economic snapshot for august 2012

7/31/2019 Economic Snapshot for August 2012

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1 Center or American Progress | Economic Snapshot or August 2012

Economic Snapshot for August 2012

Christian E. Weller on the State of the EconomyChristian E. Weller, associate professor, Department of Public Policy and Public Affairs,

University of Massachusetts Boston, and Senior Fellow, Center for American Progress

August 2012

Te U.S. economy coninues o expand modesly, while household deb, lingering

wealh losses, scal challenges or sae, local, and ederal governmens, and overseas

economic crises weigh down economic and job growh. Tese rends have held back he

economy or years, bu conservaive policymakers have never el he necessary urgencyo respond o he resuling slow recovery in he economy and or jobs. Progressive

policy ideas o inves in people and in he economy have hus aced an insurmounable

poliical blockage in Congress, and Americas middle class has paid he price in he orm

o high economic insecuriy during he economic recovery.

Te Cener or American Progress recenly released a repor deailing 35 ideas o help

he middle class.1 Many o hese policies such as lower morgage paymens and lower

suden loan paymens can oer as relie o amilies and hus boos economic growh.

Policymakers should no le poliics sand in he way o boosing economic and job growh.

1. Economic growth remains positive but modest. Gross domesic produc, or GDP,

grew a an annual rae o 1.5 percen in he second quarer o 2012. Governmen

spending acually ell by 1.4 percen. Business invesmen grew by 5.3 percen in

he second quarer o 2012, while consumpion grew by 1.5 percen, and expors

expanded a a rae o 5.3 percen.2 Governmen spending cus reec he coninued

scal crisis among ederal, sae, and local governmens, as well as declining business

invesmen. Te reasonable business invesmen and expor growh were no enough

o overcome lackluser consumpion and shrinking governmen spending growh.3

2. Competitiveness stays back. Worker produciviyhe amoun o goods and

services produced in an hour o work in he nonarm business economyis a key

measure o he economys global compeiiveness. Produciviy now sands 7.3 per-

cen larger han i did in December 2007, a he sar o he Grea Recession, bu well

below he average increase o 8.5 percen or similar periods in he pas.4


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FIGURE 1

Share of long-term unemployment, business cycle averages

Source: Bureau of Labor Statistics, Current Population Survey (Department of Labor, 2011).

Average percent of unemployed workers

Business cycle start

6.8%9%

13.8%

10.4%9%

12.3%

14.8%15.9%

18.7%

35.4%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Dec-48 Aug-53 Sep-57 May-60 Jan-70 Dec-73 Feb-80 Aug-90 Mar-01 Dec-07

3. The slow labor market recovery continues. Tere were 2.7 million more jobs in July

2012 han in June 2009, when he economic recovery ocially sared. Te privae

secor added 3.4 million jobs during his period. Te dierence beween he ne gain

and privae-secor gain is explained by he loss o 640,000 sae and local govern-

men jobs, as budge cus reduced he number o jobs or eachers, bus drivers, re

ghers, and police ocers, among ohers.5 Job creaion is a op policy prioriy since

privae-secor job growh is sill oo weak o quickly overcome oher job losses ando rapidly lower he unemploymen rae.

4. The suffering of the unemployed stays high. Te unemploymen rae sood a 8.3

percen in July 2012. Long-erm unemploymen ballooned in recen years alongside

high unemploymen raes. In July 2012 sill 40.7 percen o he unemployed were

ou o work and looking or a job or more han six monhs. Te average lengh o

unemploymen sayed high, a 38.8 weeks in July 2012.6 Tose ou o a job or a long

ime sruggle because job growh has proceeded a a slow place. Millions o unem-

ployed workers hus vie or newly creaed jobs.

(see Figure 1)

5. Labor market pressures fall especially on com-

munities of color, young workers, and those

with less education. Te Arican American

unemploymen rae in July 2012 sayed well

above average a 14.1 percen. Te Hispanic

unemploymen rae was 10.3 percen, and he

whie unemploymen rae was 7.4 percen. Youh

unemploymen sood a a high 23.8 percen. Te

unemploymen rae or people wihou a highschool diploma sayed high a 12.7 percen, com-

pared o 8.7 percen or hose wih a high school

degree, 7.1 percen or hose wih some college

educaion, and 4.1 percen or hose wih a col-

lege degree.7 Vulnerable groups have sruggled

disproporionaely more amid he weak labor

marke han whie workers, older workers, and

workers wih more educaion.

