economic snapshot: october 2013

7/27/2019 Economic Snapshot: October 2013

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1 Center or American Progress | Economic Snapshot: October 2013

Aer examining economic daa rom he pas ew monhs, here is no doub ha

Congress needs o pay closer atenion o he economy raher han play poliical games

wih he ederal governmens nances. A radical conservaive minoriy in he House

orced a governmen shudown or he rs 16 days in Ocober and creaed remendous

uncerainy in nancial markes by barely avering wha would have been an unprec-edened deaul on governmen deb. Tese manuacured crises cos he economy

desperaely needed jobs, led o rising ineres raes, slowed he housing-marke recovery,

and dampened business invesmen.

Te economic recovery ha sared in June 2009 was already modes beore he govern-

men shudown, and House leaders poliical gamesmanship has slowed progress even

urher. High unemploymen and low wage growh have marked he labor marke or

more han our years. Economic insecuriy has worsened rom cubacks in employer-

sponsored reiremen and healh insurance benes and sharply reduced homeowner-

ship raes. Americas amilies are huring and need heir eleced ocials o pay ateniono heir economic sruggles.

Te good news is ha Congress will have a second chance o realign he ederal govern-

mens nances wih peoples prioriies. Te deal ha reopened he governmen unds

ederal operaions hrough January 15, 2014, and lis he deb ceilinghe amoun he

ederal governmen can borrow wihou congressional approvalhrough February

2014. Congressional leaders need o broker deals on he ederal budge and he deb

ceiling in he nex hree monhs o avoid repeaing his Ocobers disaser. I hey ocus

on economic growh and job creaion, hese deals could srenghen he economy.

o achieve his, Congress mus srike a longer-erm deal ha creaes economic cerainy

and invess in businesses and households. Ta includes inrasrucure invesmens,

more spending on educaion, and beter workorce raining, wrapped up in a budge

ha balances slower spending growh wih enhanced revenues, which can sar o

srenghen economic securiy or millions o amilies. Heres a look a he problems he

congressional deal should address:

Economic Snapshot: October 2013

Christian E. Weller on the State of the EconomyBy Christian E. Weller and Sam Ungar

October 2013


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1. The economy continues to grow slowly. Gross domesic produc, or GDP, increased

in he second quarer o 2013 a an inaion-adjused annual rae o 2.5 percen.

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

ing subsanially grew by 12.5 percen, and business invesmen acceleraed by 4.7

percen. Expors increased by 8 percen in he rs quarer, bu governmen spend-

ing shrank again by 0.4 percen, slowing overall growh.1

Te U.S. economy was 9.2 percen larger in June 2013 han in June 2009 in inaion-

adjused erms, when he recovery ocially sared.2 On average, however, he

economy has expanded by 19.1 percenmore han wice as asduring he rs

our years o a recovery, in recoveries ha lased a leas our years. 3 Fiscal auseriy

abroad and a home is huring economic growh. Policy soluions should hereore

aim o ease he srain o U.S. scal auseriy on he economy and replace across-he-

board spending cus wih a scal policy approach ha can enhance raher han slow

economic growh, while also reducing long-erm decis.

2. The moderate labor-market recovery continuesin its fourth year. Tere were 5.7 million more

jobs in Sepember 2013 han in June 2009.

Te privae secor added 6.4 million jobs dur-

ing his period. Te loss o more han 610,000

sae and local governmen jobs explains he

diference beween he ne gain o all jobs and

he privae-secor gain in his period. Budge

cus reduced he number o eachers, bus

drivers, reghers, and police ocers, among

ohers.4

Job creaion should be a op policyprioriy, 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. Some communities continue to struggle disproportionately from unemploy-

ment.Te unemploymen rae sood a 7.2 percen in Sepember 2013. Te AricanAmerican unemploymen rae was 12.9 percen in Sepember 2013, he Hispanic

unemploymen rae was 9 percen, and he whie unemploymen rae was 6.3

percen. Meanwhile, youh unemploymen sood a 21.4 percen. Te unemploy-

men rae or people wihou a high school diploma icked down o 10.3 percen,

compared o 7.6 percen or hose wih a high school degree, 6 percen or hose

wih some college educaion, and 3.7 percen or hose wih a college degree.5

FIGURE 1

Economic growth over the rst our years o a recovery

120

110

100

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

130

Growthindex(lastquarterofrecession=100)

Number of quarters of economic recovery

Recovery after the Great Recession

March 61

March 75

December 82

March 91

December 01

June 09

Authors calculations based on U.S. Bureau o Economic Analysis, National Income and Product Accounts (U.S.

