economic snapshot: july 2014: christian e. weller on the state of the economy

8/21/2019 Economic Snapshot: July 2014: Christian E. Weller on the State of the Economy

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1 Center for American Progress | Economic Snapshot: July 2014

Economic Snapshot: July 2014

Christian E. Weller on the State of the Economy

By Christian E. Weller and Jackie Odum July 25, 2014

Te economic and labor-marke oulook have brighened over he pas ew monhs,

bu here is sil l a lo o work o be done o build a sronger economy ha creaes real

opporuniies or economic securiy and mobiliy or everyone. Te incoming daa

or June mark he fifh anniversary since he end o Grea Recession and highligh a

number o clear weak spos ha policymakers can address in he shor erm. Te daaor he economy, or insance, show ha uncerainy in he housing marke relaed o

possible uure ineres-rae changes is holding back economic growh. Moreover, he

rade defici is widening, which will dampen economic growh over ime unless U.S.

expors accelerae.

In addiion o housing-marke uncerainy and a widening rade defici, some groups

o people sill suffer severe economic hardships, even as he labor marke srenghens.

Persisen long-erm unemploymen, relaively high unemploymen raes or commu-

niies o color and hose wih less educaion, widespread povery, and lack o decen

benefis or many workers are among he mos noiceable weaknesses.

Policymakers can do more o build an inclusive economy ha does no leave behind

hose who have suffered economically or many years. Crucial seps include inra-

srucure spending ha booss consrucion and lays he oundaion or sronger

expor growh; exended long-erm unemploymen benefis o help hose looking or

jobs or more han six monhs; a higher minimum wage o make i easier or amilies

o climb ou o povery; proecion o he Affordable Care Acs, or ACAs, criical

benefis o give amilies meaningul access o healh care; and expansion o desper-

aely needed benefis a work such as paid ime off o care or a sick amily member

so ha breadwinners no longer have o choose beween work and amily. Congress

can and should do more righ now o ensure ha here is a brighening economic and

labor-marke oulook or everyone.


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1. American middle-class families deserve a Congress that takes their struggles

seriouslynot a Congress that is still working for the lucky few instead of for the

middle class five years after the end of the Great Recession. Economic growh lags

behind similar poins in prior business cycles. Gross domesic produc, or GDP, ell

sharply in he firs quarer o 2014 a an inflaion-adjused annual rae o 2.9 percen.

Domesic consumpion increased by an annual rae o 1 percen, and housing spend-

ing subsanially shrank by 4.2 percen, while business invesmen growh ell a a raeo 1.2 percen. Expors decreased by 8.9 percen in he firs quarer, and governmen

spending increased by 0.6 percen. Te economy expanded by 11 percen rom June

2009 o March 2014is slowes expansion during recoveries o a leas equal lengh.

Policymakers need o srenghen growh, as he economys momenum is sill oo low

o end he sruggles o Americas middle class. Policies could include invesmens in

inrasrucure and educaion o overcome lackluser privae business invesmens.

2. Improvements to U.S. competitiveness lag

behind previous business cycles. Produciviy

growh, measured as he increase in inflaion-adjused oupu per hour, is key o increasing

living sandards, as i means ha workers are

geting beter a doing more in he same amoun

o ime. Slower produciviy growh means ha

new economic resources available o improve

living sandards are growing more slowly han

would be he case wih aser produciviy

growh. U.S. produciviy rose 6.5 percen rom

June 2009 o March 2014, he firs 19 quarers

o he economic recovery since he end o heGrea Recession.1Tis compares o an average

o 12.4 percen during all previous recoveries o

a leas equal lengh.2No previous recovery had

lower produciviy growh han he curren one,

and policymakers need o srenghen educaion,

research and developmen, and inrasrucure

invesmens as imporan firs seps o lay a oun-

daion or aser uure produciviy growh.

3. The housing market continues to recover from historic lows. New-home sales

amouned o an annual rae o 406,000 in June 2014an 11.5 percen decrease rom

he 459,000 homes sold in June 2013 bu well below he hisorical average o 698,000

homes sold beore he Grea Recession.3Te median new-home price in June 2014

was $273,500, up rom one year earlier.4Exising-home sales were up by 2.6 percenin June 2014 rom one year earlier, bu he median price or exising homes was up

by 4.3 percen during he same period.5Home sales have o go a lo urher, given

FIGURE 1

GDP growth in recovery in comparison

to previous recoveries

90

120

125

130

115

110

105

100

95

2 4 6 8 10 12 14 16 18 20

Grow

thindex(lastquarterofrecession=100)

Mar 61

Mar 75

Dec 82

Mar 91

Dec 01

Jun 09

Number of quarters of economic recovery

Recovery after the Great Recession

Source: Authors calculations based on Bureau of Economic Analysis, National Income and Product Accounts

(U.S. Department of Commerce, 2014). Calculations only done for recoveries that have lasted at least four years.


