economic snapshot: february 2013

7/29/2019 Economic Snapshot: February 2013

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1 Center or American Progress | Economic Snapshot or February 2013

Economic Snapshot for February 2013

Christian E. Weller on the State of the EconomyChristian E. Weller, associate professor, Department of Public Policy and Public Affairs,

University of Massachusetts Boston, and Senior Fellow, Center for American Progress

February 2013

Economic growh and job creaion coninue a a modes pace in he ourh year o he

economic recovery rom he Grea Recession. Te privae secor and he labor marke

have coninued o expand during much o he recovery despie massive obsacles,

such as he lingering European nancial crisis, high U.S. household deb levels, andlarge-scale scal uncerainy in he Unied Saes. Tere is subsanial room or he

U.S. economy and labor marke o gain srengh i policymakers pursue a number o

key seps in he shor run.

Now ha Congress has resolved some o he scal mess ha creaed our massive eco-

nomic uncerainy, policymakers can inves in inrasrucure, oseting weak business

invesmen and expor growh; boos personal incomes wih a minimum-wage increase

o bolser consumpion; and help households ease he sill-high burden o deb hrough

aciliaing higher personal incomes and he renancing o exising morgages.

1. Economic growth slowed markedly at the end of 2012. Gross domesic produc,

or GDP, was essenially a, alling slighly a an annual rae o 0.1 percen in he

ourh quarer o 2012. Domesic consumpion increased by an inaion-adjused

annual rae o 2.2 percen, housing spending grew by 15.3 percen, and business

invesmen acceleraed by 8.4 percen. In he ourh quarer o 2012, however,

expors ell by 5.7 percen, and governmen spending shrank by 6.6 percen.1

Tereore, policy should ease he srain o scal auseriy on he economy by

dampening spending cus, and i should boos domesic privae-secor economic

aciviy o ose he all-o in overseas demand.

2. The moderate labor market recovery continues in its fourth year. Tere were 4.3

million more jobs in January 2013 han in June 2009, when he economic recovery

ocially sared. Te privae secor added 5 million jobs during his period. Te

dierence beween he ne gain and he privae-secor gain is explained by he loss

o nearly 697,000 sae and local governmen jobs in his period, as budge cus

reduced he number o eachers, bus drivers, reghers, and police ocers, among


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FIGURE 1

Monthly job change since start of Great Recession in 2008

Source: Bureau of Labor Statistics, Current Employment Statistics (Department of Labor, 2012).

Job changes (in thousands)

January

2008

July

2008

January

2009

July

2009

January

2010

July

2010

January

2011

July

2011

January

2012

July

2012

-1,000

-800

-600

-400

-200

0

200

400

600

ohers.2 Job creaion is a op policy prioriy since privae-secor job growh is sill

oo weak o quickly overcome oher job losses and rapidly lower he unemploymen

rae. Once again, removing he uncerainy over scal changes is a key sep oward

srenghening economic and job growh.

3. Long-term unemployment slowly improves. Te unemploymen rae sood a 7.9

percen in January 2013. And long-erm unemploymendened as hose peopleou o work and looking or a job or more han six monhsslowly edged down. In

January 2013, 38.1 percen o he unemployed were considered long-erm unem-

ployedhe lowes share since Ocober 2009. Te average lengh o unemploy-

men also coninued o drop in January 2013, alling o a sill relaively high 35.3

weekshe lowes level, noneheless, since December 2010.3 Tose ou o a job or

a long ime sruggle o regain employmen because heir skills arophy and re-enry

ino a new job becomes increasingly harder.

Te coninuaion o exended unemploymen

insurance benes as par o he resoluion o

he scal showdown on January 1, 2013, washus a welcome policy ha helped many o

hose mos vulnerable o economic shocks.

4. Labor-market troubles fall especially hard on

communities of color, young workers, and

those Americans with less education. Te

Arican American unemploymen rae in

January 2013 was a high 13.8 percen; he

Hispanic unemploymen rae was 9.7 per-

cen; and he whie unemploymen rae was7 percen. Youh unemploymen sood a a

high 23.4 percen. Te unemploymen rae or

people wihou a high school diploma sayed

high a 12 percen, compared o 8.1 percen

or hose wih a high school degree, 7 percen

or hose wih some college educaion, and 3.7

percen or hose wih a college degree.4 Tese populaion groupswhich ypi-

cally have low incomes and litle wealhhave sruggled disproporionaely more

amid he weak labor marke han whie workers, older workers, and workers wih

more educaion, creaing greaer need or progressive policy acions o srenghen

job creaion or everybody.