Department o Commerce, 2013). Calculations only done or recoveries that have lasted at least our years.


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Populaion groups wih higher unemploymen

raes have sruggled disproporionaely more

amid he weak labor marke han whie work-

ers, older workers, and workers wih more

educaion. Policymakers should heed he rec-

ommendaions inAll-In Naiona new book

rom he Cener or American Progress andPolicyLinkon building a srong and diverse

workorce ha draws rom all communiies.6

4. 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 inaion-adjused household income sood a $51,017 in 2012, is loweslevel in inaion-adjused dollars since 1995. And he povery rae remains high, a

15 percen in 2012, as he economic slump coninues o ake a massive oll on he

mos vulnerable ciizens.7

5. Poverty stays high.Te povery rae remained a a 15 percen in 2012, he mosrecen year or which daa are available. Te Arican American povery rae was

27.2 percen, he Hispanic povery rae was 25.6 percen, and he whie povery

rae was 9.7 percen. Te povery rae or children under he age o 18 sood

a 21.8 percen. More han one-hird o Arican American children37.9 per-

cenlived in povery in 2012, compared o 33.8 percen o Hispanic childrenand 12.3 percen o whie children.8 Te prolonged economic slump, ollowing an

excepionally weak labor marke beore he crisis, has aken a massive oll on our

counrys mos vulnerable ciizens.

6. 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.9 Te share o privae-secor work-

ers who paricipaed in a reiremen plan a work ell o 39.2 percen in 2011, down

rom 42 percen in 2007.10 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 diference.

FIGURE 2

September 2013 unemployment rate by race

6.3%

9.0%

12.9%

White

Hispanic

African American

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


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7. Family wealth losses still linger. In June 2013, oal amily wealh was down $1.5

rillion in 2013 dollars rom March 2007, is previous peak. On average, homeown-

ers own only 49.8 percen o heir homescompared o he long-erm average o 61

percen beore he Grea Recessionwih he res owed o banks.11 Homeowners

massive deb slows household-spending growh, as households sill 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.

8. Household debt is still high.Household deb equaled 104.3 percen o aer-axincome in June 2013, down rom a peak o 129.5 percen in December 2007.12

Household deb has hovered around 105 percen o aer-ax income or one year

now. Ta is, he unprecedened deleveragingdeb declinerend ha marked

he Grea Recession has sopped.A 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 economic growh again. Tis would be espe-

cially rue i ineres raes also rise rom hisorically low levels due o a change in he

Federal Reserves policies and crowd ou household spending on oher iems.

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

amouned o an annual rae o 421,000 in Augus 2013a 12.6 percen increase

rom he 374,000 homes sold in Augus 2012 bu well below he hisorical average

o 698,000 homes sold beore he Grea Recession.13 Te median new-home price

in Augus 2013 held seady rom one year earlier.14Exising-home sales were upby 10.7 percen in Sepember 2013 rom one year earlier, and he median price or

exising homes was up by 11.7 percen during he same period.15 Home sales have o

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

in he second quarer o 2013, down rom 68.2 percen beore he recession. Tecurren homeownership raes are similar o hose recorded in 1995, well beore he

mos recen housing bubble sared.16Tough he housing-marke recovery saredlaer han he wider economic recoveryand sared ou a a record lowlaely he

housing marke has been growing rapidly and conribuing a much-needed boos

o 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.

