economic snapshot: may 2015: christian e. weller on the state of the u.s. economy

8/9/2019 Economic Snapshot: May 2015: Christian E. Weller on the State of the U.S. Economy

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1 Center for American Progress | Economic Snapshot: May 2015

Economic Snapshot: May 2015

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

By Christian E. Weller and Jackie Odum May 29, 2015

Te U.S. economy and he labor marke remain in desperae need o public policy

atenion. Te economy has been growing slowly or almos six years, bu Americans

sill eel economically insecure. Tis is no surprise, as job growh has been modes and

inequaliy and povery have remained high, while employers have cu back on crucial

reiremen and healh benefis.

Policymakers can and should do more o creae an environmen in which Americans

eel ha he economy is working or all, no jus or he lucky ew. Policymakers need o

srenghen economic growh by boosing inrasrucure invesmens in roads, bridges,

and schools; making sure ha job growh coninues o increase by, or insance, aban-

doning ill-advised auseriy measures a all levels o governmen; raising he minimum

wage o make sure ha hose who have a job can acually make a living; making i easier

or people o join a union; enacing paid amily leave policies; and argeing more policy

effors a he mos economically vulnerable, such as single mohers, communiies o

color, and hose wih less educaion. I is clear ha economic securiy will no happen wih wishul hinking or even wih sronger economic growh alone. Policymakers need

o build on he progressive successes o he recen pas in order o make growh a realiy

or mos American amilies.

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 0.7 percen, afer an increase o 2.2 percen in he previous quarer.

Domesic consumpion increased by an annual rae o 1.8 percen, and housing

spending rose by 5 percen, while business invesmen decreased by 2.8 percen.

Expors decreased by 7.6 percen in he firs quarer, while impors increased by a

rae o 5.6 percen, resuling in a widening rade defici. Governmen spending

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 increased by only

0.1 percen, and sae and local governmen spending ell urher by 1.8 percen.1

Te economy needs o mainain and even accelerae is momenum in order o


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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 26.9 percen

during recoveries o a leas equal lengh.2

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 livingsandards 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 6.5 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 widespreadsense o economic insecuriy and slowing economic mobiliy.

FIGURE 1

Productivity growth in recovery compared with previous recessions

Percentage of growth during first 23 quarters

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 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 2322

6.5%

15.9%

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

amouned o an annual rae o 517,000 in April 2015a 26.1 percen increase rom

he 410,000 homes sold in April 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 $297,300, up rom one year earlier.6 Exising-home sales declined by

3.3 percen in April 2015 rom one year earlier, and he median price or exising

homes was up by 8.9 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


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end o 2007. Te curren homeownership raes are similar o hose recorded in

1996, 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 BudgeOffice, 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 disproporionaely impaced by high unemploymen.

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

Tere were 10.4 million more jobs in April 2015 han in June 2009. Te privae

secor added 11 million jobs during his period. Te loss o some 587,000 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 percen during his recovery, compared o an average o 14.5

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 jobsor American amilies.

FIGURE 2

Employment growth falls behind historical average

Source: Bureau of Labor Statistics.

-5%

0%

5%

10%

15%

Month

Historical average

Current recovery

14.3%

7.8%

3 6 9 12 15 18 21 24 27 30 33 36 39 42 45 48 51 54 57 60 63 66 69


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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 5.4 percen in April 2015. Te Arican American

unemploymen rae ell o 9.6 percen, he Hispanic unemploymen rae rose slighly

o 6.9 percen, and he whie unemploymen rae remained consan a 4.7 percen.

Meanwhile, youh unemploymen decreased o 17.1 percen. Te unemploymen rae

or people wihou a high school diploma sood a 8.6 percen, compared wih 5.4

percen or hose wih a high school degree, 4.7 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 weaklabor marke han whie workers, older workers, and workers wih more educaion.

FIGURE 3

April 2015 unemployment rate by race

Source: Bureau of Labor Statistics, Current Population Survey (U.S. Department of Labor, 2015).

White 4.7%

6.9%

9.6%

Hispanic

African American

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 102.7 percen larger in December 2014 han in June 2009. Te afer-ax

corporae profi raeprofis o oal assessood a 3 percen in December

2014.17 Corporae profis recovered quickly oward he end o he Grea Recession

and have sayed high since hen. 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.


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

December 2007when he Grea Recession saredo December 2014, nonfi-

nancial corporaions spen, on average, 97.8 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 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 December 1969. Nonfinancial corporaions spen, on average, 168.7percen o heir afer-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 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, manuacuring plans and equipmen, and workorce developmen.

FIGURE 4

Corporate profits stay elevated near prerecession peaks

After-tax corporate profit rate

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 theUnited 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

3.02%

2.51%

Dec.2007

Dec2014

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% 106.2% 93.3%38.2% 96.5% 92.1%


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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, com-

pared 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 102.5 percen o afer-ax

income in December 2014, 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 14.6 percen o

afer-ax income in June 2009 o 18.4 percen in December 2014. A reurn o deb

growh oupacing income growhwhich was he case or oal deb prior o hesar 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 money available 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 Sales LoseMomentum in April,” Press release, May 21, 2015, available

at http://www.realtor.org/news-releases/2015/05/existing-home-sales-lose-momentum-in-april.

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.”
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/2015/05/existing-home-sales-lose-momentum-in-aprilhttp://www.realtor.org/news-releases/2015/05/existing-home-sales-lose-momentum-in-aprilhttp://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/2015/05/existing-home-sales-lose-momentum-in-aprilhttp://www.realtor.org/news-releases/2015/05/existing-home-sales-lose-momentum-in-aprilhttp://www.bea.gov/newsreleases/national/gdp/2015/gdp1q15_adv.htmhttp://www.bea.gov/newsreleases/national/gdp/2015/gdp1q15_adv.htm

economic snapshot: may 2015: christian e. weller on the state of the u.s. economy

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