime soon. Rather it’s something that will have to be driven internally within Europe. It’s an opportunity not only for Europe to become more secure, but to prove to the rest of the world that it can work together and live up to the promise of the EU itself—in both good times and bad.

TIME Economy

New Data Show Faster Job Growth in States With Higher Minimum Wage

Labor Secretary Perez Discusses Raising Minimum Wage During Visit To DC Restaurant
U.S. Labor Secretary Thomas Perez, second left, and Representative George Miller (D-CA) visit a Sweetgreen restaurant to discuss minimum wage, June 16, 2014 at Dupont Circle in Washington, DC. Alex Wong—Getty Images

Findings could undermine the argument that raising the minimum wage hurts job growth

New data show that the 13 states that raised the minimum wage this year are adding jobs at a faster pace than those that did not.

State-by-state hiring data released Friday by the Labor Department reveal that in the 13 states that boosted minimum wages at the beginning of this year, the number of jobs grew an average of 0.85 percent from January to June. The average in the other 37 states was 0.61 percent, the Associated Press reports.

The findings could undermine the argument that raising the minimum wage hurts job growth, a view held by major conservative lobbies. The Congressional Budget Office reported earlier this year that a minimum wage of $10.10 could bring 900,000 people out of of poverty, but would cost 500,000 jobs nationwide.

“It raises serious questions about the claims that a raise in the minimum wage is a jobs disaster,” said John Schmitt, a senior economist at the liberal Center for Economic and Policy Research. The job data “isn’t definitive,” he added, but is “probably a reasonable first cut at what’s going on.”

President Barack Obama has supported raising the minimum wage, saying that it will help the economy and businesses.

Some economists said that data was inconclusive and that it’s too early to say whether minimum wage hikes hurt job growth. The rate of job growth was the highest in North Dakota, where the local oil and gas boom has spurred the economy but there has been no minimum wage increase. “It’s too early to tell,” said Stan Veuger, a scholar at the American Enterprise Institute. “These states are very different along all kinds of dimensions.”

[AP]

TIME housing

4 Charts That Will Totally Ruin Your Saturday

Housing development under construction on farmland, aerial view.
Housing development under construction on farmland, aerial view. Ryan McVay—Getty Images

If you’re waiting to sell your house because you think prices will continue to rise, don’t

fortunelogo-blue
This post is in partnership with Fortune, which offers the latest business and finance news. Read the article below originally published atFortune.com.

The housing recovery that began in 2012 came on almost as quickly and forcefully as the real estate crash that preceded it.

The combination of low interest rates, investor interest, and good, old-fashioned confidence conspired to cause a rapid and vigorous turnaround in home prices after years of tumbling or stagnant home values. But a number of key metrics suggest that the party is over, and any future home price appreciation will be slow and steady from here on out. Here are four charts showing why the housing recovery has ended:

1. Price-to-rent ratios are near their long-term average. Price-to-rent ratios are an important housing indicator that can tell you whether the housing market is overvalued. During the housing bubble, this metric skyrocketed, as speculative fever led people to believe that housing prices would always rise. But the fact that rent rates didn’t rise with purchase prices should have been a warning that the underlying demand for shelter hadn’t increased as much as the demand for owning property as an asset. As you can see, price-to-rent ratios have snuck up above their historical averages, meaning that home values are already a little pricey relative to rents in many markets.

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2. Homeownership rates are also near their long-term average.In the decades leading up to the housing bubble, politicians pushed policies that would increase the homeownership rate. The theory was that homeownership gave people a vested interest in the economy and in their neighborhoods, and that would lead to greater prosperity. But giving out credit to those who didn’t have the wherewithal to afford a home was one factor that led to the failure of the subprime mortgage market. It’s likely, now that policy makers are more aware of the dangers of pushing homeownership, that those rates will remain in the 64% or 65% historical average.

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For the rest of the story, go to Fortune.com.