6. Household incomes continue to drop amid prolonged labor market weaknesses.

Median inaion-adjused household incomehal o all households have more

and he oher hal has lesssood a $49,445 in 2010, is lowes level in inaion-

adjused dollars since 1996. I ell again by 2.3 percen in 2010, an acceleraed

decline afer median income dropped by 0.7 percen in 2009. American amilies

saw ew gains during he recovery beore he crisis hi in 2008 and experienced no

income gains during he curren economic recovery afer 2009.8


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FIGURE 2

Household debt to after-tax income, 1952 to 2011

Source: Calculations based on Board of Governors, Federal Reserve, 2011, Flow of Funds Accounts of the United

States, Washington, D.C.: BOG.

Mar-52

Mar-67

Mar-82

Mar-97

Mar-12

Percent of after-tax income

0%

20%

40%

60%

80%

100%

120%

140%

7. Income inequality is on the rise. Households a he 95h percenile, wih incomes o

$180,810 in 2010, had incomes ha were more han nine imes9.04 imes, o be

exache incomes o households a he 20h percenile, wih incomes o $20,000.

Tis is he larges gap beween he op 5 percen and he botom 20 percen o

households since he U.S. Census Bureau kep record in 1967.9

8. Poverty continues to rise across a wide spectrum. Te povery rae rose o 15.1percen in 2010is highes rae since 1993. Te Arican American povery rae was

27.4 percen, he Hispanic rae was 26.6 percen, and he whie rae was 9.9 percen

in 2010. Te povery rae or children under he age o 18 sood a 22 percen. More

han one-hird o Arican American children (39.1 percen) lived in povery in 2010,

compared o 35 percen o Hispanic children and 12.4 percen o whie children.10

Te prolonged economic slump, ollowing an excepionally weak labor marke

beore he crisis, has aken a massive oll on he mos vulnerable.

9. Employer-sponsored benefits disappear. Te share o people wih employer-

sponsored healh insurance dropped rom 59.8 percen in 2007 o 55.3 percen in2010.11 Te share o privae-secor workers who paricipaed in a reiremen plan a

work ell o 39.5 percen in 2010, down rom 42 percen in 2007.12 Families have less

economic securiy han in he pas due o ewer

employmen-based benes, requiring more

privae savings o make up he dierence.

10. Family wealth losses linger. oal amily wealh

is down $10.9 rillion (in 2012 dollars) rom

June 2007is las peako March 2012.

Homeowners on average own a near-record lowo only 40.7 percen o heir homes, wih he

res owed o banks.13 Homeowners eel pressure

o save more and consume less o rebuild heir

equiy, slowing consumer spending and holding

back economic growh.

11. Household debt is still high. Household deb

equaled 109.2 percen o afer-ax income in

March 2012, down rom a peak o 129.1 per-

cen in Sepember 2007.14 Te unprecedened

all in deb over he pas our years resuled

rom igh lending sandards, alling ineres raes, massive oreclosures, and

increased household savings. Furher deleveraging will likely slow, hen, unless

incomes rise aser han hey have in he pas. High deb could hereore coninue

o slow economic growh, as households ocus on saving raher han on spending

more. (see Figure 2)


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FIGURE 3

Annual new home sales, 1963 to 2012

Source: U.S. Census Bureau, New Residential H istorical Data (U.S. Department of Commerce), available at

http://www.census.gov/construction/nrs/historical_data/.

0

300

600

900

1,200

1,500

New home sales (in thousands)

Jan-63

Jan-68

Jan-73

Jan-78

Jan-83

Jan-88

Jan-93

Jan-98

Jan-03

Jan-08

12. The housing market slowly recovers from historic lows. New home sales amouned

o an annual rae o 350,000 in June 2012, up rom 304,000 in June 2011 bu well

below he hisorical average o 698,000 beore he Grea Recession.15 Te median

new house price in June 2012 was 3.2 percen lower han a year earlier.16 Exising

home sales were up by 4.5 percen in June 2012 rom a year earlier, and he median

price or exising homes was up by 7.9 percen during his period.17 Te housing

marke has a lo o room o grow and o conribue o economic growh since heepid recovery in he spring o 2012 sared rom hisorically low home sales. (see

Figure 3)

13. Homeowners distress remains high. One in

eigh morgages is sill delinquen or in ore-

closure even hough morgage roubles have

gradually eased since March 2010. Te share

o delinquen morgages was 7.6 percen in he

second quarer o 2012, and he share o mor-

gages ha were in oreclosure was 4.3 percena he same ime.18 Many amilies delayed and

deauled on morgage paymens amid high

unemploymen and massive wealh losses.

