economic snapshot: august 2014

8/11/2019 Economic Snapshot: August 2014

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1 Center for American Progress | Economic Snapshot: August 2014

Economic Snapshot: August 2014Christian E. Weller on the State of the EconomyBy Christian E. Weller and Jackie Odum August 26, 2014

Labor Day celebra es one o our coun rys grea es atribu es: he American worker. As he U.S. Depar men o Labor says, I cons i u es a yearly na ional ribu e o hecon ribu ions workers have made o he s reng h, prosperi y, and well-being o ourcoun ry.1 Despi e slow bu modes gains, his mon hs economic da a show ha our

curren economy is s ill no working or American workers. Wages are s agnan , long-erm unemploymen is s ill high by his orical s andards, and pover y con inues o be

widespread. A he same ime, ve years afer he end o he Grea Recession, he very weal hy have seen subs an ial income gains due o a prolonged s ock marke rally builon high corpora e pro s ha skyrocke ed in he middle o he recession. While hena ions weal hies reap he bene s, Americas working class is lef behind and aceremendous economic insecuri y.

Our policies need o reec he idea ha wi h hard work comes economic securi yand oppor uni y. Policymakers need o implemen policies ha promo e inclusive

prosperi y and economic mobili y or all working amilies. Already, he presidenhas aken s eps o help workers. Trough a series o execu ive ac ions, he has pro-mo ed responsible con rac ing by encouraging pay ransparency, en orcing disclosurerequiremen s ha incen ivize compliance wi h wage and workplace sa e y laws, ands reng hening rules on employer re alia ion. Ye hese are only small vic ories in hegh o address a much larger problem.

As we approach he nex legisla ive session, Congress needs o re ocus i s effor s onpolicies ha help American workers, such as inves ing in innova ion and in ras ruc ure,expanding over ime righ s, improving workplace exibili y, raising he minimum wage,and providing more oppor uni ies o join unions. Congress needs o con ribu e i s paro building an economy ha works or everyone, no jus he lucky ew.


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1. Despite modest gains, economic growth

continues to lag behind previous recover-

ies. Economic grow h lags behind similar poin sin prior business cycles. Gross domes ic prod-uc , or GDP, increased in he second quar er o2014 a an ina ion-adjus ed annual ra e o 4

percen . Domes ic consump ion increased by anannual ra e o 2.5 percen , and housing spendingrose subs an ially by 9.5 percen , while busi-ness inves men grow h also increased a a ra eo 5.5 percen . Expor s increased by 9.5 percenin he rs quar er, and governmen spending ell by 0.8 percen . Te economy expanded by 10.3percen rom June 2009 o June 2014 i s slow-es expansion during recoveries o a leas equalleng h. Policymakers need o s reng hen grow h,

as he economys momen um is s ill oo lowo end he s ruggles o Americas middle class.Policies could include inves men s in in ras ruc-ure and educa ion o overcome lacklus er pri-

va e business inves men s.

2. Improvements to U.S. competitiveness fallbehind previous business cycles. Produc ivi ygrow h, measured as he increase in ina ion-adjus ed ou pu per hour, is key o increasing

living s andards, as i means ha workers aregeting beter a doing more in he same amouno ime. Slower produc ivi y grow h means hanew economic resources available o improveliving s andards are growing more slowly han would be he case wi h as er produc ivi ygrow h. U.S. produc ivi y rose 6.6 percen rom June 2009 o June 2014, he rs 20 quar erso he economic recovery since he end o heGrea Recession.2 Tis compares o an averageo 13.4 percen during all previous recoverieso a leas equal leng h.3 No previous recoveryhad lower produc ivi y grow h han he currenone, and policymakers need o s reng hen educa ion, research and developmen , andin ras ruc ure inves men s as impor an rs s eps o lay a ounda ion or as er u ureproduc ivi y grow h.

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

G r o w

t h i n d e x

( l a s t q u a r t e r o

f r e c e s s

i o n =

1 0 0 )

Mar 61Mar 75Dec 82

Mar 91Dec 01Jun 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.