TIME Economy

Motor City Revival: Detroit’s Stunning Evolution in 19 GIFs

One year ago today Detroit became the largest city in US history to file for bankruptcy. See what changes took place in the city in the years leading up to the momentous declaration.

The Motor City, the former automotive capital of the nation, has seen a steady and precipitous decline in population and economic growth over the last half-century. The automotive industry’s move out of Detroit, poor political decision-making, and the collapse of the housing industry can all be viewed as causes for the city’s decline, among other reasons. On July 18, 2013, unable to pay its looming debts, Detroit became the largest city in U.S. history to enter bankruptcy.

However, this momentous step did not happen overnight. Detroit was hit with a housing crisis in 2008, a sign of economic trouble that foreshadowed the city’s bankruptcy. A major outcome of that crisis is the city’s ongoing blight epidemic. Vast stretches of abandoned residential property lay on the outskirts of the once sprawling 139-square-mile city.

As Steven Gray wrote in 2009, “If there’s any city that symbolizes the most extreme effects of the nation’s economic crisis and, in particular, America’s housing crisis, it is Detroit.”

While many of the buildings and houses within the city have disappeared, evidence of a former era can be found in the more than 80,000 blighted houses remaining combined with an estimated 5,000 incidents of arson each year, according to the New York Times Magazine.

Despite all this, the Motor City could have a bright road ahead. There has been a recent surge in growth, spurred by a sense of opportunity in the ever-evolving city. New businesses are popping up and property is being rebuilt and re-purposed for urban farming, startups and public art.

Google Street view images, compiled here into GIFs, offer a unique look at how Detroit’s landscape has changed over the past four to six years leading up to the city’s bankruptcy a year ago.

TIME General Electric

GE Profits Up 13% As Company Continues to Refocus

Workers assemble a General Electric Co. CF6-80C2 jet engine at the GE Aviation factory in Cincinnati, Ohio, June 25, 2014.
Workers assemble a General Electric Co. CF6-80C2 jet engine at the GE Aviation factory in Cincinnati, Ohio, June 25, 2014. Bloomberg/Getty Images

General Electric profits climbed 13% in the second quarter as the conglomerate refocuses on its core businesses of energy and heavy industry.

GE’s posted earnings of 35 cents a share ($3.55 billion) are up from 31 cents a share a year ago. Operating earnings climbed from 36 cents a share to 39 cents a share.

“GE had a good performance in the quarter and in the first half of 2014, with double-digit industrial segment profit growth, 30 basis points of margin expansion, and nearly $6 billion returned to shareholders,” said GE Chairman and CEO Jeff Immelt in a statement. “The environment continues to be generally positive.”

The news signals the success of GE’s strategy of shedding non-core businesses, like the media giant NBCUniversal, and doubling down on its energy and industrial portfolio. Last quarter, the French engineering titan Alstom agreed to sell its Power and Grid business that builds and services power plants and transmission grids.

MONEY The Economy

Think the Fed Should Raise Rates Quickly? Ask Sweden How That Worked Out

Raising interest rates brought the Swedish economy toward deflation Ewa Ahlin—Corbis

Some investors are impatient for the Fed to raise interest rates. They may want to be a little more patient after hearing what happened to Sweden.

If you’re a saver, or if bonds make up a sizable portion of your portfolio, chances are you’re not the biggest fan of the Federal Reserve these days.

That’s because ever since the financial crisis, the nation’s central bank has kept short-term interest rates at practically zero, meaning your savings accounts and bonds are yielding next to nothing. The Fed has also added trillions of dollars to its balance sheet by buying up longer-term bonds and other assets in an effort to lower long-term interest rates.

Thanks to some positive economic news — like the recent jobs report — lots of people (investors, not workers) think the Fed has done enough to get the economy on its feet and worry inflation could spike if monetary policy stays “loose,” as Dallas Fed President Richard Fisher recently put it.