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ha homeownership in he Unied Saes sood a 64.8 percen in he firs quarer o

2014, down rom 68.2 percen beore he 2007 recession. Te curren homeowner-

ship raes are similar o hose recorded in 1996, well beore he mos recen housing

bubble sared.6A srong housing-marke recovery can boos economic growh, andhere is sill pleny o room or he housing marke o provide more simulaion o he

economy more broadly han i did beore he recen slowdown. Te fledgling hous-

ing recovery could regain is srengh i policymakers suppor policies ha encourageaser income growhsuch as a hike in he minimum wageand have a greaer

emphasis on good jobs, such as an expansion o appreniceships.

4. The outlook for federal budgets improves. Te nonparisan Congressional Budge

Office, or CBO, esimaed in July 2014 ha he ederal governmen will have a

deficihe difference beween axes and spendingo 3 percen o GDP or fiscal

year 2014, which runs rom Ocober 1, 2013, o Sepember 30, 2014.7Tis defici

projecion is down rom 4.1 percen in FY 2013.8Tis projeced defici or FY 2014 is

slighly worse han wha CBO prediced in March 2014, when i esimaed a defi-

ci o 2.8 percen o GDP or FY 2014.9

Te esimaed defici or FY 2014 is muchsmaller han i was in previous years, due o a number o measures ha policymakers

have already aken o slow spending growh and raise a litle more revenue han was

expeced jus las year. Te slowdown in healh care cossa resul parially atrib-

ued o provisions wihin he ACAhas significanly conribued o hese shrink-

ing defici projecions.10Te improving fiscal oulook generaes breahing room or

policymakers o ocus heir atenion on argeed, efficien policies ha promoe long-

erm growh and job creaion as well as defici reducion.

5. Moderate labor-market recovery shows less job growth than in previous business

cycles. Tere were 7.8 million more jobs in June 2014 han in June 2009. Te privaesecor added 8.5 million jobs during his period. Te loss o some 567,000 sae and

local governmen jobs explains he difference beween he ne gain o all jobs and he

privae-secor gain in his period. Budge cus reduced he number o eachers, bus

drivers, firefighers, and police officers, among ohers.11Te oal number o jobs has

now grown by 6 percen during his recovery, compared o an average o 11.9 percen

during all prior recoveries o a leas equal lengh.12Alhough employmen has finally

reached is prerecession peak, policymakers need o do much more o creae jobs as

Millennialshose born roughly beween 1980 and 2000 and currenly he larges

generaion o Americansbegin o reach working age.

6. Employment opportunities grow very slowly for people in their prime earning

years. Te employed share o he populaion rom ages 25 o 54which is una-

eced by he aging o he overall populaionwas 76.7 percen in June 2014. Tis

was jus above he level recorded in June 2009 and well below he levels recorded

since he mid-1980s and beore he Grea Recession sared in 2007. Te employed

share o he populaion has, on average, grown by 3.1 percenage poins a his sage


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during previous recoveries o a leas equal

lengh.13Waiing or a healhy recovery simply

is no enough o help workers. Policymakers

need o sep in o generae aser growh ha can

resul in more jobs or all workers.

7. Employer-sponsored benefits disappear. Teshare o people wih employer-sponsored

healh insurance dropped rom 59.8 percen in

2007 o 54.9 percen in 2012, he mos recen

year or which daa are available.14Te share

o privae-secor workers who paricipaed in

a reiremen plan a work ell o 39.4 percen

in 2012, down rom 41.5 percen in 2007.15

Families now have less economic securiy han

in he pas due o ewer employmen-based

benefis, which requires hem o have moreprivae savings o make up he difference. Te

