economic snapshot: june 2014

Upload: center-for-american-progress

Post on 03-Jun-2018

213 views

Category:

Documents


0 download

TRANSCRIPT

  • 8/12/2019 Economic Snapshot: June 2014

    1/7

    1 Center for American Progress | Economic Snapshot: June 2014

    Economic Snapshot: June 2014

    Christian E. Weller on the State of the Economy

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

    I has been exacly five years his June since he Grea Recession ended and he eco-

    nomic recovery officially began. Bu calling he slow pace o economic growh and

    anemic job creaion a recoverywhile echnically correcseems callous in he ace o

    he many financial hardships millions o middle-class Americans sill ace. Many suffer

    rom he economic and menal allou o unemploymen, ofen or long periods o ime.Povery is consequenly widespread and incomes are basically fla, while employers are

    cuting back on healh insurance and pension benefis, which will leave households even

    more financially vulnerable in he uure. Bu he pas five years have been lucraive or

    he lucky ew a he op, as profis and he sock marke have gone gangbusers, raising

    income inequaliy o new heighs.

    Unsurprisingly, poliicians are no popping he champagne corks o celebrae he five-

    year anniversary o he end o he Grea Recession. Many o hem, paricularly ruculen

    conservaives ben on opposing Presiden Barack Obamas policies a all coss, know

    ha hey prioriized scoring cheap poliical poins over helping American amilies. Teiniial simulus, he American Recovery and Reinvesmen Ac o 2009, did exacly wha

    i was mean o do: I kep he economy rom sliding ino anoher Grea Depression,

    bringing back economic growh and sopping he unemploymen rae rom rising. Bu

    conservaives ried o brand i as a ailure and, raher han building on his early suc-

    cess, ocused on undoing i hrough a series o cus o criical public programssuch

    as he Supplemenal Nuriion Assisance Program, or SNAP, ormerly known as ood

    sampsha direcly hur amilies and economic growh. Deea o heir poliical

    opponens became he rallying cry or hese poliicians, even as i came a he cos o

    lingering high unemploymen and widespread financial hardships. Conservaive law-

    makers need o own up o heir ailure o producively engage in designing, never mind

    passing, policies ha could have helped bring abou sronger economic and job growh

    and more economic securiy or American amilies.

  • 8/12/2019 Economic Snapshot: June 2014

    2/7

    2 Center for American Progress | Economic Snapshot: June 2014

    Conservaive lawmakers have a chance o re-engage in helping American amilies.

    Tey should sop wasing heir ime rying o undo he Affordable Care Ac, or ACA,

    which has already helped millions o amilies gain real economic securiy by elimina-

    ing lieime healh insurance limis, slowing he growh o healh insurance coss, and

    expanding healh insurance coverage o millions o people who did no have i beore.

    Insead, hey should ocus heir energy on biparisan policies ha can proec socieys

    mos vulnerable members, such as raising he minimum wage; exending emergencyunemploymen insurance benefis; puting Social Securiy Disabiliy Insurance on a

    long-erm, solid ooing; and passing policies ha can boos economic growh, such as

    inrasrucure invesmens in roads, bridges, and schools.

    American middle-class amilies deserve a Congress ha akes heir sruggles seriously

    no a Congress ha is sill working or he lucky ew insead o or he middle class five

    years afer he end o he Grea Recession.

    1. Economic growth lags behind similar points in prior business cycles. Gross domes-

    ic produc, or GDP, ell sharply in he firs quarer o 2014 a an inflaion-adjusedannual rae o 2.9 percen. Domesic consumpion increased by an annual rae o 1

    percen, and housing spending subsanially shrank by 4.2 percen, while business

    invesmen growh ell a a rae o 1.2 percen. Expors decreased by 8.9 percen in

    he firs quarer, and governmen spending increased by 0.6 percen.1Te economy

    expanded by 11 percen rom June 2009 o March 2014is slowes expansion dur-

    ing recoveries o a leas equal lengh.2Policymakers 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 inra-

    srucure and educaion o overcome lackluser

    privae business invesmens.

    2. Improvements to U.S. competitiveness lag

    behind previous business cycles.Produciviygrowh, 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 he

    Grea Recession.3Tis compares o an average o

    12.4 percen during all previous recoveries o a

    FIGURE 1

    GDP growth in recovery in comparisonto previous recoveries

    90

    120

    125

    130

    115

    110

    105

    100

    95

    2 4 6 8 10 12 14 16 18 20

    Growth

    index(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.

  • 8/12/2019 Economic Snapshot: June 2014

    3/7

    3 Center for American Progress | Economic Snapshot: June 2014

    leas equal lengh.4No previous recovery had lower produciviy growh han he cur-

    ren one, and policymakers need o srenghen educaion, research and developmen,

    and inrasrucure invesmens as imporan firs seps o lay a oundaion or aser

    uure produciviy growh.

