economic snapshot: february 2015

8/9/2019 Economic Snapshot: February 2015

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1 Center for American Progress | Economic Snapshot: February 2015

Economic Snapshot: February 2015Christian E. Weller on the State of the U.S. EconomyBy Christian E. Weller and Jackie Odum February 25, 2015

Te economic recovery ha s ar ed in June 2009 remains weak by his orical s andards, bu he mos recen da a shows some good news or bo h he economy and Americanamilies. Gross domes ic produc , or GDP, grew a a reasonable ra e o 2.6 percen

be ween Sep ember and December 2014; he labor marke added 257,000 in January

2015 alone; and he unemploymen ra e ell o a low o 5.7 percen , even as discouraged workers who had been on he sidelines wai ing or beter imes o arrive reen eredhe labor marke . And, produc ivi y gains a key measure o innova ion and po en ialu ure growing in wages and living s andards have consis en ly picked up s eam overhe pas hree quar ers, rom April o December 2014.

Te economy is he heal hies i has been since he end o he Grea Recession. However,no everyone is geting heir air share o he recen economic gains. Vulnerable commu-ni ies, such as A rican Americans, La inos, and you hs, s ill s ruggle dispropor iona ely inhis economy. While whi e unemploymen con inues o all under he na ional average a

4.9 percen , he A rican American unemploymen ra e remains rela ively high a 10.3percen , and he Hispanic unemploymen ra e is 6.7 percen . Meanwhile, you h unem-ploymen s ands a a whopping 18.8 percen .1 Addi ionally, hese communi ies s ruggle wi h lower wages and higher pover y ra es compared o heir coun erpar s and lack accesso nancial ools ha are vehicles or saving, such as re iremen plans.

Te policy challenges are clear. Policymakers need o sa eguard and s reng hen herecen gains in economic grow h and labor marke expansions in order o build aneconomy ha works or America’s middle class or years o come. And, policymakersneed o ocus addi ional effor s on helping he mos vulnerable groups, who s illdispropor iona ely s ruggle as he economy gains s eam.

Progressives have a rack record ha shows hey can mee he dual challenge o s reng h-ening grow h and helping economically vulnerable popula ions. Mos recen ly, hepolicies ha progressives have suppor ed in he pas such as he American Recoveryand Reinves men Ac , he Affordable Care Ac , and he Middle Class ax Relie and JobCrea ion Ac have helped bo h he economy avoid ano her Grea Depression and gainsome s eam and arge ing vulnerable communi ies in he wake o he Grea Recession.


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Policymakers now need o build on he successes o pas progressive policies by buildinga heal hy economy ha promo es inclusive prosperi y and bols ers a s rong middle class.On he demand side, policymakers can do his by implemen ing progressive policiesha boos wages such as raising he minimum wage, expanding collec ive bargainingrigh s, and crea ing ax incen ives ha encourage employers o share pro s wi h heiremployees. On he supply side, arge ed public inves men s in in ras ruc ure and

research and developmen can crea e long- erm job grow h.

1. Economic growth, while positive, has been lackluster for years: GDP increased inhe our h quar er o 2014 a an ina ion-adjus ed annual ra e o 2.6 percen , afer anincrease o 5 percen in he previous quar er. Domes ic consump ion increased by anannual ra e o 4.3 percen , and housing spending rose by 4.1 percen , while busi-ness inves men grew a a slower ra e o 1.9 percen . Expor s only increased by 2.8percen in he our h quar er, while impor s increased by a much as er ra e o 8.9percen , resul ing in a widening rade deci . Governmen spending con inues o bea weak spo in he economy as ederal governmen spending ell by 7.5 percen , and

s a e and local governmen spending rose only by 1.3 percen . Economic grow himproved in 2014 compared o earlier years o his economic recovery, which beganin June 2009. Bu , he economy needs o main ain and even accelera e i s momen-um in order o crea e real economic securi y or America’s amilies. Afer all, heeconomy expanded 13.6 percen rom June 2009 o December 2014, ar below heaverage o 25.9 percen during recoveries o a leas equal leng h.

2. Improvements to U.S. competitiveness fall behind previous business cycles.Produc ivi y grow h, measured as he increase in ina ion-adjus ed ou pu per hour,is key o s rong economic grow h over he longer erm and o increasing living

s andards, as i means ha workers are geting beter a doing more in he sameamoun o ime. Slower produc ivi y grow h hus means ha new economicresources available o improve living s andards are growing more slowly han would be he case wi h as er produc ivi y grow h. U.S. produc ivi y rose 7.2 percen rom June 2009 o December 2014, he rs 22 quar ers o he economic recovery sincehe end o he Grea Recession.2 Tis compares o an average o 15.3 percen duringall previous recoveries o a leas equal leng h.3 No previous recovery had lowerproduc ivi y grow h han he curren one. Tis slow produc ivi y grow h oge her wi h high income inequali y con ribu es o he widespread sense o economicinsecuri y and slowing economic mobili y.