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

pros were 84.5 percen larger in June 2013 han in June 2009, when he economic

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

a 3.2 percen in June 2013, nearing he previous peak aer-ax pro rae o 3.3 per-

cen ha occurred prior o he Grea Recession.17 Bu business invesmen remains

low a he same ime, suggesing ha businesses are hoarding cash and using heir

resources or execuive compensaion and overseas acquisiions insead.


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FIGURE 3

Congressional Budget Ofce decit

projections as a percent o GDP or FY 2013

0%

1%

2%

3%

4%

5%

6%

May 2013February 2013

Date of CBO projection

Percent of GDP

5.3% of GDP

=

$845 billion

4% of GDP

=

$642 billion

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).

11. 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 diference

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 scal year, or FY,

2012.18 Tis projeced deci or FY 2013 is beter han wha CBOprediced in February 2013, when i esimaed a deci o 5.3 per-

cen o GDP or FY 2013. Tis improvemen ollows larger-han-

expeced ax collecions, an improving economy, and slower healh

care 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 policymakers 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 atenion 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

Research Assisan a he Cener.


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Endnotes

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

2 Calculations based on U.S. Bureau o Economic Analysis,National Income and Product Accounts.

3 Ibid.

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 Employment Statis-tics are also known as the payroll survey. More than 9 out o10 positions that have been added since June 2010 have beenull time, which is a positive sign. See Jason Furman and BetseyStevenson, New Data: Most o the Increase in Employmentis in Full-Time Positions Since the Afordable Care Act BecameLaw, Council o Economic Advisers blog, September 6, 2013,available athttp://www.whitehouse.gov/blog/2013/09/06/new-data-most-increase-employment-ull-time-positions-aordable-care-act-became-law.

5 Unemployment numbers are taken rom U.S. Bureau oLabor Statistics, Current Population Survey (U.S. Departmento Labor, 2013). The Current Population Survey is also knownas the household survey.

6 Crdenas and Treuhat, eds.,All-In Nation.

7 Bureau o the Census, Income, Poverty, and Health InsuranceCoverage in the United States: 2012 (U.S. Department oCommerce, 2013). This report is occasionally reerred to as the

poverty report.

8 Ibid.

9 Ibid.

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

11 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.

12 Ibid.

13 The historical average reers to the average annualizedmonthly residential sales rom January 1963, when the Cen-sus data start, to December 2007, when the Great Recessionstarted. Calculations are based on Bu reau o the Census,New Residential Sales Historical Data (U.S. Department oCommerce, 2013).

14 Ibid.

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

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

17 Prot rates are calculated based on data rom Board o Gov-ernors o the Federal Reserve System, Release Z.1 Flow o

Funds Accounts o the United States. Ination adjustmentsare based on the Personal Consumption Expenditure Indexrom U.S. Bureau o Economic Analysis, National Income andProduct Accounts.

18 Congressional Budget Ofce, An Update to the Budget andEconomic Outlook: Fiscal Years 2013 to 2023 (2013).

19 Congressional Budget Ofce, The Budget and EconomicOutlook: Fiscal Years 2012 to 2023 (2013).
http://www.whitehouse.gov/blog/2013/09/06/new-data-most-increase-employment-full-time-positions-affordable-care-act-became-lawhttp://www.whitehouse.gov/blog/2013/09/06/new-data-most-increase-employment-full-time-positions-affordable-care-act-became-lawhttp://www.whitehouse.gov/blog/2013/09/06/new-data-most-increase-employment-full-time-positions-affordable-care-act-became-lawhttp://www.whitehouse.gov/blog/2013/09/06/new-data-most-increase-employment-full-time-positions-affordable-care-act-became-lawhttp://www.whitehouse.gov/blog/2013/09/06/new-data-most-increase-employment-full-time-positions-affordable-care-act-became-lawhttp://www.whitehouse.gov/blog/2013/09/06/new-data-most-increase-employment-full-time-positions-affordable-care-act-became-lawhttp://www.whitehouse.gov/blog/2013/09/06/new-data-most-increase-employment-full-time-positions-affordable-care-act-became-law

economic snapshot: october 2013

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