economic snapshot: june 2013

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  • 7/28/2019 Economic Snapshot: June 2013

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    1 Center or American Progress | Economic Snapshot: May 2013

    Economic Snapshot: June 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, and Sam Ungar

    June 2013

    Te economic recovery is nohing i no resilien. Te economy and he labor marke

    in June coninued on heir pah oward a sel-susaining recovery, despie he onse o

    adverse policy changes such as he end o a emporary payroll ax holiday in January2013 and across-he-board spending cus in April 2013. Economic growh and job

    creaion would likely have been sronger under a dieren se o policies, bu housing-

    marke growh provided he economy a much-needed boos.

    Despie housing gains, Americas middle class desperaely needs sronger growh and

    aser job creaion. Millions o amilies are sill suering rom high unemploymen, per-

    sisen long-erm unemploymen, and massive household-deb burdens.

    I is no oo lae or policymakers o reverse course away rom a sole ocus on deci

    reducion and oward a combinaion o ax and spending changes ha will conribueo sronger economic growh and lower decis. Indeed, recen research by he Cener

    or American Progress has shown ha he need or urgen deci reducion has signi-

    canly abaed over he pas hree years.1 Wih his conex in mind, policymakers should

    heed he recommendaions in CAPs comprehensive agenda or economic progress

    o srenghen he American people and build he business environmen necessary or

    susainable long-erm growh.2

    1. Economic growth picked up at the beginning of 2013. Gross domesic produc, or

    GDP, increased in he rs quarer o 2013 a an inaion-adjused annual rae o 2.4

    percen. Domesic consumpion increased by an annual rae o 3.4 percen, hous-

    ing spending grew by 12.1 percen, business invesmen acceleraed moderaely by

    2.2 percen, and expors grew only by 0.8 percen in he rs quarer. Governmen

    spending shrank again by 4.9 percen, slowing overall growh.3 Policy soluions

    should hereore aim o ease he srain o scal auseriy on he economy and replace

    across-he-board spending cus wih a scal policy approach ha can acually

    enhance raher han slow economic growh.

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    2. The moderate labor-market recovery continues in its fourth year. Tere were 5.1

    million more jobs in May 2013 han in June 2009, when he economic recovery o-

    cially sared. Te privae secor added 5.8 million jobs during his period. Te loss

    o nearly 670,000 sae and local governmen jobs explains he dierence beween

    he ne gain o all jobs and he privae-secor gain in his period. Budge cus reducedhe number o eachers, bus drivers, reghers, and police ocers, among ohers.4

    Job creaion should be 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. A reorienaion o ax and spending policies o srenghen economic growh

    raher han a blind obsession wih deci

    reducion a all coss could creae millions o

    jobs ha Americas middle class desperaely

    needs.

    3. Long-term unemployment stays high, andsome communities continue to struggle

    disproportionately from unemployment.

    Te unemploymen rae sood a 7.6

    percen in May 2013, and 37.3 percen o

    he unemployed had been ou o work or

    a leas six monhs. Tose ou o a job or a

    long ime sruggle o regain employmen

    because heir skills arophy. Tis is especially

    rue or economically vulnerable groups.

    Te Arican American unemploymen raewas 13.5 percen in May 2013, he Hispanic

    unemploymen rae was 9.1 percen, and he

    whie unemploymen rae was 6.7 percen.

    Meanwhile, youh unemploymen sood a 24.5 percen. Te unemploymen rae

    or people wihou a high school diploma icked down o 11.1 percen, compared

    o 7.4 percen or hose wih a high school degree, 6.5 percen or hose wih some

    college educaion, and 3.8 percen or hose wih a college degree.5 Tese popula-

    ion groups wih higher unemploymen raes have sruggled disproporionaely

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

    wih more educaion. Tis creaes a greaer need or progressive policy acions o

    srenghen job creaion or everybody.

    2 Center or American Progress | Economic Snapshot: May 2013

    FIGURE 1

    Share of long-term unemployment, business-cycle averages

    Source: U.S. Bureau o Labor Statistics, Current Population Survey(U.S. Department o Labor, 2013).

    0%

    5%

    10%

    15%

    20%

    25%

    30%

    35%

    40%

    Dec 07Mar 01Aug 90Feb 80Dec 73Jan 70May 60Sep 57Aug 53Dec 48

    Averagelong-termu

    nemploymentrate

    Business-cycle start date

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    3 Center or American Progress | Economic Snapshot: May 2013

    4. The rich continue to pull away from most Americans. Incomes o households in he

    95h percenilehose wih incomes o $186,000 in 2011, he mos recen year or

    which daa are availablewere more han nine imes he incomes o households in

    he 20h percenile, whose incomes were $20,262. Tis is he larges gap beween

    he op 5 percen and he botom 20 percen o households since he U.S. Census

    Bureau sared keeping record in 1967. Median inaion-adjused household income

    sood a $50,054 in 2011, is lowes level in inaion-adjused dollars since 1995.And he povery rae remains high, a 15 percen in 2011, as he economic slump

    coninues o ake a massive oll on he mos vulnerable ciizens.6

    5. Employer-sponsored ben-

    efits disappear. Te share

    o people wih employer-

    sponsored healh insurance

    dropped rom 59.8 percen

    in 2007 o 55.1 percen in

    2011, he mos recen yearor which daa are available.7

    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

    2007.8 Families now have

    less economic securiy han

    in he pas due o ewer

    employmen-based benes,which requires ha hey have

    more privae savings o make

    up he dierence.