Banks may be nervous abou exending new

morgages, prolonging he economic slump.

14. Near precrisis peak profits are not reflected

in investment data. Inaion-adjused corpo-

rae pros were 97.7 percen larger in March

2012 han in June 2009, when he economicrecovery sared. Te afer-ax corporae pro raepros o oal assessood

a 3.1 percen in March 2012, near he peak afer-ax pro rae o 3.2 percen prior

o he Grea Recession, daing back o 1952.19 Corporaions used heir resources or

purposes oher han invesmens in plans and equipmen. Te share o invesmen

ou o GDP sayed low wih 10.4 percen in he rs quarer o 2012.20


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Endnotes

1 David Madland, Making Our Middle Class Stronger(Washington: Center or American Progress, 2012), avail-able at http://ww w.americanprogress.org/issues/2012/08/middle_class_policies.html.

2 All GDP data are rom the Bureau o Economic Analysis,National Income and Product Accounts (U.S. Department

o Commerce, 2012).

3 Christian Weller, GDP Data Show Policymakers Still HaveWork to Do, (Washington: Center or American Progress,2012).

4 Calculations based on Bureau o Labor Statistics, Outputper Hour (U.S Department o Labor, 2012); Businesscycle dates are taken rom National Bureau o EconomicResearch, Business Cycle Dates (2012); See Adam Hershand Christian Weller, Quarterly Productivity and Innova-tion Snapshot,(Washington: Center or American Progress,2012) or more data on U.S. competitiveness.

5 Employment growth data are calculated based on Bureauo Labor Statistics, Current Employment Statistics (U.S.Department o Labor, 2012). The Current EmploymentStatistics are also known as the p ayroll survey.

6 Unemployment numbers are rom the Bureau o Labor

Statistics, Current Population Survey (U.S. Department oLabor, 2012). The Current Population Survey is also knownas the household survey.

7 Unemployment rates by demographic characteristics arerom the Bureau o Labor Statistics, Current PopulationSurvey (U.S. Department o Labor, 2012).

8 Data or amily incomes are rom the U.S. Census Bureau,Income, Poverty, and Health Insurance Coverage in theUnited States: 2010 (U.S. Department o Commerce, 2011).This report is occasionally reerred to as the poverty report.

9 Other measures o income dispersion also show a growinggap between amilies in the top 5 percent, top 10 percent,and top 20 percent, relative to amilies in the bottom 20percent and bottom 50 percent. See U.S. Census Bureau,Income, Poverty, and Health Insurance Coverage in theUnited States: 2010.

10 Data or poverty rates are rom the U.S. Census Bureau,

Income, Poverty, and Health Insurance Coverage in theUnited States: 2010.

11 Data or health insurance are rom the U.S. Census Bureau,Income, Poverty, and Health Insurance Coverage in theUnited States: 2010.

12 Craig Copeland, Employment-Based Retirement Plan Par-ticipation: Geographic Dierences and Trends: 2010/2007(Washington: Employee Benets Research Institute,

2011/2008).

13 Wealth calculations are based on the Board o Governors,Federal Reserve System, Release Z.1 Flow o Funds Ac-counts o the United States, (Washington: Federal ReserveSystem, 2012). Real wealth is the nominal wealth defatedby the price index or the Personal Consumption Expendi-ture index. The Personal Consumption Expenditure indexis rom the Bureau o Economic Analysis, National Incomeand Product Accounts (2012).

14 Debt calculations are based on Board o Governors, FederalReserve System, Release Z.1 Flow o Funds Accounts o theUnited States (Washington: Federal Reserve System, 2012).Debt levels are the ratio o the nominal debt levels dividedby the nominal disposable personal income. Debt reers tototal credit instruments.

15 The historical average reers to the average annualizedmonthly residential sales rom January 1963, when the

Census data begin, to December 2007, when the GreatRecession starts. Calculations based on U.S. Census Bureau,New Residential Sales Historical Data (U.S. Department oCommerce, 2012).

16 U.S. Census Bureau, New Residential Sales Historical Data.

17 National Association o Realtors, June Existing-HomePrices Rise Again, Sales Down with Constrained Supply (2012).

18 Data are taken rom the Mortgage Bankers Association,National Delinquency Survey (2012).

19 Prot rates are calculated based on data rom the Boardo Governors, Release Z.1 Flow o Funds Accounts o theUnited States. And infation-adjustments are based onthe Personal Consumption Expenditure index rom theBureau o Economic Analysis, National Income and ProductAccounts.

20 Calculation based on Bureau o Economic Analysis, Na-tional Income and Product Accounts.

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