If you want to know why the argument Fisher and other inflation hawks are pushing hasn’t carried the day, you may want to look to Sweden.

Like most developed nations, Sweden fell into a recession in the global financial crisis. But unlike its counterparts, it rebounded rather quickly. Or at least, that’s how it looked.

As Neil Irwin wrote in the Washington Post back in 2011, “unlike other countries, (Sweden) is bouncing back. Its 5.5 percent growth rate last year trounces the 2.8 percent expansion in the United States and was stronger than any other developed nation in Europe.”

Even though the Swedish economy showed few signs of inflation and still suffered from relatively high unemployment, central bankers in Stockholm worried that low interest rates over time would lead to a real estate bubble. So board members of the Riksbank, Sweden’s central bank, decided to raise interest rates (from 0.25% to eventually 2%) believing that the threat posed by asset bubbles (housing) inflated by easy money outweighed the negative side effects caused by tightening the spigot in a depressed economy.

What happened? Well…

Per Nobel Prize-winning economist Paul Krugman in the New York Times:

“Swedish unemployment stopped falling soon after the rate hikes began. Deflation took a little longer, but it eventually arrived. The rock star of the recovery has turned itself into Japan.”

And deflation is a particularly nasty sort of business. When deflation hits, the real amount of money that you owe increases since the value of that debt is now larger than it was when you incurred it.

It also takes time to wring deflation out of the economy. Indeed, Swedish prices have floated around 0% for a while now, despite the Riksbank’s inflation goal of 2%. Plus, as former Riksbank board member Lars E. O. Svensson notes, “Lower inflation than anticipated in wage negotiations leads to higher real wages than anticipated. This in turns leads to many people without safe jobs losing their jobs and becoming unemployed.” Svensson, it should be noted, opposed the rate hike.

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Sweden

Moreover, economic growth has stagnated. After growing so strongly in 2010, Sweden’s gross domestic product began expanding more slowly in recent years and contracted in the first quarter of 2014 by 0.1% thanks in large part to falling exports.

As a result, Sweden reversed policy at the end of 2011 and started to pare its interest rate. The central bank recently cut the so-called “repo” rate by half a percentage point to 0.25%, more than analysts estimated. The hope is that out-and-out deflation will be avoided.

So the next time you’re inclined to ask the heavens why rates in America are still so low, remember Sweden and the scourge of deflation. Ask yourself if you want to take the risk that your debts (think mortgage) will become even more onerous.

TIME Economy

Global Markets Suffer After Ukraine Crash, Unrest Elsewhere

Traders work on the floor of the New York Stock Exchange
Traders work on the floor of the New York Stock Exchange July 17, 2014. U.S. stocks fell sharply lower on Thursday. © Brendan McDermid / Reuters—REUTERS

Stock markets report losses around the world as investors take fright at the broader geopolitical implications of the MH17 tragedy

Markets across the world took a conspicuous dive on Thursday in the wake of Malaysia Airlines Flight 17’s catastrophic crash in Ukraine — an event that came toward the end of a week marked by political unrest across Eastern Europe and the Middle East.

The Boeing 777 crashed in a rural area controlled by pro-Russian insurgency forces, believed by Ukrainian authorities to have shot down the plane, killing all 298 people on board.

As governments mobilized to make sense of the tragedy, which a spokesman for Ukrainian President Petro Poroshenko denounced as an unequivocal act of terrorism, equity and currency traders anxiously rushed to sell their shares, eyeing the crash as indicative of a broader geopolitical tumult that could threaten global economic stability.

“What happened with the plane today and things swirling around with what may have actually happened with the plane caused a bit of a sell-off,” J.J. Kinahan, chief strategist at TD Ameritrade, told the Associated Press. “The geopolitical risk is always the first one that people look for because it’s the one that changes the fastest. The market always hates uncertainty.”