    6. Family wealth losses still linger. In March 2013 oal amily wealh was down $8.4

    rillion (in 2013 dollars) rom March 2007, is previous peak. Homeowners on aver-

    age own only 49.2 percen o heir homescompared o he long-erm average o 61

    percen beore he Grea Recessionwih he res owed o banks.9 Homeowners

    massive deb slows household-spending growh, as households sil l have litle colla-

    eral or banks o loosen heir lending sandards and households spend less han hey

    oherwise would on new homes and oher big-icke iems.

    7. Household debt is still high. Household deb equaled 106.3 percen o afer-

    ax income in March 2013, down rom a peak o 126 percen in March 2007.10

    Household deb grew again relaive o afer-ax income in he rs quarer o 2013,

    up rom a low o 104.8 percenhe rs such increase since he ourh quarer o

    FIGURE 2

    Postrecession productivity growth

    Source: Calculations based on U.S. Bureau o Labor Statistics, Major Sector Productivity and Costs, Nonfarm Business Sector, Output per Hour (U.S.

    Department o Labor, 2013).

    -2%

    0%

    2%

    4%

    6%

    8%

    10%

    10987654321 14131211 15 19181716 2120

    Productivitygrowthfromr

    eces

    sionlevel

    Months after end of recession

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    4 Center or American Progress | Economic Snapshot: May 2013

    2009. A reurn o deb growh oupacing income growh rom already-high deb

    levels could evenually slow economic growh again i ineres raes rise rom hisori-

    cally low levels and crowd ou household spending on oher iems.

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

    amouned o an annual rae o 454,000 in April 2013a 29 percen increase rom

    he 352,000 homes sold in April 2012 bu well below he hisorical average o698,000 homes sold beore he Grea Recession.11 Te median new-home price

    in April 2013 was 14.9 percen higher han one year earlier.12 Exising-home sales

    were up by 9.7 percen in April 2013 rom one year earlier, and he median price or

    exising homes was up by 11 percen during he same period.13 Home sales have o

    go a lo urher, given ha homeownership in he Unied Saes sood a 65 per-

    cen in he rs quarer o 2013, down rom 68.2 percen beore he recession. Te

    curren homeownership raes are similar o hose recorded in 1995, well beore he

    mos recen housing bubble sared.14 Tough he housing-marke recovery sared

    laer han he wider economic recoveryand sared ou a a record lowlaely he

    housing marke has been growing rapidly and conribuing a much-needed booso economic progress. As such, here is sill pleny o room or he housing marke

    o provide more simulaion o he economy more broadly. Te edgling housing

    recovery could gain urher srengh i policymakers suppor economic growh and

    job creaion a he same ime.

    9. Homeowners distress remains high. Even hough morgage roubles have gradu-

    ally eased since March 2010, nearly one in nine morgages is sill delinquen or

    in oreclosure. In he rs quarer o 2013, he share o morgages ha were delin-

    quen was 7.3 percen, and he share o morgages ha were in oreclosure was 3.6

    percen.15

    Many amilies delayed and deauled on morgage paymens amid highunemploymen and massive wealh losses. Tis caused some banks o be nervous

    abou exending new morgages, which urher prolonged he economic slump.

    Policymakers can accelerae economic growh by helping households lower heir

    deb burdens hrough renancing help and deb orgiveness.

    10. Corporate profits stay high near pre-crisis peaks. Inaion-adjused corporae pro-

    is were 83.1 percen larger in March 2013 han in June 2009, when he economic

    recovery sared. Te afer-ax corporae pro raepros o oal assessood

    a 3 percen in March 2013, nearing he previous peak afer-ax pro rae o 3.2

    percen ha occurred prior o he Grea Recession.16

    11. Slow productivity growth marks the U.S. economy. Produciviy growh is he main

    ingredien in rising living sandards. Wages, jobs, and pros depend on workers and

    companies guring ou how o make more and beter hings in he same amoun o

    ime. Oupu per hour, he main measure o produciviy growh, has expanded by

    7.4 percen rom December 2007, when he Grea Recession sared, o March 2013,

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    5 Center or American Progress | Economic Snapshot: May 2013

    he las quarer or which daa are available. Tis is

    subsanially less han he average produciviy growh

    o 9.6 percen during he same periods in previous

    business cycles o equal or greaer lengh.17

    12. The outlook for budget deficits improves. Te

    nonparisan Congressional Budge Oce, or CBO,esimaed in May 2013 ha he ederal governmen

    will have a decihe dierence beween axes and

    spendingo 4 percen o GDP or scal year 2013,

    which runs rom Ocober 1, 2012, o Sepember 30,

    2013. Tis deci projecion is down rom 7 percen in

    FY 2012.18 Tis projeced deci or FY 2013 is beter

    han wha CBO prediced in February 2013, when i

    esimaed a deci o 5.3 percen o GDP or FY 2013.