ACA appears o se a welcome counerpoin

o he rend o disappearing healh insurance

benefis. Since he ACAs markeplace open

enrollmen period began in Ocober 2013, he

uninsured rae has dropped o 13.4 percen, he lowes monhly rae recorded since

2008.16Moreover, uninsured raes coninue o decline among communiies o color

and low-income Americans. Since January 2014, he uninsured rae has dropped by

7.1 percen or Arican Americans, 5.5 percen or Hispanics, and 5.5 percen or

lower-income Americans.17

8. Some communities continue to struggle disproportionately from unemployment.

Te unemploymen rae ell slighly o 6.1 percen in June 2014: Te Arican

American unemploymen rae was 10.7 percen; he Hispanic unemploymen rae

was 7.8 percen; and he whie unemploymen rae was 5.3 percen. Meanwhile,

youh unemploymen rose o 21 percen. Te unemploymen rae or people

wihou a high school diploma remained seady a 9.1 percen, compared wih 5.8

percen or hose wih a high school degree, 5 percen or hose wih some college

educaion, and 3.3 percen or hose wih a college degree. 18Populaion groups

wih higher unemploy men raes have sruggled disproporionaely more amid

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

educaion. argeed policy inervenions such as exended unemploymen insur-

ance benefis would offer much-needed help or some populaion groups, such as

sruggling youh and communiies o color.

FIGURE 2

Employment-to-population ratio

for 2554 year-olds, 19472014

60%

80%

65%

70%

75%

85%

Share

ofpopulation(

inp

ercent)

1948

1954

1960

1965

1971

1977

1983

1989

1996

2002

2008

2014

Source: Bureau of Labor Statistics, Current Population Survey (U.S. Department of Labor, 2014).


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9. The rich continue to pull away from most

Americans. Incomes o households in he 95h

percenilehose wih incomes o $191,000

in 2012, he mos recen year or which daa

are availablewere more han nine imes he

incomes o households in he 20h percenile,

whose incomes were $20,599. Tis is he largesgap beween he op 5 percen and he botom

20 percen o households since he U.S. Census

Bureau sared keeping records in 1967. Median

inflaion-adjused household income sood a

$51,017 in 2012, is lowes level in inflaion-

adjused dollars since 1995. And he povery rae

remains higha 15 percen in 2012as he

economic slump coninues o ake a massive oll

on he mos vulnerable ciizens.19Higher mini-

mum wages, an improved Earned Income axCredi and he closure o ax loopholes or he

rich would be criical firs seps or policymakers

o address income inequaliy.

10. Corporate profits stay elevated near precrisis peaks. Inflaion-adjused corpo-

rae profis were 100 percen larger in March 2014 han in June 2009. Te afer-ax

corporae profi raeprofis o oal assessood a 3.4 percen in March 2014

higher han any profi rae recorded since Sepember 1979.20Corporae profis

recovered quickly oward he end o he Grea Recession and have sayed high since

hen. Addressing income inequaliy ha arises rom he rich receiving ousized ben-efis rom heir wealh hrough ax reorm is a crucial policy prioriy.

11. Corporations spend much of their money to keep shareholders happy. From

December 2007when he Grea Recession saredo December 2013, nonfi-

nancial corporaions spen, on average, 97 percen o heir afer-ax profis on divi-

dend payous and share repurchases.21In shor, almos all o nonfinancial corporae

afer-ax profis wen o keep shareholders happy during he curren business cycle.

Nonfinancial corporaions also held, on average, 5.3 percen o all o heir asses in

cashhe highes average share since he business cycle ha ended in December

1969. Nonfinancial corporaions spen, on average, 167 percen o heir afer-ax

profis on capial expendiures or invesmensby selling oher asses and by bor-

rowing. Tis was he lowes raio since he business cycle ha ended in 1960. U.S.

corporaions have prioriized keeping shareholders happy and building up cash

over invesmens in srucures and equipmen, highlighing he need or regulaory

reorm ha incenivizes corporaions o inves in research and developmen, manu-

acuring plans and equipmen, and workorce developmen.

FIGURE 3

U.S. poverty rate, 2007 to 2012

54%

56%

58%

55%

57%

59%

60%

2007 2008 2009 2010 2011 2012

59.8%58.9%

56.1%

55.3%55.1%

54.9%

Source: Bureau of Labor Statistics, Current Population Survey(U.S. Department of Labor, 2014).