Things had been economically rocky in Russia on Thursday morning even prior to the incident, with new sanctions against the country being imposed by the U.S. and E.U. — a response to Vladimir Putin’s support for the very rebels believed to have downed the Malaysia Airlines flight. That knocked the MICEX, Moscow’s primary stock exchange, down 2.9% by the day’s end. The ruble was down 1.1% against the dollar.

Things were relatively secure elsewhere until news of the crash broke around 10:30 a.m. E.T., shortly after markets opened on Wall Street. Emerging headlines on the tragedy, compounded with reports of Israel launching a ground offensive against Hamas forces in Gaza, jump-started the panic. The New York Stock Exchange had fallen by more than 127 points by the time it closed on Thursday evening; the S&P 500 reported its largest one-day percentage drop since April; prices of gold and oil had risen globally.

Friday has so far proved grim for stock markets in Asia, with both the Hang Seng in Hong Kong and the Nikkei 225 reporting notable slides by mid-afternoon.

In Kuala Lumpur, the price of Malaysia Airlines stock has been on the decline — not only in the aftermath of Thursday’s incident but for the past several months after the disappearance of Flight 370 in March, which has placed a significant financial burden on the company.

TIME Economy

Surprise: The Economy isn’t As Bad As You Think

7 signs America has turned the corner

Nearly seven years after the onset of the Great Recession, the national mood remains troubled. Surveys find entrenched pessimism over the country’s economic outlook and overall trajectory. In the latest NBC News/Wall Street Journal poll, 63% of respondents said the U.S. is on the wrong track. It’s not difficult to see why. Set aside the gridlock in Washington for a moment and appreciate the weakness of the economic recovery: Households whose finances were too weak to spend. Large numbers of unemployed workers who couldn’t do so either. Younger Americans who couldn’t afford their own homes. Banks that were too broken to lend. Yet nearly a year ago, I wrote an essay for TIME suggesting that the economy could surprise on the upside. That hypothesis looks even more valid today.

Despite the pessimistic mood, America is experiencing a profound comeback. Yes, too many Americans are out of work and have been for far too long. And yes, we have a huge amount of slack to make up. In fact, if the 2008 collapse had not happened, the U.S. GDP would be $1 trillion–or more than 5%–higher than it is today.

But in terms of the growth outlook, the news is good. Goldman Sachs and many private-sector forecasters project a 3.3% growth rate for the remainder of 2014. The first half of 2014 saw the best job-creation rate in 15 years. Total household wealth and private employment surpassed 2008 levels last year. Bank loans to businesses exceeded previous highs this year. And income growth will soon improve too. America is finally returning to where it was seven years ago.

As halting as the U.S. recovery has been, the economy is now leaner and more capable of healthy, sustained growth through 2016 and beyond. Our outlook shines compared with that of the rest of the industrialized world, as Europe and Japan are stagnant. The 2008 economic crisis and Great Recession forced widespread restructuring throughout the U.S. economy–not unlike a company gritting its teeth through a lifesaving bankruptcy. Manufacturing costs are down. The banking system has been recapitalized. The excess and abuse that defined the housing market are gone. And it’s all being turbocharged by an energy boom nobody saw coming.

It’s not just economic trends that are looking up: crime rates, teen pregnancy and carbon emissions are down; public-education outcomes are improving dramatically; inflation in health care costs is at a half-century low. That points to something I did not foresee last year: that the social health of America seems to be mending. Americans may still feel discontented, but winter is finally over.

AMERICANS ARE SPENDING LIKE THEY MEAN IT

The biggest piece of the U.S. economy, by far, is the consumer sector. It represents 70% of GDP in most years. But consumers suffered historic setbacks in 2008 and 2009. According to a Federal Reserve Board report, 13% of households experienced “substantial financial stress.” This compares with only 1% during the previous two recessions. And it is why consumer spending fell so sharply in 2009, as frightened households cut back.

