economic snapshot: may 2014
TRANSCRIPT
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1 Center for American Progress | Economic Snapshot: May 2014
Economic Snapshot: May 2014
Christian E. Weller on the State of the Economy
By Christian E. Weller and Jackie Odum May 28, 2014
Many middle-class amilies sruggle wih modes job growh, slow income growh, high
povery, and a lack o employer-sponsored benefis, while corporae profis remain high.
Te Unied Saes needs o ake acion and adop policies ha creae economic opporu-
niies or all o become financially secure. Progressive policies such as a higher minimum
wage, exended unemploymen insurance benefis, and affordable healh insurance canconribue o sronger economic and job growh and lead o more and beter economic
opporuniies or millions o middle-class Americans.
Te Affordable Care Ac, or ACA, is jus one example o good policy ha promoes finan-
cial growh and securiy or boh middle-class amilies and our naions economy. Since is
enacmen, he ACA has lowered projeced budge deficis and provided Americans wih
he financial securiy hey need by expanding coverage, providing access o ree prevenive
care, and prevening insurance companies rom charging women more han men.
Te presiden can coninue o ake some small seps oward progressive policies, despiea dysuncional Congress ha is symied by a radical conservaive minoriy inen on
obsrucing popular policies designed o help sruggling American amilies. Such presi-
denial policies include creaing beter jobs or low-wage workers in he ederal govern-
men and among governmen conracors, invesing in job raining and subsidies or
green energy, and promoing responsible conracing by encouraging pay ransparency
and srenghening rules on employer realiaion.
1. Economic growth lags behind similar points in prior business cycles. Gross domes-
ic produc, or GDP, slighly increased in he firs quarer o 2014 a an inflaion-
adjused annual rae o 0.1 percen. Domesic consumpion increased by an annual
rae o 3 percen, and housing spending subsanially shrank by 5.7 percen, while
business invesmen growh ell a a rae o 2.1 percen. Expors decreased by 7.6
percen in he firs quarer, and governmen spending decreased by 0.5 percen.1Te
economy expanded by 11.1 percen rom June 2009 o December 2013is slowes
expansion during recoveries o a leas equal lengh.2Policymakers need o ocus on
srenghening economic growh, e.g. by invesing in inrasrucure and educaion.
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2 Center for American Progress | Economic Snapshot: May 2014
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. U.S. produciviy rose by 7.3
percen rom June 2009 o December 2013, he
firs 18 quarers o he economic recovery sincehe end o he Grea Recession.3Tis compares
o an average o 11.9 percen during all previous
recoveries o a leas equal lengh.4No previous
recovery had lower produciviy growh han
he curren one. Produciviy growh is he main
driving orce behind he counrys abiliy o raise
living sandards. Weaker produciviy growh
han in he pas will make i harder o build a
srong middle class, requiring policymakers
atenion o inves in U.S. compeiiveness.
3. The housing market continues to recover
from historic lows. New-home sales amouned o an annual rae o 433,000 in April
2014a 4.2 percen decrease rom he 452,000 homes sold in April 2013, and well
below he hisorical average o 698,000 homes sold beore he Grea Recession.5
Te median new-home price in April 2014 was $275,800, up rom one year earlier.6Exising-home sales were down by 7.5 percen in March 2014 rom one year ear-
lier, bu he median price or exising homes was up by 7.9 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 percenbeore he recession. Te curren homeownership raes are similar o hose recorded
in 1996, well beore he mos recen housing bubble sared.8Alhough he housing-marke recovery sared laer han he wider economic recoveryand sared ou
a a record lowhe housing marke has laely conribued a much-needed boos
o economic progress. As such, here is si ll pleny o room or he housing marke
o provide more simulaion o he economy more broadly. Te fledgling housing
recovery could gain urher srengh i policymakers suppor economic growh and
job creaion a he same ime.
4. The outlook for budget deficits improves. Te nonparisan Congressional Budge
Office, 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 2013.10Tis projeced defici or FY 2014
is 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
FIGURE 1
GDP growth in recovery in comparison
to previous recoveries
90
120
125
130
115
110
105
100
95
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19
Growthindex(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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FIGURE 2
Employment-to-population ratio
for 2554 year-olds, 19472014
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 atribued o provisions wihin
he ACAhas significanly conribued o heseshrinking defici projecions.12Te improving
fiscal oulook generaes breahing room or poli-
cymakers o ocus heir atenion on argeed,
efficien policies ha promoe long-erm growh,
job creaion, and defici reducion.
5. Moderate labor-market recovery shows less
job growth than in previous business cycles.
Tere were 7.3 million more jobs in April 2014
han in June 2009. Te privae secor added8 million jobs during his period. Te loss o
some 601,000 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 now grown by 5.5 percen during his recovery, compared o an average o 12.7
percen during all prior recoveries o a leas equal lengh.14Tose looking or jobs
sill need assisance such as exended unemploymen insurance benefis.
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 76.5 percen in April 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 3.6 percenage poins a his sage
during previous recoveries o a leas equal lengh.15Specifically, here has been insu-
ficien job growh o creae real economic opporuniies or people in he mids o
heir main earning yearsyears when hey need hose opporuniies he mos.
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 sav-
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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4 Center for American Progress | Economic Snapshot: May 2014
ings 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, uninsuredraes 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
8. Some communities continue to struggle
disproportionately from unemployment. Te
unemploymen rae icked down o 6.3 percenin April 2014: Te Arican American unemploy-
men rae was 11.6 percen; he Hispanic unem-
ploymen rae was 7.3 percen; and he whie unemploymen rae was 5.3 percen.
Meanwhile, youh unemploymen sood a 19.1 percen. Te unemploymen rae or
people wihou a high school diploma icked down o 8.9 percen, compared o 6.3
percen or hose wih a high school degree, 5.7 percen or hose wih some college
educaion, and 3.3 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, and workers wih more educaion.
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 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.21
10. Corporate profits stay elevated near pre-crisis peaks. Inflaion-adjused corporae
profis were 88 percen larger in December 2013 han in June 2009. Te afer-ax
corporae-profi raeprofis o oal assessood a 3.2 percen in December
2013, nearing he previous peak afer-ax profi rae o 3.3 percen ha occurred
prior o he Grea Recession.22Corporae profis recovered quickly during he eco-
nomic recovery, highlighing he biurcaed naure o he economy.
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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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, 98 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, 5.4 percen o all o heir asses in
cashhe highes average share since he business cycle ha ended in December1969. Nonfinancial corporaions spen, on average, 168 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.
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 per-
cenage poins over he hree years o he recovery rom 2009 o 2012. Te povery
rae has allen on average by 0.7 percenage poins in previous recoveries o a leasequal 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 o 33.8 percen o Hispanic children and 12.3 percen o whie children.24
13. Household debt is still high. Household deb equaled 103.8 percen o afer-ax
income in December 2013, down rom a peak o 129.7 percen in December 2007.25
A reurn o deb growh oupacing income growh, which was he case prior o hesar 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.
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.
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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, Existing Home SalesRemain Soft in March, Press release, April 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, Release Z.1 FinancialAccounts of the United States (2014). Inflation adjustments
are based on the Personal Consumption Expenditure Indexfrom Bureau of Economic Analysis, National Income andProduct Accounts.
23 Calculations based on Board of Governors of the Federal Re-serve System, Release Z.1 Financial Accounts of the UnitedStates.
24 Calculations based on Bureau of the Census, Income, Pov-erty, and Health Insurance Coverage in the United States: 2012.
25 Calculations based on Board of Governors of the Federal Re-serve System, Release Z.1 Financial Accounts of the UnitedStates.
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