5. Household incomes continue to drop amid prolonged weaknesses in the labor

market. Median inaion-adjused household incomehal o all households have

more, and he oher hal has lesssood a $50,054 in 2011, is lowes level in ina-

ion-adjused dollars since 1995. Median income ell by 1.5 percen in 2011, drop-


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ping or he ourh year in a row. American amilies have experienced no income

gains during he curren economic recovery since 2009, exacerbaing he losses ha

occurred during he Grea Recession.5

6. Income inequality on the rise. Households a he 95h percenile, wih incomes

o $186,000 in 2011, had incomes ha were more han nine imes9.2 imes, o

be exache incomes o households a he 20h percenile, whose incomes were$20,262. Tis is he larges gap beween he op 5 percen and he botom 20 per-

cen o households since he U.S. Census Bureau sared keeping record in 1967.6

7. Poverty stays high. Te povery rae ell o 15 percen in 2011, down rom 15.1 per-

cen in 2010. Te Arican American povery rae was 27.6 percen, he Hispanic rae

was 25.3 percen, and he whie rae was 9.8 percen. Te povery rae or children

under he age o 18 sood a 21.9 percen. More han one-hird o Arican American

children38.8 percenlived in povery in 2011, compared o 34.1 percen o

Hispanic children and 12.5 percen o whie children.7 Te prolonged economic

slump, ollowing an excepionally weak labor marke beore he crisis, has aken amassive oll on he mos vulnerable.

8. Employer-sponsored benefits disappear. Te share o people wih employer-spon-

sored healh insurance dropped rom 59.8 percen in 2007 o 55.1 percen in 2011.8

Te share o privae-secor workers who paricipaed in a reiremen plan a work ell

o 39.2 percen in 2011, down rom 42 percen in 2007.9 Families have less eco-

nomic securiy han in he pas due o ewer employmen-based benes, requiring

more privae savings o make up he dierence.

9. Family wealth losses linger. oal amily wealh is down $9.1 rillion (in 2012dollars) rom March 2007is las peako Sepember 2012. Homeowners on

average own only 44.8 percen o heir homescompared o he long-erm aver-

age o 61 percen beore he Grea Recessionwih he res owed o banks.10

Homeowners sill have a lo o deb. Tis slows consumpion growh, as households

sill do no have a lo o collaeral or banks o loosen heir lending sandards.

10. Household debt is still high. Household deb equaled 107.7 percen o afer-ax

income in Sepember 2012, down rom a peak o 126 percen in March 2007.11 Te

unprecedened all in deb over he pas ew years has resuled rom igh lend-

ing sandards, alling ineres raes, massive oreclosures, and increased household

saving. Bu urher deleveraging will likely slow unless incomes rise aser han hey

have in he pas, since mos acors ha have helped reduce household deb in he

pas have slowed or disappeared, such as alling ineres raes and he payroll ax

holiday. Tis high deb could coninue o slow economic growh, as households

ocus on saving raher han on spending more.


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FIGURE 3

Annual new home sales, 1963 to 2012

Source: Bureau of the Census, New Residential Sales Historical Data (Department of Commerce, 2012).

New home sales (in thousands)

0

300

600

900

1,200

1,500

196

3

196

6

196

9

197

2

197

5

197

8

198

1

198

4

1987

199

0

199

3

199

6

199

9

200

1

200

4

2007

201

0

FIGURE 2

Household debt to after-tax income, 1952 to 2011

Source: Board of Governors, Federal Reserve System, Release Z.1 Flow of Funds Accounts of the United States (2012).

March

1952

March

1967

March

198

2

March

1997

March

201

2

Percent of after-tax income

0%

20%

40%

60%

80%

100%

120%

140%

11. The housing market is finally and slowly

recovering from historic lows. New home

sales amouned o an annual rae o 369,000

in December 2012an 8.8 percen increase

over he 339,000 homes sold in December

2011 bu well below he hisorical average o

698,000 beore he Grea Recession.12 Temedian new home price in December 2012

was 13.9 percen higher han one year earlier.13

Exising home sales were up by 11.5 percen

in December 2012 rom one year earlier, and

he median price or exising homes was up

by 10.1 percen during he same period.14 Te

housing marke has a lo o room o grow and

o conribue o economic growh because he

recovery in he spring o 2012 sared rom

hisorically low home sales, and he housingmarke ell hroughou mos o he recovery.