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12. Poverty is still widespread. Te povery rae remained fla a 15 percen in 2012

he mos recen year or which daa are availablewhich is an increase o 0.7

percenage poins over he hree years o he recovery, 2009 o 2012. Te povery

rae has allen, on average, by 0.7 percenage poins in previous recoveries o a leas

equal lengh. Moreover, some populaion groups suffer rom much higher povery

rae han ohers. Te Arican American povery rae, or insance, was 27.2 percen,

and he Hispanic povery rae was 25.6 percen, while he whie povery rae was9.7 percen. Te povery rae or children under age 18 sood a 21.8 percen. More

han one-hird o Arican American children37.9 percenlived in povery in

2012, compared wih 33.8 percen o Hispanic children and 12.3 percen o whie

children.22Srenghening economic securiy by adoping measures such as he

Universal Savings Credi and he expansion o social saey ne programssuch

as SNAP and Medicaidcan help us reduce povery and provide opporuniies o

Americans who need hem mos.

13. Household debt is still high. Household deb equaled 103.4 percen o afer-ax

income in March 2014, down rom a peak o 129.7 percen in December 2007.23

Areurn o deb growh oupacing income growh, which was he case prior o he

sar o he Grea Recession in 2007, rom already-high deb levels could evenu-

ally slow economic growh again. Tis would be especially rue i ineres raes also

rise rom hisorically low levels due o a change in he Federal Reserves policies.

Consumers would have o pay more or heir deb, and hey would have less money

available or consumpion and saving. Policymakers should hereore ocus on crea-

ing high-qualiy jobs so ha people do no need o borrow as much money as hey

did in he pas and on regulaory reorm o help millions o amilies avoid high and

derimenal coss o credi.

Chrisian E. Weller is a Senior Fellow a he Cener for American Progress and a professor

in he Deparmen of Public Policy and Public Affairs a he McCormack Graduae School

of Policy and Global Sudies a he Universiy of Massachusets, Boson. Jackie Odum is a

Research Assisan for he Economic Policy eam a he Cener.


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Endnotes

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

2 Ibid.

3 The historical average refers to the average annualized

monthly 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. Depart-ment of Commerce, 2014).

4 Ibid.

5 National Association of Realtors, April Existing-Home SalesShow Modest I mprovement Behind Gaining Inventory,Press release, May 22, 2014.

6 Bureau of the Census, Housing Vacancies and Homeowner-ship(U.S. Department of Commerce, 2014).

7 Congressional Budget Office, Updated Budget Projections:2014 to 2024 (2014), available at http://www.cbo.gov/sites/default/files/cbofiles/attachments/45229-UpdatedBudget-Projections_2.pdf.

8 Ibid.

9 Ibid.

10 Richard Kogan and William Chen, Projected Ten-YearDeficits Have Shrunk by Nearly $5 Trillion Since 2010, MostlyDue to Legislative Changes (Washington: Center on Budgetand Policy Priorities, 2014), available at http://www.cbpp.org/cms/?fa=view&id=4106.

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

12 Ibid.

13 Calculations based on Bureau of Labor Statistics, CurrentPopulation Survey(U.S. Department of Labor, 2014).

14 Bureau of the Census, Income, Poverty, and Health InsuranceCoverage in the United States: 2012 (U.S. Department of Com-merce, 2013). This report is occasionally referred to as thepoverty report.

15 Craig Copeland, Employment-Based Retirement PlanParticipation: Geographic Differences and Trends, 2012(Washington: Employee Benefit Research Institute, 2013).

16 Jenna Levy, In U.S., Uninsured Rate Sinks to 13.4% inSecond Quarter, Gallup, July 10, 2014, available at http://www.gallup.com/poll/172403/uninsured-rate-sinks-second-quarter.aspx. .

17 Jenna Levy, U.S. Uninsured Rate Drops to 13.4%, Gal-lup, May 5, 2014, available at http://ww w.gallup.com/poll/168821/uninsured-rate-drops.aspx.

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

19 Bureau of the Census, Income, Poverty, and Health InsuranceCoverage in the United States: 2012.

20 Profit rates are calculated based on data from Board of Gov-ernors of the Federal Reserve System, Z.1 Release--FinancialAccounts of the United States (2014). Inflation adjustmentsare based on the Personal Consumption Expenditure Indexfrom Bureau of Economic Analysis, National Income andProduct Accounts.

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

22 Calculations are based on Bureau of the Census, Income,Poverty, and Health Insurance Coverage in the United States:2012.

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

economic snapshot: july 2014: christian e. weller on the state of the economy

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