Which Helps The Economy More: A Rebound In Stocks Or Housing?

Transcript

RENEE MONTAGNE, HOST:

It's MORNING EDITION from NPR News. Good morning, I'm Renee Montagne.

DAVID GREENE, HOST:

And I'm David Greene.

The U.S. economy has been so good at sending mixed signals. We'll hear a couple of reasons for optimism. The housing and stock markets appear to be having parallel rebounds. The stock market is up. And after years of being a drag on the economy, construction and home prices are beginning to see a turnaround. But with unemployment remaining relatively high, it is not clear what these trends mean for the overall economy.

We sent NPR's Sonari Glinton to find out.

SONARI GLINTON, BYLINE: To illustrate an important economic concept, I've come to a hotbed of economic activity - Tiffany's Laundromat in downtown Culver City just outside of Los Angeles

JOSH MAAG: My name is Josh Maag and I'm the owner of Tiffany's Laundromat.

GLINTON: You're like a hipster George Jefferson?

MAAG: Something like that. I'm not your typical laundry owner, I don't think.

GLINTON: Maag used to work in finance. And four and half year ago he was looking for a way to be his own boss in a recession-proof business. So he bought a traditional laundromat, but that's one part of the business.

MAAG: We do laundry by the pound. You've got a scale. People come in, we weigh their laundry. If it's 20 pounds it's $17. And we do it - wash it, dry it fold it. You pick it up after work.

GLINTON: Maag says he has his own economic indicator: the wash and fold business.

MAAG: I've notice a lot of people who used to do their laundry here now have us do it. So that's a sign to me that, you know, their money's freeing up and so they're paying us do it. You know, when I bought the place, people - everyone was trying to milk every last cent out of me. You know, they were very sensitive to, I mean a quarter. And now I don't find that to be the truth.

GLINTON: So what accounts for those extra quarters at Josh Maag's laundromat? The stock market or the rebounding housing market?

HEIDI SHIERHOLZ: Only the very wealthy own any significant amount in stocks. The top 10 percent of households own more than 80 percent of all stock wealth.

GLINTON: Heidi Shierholz studies labor with the left-leaning Economic Policy Institute. She says housing wealth is everywhere.

SHIERHOLZ: Housing is a much more prevalently held form of wealth. So most people actually own the homes that they live in. Around two-thirds of households are homeowners.

GLINTON: That's why when the bubble burst in the economy, it was so devastating across the board. But Shierholz says the very slow rebound in the housing market means more money in the economy.

SHIERHOLZ: When housing prices start to rise and people will quote-unquote consume a little bit of that wealth, their consumption will rise. The amount they spend on goods and services will go up when their housing values go up.

GLINTON: That's called the wealth effect. Shierholz says for every dollar of increase in home values, that turns into between five and seven cents of spending. So that explains why here at the laundromat more people are dropping off their clothes to be cleaned.

Gary Bradshaw manages mutual funds with Hodges Capital Management in Dallas. He says new home construction is an engine for the economy because construction workers do things like buy new pick-up trucks.

GARY BRADSHAW: The same construction guy is going to the convenience store. That's his first stop before he gets to the site. And believe it or not, he's buying a 12-pack of Pepsi, a 12-pack of Coke, his Doritos for lunch. He's filling his truck up with gas or diesel.

GLINTON: Bradshaw says that kind of spending spreads throughout the economy.

BRADSHAW: Let me tell you, Pepsi Cola and Coca-Cola both are near their highs. And I promise you, a lot of that has to do with that construction worker. There's lots of little niches out there that you really don't realize is a direct benefit from just positive construction.

GLINTON: Bradshaw says what the stock market is actually looking for is a genuinely healthy housing market. More people dropping off clothes, more washing machines - you get the point.

Sonari Glinton, NPR News, Culver City. Transcript provided by NPR, Copyright NPR.