economic snapshot: january 2015

8/9/2019 Economic Snapshot: January 2015

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1 Center for American Progress | Economic Snapshot: January 2015

Economic Snapshot: January 2015

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

By Christian E. Weller and Jackie Odum January 28, 2015

A healhy economy no only grows a a srong, susained pace in order o keep unem-

ploymen low, bu also promoes mobiliy and inclusiviy or mos amilies. Tis is an

economy ha provides opporuniy or all working amilies and osers a hriving

middle class. I is an economy ha works or everyone, raher han a lucky ew. And

alhough he U.S. economy is in much beter shape oday han a any oher poin sincehe end o he Grea Recession in June 2009, his monhs daa show ha i is ar rom

he healhy economy ha Americans need.

In odays economymore han five years afer he Grea Recession endedlower- and

middle-income amilies cope wih slow income growh, modes job growh, high

povery, and lingering high deb levels. All relevan measures highligh he subpar

perormance o his official recovery compared o previous ones. No wonder many

middle-class amilies are worried abou heir financial uure. Many groupssuch as

communiies o color and hose wih less educaionare especially vulnerable o

economic pain in his weak economy. Policymakers consequenly need o pursue hreeseparae goals: srenghen economic growh, promoe economic inclusion, and arge

policies o help hose who are paricularly vulnerable.

1. Economic growth in this recovery lags behind that of previous business cycles.

GDP increased in he hird quarer o 2014 a an inflaion-adjused annual rae o

5 percen, afer an increase o 4.6 percen in he previous quarer. Domesic

consumpion increased by an annual rae o 3.2 percen, and housing spending

rose by 3.2 percen, while business invesmen growh also increased a a rae o

8.9 percen. Expors increased 4.5 percen in he hird quarer, while impors

decreased by 0.9 percen. Federal governmen spending rose by 9.9 percen, while

sae and local governmen spending increased by only 1.1 percen. Te econ-

omy expanded 12.9 percen rom June 2009 o Sepember 2014is slowes

expansion during recoveries o a leas equal lengh.


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FIGURE 1

GDP growth still lags behind historical average

GDP growth in the first five years of expansion

Note: The historical averge for the 21st quarter does not include the 1975 expansion as it only lasted 20 quarters.

Source: CAP analysis of Bureau of Economic Analysis data.

Quarters since end of recession

20%

25%

5%

10%

15%

0%

15 17 19 2197 11 1351 3

Average of previous recoveries since 1960

Current recovery

12.6%

24.8%

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 increasing living sandards, 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 are growing more

slowly han would be he case wih aser produciviy growh. U.S. produciviy rose

7.3 percen rom June 2009 o Sepember 2014, he firs 21 quarers o he economic

recovery since he end o he Grea Recession.1Tis compares o an average o 14.8

percen during all previous recoveries o a leas equal lengh.2No previous recovery

had lower produciviy growh han he curren one.

FIGURE 2

Productivity growth in recovery compared to previous recessions

Percentage of growth during first 20 quarters

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).

0%

3%

6%

9%

12%

15%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

Average of previous recoveries

Current economic recovery

7.3%

14.8%


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3. The housing market recovery still struggles to gain momentum. New-home sales

amouned o an annual rae o 481,000 in December 2014an 8.8 percen increase

rom he 450,000 homes sold in December 2013 bu well below he hisorical

average o 698,000 homes sold beore he Grea Recession.3Te median new-home

price in December 2014 was $298,100, up rom one year earlier.4Exising-home

sales ell by 6.1 percen in November 2014 rom one year earlier, and he median

price or exising homes was up by 5 percen during he same period.5Home saleshave o go a lo urher, given ha homeownership in he Unied Saes sood a 64.4

percen in he hird quarer o 2014, down rom 68.2 percen beore he 2007

recession. Te curren homeownership raes are similar o hose recorded in 1996,

well beore he mos recen housing bubble sared.6

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

Budge Office, or CBO, esimaed in January 2015 ha he ederal governmenwill have a deficihe difference beween axes and spendingo 2.6 percen o

GDP or fiscal year 2015, which runs rom Ocober 1, 2014, o Sepember 30,

2015.7Tis defici projecion is slighly down rom 2.8 percen in FY 2014.8Te

esimaed defici or FY 2015 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 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, as well as defici reducion.

5. Moderate labor-market recovery shows less job growth than in previous busi-

ness cycles.Tere were 9.4 million more jobs in November 2014 han in June 2009.

Te privae secor added 10 million jobs during his period. Te loss o some

536,000 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.9Te

oal number o jobs has now grown by 7.2 percen during his recovery, compared

o an average o 13.4 percen during all prior recoveries o a leas equal lengh.10


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FIGURE 3

Employment growth falls behind historical average

Source: Authors' calculations based on data from the Bureau of Labor Statistics.

-5%

0%

5%

10%

15%

603020 40 5010

Month

Historical average

Current recovery

7.2%

13.7%

6. Employment opportunities grow very slowly for people in their prime earning

years.Te employed share o he populaion rom ages 25 o 54which is una-

eced by he aging o he overall populaionwas 77 percen in December 2014.

Tis was jus above he level recorded in June 2009 and well below he levels

recorded since he mid-1980s and beore he Grea Recession sared in 2007. Te

employed share o he populaion has, on average, grown by 3.4 percenage poins a

his sage during previous recoveries o a leas equal lengh.11

7. 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 53.9percen in 2013, he mos recen year or which daa are available.12Te 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 2007.13Families now have less economic

securiy han in he pas due o ewer employmen-based benefis, which requires

hem o have more privae savings o make up he difference.

