economic snapshot: june 2015

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1 Center for American Progress | Economic Snapshot: June 2015

Economic Snapshot: June 2015

Christian E. Weller on the State of the U.S. Economy

By Christian E. Weller and Jackie Odum June 30, 2015

Te mos recen economic daa ell an all-oo-amiliar sory. Te good news or mos

American amilies is ha more and more jobs are available; unemploymen is declining;

he economy is growing; household deb has declined rom record highs; and compa-

nies are very profiable.

However, a number o indicaors coninue o show persisen weaknesses ha have

creaed an anemic recovery. Te pace o job growh, or insance, is sill slow; i is being

held back by hings such as lingering job losses in sae and local governmens and

modes overall economic growh. Te pain in he labor marke is hus unevenly el,

wih communiies o color, or insance, seeing much higher unemploymen raes han

whies. Moreover, household deb is sill high and he growh o some orms o deb,

especially suden and car loans, is again oupacing income. Furhermore, companies are

primarily sharing heir profis wih wealhy financial invesors, bu hey are no invesing

in new acories, offices, or ransporaion equipmen, among oher hings. Tese

weaknesses all conribue o rising income inequaliy and prolong a slow-growingeconomy ha has rusraed American amilies looking or real economic securiy.

Policymakers hus need o boos economic growh, help accelerae job growh and

income gains or ypical American amilies, and make sure ha hose hur mos by he

subpar economy see subsanial gains. A wide range o policies are already on he able,

including invesmens in inrasrucure and educaion; an end o ill-advised fiscal

auseriy in he saes; and argeed labor policies such as higher minimum wages, paid

ime off, and easier ways o join a union.

1. Economic growth, while positive, has been lackluster for years. Gross domesic

produc, or GDP, decreased in he firs quarer o 2015 a an inflaion-adjused

annual rae o 0.2 percen, afer an increase o 2.2 percen in he previous quarer.

Domesic consumpion increased by an annual rae o 2.1 percen, and housing

spending rose by 6.5 percen, while business invesmen decreased by 2 percen.

Expors decreased by 5.9 percen in he firs quarer, while impors increased by a

rae o 7.1 percen, resuling in a widening rade defici. Governmen spending


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which is crucial or inrasrucure spending on roads, bridges, and schools, as well as

or public services such as educaion, public saey, and ransporaionconinues

o be a weak spo in he economy, as ederal governmen spending remained

unchanged in he firs quarer and sae and local governmen spending ell urher

by 1 percen.1 Te economy needs o mainain and even accelerae is momenum in

order o creae real economic securiy or America’s amilies. Afer all, he economy

expanded 13.3 percen rom June 2009 o March 2015, ar below he average o 26.9percen during recoveries o a leas equal lengh.2

GDP growth still lags behind historical average

GDP growth path in the first 23 quarters of expansion

FIGURE 1

30%

10%

20%

0%

Average of previous recoveries since 1960

Current economic recovery

Note: The historical averge for the 23rd quarter does not include the 1975 expansion as it only lasted 20 quarters.

Source: Bureau of Economic Analysis

1 3 5 7 9 11 13 15 17 19 21 23

13.3%

26.9%

2. Improvements to U.S. competitiveness fall behind previous business cycles.

Produciviy growh, measured as he increase in inflaion-adjused oupu per hour,

is key o srong economic growh over he longer erm and o increasing living

sandards or American amilies, as i means ha workers are geting beter a doing

more in he same amoun o ime. Slower produciviy growh hus means ha new

economic resources available o improve living sandards and o pay or a wide range

o services, such as he reiremen o Baby Boomers, are growing more slowly han

would be he case wih aser produciviy growh. U.S. produciviy rose 6.1 percen

rom June 2009 o March 2015, he firs 23 quarers o he economic recovery since

he end o he Grea Recession in June 2009.3 Tis compares o an average o 15.9

percen during all previous recoveries o a leas equal lengh.4 No previous recovery

had lower produciviy growh han he curren one. Tis slow produciviy

growhogeher wih high income inequaliyconribues o he widespread

sense o economic insecuriy and slowing economic mobiliy.


