America’s Path to A FIRE Economy
The comments below are an edited and abridged synopsis of an article by Global Macro Monitor
The Monitor has updated a chart originally posted in February 2011, breaking out the real estate industry from FIRE (finance, insurance and real estate). It is just as shocking as it was when first produced.
The US economy jumped the shark in 1990, when FIRE overtook the manufacturing sector in terms of its contribution to GDP. More stunning is that real estate is now the largest industry sector of the US economy in terms of value-added output, now surpassing manufacturing by 0.8% of GDP.
Who would have thought, in 1947, that the output of America’s manufacturing sector would decline from one-quarter of GDP to close to 11%, and would be surpassed by the output of real estate agents and house flippers?
Real estate is now the largest industry as a percentage of GDP. No wonder the economy and markets are so addicted to, and can’t live without, low interest rates. The danger is, however, that the real estate sector is a highly leveraged industry. Real estate deflation is what the Fed fears the most.