FIGURE 2

Productivity growth in recovery compared to previousrecessions

Percentage of growth during first 20 quarters

0%

3%

6%

9%

12%

15%

1 5 10 15 20

Average of previous recoveriesCurrent economic recovery

Source: Calculations are based on productivity growth (output per hour) for nonfarm businesses from Bureauof Labor Statistics, Current Employment Statistics (U.S. Department of Labor, 2014).


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3. The housing market continues to recover from historic lows. New-home salesamoun ed o an annual ra e o 412,000 in July 2014 a 12.3 percen increase romhe 367,000 homes sold in July 2013 bu well below he his orical average o 698,000homes sold be ore he Grea Recession.4 Te median new-home price in July 2014 was $269,800, up rom one year earlier.5 Exis ing-home sales were down by 4.3 per-cen in July 2014 rom one year earlier, bu he median price or exis ing homes was

up by 4.9 percen during he same period.6 Home sales have o go a lo ur her, givenha homeownership in he Uni ed S a es s ood a 64.7 percen in he second quar ero 2014, down rom 68.2 percen be ore he 2007 recession. Te curren homeowner-ship ra es are similar o hose recorded in 1996, well be ore he mos recen housing bubble s ar ed.7 A s rong housing-marke recovery can boos economic grow h, andhere is s ill plen y o room or he housing marke o provide more s imula ion o heeconomy more broadly han i did be ore he recen slowdown. Te edgling hous-ing recovery could regain i s s reng h i policymakers suppor policies ha encourageas er income grow h such as a hike in he minimum wage and have a grea eremphasis on good jobs, such as an expansion o appren iceships.

4. The outlook for federal budgets improves. Te nonpar isan Congressional BudgeOffice, or CBO, es ima ed in July 2014 ha he ederal governmen will have adeci he difference be ween axes and spending o 3 percen o GDP or scal year 2014, which runs rom Oc ober 1, 2013, o Sep ember 30, 2014.8 Tis deciprojec ion is down rom 4.1 percen in FY 2013.9 Tis projec ed deci or FY 2014is sligh ly worse han wha CBO predic ed in March 2014, when i es ima ed a decio 2.8 percen o GDP or FY 2014.10 Te es ima ed deci or FY 2014 is muchsmaller han i was in previous years, due o a number o measures ha policymakershave already aken o slow spending grow h and raise a litle more revenue han was

expec ed jus las year. Te slowdown in heal h care cos s a resul par ially atrib-u ed o provisions wi hin he ACA has signican ly con ribu ed o hese shrink-ing deci projec ions.11 Te improving scal ou look genera es brea hing room orpolicymakers o ocus heir aten ion on arge ed, efficien policies ha promo e long-erm grow h and job crea ion as well as deci reduc ion.

5. Moderate labor-market recovery shows less job growth than in previous businesscycles. Tere were 8.1 million more jobs in July 2014 han in June 2009. Te priva esec or added 8.7 million jobs during his period. Te loss o some 554,000 s a e andlocal governmen jobs explains he difference be ween he ne gain o all jobs and hepriva e-sec or gain in his period. Budge cu s reduced he number o eachers, busdrivers, regh ers, and police officers, among o hers.12 Te o al number o jobs hasnow grown by 6.2 percen during his recovery, compared o an average o 12.3 per-cen during all prior recoveries o a leas equal leng h.13 Al hough employmen hasnally reached i s prerecession peak, policymakers need o do much more o crea e jobs as Millennials hose born roughly be ween 1980 and 2000 and curren ly helarges genera ion o Americans begin o reach working age.


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6. Employment opportunities grow very slowlyfor people in their prime earning years. Teemployed share o he popula ion rom ages 25o 54 which is unaffec ed by he aging o heoverall popula ion was 76.7 percen in July2014. Tis was jus above he level recorded in

June 2009 and well below he levels recordedsince he mid-1980s and be ore he GreaRecession s ar ed in 2007. Te employed shareo he popula ion has, on average, grown by 3.2percen age poin s a his s age during previousrecoveries o a leas equal leng h.14 Wai ing ora heal hy recovery simply is no enough o help workers. Policymakers need o s ep in o gener-a e as er grow h ha can resul in more jobs orall workers.