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3. The housing market is still only a shadow of its former self. New-home sales

amouned o an annual rae o 546,000 in May 2015a 19.5 percen increase rom

he 457,000 homes sold in May 2014 bu well below he hisorical average o

698,000 homes sold beore he Grea Recession.5 Te median new-home price in

April 2015 was $282,800, up rom one year earlier.6

Exising-home sales increased

by 5.1 percen in May 2015 rom one year earlier, and he median price or exising

homes was up by 7.9 percen during he same period.7 Home sales have a lo urher

o go, given ha homeownership in he Unied Saes sood a 63.7 percen in he

firs quarer o 2015, down rom 68.2 percen beore he sar o he recession a he

end o 2007. Te curren homeownership raes are similar o hose recorded in1996, well beore he mos recen housing bubble sared.8

A srong housing-marke

recovery can boos economic growh, and here 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.

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

Budge Office, or CBO, esimaed in March 2015 ha he ederal governmen will

have a deficihe difference beween axes and spendingo 2.7 percen o

GDP or fiscal year 2015, which runs rom Ocober 1, 2014, o Sepember 30,

2015.9 Tis defici projecion is slighly down rom he defici o 2.8 percen o

GDP or FY 2014.10 Te esimaed defici or FY 2015 is much smaller han

deficis in previous years due o a number o measures ha policymakers have

already aken in order o slow spending growh and raise more revenue han was

expeced jus las year. Te improving fiscal oulook should generae breahing

room or policymakers o ocus heir atenion on argeed, efficien policies ha

promoe long-erm growh and job creaion, especially or hose groups dispro-

porionaely impaced by high unemploymen.

Productivity growth in recovery compared with previous recessions

Percentage of growth during first 23 quarters

FIGURE 2

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, Current

Employment Statistics (U.S. Department of Labor, 2014).

1 3 5 7 9 11 13 15 17 19 21 23

6.1%

15.9%


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5. Moderate labor-market gains follow in part from modest economic growth.

Tere were 10.7 million more jobs in May 2015 han in June 2009. Te privae

secor added 11.4 million jobs during his period. Te loss o some 559,000 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.11 Te oal

number o jobs has now grown by 8.2 percen during his recovery, compared o anaverage o 14.8 percen during all prior recoveries o a leas equal lengh.12 Faser

economic growh is necessary o generae more labor-marke momenum and more

well-paying jobs or American amilies.

Employment growth falls behind historical average

FIGURE 3

7 14 21 28 35 42 49 56 63 70

Source: Bureau of Labor Statistics.

-5%

0%

5%

10%

15%

Month

Historical average

Current recovery

8.2%

14.8%

6. Employers cut back on health and pension benefits. Te share o people wih

employer-sponsored healh insurance dropped rom 59.8 percen in 2007 o 53.9

percen in 2013, he mos recen year or which daa are available.13 Te share o

privae-secor workers who paricipaed in a reiremen plan a work ell o 40.8

percen in 2013, down rom 41.5 percen in 2007.14 Families now have less economic

securiy han hey did in he pas due o ewer employmen-based benefis, no jus

because o modes job and wage gains.

7. Some communities continue to struggle disproportionately from unemploy-

ment.

Te unemploymen rae was 5.5 percen in May 2015. Te Arican American

unemploymen rae rose o 10.2 percen, he Hispanic unemploymen rae ell

slighly o 6.7 percen, and he whie unemploymen rae remained a 4.7 percen or

he ourh consecuive monh. Meanwhile, youh unemploymen increased o 17.9

percen. Te unemploymen rae or people wihou a high school diploma sood a

8.6 percen, compared wih 5.8 percen or hose wih a high school degree, 4.4


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percen or hose wih some college educaion, and 2.7 percen or hose wih a

college degree.15 Populaion groups wih higher unemploymen raes have sruggled

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

workers, and workers wih more educaion.