It has taken years for total household finances to recover fully, but now they have. Total household net worth is now well above its 2007 peak, driven by the recovery in stock prices and home values. Household debt-to-income ratios are the lowest in more than 30 years. And the first half of 2014 has seen employment begin to take off.

Indeed, consumer spending is strengthening alongside consumer confidence, which is nearly back to prerecession levels. For all of 2014, consumer spending should grow around 3% as real disposable income rises and the savings rate moderates. With an average of 248,000 new jobs having been added in each of the past five months, the unemployment rate is probably on course to fall to 5% in 2016. Although part of the decline in the unemployment rate to date is due to stubbornly low labor-participation rates, the overall outlook for consumer spending, the engine of our economy, is healthy again.

HOUSING HAS COME BACK TO LIFE

A good recovery in the housing sector was inevitable because both the supply of viable housing and household-formation rates had dropped to very low levels. That combination finally triggered a snapback.

At first, it was housing prices that turned up. Over the past year, they rose in each of the 20 largest metropolitan areas. And since its low point in early 2012, the Case-Shiller Home Price Index has risen more than 25%. This revived the housing market and helped restore overall household balance nationwide.

Single-family and multifamily housing starts have also recovered strongly. They exceeded 1.5 million annually in the decade before the crisis but collapsed to less than 500,000 in its aftermath. Now they are over 1 million and should go higher. Most forecasts envision a rate of roughly 1.2 million next year, continuing to rise to 1.6 million over the next few years. Keep in mind that new housing construction and renovations drive a wide range of manufacturing and services output, from appliances to trucking. Indeed, private residential investment has jumped by more than 27% since 2012.

Finally, economic hardship forced record numbers of grown kids to stay with their parents, depressing household formation to rates far below normal. But this too is improving. Harvard’s Joint Center for Housing Studies estimates that formation rates will double to 1.2 million annually as kids finally move out and the adult population increases.

AMERICAN-MADE MAKES SENSE AGAIN

A new factor to add since my previous analysis is manufacturing. A near consensus that this sector was in permanent decline has existed for many years. It was accentuated by the loss of nearly 6 million manufacturing jobs from 2000 to 2010 and by the sense that much lower wages in Asia made continued offshoring inevitable.

But recently the greater role of technology in manufacturing and rising wages in Asia have given our manufacturing sector some life. A recent Brookings Institution report on manufacturing stresses how robotics, 3-D printing and the relentless advance of digital technology are transforming big parts of U.S. manufacturing. Moreover, as China’s GDP has continued to grow, its wages have risen considerably, narrowing the cost differential with the U.S. In many industries, the cost-to-produce difference is now down to 15%.

That explains why certain U.S. producers are reversing themselves and committing to manufacturing goods at home. Walmart announced that it would sell $50 billion more in American-made products over the next 10 years, and the Boston Consulting Group recently estimated that up to 30% of offshore production would return. Although manufacturing has added 668,000 jobs since the 2010 nadir, continued automation will prevent this sector from being a major contributor of new jobs in the future. But the role of manufacturing in our GDP is stable, and the sense that other sectors of the economy would need to compensate for continued declines in manufacturing is out of date.

ENERGY PRODUCTION IS BOOMING

If ever there was proof of the difficulty of forecasting, it is the stunning recovery in our oil-and-gas production. Virtually no one from ExxonMobil on down saw this coming. Nor the way in which made-in-the-USA technology made it happen. The idea that America, whose oil production has been declining for the past 40 years, is now on track to become the world’s biggest producer by 2015 is still hard to grasp. As is the notion that after similar declines in production of natural gas, we now have a 100-year supply of natural gas at current rates of consumption. The U.S. Energy Information Administration expects total U.S. crude-oil production to increase more than 25% to 9.3 million barrels per day by 2015, which would mark the highest level since 1972. Daily natural gas production, which grew by 5% over the past year, is expected to continue climbing, with the U.S. becoming a net exporter by 2018.

