economic snapshot for may 2012

7/31/2019 Economic Snapshot for May 2012

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1 Center or American Progress | Economic Snapshot or May 2012

Economic Snapshot for May 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

May 2012

Families economic securiy is slowly improving: Te labor marke is adding jobs and

household wealh is gradually increasing. Bu amilies coninue o sruggle given he deph

o he pas recession and he slow pace o improvemens during he economic recovery.

Policymakers aced decisively in he pas wih exended unemploymen insurance ben-

es, payroll ax cus, and inrasrucure invesmens when hey el a sense o urgency

abou helping Americas middle class. Bu hey should sill eel ha sense o urgency

since comparaively high unemploymen raesespecially among vulnerable popula-

ion groupshigh povery raes, a depressed housing marke, and large household deb

burdens have pu Americas middle class in an unaccepably insecure posiion.

Making hem more secure will ake comprehensive and argeed policy. Susained

and aser job creaion should be policymakers op concern, especially or vulnerablegroups such as Arican Americans, young labor orce paricipans, and people wihou a

high school degree. Also required are income suppors hrough, or insance, exended

unemploymen insurance benes, higher minimum wages, and more opporuniies or

employees o join a union.

Policymakers also need o ocus on helping households build wealh aser hrough

measures o srenghen he housing marke, help households save more money, and

allow amilies o lower heir deb burden even more han in he pas.

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

grew a an annual rae o 2.2 percen in he rs quarer o 2012. Governmen spending

acually ell by 3 percen, and business invesmen declined by 2.1 percen in he rs

quarer o 2012, while consumpion grew by 2.9 percen, and expors expanded a a

reasonable 5.4 percen growh rae.1 Cubacks in governmen spending reec he con-

inued scal crisis among ederal, sae, and local governmens and declining business


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invesmen. Te drop-o in business invesmen may be only emporary, however, since

i reecs in large measure a slowdown o he very rapid expansion in he mining secor.2

2. Competitiveness falls back.Worker produciviyhe amoun o goods and ser-

vices produced in an hour o work in he nonarm business economyis a key mea-

sure o he economys global compeiiveness. I decreased by 0.5 percen in he rs

quarer o 2012. Produciviy now sands 6.9 percen larger han i was in December2007, a he sar o he Grea Recession, bu is well below he average increase o 9.3

percen or similar periods in he pas.3

3. The labor market recovery continues. Te economy has coninuously added jobs

since Ocober 2010 and had 2.5 million more jobs in April 2012 han i did in June

2009, when he economic recovery sared. Te privae secor added 3.1 million jobs

during his period. Te dierence beween he ne employmen gain and privae-

secor gain is explained by he loss o 607,000 sae and local governmen jobs, as

budge cus reduced he number o eachers, bus

drivers, re ghers, and police ocers, amongohers.4 Job creaion is a op policy prioriy since

privae-secor job growh is sill oo weak o

quickly overcome oher job losses and o rapidly

improve he economic orunes o Americas

middle class.

4. Unemployment stays high. Te unemploymen

rae sood a 8.1 percen in April 2012. Long-erm

unemploymen is also sill a problem: I ballooned

in recen years as he unemploymen rae sayedelevaed. In April 2012, 41.3 percen o he unem-

ployed were ou o work and had been looking or

a job or more han six monhs. Te average lengh

o unemploymen sayed high, wih 39.1 weeks in

April 2012.5 Te long-erm unemployed are sill

sruggling even as privae-secor job creaion pro-

ceeds apace since millions o unemployed workers

vie or he newly creaed jobs.

5. Labor market pressures fall especially on communities of color, young workers,

and those with less education. Te Arican American unemploymen rae in April

2012 sayed well above average a 13 percen, he Hispanic unemploymen rae

was 10.3 percen, and he whie unemploymen rae was 7.4 percen. Youh unem-

ploymen sood a a high 24.9 percen. And he unemploymen rae or people

wihou a high school diploma sayed high wih 12.5 percen, compared o 7.9

percen or hose wih a high school diploma, 7.6 percen or hose wih some col-

Figure 1

Share of long-term unemployment, business cycle averag

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

Average weeks of unemployment

Business cycle start

6.8%9.0%

13.8%10.4%

9.0%

12.3%

14.8%15.9%

18.7%

35.1

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


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lege educaion, and 4 percen or hose wih a college degree.6 Vulnerable groups

have sruggled disproporionaely more amid he weak labor marke han do whie

workers, older workers, and workers wih more educaion. Bu even hose groups

ha are beter han heir counerpars in he weak labor marke suer remen-

dously rom high unemploymen.

6. Household incomes continue to drop amid prolonged labor market weaknesses.Median inaion-adjused household incomewhere hal o all households has

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 acceler-

aed 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 2009.7

7. Income inequality 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 sared keeping record in 1967.8

8. Poverty continues to rise across a wide spectrum. Te povery rae rose o 15.1

percen 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.9

Te prolonged economic slump, ollowing an excepionally weak labor markebeore he crisis, has aken a massive oll on he mos vulnerable.