8. The rich continue to pull away from most Americans. Incomes o households a he

95h percenilehose wih incomes o $196,000 in 2013, he mos recen year or which daa are availablewere more han nine imes he incomes o households in

he 20h percenile, whose incomes were $20,900. 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 records in 1967. Median inflaion-adjused household income sood

a $51,939 in 2013, is lowes level in inflaion-adjused dollars since 1995.16

9. Corporate profits stay elevated near pre-crisis peaks. Inflaion-adjused corporae

profis were 119.2 percen larger in March 2015 han in June 2009. Te afer-ax

corporae profi raeprofis o oal assessood a 3.18 percen in March 2015.17

Corporae profis recovered quickly oward he end o he Grea Recession and havesayed high since hen. Tese gains have ranslaed ino disproporionae income

gains rom financial invesmens or wealhy households, conribuing o he massive

income inequaliy ha has characerized he economy or he pas ew decades. ax

reorm is a crucial policy prioriy o address income inequaliy ha arises rom he

rich receiving ousized benefis rom heir wealh, especially in he orm o capial

income rom heir financial invesmens.

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

Source: Profit rates are calculated based on data from Board of Governors of the Federal Reserve System, “Z.1 Release—Financial Accounts of

the United States” (2014). Inflation 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

Corporate profits stay elevated near prerecession peaks

After-tax corporate profit rate

FIGURE 4

2.51%

Dec.2007

3.18%

Mar.2015


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

December 2007when he Grea Recession saredo March 2015, nonfinancial

corporaions spen, on average, 92 percen o heir afer-ax profis on dividend

payous and share repurchases.18 In shor, almos all o nonfinancial corporae

afer-ax profis have gone o keeping shareholders happy during he curren busi-

ness cycle. Nonfinancial corporaions also held, on average, 5.3 percen o all o heir

asses in cash. Nonfinancial corporaions spen, on average, 163.3 percen o heirafer-ax profis on capial expendiures or invesmensby selling oher asses and

by borrowing. Tis was he lowes raio since he business cycle ha ended in 1957.

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,

manuacuring plans and equipmen, and workorce developmen.

FIGURE 5

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

Average share of after-tax profits

Source: Average of dividend and share repurchases as a share of after-tax profits are calculated based on data from Board of Governors of the

Federal Reserve System, “Z.1 Release—Financial Accounts of the United States” (2014). Inflation 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).

Sept.

1953

Dec.

1957

Sept.

1960

March

1970

Dec.

1973

Dec.

1990

June

2001

March

2008

Sept.

1980

20.2%33.9%29.4% 23.7% 106.0% 92.0%38.2% 96.5% 92.1%

11. Poverty is still widespread. Te povery rae was 14.5 percen in 2013, down rom

15 percen in 2012. Tis change, however, was saisically insignifican. Moreover,

he povery rae or his recovery increased a a rae o 0.2 percenage poins,

compared o an average decrease o 0.7 percenage poins in previous recoveries o

a leas equal lengh. Some populaion groups suffer rom much higher povery

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

percen, and he Hispanic povery rae was 23.5 percen, while he whie povery

rae was 9.6 percen. Te povery rae or children under age 18 ell o 19.9 percen.

More han one-hird o Arican American children37.7 percenlived in

povery in 2013, compared wih 30.4 percen o Hispanic children and 10.7 percen

o whie children.19

12. Household debt is still high. Household deb equaled 102 percen o afer-ax

income in March 2015, down rom a peak o 129.7 percen in December 2007.20 Bu

nonrevolving consumer crediypically insallmen credi such as suden and car

loanshas oupaced afer-ax income growh. I has grown rom 14.5 percen o


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afer-ax income in June 2009 o 18.4 percen in March 2015. Tis is he highes

share o such deb o afer-ax income on record, daing back o 1968.21 A reurn o

deb growh oupacing income growhwhich was he case or oal deb prior o

he sar o he Grea Recessionrom already-high deb levels could evenually

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 Reserve’s policies.