    3. The housing market continues to recover from historic lows. New-home salesamouned o an annual rae o 504,000 in May 2014a 16.9 percen increase romhe 431,000 homes sold in May 2013 bu well below he hisorical average o 698,000

    homes sold beore he Grea Recession.5Te median new-home price in May 2014

    was $282,800, up rom one year earlier.6Exising-home sales were down by 6.8 per-cen in April 2014 rom one year earlier, bu he median price or exising homes was

    up by 5.2 percen during he same period.7Home sales have o go a lo urher, given

    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.8A srong housing-marke recovery can boos economic growh, andhere is sill pleny o room or he housing marke o provide more simulaion o heeconomy more broadly han i did beore he recen slowdown. Te fledgling hous-

    ing recovery could regain is srengh i policymakers suppor policies ha encourage

    aser 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 BudgeOffice, or CBO, esimaed in April 2014 ha he ederal governmen will have a

    deficihe difference beween axes and spendingo 2.8 percen o GDP or fiscal

    year 2014, which runs rom Ocober 1, 2013, o Sepember 30, 2014.9Tis defici

    projecion is down rom 4.1 percen in FY 2013.10

    Tis projeced defici or FY 2014is slighly beter han wha CBO prediced in February 2014, when i esimaed a

    defici o 3 percen o GDP or FY 2014.11Te esimaed defici or FY 2014 is much

    smaller 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.12Te 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 7.5 million more jobs in May 2014 han in June 2009. Te privae

    secor added 8.2 million jobs during his period. Te loss o some 598,000 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.13Te oal number o jobs has

  • 8/12/2019 Economic Snapshot: June 2014

    4/7

    4 Center for American Progress | Economic Snapshot: June 2014

    now grown by 5.7 percen during his recovery,

    compared wih an average o 11.6 percen dur-

    ing all prior recoveries o a leas equal lengh.14

    Alhough employmen has finally reached is

    prerecession peak, policymakers need o do

    much more o creae jobs as Millennialshose

    born beween 1980 and 2000 and currenly helarges generaion o Americansbegin o reach

    working age.

    6. Employment opportunities grow very slowly

    for people in their prime earning years. Teemployed share o he populaion rom ages 25

    o 54which is unaffeced by he aging o he

    overall populaionwas 76.4 percen in May

    2014. Tis was jus above he level recorded in

    June 2009 and well below he levels recordedsince 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 during previous

    recoveries o a leas equal lengh.15Waiing 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.Te share o people wih employer-spon-

    sored healh insurance dropped rom 59.8 percen in 2007 o 54.9 percen in 2012,he mos recen year or which daa are available.16Te 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 2007.17Families now have less economic securiy han in he pas

    due o ewer employmen-based benefis, which requires hem o have more privae

    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 2008.18Moreover, 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.19

    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).

  • 8/12/2019 Economic Snapshot: June 2014

    5/7

    5 Center for American Progress | Economic Snapshot: June 2014

    8. Some communities continue to struggle

    disproportionately from unemployment. Te

    unemploymen rae remained seady a 6.3

    percen in May 2014: Te Arican American

    unemploymen rae was 11.5 percen; he

    Hispanic unemploymen rae was 7.7 percen;

    and he whie unemploymen rae was 5.4 per-cen. Meanwhile, youh unemploymen sood a

    19.2 percen. Te unemploymen rae or people

    wihou a high school diploma icked up o 9.1

    percen, compared wih 6.5 percen or hose

    wih a high school degree, 5.5 percen or hose

    wih some college educaion, and 3.2 percen or

    hose wih a college degree.20Populaion groups

    wih higher unemploymen raes have sruggled

    disproporionaely more amid he weak labor

    marke han whie workers, older workers, andworkers wih more educaion. argeed policy

    inervenions such as exended unemploymen

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

    as sruggling youh and communiies o color.

    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 larges gap beween he

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

    ues o ake a massive oll on he mos vulnerable ciizens.21Higher minimum wages,

    an improved Earned Income ax Credi 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 1979.22Corporae 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.

    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).

  • 8/12/2019 Economic Snapshot: June 2014

    6/7

    6 Center for American Progress | Economic Snapshot: June 2014

    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.23In 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 December1969. 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.

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

    mos recen year or which daa are availablewhich is an increase o 0.7 percenagepoins 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 was 9.7 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 per-

    cen o Hispanic children and 12.3 percen o whie children.24Srenghening 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 pov-ery 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. 25A

    reurn 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 evenually slow eco-

    nomic growh again. Tis would be especially rue i ineres raes also rise rom hisori-

    cally 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 creaing 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

    Special Assisan for he Economic Policy eam a he Cener.

  • 8/12/2019 Economic Snapshot: June 2014

    7/7

    7 Center for American Progress | Economic Snapshot: June 2014

    Endnotes

    1 Bureau of Economic Analysis, National Income and ProductAccounts(U.S. Department of Commerce, 2014).

    2 Ibid.

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

    Labor, 2014).

    4 Ibid.

    5 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. Depart-ment of Commerce, 2014).

    6 Ibid.

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

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

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

    10 Ibid.

    11 Ibid.

    12 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.

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

    14 Ibid.

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

    16 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 the

    poverty report.

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

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

    19 Ibid.

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

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

    22 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.

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

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

    25 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/45229-UpdatedBudgetProjections_2.pdfhttp://www.cbo.gov/sites/default/files/cbofiles/attachments/45229-UpdatedBudgetProjections_2.pdfhttp://www.cbo.gov/sites/default/files/cbofiles/attachments/45229-UpdatedBudgetProjections_2.pdfhttp://www.cbpp.org/cms/?fa=view&id=4106http://www.cbpp.org/cms/?fa=view&id=4106http://www.gallup.com/poll/168821/uninsured-rate-drops.aspxhttp://www.gallup.com/poll/168821/uninsured-rate-drops.aspxhttp://www.gallup.com/poll/168821/uninsured-rate-drops.aspxhttp://www.gallup.com/poll/168821/uninsured-rate-drops.aspxhttp://www.cbpp.org/cms/?fa=view&id=4106http://www.cbpp.org/cms/?fa=view&id=4106http://www.cbo.gov/sites/default/files/cbofiles/attachments/45229-UpdatedBudgetProjections_2.pdfhttp://www.cbo.gov/sites/default/files/cbofiles/attachments/45229-UpdatedBudgetProjections_2.pdfhttp://www.cbo.gov/sites/default/files/cbofiles/attachments/45229-UpdatedBudgetProjections_2.pdf