Ok this article is not about NFL Free Agency but it is about something that pertains to NFL Free Agency and any other product or service bought or sold in free markets....supply and demand. I just thought NFL Free Agency was a better title than 'Econ 101 - Supply and Demand'.
I won't mention any specific professional football players but why do even mediocre professional football players get paid the obscenely large contracts they do? The answer: supply and demand. There aren't many people on this planet who can perform at the level those guys do and owners need players to make the game entertaining so they can sell tickets and merchandise. If the particular position the player plays is scarce of free agents in any given year....well then they get paid even more because of the low supply.
Simply put....supply and demand drives the price of everything in our lives. However, I want to point out three significant areas we have seen supply and demand affect our pocketbooks over the past few years. Things, if we pay attention to them, we'll notice every day and all of which have a big impact on our global and personal economy.
1) Price of gasoline - we have seen the price of gas go down. From an average in Minnesota of $3.55 per gallon in 2011 to $2.65 in 2018. Why? Because the US is now producing over 9,000 barrels per day versus just 5,600 in 2011.1 The technology developed to produce oil has given our country an edge. Allowing us to mine oil that once was not attainable... allowing consumers to have more money to save or spend in other areas of their lives. Consequently, as many of you in our ag community know, this low cost of energy has also impacted the demand for ethanol and the price of corn.
2) Jobs- Almost every business you walk in to today has a NOW HIRING sign posted. Because of this we have seen annual wage growth increase to over 4%. How does this align with historical rates? According to tradingeconomics.com the US average wage growth rate from 1960 to 2019 has been 6.20% with a high of 13.78% in 1979 and a low of -5.88% in 2009.2 So the average worker has had an increase in wages and we still haven't seen the 59 year average.
3) Housing - quite a few people have pointed out to me that it feels like we are getting to a housing bubble again with some of the prices we are seeing on the market. Probably the easiest way to understand this supply and demand is to look at the history of housing starts. According to this chart at trading economics click here for chart we were building between 2 and 2.5 million homes in around 2004 to 2006. With the great recession that number hit an all time low of 478 thousand units in 2009. Now we sit around 1.2 million units in 2018 3. According to Freddie Mac we need about 1.62 million houses per year to keep up with the demand of population growth and replacement properties lost to age or disaster.4 So our supply is not keeping up with the demand at the current time. Hence, the higher prices.
I could go on with a number of other examples but enough with the numbers. As we know, numbers can tell you many stories and they can also be used to tell any story the author wants you to hear. So be aware and observant of what you see in your every day life. What does that story tell you about the economy? What does the story tell you about your personal finances? What does the story tell you about reaching your financial goals?
Everyone's story is different. A right answer for my situation might be a wrong answer for yours. Didn't our mothers always tell us, "just because your friends are doing it does not mean you should"?
This is why it may be important to have a discussion with a financial professional to put a plan together (or at least have a conversation) when you are making financial decisions. If you ever need to talk about your story and what financial decisions make sense for your situation, please contact us. Our mission is to look at the numbers and help you make good decisions about your money.
Enjoy the day!
1 Source: https://www.eia.gov/
2 Source: https://tradingeconomics.com/united-states/wage-growth
3 Source: https://tradingeconomics.com/united-states/housing-starts
4 Source: http://www.freddiemac.com/research/insight/20181205_major_challenge_to_u.s._housing_supply.page