This is a plus for growth, for household budgets and consumption, for climate protection and for America’s national security. Given our huge new supplies, natural gas is cheaper here–around $4.70 per 1,000 cu. ft.–than anywhere else. This means lower utility bills across the country. It also means that gas is being substituted rapidly for the dirtiest fuel, coal, to produce electricity. And that both America’s stake in the unstable Persian Gulf and our borrowing from China are diminished as we import less energy. The rise, fall and rise of the American oil-and-gas sector is probably, together with development of the Internet, the biggest economic breakthrough in this country in 50 years.

OUR ENVIRONMENT IS GETTING HEALTHIER

Although there remains a heated political debate over climate change and its causes, few people, regardless of their views on that, actually favor more carbon emissions. But there is also an unexpected positive trend. Carbon emissions in the U.S. actually have been falling. Today they are down nearly 10% from 2005 levels. It is possible that the U.S. will meet its goal of cutting emissions by 2020 to 17% below that 2005 baseline.

Technology and regulation explain this surprising trend. Take the auto industry. At one level, Washington upped fuel-efficiency requirements to a stiff fleetwide average of 54.5 m.p.g. by model year 2025. At another, galloping advances in engine technology and vehicle weight are enabling automakers to improve their mileage more quickly than anyone forecast. And the EPA has just mandated sharp reductions in emissions from coal-fired plants.

The U.S. has been among the worst offenders in emissions. To have any credibility in leading global negotiations on these issues, we need to lead the way.

AMERICAN SCHOOLS ARE WORKING SMARTER

How often have you read that America’s education system, especially public education, is a failure? It has a long way to go, but it has started to improve. This is crucial because differentials in lifetime earnings by level of education are widening. Driven by globalization and technology, labor markets are demanding higher and higher levels of skills. Therefore, to improve incomes for younger Americans, we must get better educational outcomes.

For 25 years, those outcomes were stagnant. High school graduation rates had fallen to 60% or lower in many large cities and rural areas. And just over half of first-year college students would graduate within six years. These are poor results by the standards of advanced countries.

But beginning in 2006, the decline began to reverse. High school completion rates are now up almost 10 points, crossing 80% for the first time.

According to a recent report from Johns Hopkins University, the turnaround reflects countless grassroots efforts toward public-school reform. Instigated by parents, business groups, nonprofits, state and local governments and, in some areas, teacher unions, these efforts have concentrated on teacher training and evaluation, better collection and use of data in supporting students, improved curriculum materials and the restructuring or closing of underperforming schools, sometimes called dropout factories.

It is crucial that these reforms continue because if they do, that same Johns Hopkins study predicts that U.S. high schools will reach a 90% completion rate by 2020. That would be a huge achievement. Over the past decade, college-completion rates also have strengthened, nearing 60%. True, the college readiness of high school graduates has not improved in line with graduation rates. But recent advances that tie online education to different approaches in the classroom may soon improve this too.

SOCIAL TRENDS ARE MOVING IN THE RIGHT DIRECTION

America has seen a drop in crime rates that in earlier years would have been universally viewed as impossible. The overall crime rate has plummeted by 45% since peaking in 1991 and by 13% just since 2007–counterintuitively continuing to drop through the recession and sharp spike in unemployment.

Since 1991, according to FBI data, the number of violent crimes has fallen 36% nationally and 64% in the nation’s largest cities. And in New York and Los Angeles, our two largest cities, it has fallen even further. Property crime has also become increasingly rare. Incredibly, in New York City, car thefts have plunged 94% in the past two decades.

How is this possible? In the mid-1990s, few saw this decline coming, and many warned that crime would surge once again as teens of that era grew into young adults. Today, criminologists still differ on what has caused the nationwide turnaround in crime rates and why those dire predictions never came to pass. But crime-fighting technology, better policing, aging societies, growing urban populations and declining usage of hard drugs are widely cited.