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FIGURE 1

Productivity growth in recovery compared with previous recessions

Percentage of growth during rst 22 quarters

20%

5%

10%

15%

0%

Average of previous recoveries

Current economic recovery

Source: Calculations are based on productivity growth—output per hour—for nonfarm businesses from Bureau of Labor Statistics, CurrentEmployment Statistics (U.S. Department of Labor, 2014).

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

15.3%

7.2%

3. The housing market is still only a shadow of its former self. New-home salesamoun ed o an annual ra e o 481,000 in January 2015 an 5.3 percen increaserom he 457,000 homes sold in January 2014 bu well below he his orical averageo 698,000 homes sold be ore he Grea Recession.4 Te median new-home price in January 2015 was $294,300, up rom one year earlier.5 Exis ing-home sales rose by3.2 percen in January 2015 rom one year earlier, and he median price or exis inghomes was up by 6.2 percen during he same period.6 Home sales have a lo ur hero go, given ha homeownership in he Uni ed S a es s ood a 64 percen in heour h quar er o 2014, down rom 68.2 percen be ore he s ar o he recession ahe end o 2007. Te curren homeownership ra es are similar o hose recorded in

1996, well be ore he mos recen housing bubble s ar ed.7 A s rong housing-markerecovery can boos economic grow h, and here is s ill plen y o room or he

housing marke o provide more s imula ion o he economy more broadly han idid be ore he recen slowdown.

4. The outlook for federal budgets improves. Te nonpar isan Congressional BudgeOffice, or CBO, es ima ed in January 2015 ha he ederal governmen will have adeci he difference be ween axes and spending o 2.6 percen o GDP or scal year 2015, which runs rom Oc ober 1, 2014, o Sep ember 30, 2015.8 Tis deciprojec ion is sligh ly down rom he deci o 2.8 percen o GDP or FY 2014.9 Tees ima ed deci or FY 2015 is much smaller han deci s in previous years due o anumber o measures ha policymakers have already aken in order o slow spendinggrow h and raise more revenue han was expec ed jus las year. Te improving scalou look should genera e brea hing room or policymakers o ocus heir aten ion onarge ed, efficien policies ha promo e long- erm grow h and job crea ion, especiallyor hose groups dispropor iona ely impac ed by high unemploymen .


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5. Moderate labor-market gains follow in part from modest economic growth.Tere were 9.9 million more jobs in January 2014 han in June 2009. Te priva esec or added 10.6 million jobs during his period. Te loss o some 596,000 s a eand local governmen jobs explains he difference be ween he ne gain o all jobsand he priva e-sec or gain in his period. Budge cu s reduced he number oeachers, bus drivers, regh ers, and police officers, among o hers.10 Te o al

number o jobs has now grown by 7.6 percen during his recovery, compared o anaverage o 13.9 percen during all prior recoveries o a leas equal leng h.11 Fas ereconomic grow h is necessary o genera e more labor-marke momen um.

FIGURE 2

Employment growth falls behind historical average

Source: Bureau of Labor Statistics.

-5%

0%

5%

10%

15%

603020 40 5010

Month

Historical average

Current recovery

13.9%

7.6%

6. Employers cut back on health and pension benefits. Te share o people wi hemployer-sponsored heal h insurance dropped rom 59.8 percen in 2007 o 53.9percen in 2013, he mos recen year or which da a are available.12 Te share opriva e-sec or workers who par icipa ed in a re iremen plan a work ell o 40.8percen in 2013, down rom 41.5 percen in 2007.13 Families now have less eco-nomic securi y han hey did in he pas due o ewer employmen -based bene s,no jus because o modes job and wage gains.

7. Some communities continue to struggle disproportionately from unemploy-ment. Te unemploymen ra e was 5.7 percen in January 2014. Te A rican American unemploymen ra e el l o 10.3 percen , he Hispanic unemploymenra e increased o 6.7 percen , and he whi e unemploymen ra e also increased o4.9 percen . Meanwhile, you h unemploymen increased o 18.8 percen . Teunemploymen ra e or people wi hou a high school diploma was 8.5 percen ,compared wi h 5.4 percen or hose wi h a high school degree, 5.2 percen or


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hose wi h some college educa ion, and 2.8 percen or hose wi h a collegedegree.14 Popula ion groups wi h higher unemploymen ra es have s ruggleddispropor iona ely more amid he weak labor marke han whi e workers, older workers, and workers wi h more educa ion.