Consumers would have o pay more or heir deb, and hey would have less moneyavailable or consumpion and saving, slowing economic growh and job creaion.

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 Bureau of Economic Analysis, “National Income and ProductAccounts: Gross Domestic Product: First Quarter 2015(Advance Estimate),” Press release, April 29, 2015, availableat http://www.bea.gov/newsreleases/national/gdp/2015/gdp1q15_adv.htm.

2 Calculations are based on Bureau of Economic Analysis, RealGross Domestic Product, Chained Dollars (U.S. Department of

Commerce, 2015).

3 Calculations are based on productivity growth (output perhour) for nonfarm businesses from Bureau of LaborStatistics, Current Employment Statistics (U.S. Department ofLabor, 2015).

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.Department of Commerce, 2015).

6 Ibid.

7 National Association of Realtors, “Existing-Home SalesBounce Back Strongly in May as First-time Buyers Return,”

Press release, June 22, 2015, available at http://www.realtor.org/news-releases/2015/06/existing-home-sales-bounce-back-strongly-in-may-as-first-time-buyers-return.

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

9 Congressional Budget Office, “Updated Budget Projections:2015 to 2025” (2015), available at http://www.cbo.gov/sites/default/files/cbofiles/attachments/49973-UpdatedBudget-Projections.pdf .

10 Ibid.

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

12 Ibid.

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

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

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

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

17 Profit rates are calculated based on data from Board ofGovernors of the Federal Reserve System, “Z.1 Release--Financial Accounts of the United States” (2015). Inflationadjustments are based on the Personal ConsumptionExpenditure Index from Bureau of Economic Analysis,National Income and Product Accounts.

18 Calculations are based on Board of Governors of the Federal

Reserve System, “Z.1 Release--Financial Accounts of theUnited States.”

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

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

21 Board of Governors of the Federal Reserve System, “Z.1Release--Financial Accounts of the United States.”
http://www.bea.gov/newsreleases/national/gdp/2015/gdp1q15_adv.htmhttp://www.bea.gov/newsreleases/national/gdp/2015/gdp1q15_adv.htmhttp://www.realtor.org/news-releases/2015/06/existing-home-sales-bounce-back-strongly-in-may-as-first-time-buyers-returnhttp://www.realtor.org/news-releases/2015/06/existing-home-sales-bounce-back-strongly-in-may-as-first-time-buyers-returnhttp://www.realtor.org/news-releases/2015/06/existing-home-sales-bounce-back-strongly-in-may-as-first-time-buyers-returnhttp://www.cbo.gov/sites/default/files/cbofiles/attachments/49973-UpdatedBudgetProjections.pdfhttp://www.cbo.gov/sites/default/files/cbofiles/attachments/49973-UpdatedBudgetProjections.pdfhttp://www.cbo.gov/sites/default/files/cbofiles/attachments/49973-UpdatedBudgetProjections.pdfhttp://www.cbo.gov/sites/default/files/cbofiles/attachments/49973-UpdatedBudgetProjections.pdfhttp://www.cbo.gov/sites/default/files/cbofiles/attachments/49973-UpdatedBudgetProjections.pdfhttp://www.cbo.gov/sites/default/files/cbofiles/attachments/49973-UpdatedBudgetProjections.pdfhttp://www.realtor.org/news-releases/2015/06/existing-home-sales-bounce-back-strongly-in-may-as-first-time-buyers-returnhttp://www.realtor.org/news-releases/2015/06/existing-home-sales-bounce-back-strongly-in-may-as-first-time-buyers-returnhttp://www.realtor.org/news-releases/2015/06/existing-home-sales-bounce-back-strongly-in-may-as-first-time-buyers-returnhttp://www.bea.gov/newsreleases/national/gdp/2015/gdp1q15_adv.htmhttp://www.bea.gov/newsreleases/national/gdp/2015/gdp1q15_adv.htm

economic snapshot: june 2015

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