For many Americans, the drop in crime has resulted not only in a much higher quality of life but in a reduced economic burden as well. Safer cities generally mean stronger urban economies.

In the same category of big surprises, teen-pregnancy rates have fallen to their lowest level in more than 30 years, according to the widely respected Guttmacher Institute. They have declined 51% from their 1990 peak, based on the latest available data, and the teenage birthrate is down 43% from that year’s level. Today, fewer teens are becoming pregnant and becoming mothers than at any point since reliable data has been collected by the National Center for Health Statistics. This is also true for women in the 20-to-24 age group. To put it mildly, there were very few predictions to this effect a generation ago.

In addition, overall birthrates in the U.S. have turned up for the first time since 2007–including for children born to women with a college education–to just shy of 4 million.

THE CHALLENGE AHEAD

Our country’s biggest challenge now is the plight of lower-income Americans, who are under severe and sustained economic pressure. Today, America resembles a tale of two cities. Those who own homes or stocks have benefited from the recovery in these asset classes and are moving up again. But 40% of our working-age families earn $40,000 a year or less. Generally they live within 250% of the official poverty level, which is the eligibility threshold for food stamps. Indeed, judging from current trends, half of today’s 20-year-olds will receive food stamps during their adult lives. More broadly, median household income is still 8% below the precrisis level, and those who have not completed college are seeing declines in anticipated lifetime earnings compared with their peers with college degrees.

This is our primary economic challenge. If a third of our population has little purchasing power, it will be hard to achieve the rate of long-term growth we want. We need to improve the work skills of this group, strengthen the social safety net and increase the number of young Americans receiving a full college education.

Although doing more to relieve the financial burdens of working Americans is good economics, it is also, and perhaps more important, a matter of values. For much of the 20th century we strove, with much success, to build a fairer and more inclusive society. But today, too many working families are living paycheck to paycheck or even in outright poverty, while the toeholds to economic stability become fewer and farther between.

With our economy’s near- and medium-term economic outlook strong, now is the time to remove the barriers that are keeping hardworking Americans walking a far too thin financial line.

Altman, who served as Deputy Secretary of the Treasury during the Clinton Administration, is the founder and executive chairman of Evercore Partners

TIME Economy

Murdoch’s Bid for Time Warner May Signal a Coming Crash

The media mogul has a habit of buying at the top of the market.

What do Rupert Murdoch’s $80 billion bid for Time Warner and Fed chair Janet Yellen’s mid-year report to Congress yesterday have in common? Both may well be signals of a market top.

Let’s start with the news Wednesday: Murdoch has a track record of making bids that mark the end of bull runs. As Peter Atwater, a behavioral economist who runs the firm Financial Insyghts, pointed out to me, Murdoch’s $5.3 billion acquisition of Chris Craft in 2000, his $5.6 billion acquisition of Dow Jones in 2007, and his $12 billion bid for the portion of BSkyB that he didn’t own back in 2011 all coincided with market peaks. Shortly after all these deals, stocks fell.

Likewise, Janet Yellen’s speech Tuesday on the state of the U.S. economy, in which she said she thought technology stocks (including biotech and social media in particular) were overvalued, was an important signal that valuations are stretched, and we may be in for a fall. Yellen tends to worry less about bubbles than some other economists, so when she starts to fret — and especially when she says so publicly — that’s telling.

It’s no wonder that all this is happening now. With more than $4 trillion of Fed money sloshing around in the markets, and jobs numbers looking better, there’s a vigorous central banker debate going on about how soon to raise interest rates (which inevitably dampens market sentiment). Likewise, it’s worth noting that the last five major merger manias in financial history happened at the peak of markets, and ended with a big drop in equities. That happens not only because companies have a lot of money to play with at the top of a market, but also because they have in many cases exhausted growth strategies, and mergers are an easy way to get a further quick-hit boost in stocks (see my column on that topic here). Mergers are often presented as the beginning of a corporate growth streak — more often than not, they signal the end.

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