FIGURE 3

January 2015 unemployment rate by race

Source: Bureau of Labor Statistics, Current Population Survey (U.S. Department of Labor, 2015).

White 4.9%

6.7%

10.3%

Hispanic

African American

8. The rich continue to pull away from most Americans. Incomes o households ahe 95 h percen ile hose wi h incomes o $196,000 in 2013, he mos recen year

or which da a are available were more han nine imes he incomes o householdsin he 20 h percen ile, whose incomes were $20,900. Tis is he larges gap be weenhe op 5 percen and he botom 20 percen o households since he U.S. CensusBureau s ar ed keeping records in 1967. Median ina ion-adjus ed household incomes ood a $51,939 in 2013, i s lowes level in ina ion-adjus ed dollars since 1995.15

FIGURE 4

Corporate prots stay elevated near prerecession peaks

After-tax corporate prot rate

Note: Shaded bars indicate recessions as dened by the National Bureau of Economic Research.

Source: Prot rates are calculated based on data from Board of Governors of the Federal Reserve System, “Z.1 Release—Financial Accounts of theUnited States” (2014). Ination adjustments are based on the Personal Consumption Expenditure Index from Bureau of Economic Analysis, National Income and Product Accounts (U.S. Department of Commerce, 2000–2014).

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

2000 2002 2004 2006 2008 2010 2012 2014

3.18%

2.51%

Dec.2007

June2014


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9. Corporate profits stay elevated near pre-crisis peaks. Ina ion-adjus ed corpora epro s were 94 percen larger in Sep ember 2014 han in June 2009. Te afer- axcorpora e pro ra e pro s o o al asse s s ood a 3.2 percen in Sep ember2014.16 Corpora e pro s recovered quickly oward he end o he Grea Recessionand have s ayed high since hen. Addressing income inequali y ha arises rom herich receiving ou sized bene s rom heir weal h hrough ax re orm is a crucial

policy priori y.

10. Corporations spend much of their money to keep shareholders happy. FromDecember 2007 when he Grea Recession s ar ed o Sep ember 2014, non-nancial corpora ions spen , on average, 98.5 percen o heir afer- ax pro s ondividend payou s and share repurchases.17 In shor , almos all o nonnancialcorpora e afer- ax pro s have gone o keeping shareholders happy during hecurren business cycle. Nonnancial corpora ions also held, on average, 5.3 perceno all o heir asse s in cash he highes average share since he business cycle haended in December 1969. Nonnancial corpora ions spen , on average, 169.9

percen o heir afer- ax pro s on capi al expendi ures or inves men s by sellingo her asse s and by borrowing. Tis was he lowes ra io since he business cycle haended in 1960. U.S. corpora ions have priori ized keeping shareholders happy and building up cash over inves men s in s ruc ures and equipmen , highligh ing heneed or regula ory re orm ha incen ivizes corpora ions o inves in research anddevelopmen , manu ac uring plan s and equipmen , and work orce developmen .

FIGURE 5

Dividend and share repurchases as a share of after-tax prots

Average share of after-tax prots

Source: Average of dividend and share repurchases as a share of after-tax prots are calculated based on data from Board of Governors of theFederal Reserve System, “Z.1 Release—Financial Accounts of the United States” (2014). Ination adjustments are based on the PersonalConsumption Expenditure Index from Bureau of Economic Analysis, National Income and Product Accounts (U.S. Department of Commerce,2000–2014).

Sept.1953

Dec.1957

Sept.1960

March1970

Dec.1973

Dec.1990

June2001

March2008

Sept.1980

20.2%33.9%29.4% 23.7% 106.2% 93.7%38.2% 96.5% 92.1%

11. Poverty is still widespread. Te pover y ra e was 14.5 percen in 2013, down rom15 percen in 2012. Tis change, however, was s a is ically insignican . Moreover,he pover y ra e or his recovery increased a a ra e o 0.2 percen age poin s,compared o an average decrease o 0.7 percen age poin s in previous recoveries oa leas equal leng h. Some popula ion groups suffer rom much higher pover yra e han o hers. Te A rican American pover y ra e, or ins ance, was 27.2