7. Employer-sponsored benefits disappear. Teshare o people wi h employer-sponsored heal hinsurance dropped rom 59.8 percen in 2007o 54.9 percen in 2012, he mos recen yearor which da a are available.15 Te share o priva e-sec or workers who par icipa edin a re iremen plan a work ell o 39.4 percen in 2012, down rom 41.5 percenin 2007.16 Families now have less economic securi y han in he pas due o eweremploymen -based bene s, which requires hem o have more priva e savings omake up he difference.

8. Some communities continue to struggle disproportionately from unemploy-ment. Te unemploymen ra e rose sligh ly o 6.2 percen in July 2014: Te A rican American unemploymen ra e was 11.4 percen ; he Hispanic unemploymen ra eremained he same a 7.8 percen ; and he whi e unemploymen ra e also held s eadya 5.3 percen . Meanwhile, you h unemploymen ell o 20.2 percen . Te unemploy-men ra e or people wi hou a high school diploma rose o 9.6 percen , compared wi h 6.1 percen or hose wi h a high school degree, 5.3 percen or hose wi h somecollege educa ion, and 3.1 percen or hose wi h a college degree.17 Popula iongroups wi h higher unemploymen ra es have s ruggled dispropor iona ely moreamid he weak labor marke han whi e workers, older workers, and workers wi hmore educa ion. arge ed policy in erven ions such as ex ended unemploymeninsurance bene s would offer much-needed help or some popula ion groups, suchas s ruggling you h and communi ies o color.

FIGURE 3

Employment to population ratio for 25- to 54-year-olds,19472014

60%

80%

65%

70%

75%

85%

S h a r e o

f p o p u

l a t i o n

( i n

p e r c e n

t )

1 9 4 8 1 9 5 4 1 9 6 0 1 9 6 5 1 9 7 1 1 9 7 7 1 9 8 3 1 9 8 9 1 9 9 6 2 0 0 2 2 0 0 8 2 0 1 4

Source: Bureau of Labor Statistics, Current Population Survey (U.S. Department of Labor, 2014).


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9. The rich continue to pull away from most Americans. Incomes o households inhe 95 h percen ile hose wi h incomes o $191,000 in 2012, he mos recen yearor which da a are available were more han nine imes he incomes o house-holds in he 20 h percen ile, whose incomes were $20,599. Tis is he larges gap be ween he op 5 percen and he botom 20 percen o households since he U.S.Census Bureau s ar ed keeping records in 1967. Median ina ion-adjus ed house-

hold income s ood a $51,017 in 2012, i s lowes level in ina ion-adjus ed dollarssince 1995. And he pover y ra e remains high a 15 percen in 2012 as heeconomic slump con inues o ake a massive oll on he mos vulnerable ci izens.18 Higher minimum wages, an improved Earned Income ax Credi and he closureo ax loopholes or he rich would be cri ical rs s eps or policymakers o addressincome inequali y.

10. Corporate profits stay elevated near precrisis peaks. Ina ion-adjus ed corpo-ra e pro s were 100 percen larger in March 2014 han in June 2009. Te afer- axcorpora e pro ra e pro s o o al asse s s ood a 3.4 percen in March 2014

higher han any pro ra e recorded since Sep ember 1979.19

Corpora e pro srecovered quickly oward he end o he Grea Recession and have s ayed high sincehen. Addressing income inequali y ha arises rom he rich receiving ou sized ben-e s rom heir weal h hrough ax re orm is a crucial policy priori y.

11. Corporations spend much of their money to keep shareholders happy. FromDecember 2007 when he Grea Recession s ar ed o December 2013, non-nancial corpora ions spen , on average, 97 percen o heir afer- ax pro s on divi-dend payou s and share repurchases.20 In shor , almos all o nonnancial corpora eafer- ax pro s wen o keep shareholders happy during he curren business cycle.