Te edgling housing recovery could gain ur-

her srengh i policymakers ocus on personal

income gains in he near erm.

12. Homeowners distress remains high. Even

hough morgage roubles have gradually eased

since March 2010, one in nine morgages is

sill delinquen or in oreclosure. In he hird

quarer o 2012, he share o morgages hawere delinquen was 7.4 percen, and he share

o morgages ha were in oreclosure was 4.1

percen.15 Many amilies delayed and deauled

on morgage paymens amid high unemploy-

men and massive wealh losses. Tis caused

some banks o be nervous abou exending

new morgages, which urher prolonged he

economic slump. Policymakers could acceler-

ae economic growh by helping households

lower heir deb burdens hrough renancing

help and deb orgiveness.

13. Near precrisis peak profits are not reflected in investment data. Inaion-adjused

corporae pros were 87.7 percen larger in Sepember 2012 han in June 2009,

when he economic recovery sared. Te afer-ax corporae pro raepros

o oal assessood a 3.1 percen in Sepember 2012, nearing he previous peak


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afer-ax pro rae o 3.2 percen ha occurred prior o he Grea Recession.16

Corporaions used heir resources or purposes oher han invesmens in plans and

equipmen. Te share o invesmen ou o GDP sayed low, wih 10.2 percen in he

hird quarer o 2012, compared o an average o 10.9 percen during he prior busi-

ness cycle rom March 2001 o December 2007.17

Chrisian E. Weller is a Senior Fellow a he Cener or American Progress and a proessor in

he Deparmen o Public Policy and Public Afairs a he Universiy o Massachusets Boson.


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Endnotes

1 Bureau o Economic Analysis, National Income and ProductAccounts (U.S. Department of Commerce, 2013).

2 Employment growth data are calculated based on Bureau oLabor Statistics, Current Employment Statistics (U.S. Depart-ment of Labor, 2012). The Current Employment Statistics arealso known as the payroll survey.

3 Unemployment numbers are taken rom Bureau o LaborStatistics, Current Population Survey (U.S. Department ofLabor, 2012). The Current Population Survey is also known asthe household survey.

4 Ibid.

5 Data or amily incomes are rom Bureau o the Census, Income,Poverty, and Health Insurance Coverage in the United States:2011 (U.S. Department of Commerce, 2012). This report is occa-sionally referred to as the poverty report.

6 Other measures o income dispersion also show a growing gapbetween amilies in the top 5 percent, top 10 percent, andtop 20 percent relative to amilies in the bottom 20 percentand bottom 50 percent. Ibid.

7 Ibid.

8 Ibid.

9 Craig Copeland, Employment-Based Retirement Plan Par-ticipation: Geographic Dierences and Trends: 2010/2007(Washington: Employee Benets Research I nstitute, 2011).

10 Wealth calculations are based on Board o Governors, FederalReserve System, Release Z.1 Flow o Funds Accounts o theUnited States (2012). Real wealth is the nominal wealthdefated by the price index or the Personal ConsumptionExpenditure Index. The Personal Consumption ExpenditureIndex is rom Bureau o Economic Analysis, National Incomeand Product Accounts.

11 Debt calculations are based on Board o Governors, FederalReserve System, Release Z.1 Flow o Funds Accounts o theUnited States. Debt levels are the ratio o the nominal debtlevels divided by the nominal disposable personal income.Debt reers to total credit instruments.

12 The historical average reers to the average annualized

monthly residential sales rom January 1963, when the Cen-sus data start, to Decemb er 2007, when the Great Recessionstarted. Calculations are based on Bureau o the Census,New Residential Sales Historical Data (U.S. Department ofCommerce, 2012).

13 Ibid.

14 National Association o Realtors, November Existing-HomeSales and Prices Maintain Uptrend (2012).

15 Data are taken rom Mortgage Bankers Association, NationalDelinquency Survey (2012).

16 Prot rates are calculated based on data rom the Board oGovernors, Federal Reserve System, Release Z.1 Flow oFunds Accounts o the United States. Infation adjustmentsare based on the Personal Consumption Expenditure Indexrom the Bureau o Economic Analysis, National Income andProduct Accounts.

17 Authors calculation based on ibid.

economic snapshot: february 2013

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