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

sored healh insurance dropped rom 59.8 percen in 2007 o 55.3 percen in 2010.10

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 2007.11 Families have less eco-

nomic 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 $14.4 rillion (in 2011

dollars) rom June 2007is las peako December 2011. Home equiy says low,

such ha homeowners on average own only 38.4 percen o heir homes, wih he

res owed o banks.12 Households, already sruggling wih low incomes in a weak

labor marke, consequenly eel growing pressures o save more and consume less.

Te dual burden o low income and decimaed household wealh pus he brakes on

consumer spending, holding back economic and job growh.


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Figure 3

Share of mortgages that are delinquent or in foreclosure

11. Household debt is still high. Household deb

equaled 112.8 percen o afer-ax income in

December 2011, down rom a peak o 130.2

percen in Sepember 2007 bu sill higher han a

any poin beore March 2004.13 Te unprecedened

all in deb over he pas our years resuled rom

several acorsigh lending sandards, allingineres raes, and massive oreclosuresha

are unlikely o coninue. Furher deleveraging

will likely slow, hen, unless incomes rise aser

han hey have in he pas. High deb will hence

coninue o slow economic growh as households

ocus on saving raher han on spending more.

12. The housing market improves slowly. New home

sales in April increased by 11,000 o 343,000,

and he median house price in April 2012 was4.9 percen higher han a year earlier.14 Exising

home sales were up by 10 percen in April 2012

rom a year earlier, and he median price or

exising homes was up by 10.1 percen during his

period.15 Te housing marke is improving rom

very low levels in he spring o 2012.

13. Financial distress is widespread among families.

One in eigh morgages is sill delinquen or in

oreclosure even hough morgage roubles havegradually eased since March 2010. Te share o

morgages ha were delinquen was 7.4 percen

in he rs quarer o 2012, and he share o mor-

gages ha were in oreclosure was 4.4 percen a

he same ime.16 High unemploymen coupled

wih massive wealh losses has pushed many

amilies o delay or even deaul on morgage pay-

mens. Household economic disress reverberaes

across he economy, as banks are nervous abou

exending new morgages, which prolongs he

economic slump.

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 Uni

States, Washington, D.C.: BOG.

Source: Mortgage Bankers Association, 2011, National Delinquency Survey, Washington, DC: MBAA.

Mar-52

Mar-67

Mar-82

Mar-97

Mar

Percent of after-tax income

0%

20%

40%

60%

80%

100%

120%

140%

Foreclosures Delinquencies

0%

2%

4%

6%

8%

10%

12%

Mar-79

Mar-84

Mar-89

Mar-94

Mar-99

Mar-04

Mar-09


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1 All GDP data are rom the Bureau o Economic Analysis,National Income and Product Accounts (U.S. Department oCommerce, 2012).

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

3 Calculations based on Bureau o Labor Statistics, Output

per Hour (U.S. Department o Labor, 2012). Business cycledates are taken rom National Bureau o Economic Research,Business Cycle Dates (2012). See also Adam Hersh andChristian Weller, Making Investments Today or a Competi-tive Economy Tomorrow (Washington: Center or AmericanProgress, 2012) or more data on U.S. c ompetitiveness.

4 Employment growth data are calculated based on Bureau oLabor Statistics, Current Employment Statistics (U.S. Depart-ment o Labor, 2012). The Current Employment Statistics arealso known as the payroll survey.

5 Unemployment numbers are taken rom the Bureau o La-bor Statistics, Current Population Survey(U.S. Department oLabor, 2012). The Current Population Survey is also knownas the household survey.

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

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

8 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 the UnitedStates: 2010.

9 Data or poverty rates are rom U.S. Census Bureau, Income,Poverty, and Health Insurance Coverage in the United S tates:2010.

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

11 Craig Copeland, Employment-Based Retirement Plan Par-

ticipation: Geographic Dierences and Trends: 2010/2007(Washington: Employee Benets Research Institute,2011/2008).

12 Wealth calculations are based on the Board o Governors,Release Z.1 Flow o Funds Accounts o the United States(Washington: Federal Reserve System, 2012). Real wealthis the nominal wealth defated by the p rice index or thePersonal Consumption Expenditure index. The PersonalConsumption Expenditure index is rom the Bureau oEconomic Analysis, National Income and Product Accounts.

13 Debt calculations are based on the Board o Governors,Release Z.1 Flow o Funds Accounts o the United States(Washington: Federal Reserve System, 2012). Debt levels arethe ratio o the nominal debt levels divided by the nominaldisposable personal income. Debt reers to total creditinstruments.

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

(Department o Commerce, 2012).

15 National Association o Realtors, April Existing-Home SalesUp, Prices Rise Again (2012).

16 Data are taken rom the Mortgage Bankers Association,National Delinquency Sur vey (2012).

Endnotes

economic snapshot for may 2012

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