Nonnancial corpora ions also held, on average, 5.3 percen o all o heir asse s incash he highes average share since he business cycle ha ended in December1969. Nonnancial corpora ions spen , on average, 167 percen o heir afer- axpro s on capi al expendi ures or inves men s by selling o her asse s and by bor-rowing. Tis was he lowes ra io since he business cycle ha ended in 1960. U.S.corpora ions have priori ized keeping shareholders happy and building up cashover inves men s in s ruc ures and equipmen , highligh ing he need or regula oryre orm ha incen ivizes corpora ions o inves in research and developmen , manu-ac uring plan s and equipmen , and work orce developmen .

12. Poverty is still widespread. Te pover y ra e remained a a 15 percen in 2012he mos recen year or which da a are available which is an increase o 0.7percen age poin s over he hree years o he recovery, 2009 o 2012. Te pover yra e has allen, on average, by 0.7 percen age poin s in previous recoveries o a leasequal leng h. Moreover, some popula ion groups suffer rom much higher pover yra e han o hers. Te A rican American pover y ra e, or ins ance, was 27.2 percen ,and he Hispanic pover y ra e was 25.6 percen , while he whi e pover y ra e was


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9.7 percen . Te pover y ra e or children under age 18 s ood a 21.8 percen . Morehan one- hird o A rican American children 37.9 percen lived in pover y in2012, compared wi h 33.8 percen o Hispanic children and 12.3 percen o whi echildren.21 S reng hening economic securi y by adop ing measures such as heUniversal Savings Credi and he expansion o social sa e y ne programs suchas SNAP and Medicaid can help us reduce pover y and provide oppor uni ies o

Americans who need hem mos .

13. Household debt is still high. Household deb equaled 103.4 percen o afer- axincome in March 2014, down rom a peak o 129.7 percen in December 2007.22 Are urn o deb grow h ou pacing income grow h, which was he case prior o hes ar o he Grea Recession in 2007, rom already-high deb levels could even u-ally slow economic grow h again. Tis would be especially rue i in eres ra es alsorise rom his orically 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 moneyavailable or consump ion and saving. Policymakers should here ore ocus on crea -

ing high-quali y jobs so ha people do no need o borrow as much money as heydid in he pas and on regula ory re orm o help millions o amilies avoid high andde rimen al cos s o credi .

Chris ian E. Weller is a Senior Fellow a he Cen er for American Progress and a professorin he Depar men of Public Policy and Public Affairs a he McCormack Gradua e Schoolof Policy and Global S udies a he Universi y of Massachusets, Bos on. Jackie Odum is aResearch Assis an for he Economic Policy eam a he Cen er.


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Endnotes

1 U.S. Department of Labor, History of Labor Day, availableat http://www.dol.gov/laborday/history.htm (last accessedAugust 2014).

2 Calculations are based on productivity growth (outputper hour) for nonfarm businesses from Bureau of LaborStatistics, Current Employment Statistics (U.S. Department ofLabor, 2014).

3 Ibid.

4 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).

5 Ibid.

6 National Association of Realtors, Existing-Home SalesContinue to Climb in July, Press release, August 21, 2014.

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

8 Congressional Budget Office, Updated Budget Projections:2014 to 2024 (2014), available at http://www.cbo.gov/sites/default/les/cboles/attachments/45229-UpdatedBudget-Projections_2.pdf.

9 Ibid.

10 Ibid.

11 Richard Kogan and William Chen, Projected Ten-YearDecits 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.

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

13 Ibid.

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

15 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 thepoverty report.

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

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

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

19 Prot 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). Ination adjustmentsare based on the Personal Consumption Expenditure Indexfrom Bureau of Economic Analysis,National Income andProduct Accounts .

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

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

22 Calculations are based on Board of Governors of the FederalReserve System, Z.1 Release--Financial Accounts of theUnited States.
http://www.dol.gov/laborday/history.htmhttp://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.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.pdfhttp://www.dol.gov/laborday/history.htm

economic snapshot: august 2014

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