    Tis improvemen ollows larger-han-expeced ax

    collecions, an improving economy, and slower healhcare inaion, among oher acors.19 Te esimaed

    deci or FY 2013 is much smaller han i was in

    previous years due o a number o measures ha poli-

    cymakers have already aken o slow spending growh

    and raise a litle more revenue han was expeced

    jus las year. Te improving scal oulook generaes

    breahing room or policymakers o ocus heir aten-

    ion on long-erm growh and job creaion in addiion

    o long-erm deci reducion.

    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 McCormack Graduae School o

    Policy and Global Sudies a he Universiy o Massachusets Boson. Sam Ungar is a Special

    Assisan a he Cener.

    FIGURE 3

    Congressional Budget Office deficit projections as

    a percent of GDP for FY 2013

    Sources: Congressional Budget Ofce, The Budget and Economic Outlook: Fiscal Years 2013 to

    2023 (2013); Congressional Budget Ofce, Updated Budget Projections: Fiscal Years 2013 to 2023

    (2013).

    0%

    1%

    2%

    3%

    4%

    5%

    6%

    May 2013February 2013

    Date of CBO projection

    PercentofGDP

    5.3% of GDP

    =

    $845 billion

    4% of GDP

    =

    $642 billion

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    6 Center or American Progress | Economic Snapshot: May 2013

    Endnotes

    1 Michael Linden, Its Time to Hit the Reset Button on theFiscal Debate (Washington: Center or American Progress,2013), available at http://ww w.americanprogress.org/is-sues/budget/report/2013/06/06/65497/its-time-to-hit-the-reset-button-on-the-scal-debate/.

    2 Jennier Erickson and Michael Ettlinger, 300 Million Engines

    o Growth (Washington: Center or American Progress,2013), available at http://ww w.americanprogress.org/issues/economy/report/2013/06/13/66204/300-million-engines-o-growth/.

    3 U.S. Bureau o Economic Analysis, National Income andProduct Accounts (U.S. Department o Commerce, 2013).

    4 Employment-growth data are calculated based on U.S.Bureau o Labor Statistics, Current Employment Statistics(U.S. Department o Labor, 2013). The Current EmploymentStatistics are also known as the p ayroll survey.

    5 Unemployment numbers are taken rom U.S. Bureau oLabor Statistics, Current Population Survey (U.S. Depart-ment o Labor, 2013). The Current Population Survey is alsoknown as the household survey.

    6 Bureau o the Census, Income, Poverty, and Health Insur-ance Coverage in the United States: 2011 (U.S. Department

    o Commerce, 2012). This report is occasionally reerred toas the poverty report.

    7 Ibid.

    8 Craig Copeland, Employment-Based Retirement PlanParticipation: Geographic Dierences and Trends, 2011(Washington: Employee Benet Research I nstitute, 2012);Craig Copeland, Employment-Based Retirement PlanParticipation: Geographic Dierences and Trends, 2007(Washington: Employee Benet Research I nstitute, 2008).

    9 Wealth calculations are based on Board o Governors othe Federal Reserve System, Release Z.1 Flow o FundsAccounts o the United States (2013). Real wealth is thenominal wealth deated by the price index or the PersonalConsumption Expenditure Index. The Personal Consump-tion Expenditure Index is rom U.S. Bureau o EconomicAnalysis, National Income and Product Accounts.

    10 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.

    11 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 oCommerce, 2013).

    12 Ibid.

    13 National Association o Realtors, Existing-Home Sales andPrices Continue to Rise in February (2013).

    14 Bureau o the Census, Housing Vacancies and Homeowner-ship (U.S. Department o Commerce, 2013).

    15 Data are taken rom Mortgage Bankers Association, Na-tional Delinquency Survey (2013).

    16 Prot rates are calculated based on data rom Board oGovernors, Federal Reserve System, Release Z.1 Flow oFunds Accounts o the United States. Ination adjustments

    are based on the Personal Consumption Expenditure Indexrom U.S. Bureau o Economic Analysis, National I ncome andProduct Accounts.

    17 Calculations are based on U.S. Bureau o Labor Statistics,Major Sector Productivity and Costs, Nonarm Business Sec-tor, Output per Hour (U.S. Department o Labor, 2013).

    18 Congressional Budget Ofce, Updated Budget Projections:Fiscal Years 2013 to 2023 (2013).

    19 Congressional Budget Ofce, The Budget and EconomicOutlook: Fiscal Years 2012 to 2023 (2013).