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percen , and he Hispanic pover y ra e was 23.5 percen , while he whi e pover yra e was 9.6 percen . Te pover y ra e or children under age 18 ell o 19.9percen . More han one- hird o A rican American children 37.7 percen livedin pover y in 2013, compared wi h 30.4 percen o Hispanic children and 10.7percen o whi e children.18

12. Household debt is still high. Household deb equaled 102.5 percen o afer- axincome in Sep ember 2014, down rom a peak o 129.7 percen in December 2007.19 Bu , nonrevolving consumer credi ypically ins allmen credi such as s uden andcar loans has ou paced afer- ax income grow h. I has grown rom 14.6 percen oafer- ax income in June 2009 o 18.1 percen in Sep ember 2014. A re urn o debgrow h ou pacing income grow h which was he case or o al deb prior o hes ar o he Grea Recession rom already-high deb levels could even ually sloweconomic grow h again. Tis would be especially rue i in eres ra es also rise romhis orically low levels due o a change in he Federal Reserve’s policies. Consumers would have o pay more or heir deb , and hey would have less money available or

consump ion and saving.

Chris ian E. Weller is a Senior Fellow a he Cen er for American Progress and a professor inhe Depar men of Public Policy and Public Affairs a he McCormack Gradua e School of

Policy and Global S udies a he Universi y of Massachusets, Bos on. Jackie Odum is aResearch Assis an for he Economic Policy eam a he Cen er.


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Endnotes

1 Unemployment numbers are taken from Bureau of LaborStatistics, Current Population Survey .

2 Calculations are based on productivity growth (output perhour) for nonfarm businesses from Bureau of LaborStatistics, Current Employment Statistics (U.S. Department ofLabor, 2014).

3 Ibid.

4 The historical average refers to the average annualizedmonthly residential sales from January 1963, when theCensus data started, to December 2007, when the GreatRecession started. Calculations are based on Bureau of theCensus, New Residential Sales Historical Data (U.S.Department of Commerce, 2015).

5 Ibid.

6 National Association of Realtors, “Existing-Home Sales Coolin January as Available Inventory Remains Subdued,” Pressrelease, February 23, 2015, available at http://www.realtor.org:8119/news-releases/2015/02/existing-home-sales-cool-in-january-as-available-inventory-remains-subdued.

7 Bureau of the Census, Housing Vacancies and Homeowner-ship (U.S. Department of Commerce, 2015).

8 Congressional Budget Office, “The Budget and EconomicOutlook: 2015 to 2025” (2015), available at http://www.cbo.gov/sites/default/les/cboles/attachments/49892-Out-look2015.pdf .

9 Ibid.

10 Employment-growth data are calculated based on Bureauof Labor Statistics, Current Employment Statistics .

11 Ibid.

12 Bureau of the Census, Income, Poverty, and Health InsuranceCoverage in the United States: 2013.

13 Craig Copeland, “Employment-Based Retirement PlanParticipation: Geographic Differences and Trends, 2013”(Washington: Employee Benet Research I nstitute, 2014),available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2515930.

14 Unemployment numbers are taken from Bureau of LaborStatistics, Current Population Survey .

15 Bureau of the Census, Income, Poverty, and Health InsuranceCoverage in the United States: 2013.

16 Prot rates are calculated based on data from Board ofGovernors of the Federal Reserve System, “Z.1 Release--Financial Accounts of the United States” (2014). Inationadjustments are based on the Personal ConsumptionExpenditure Index from Bureau of Economic Analysis,National Income and Product Accounts .

17 Calculations are based on Board of Governors of the FederalReserve System, “Z.1 Release--Financial Accounts of theUnited States.”

18 Calculations are based on Bureau of the Census, Income,Poverty, and Health Insurance Coverage in the United States:2013.

19 Calculations are based on Board of Governors of the FederalReserve System, “Z.1 Release—Financial Accounts of theUnited States.”
http://www.cbo.gov/sites/default/files/cbofiles/attachments/49892-Outlook2015.pdfhttp://www.cbo.gov/sites/default/files/cbofiles/attachments/49892-Outlook2015.pdfhttp://www.cbo.gov/sites/default/files/cbofiles/attachments/49892-Outlook2015.pdfhttp://www.cbo.gov/sites/default/files/cbofiles/attachments/49892-Outlook2015.pdfhttp://www.cbo.gov/sites/default/files/cbofiles/attachments/49892-Outlook2015.pdfhttp://www.cbo.gov/sites/default/files/cbofiles/attachments/49892-Outlook2015.pdf

economic snapshot: february 2015

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