8. Some communities continue to struggle disproportionately from unemployment.

Te unemploymen rae dropped o 5.6 percen in December 2014. Te Arican

American unemploymen rae decreased o 10.4 percen, he Hispanic unemploy-

men rae decreased or he fifh consecuive monh o 6.5 percen, and he whie

unemploymen rae ell slighly o 4.8 percen. Meanwhile, youh unemploymen

decreased o 16.8 percen. Te unemploymen rae or people wihou a high school

diploma was 8.6 percen, compared wih 5.3 percen or hose wih a high school

degree, 4.9 percen or hose wih some college educaion, and 2.9 percen or hose

wih a college degree.14Populaion groups wih higher unemploymen raes have

sruggled disproporionaely more amid he weak labor marke han whie workers,

older workers, and workers wih more educaion.


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9. 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 1995.15

10. Corporate profits stay elevated near pre-crisis peaks. Inflaion-adjused corpo-

rae profis were 94 percen larger in Sepember 2014 han in June 2009. Te

afer-ax corporae profi raeprofis o oal assessood a 3.2 percen in

Sepember 2014.16Corporae profis recovered quickly oward he end o he

Grea Recession and have sayed high since hen. Addressing income inequaliy

ha arises rom he rich receiving ousized benefis rom heir wealh hrough ax

reorm is a crucial policy prioriy.

FIGURE 4

Corporate profits stay elevated near pre-recession 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 the

United States (2014). Inflation adjustments are based on the Personal Consumption Expenditure Index from Bureau of Economic Analysis, National

Income and Product Accounts.

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%3.18%

Dec

.200

0

Dec

.200

1

Dec

.200

2

Dec

.200

3

Dec

.200

4

Dec

.200

5

Dec

.200

6

Dec

.2007

Dec

.200

8

Dec

.200

9

Dec

.201

0

Dec

.201

1

Dec

.201

2

Dec

.201

3

Jun.

201

4

2.51%


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

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

nancial corporaions spen, on average, 98.5 percen o heir afer-ax profis on

dividend payous and share repurchases.17In 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, 5.3 percen

o all o heir asses in cashhe highes average share since he business cycle haended in December 1969. Nonfinancial corporaions spen, on average, 169.9

percen 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 5

Dividend and share repurchases as a share of after tax profit

Average share of after-tax profit

Source: Average of dividend and share repurchases as a share of after tax profit 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.

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% 163.4%38.2% 96.5% 92.1%

12. 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,

compared 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

rae 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.18


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13. Household debt is still high. Household deb equaled 102.5 percen o afer-ax

income in Sepember 2014, down rom a peak o 129.7 percen in December 2007.19

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 especially rue i ineres raes also rise

rom hisorically 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 consumpion and saving.

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

2 Ibid.

3 The historical average refers to the average annualized

monthly 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).

4 Ibid.

5 National Association of Realtors, Existing-Home Sales LoseMomentum in November as Inventory Slightly Tightens,Press release, December 22, 2014, available athttp://www.realtor.org/news-releases/2014/12/existing-home-sales-lose-momentum-in-november-as-inventory-slightly-tight-ens.

6 Bureau of the Census, Housing Vacancies and Homeowner-ship(U.S. Department of Commerce, 2015).

7 Congressional Budget Office, The Budget and EconomicOutlook: 2015 to 2025 (2015), available athttp://www.cbo.

gov/sites/default/files/cbofiles/attachments/49892-Out-look2015.pdf.

8 Ibid.

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

10 Ibid.

11 Calculations based on Bureau of Labor Statistics, CurrentPopulation Survey(U.S. Department of Labor, 2015).

12 Bureau of the Census, Income, Poverty, and Health InsuranceCoverage in the United States: 2013.

13 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.

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

15 Bureau of the Census, Income, Poverty, and Health InsuranceCoverage in the United States: 2013.

16 Profit rates are calculated based on data from Board ofGovernors of the Federal Reserve System, Z.1 Release--Financial Accounts of the United States (2014). Inflationadjustments are based on the Personal ConsumptionExpenditure Index from Bureau of Economic Analysis,National Income and Product Accounts.

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

18 Calculations are based on Bureau of the Census, Income,Poverty, and Health Insurance Coverage in the United States:2013.

19 Calculations are based on Board of Governors of the FederalReserve System, Z.1 ReleaseFinancial Accounts of theUnited States.
http://www.realtor.org/news-releases/2014/12/existing-home-sales-lose-momentum-in-november-as-inventory-slightly-tightenshttp://www.realtor.org/news-releases/2014/12/existing-home-sales-lose-momentum-in-november-as-inventory-slightly-tightenshttp://www.realtor.org/news-releases/2014/12/existing-home-sales-lose-momentum-in-november-as-inventory-slightly-tightenshttp://www.realtor.org/news-releases/2014/12/existing-home-sales-lose-momentum-in-november-as-inventory-slightly-tightenshttp://www.cbo.gov/sites/default/files/cbofiles/attachments/49892-Outlook2015.pdfhttp://www.cbo.gov/sites/default/files/cbofiles/attachments/49892-Outlook2015.pdfhttp://www.cbo.gov/sites/default/files/cbofiles/attachments/49892-Outlook2015.pdfhttp://www.cbo.gov/sites/default/files/cbofiles/attachments/49892-Outlook2015.pdfhttp://www.cbo.gov/sites/default/files/cbofiles/attachments/49892-Outlook2015.pdfhttp://www.cbo.gov/sites/default/files/cbofiles/attachments/49892-Outlook2015.pdfhttp://www.realtor.org/news-releases/2014/12/existing-home-sales-lose-momentum-in-november-as-inventory-slightly-tightenshttp://www.realtor.org/news-releases/2014/12/existing-home-sales-lose-momentum-in-november-as-inventory-slightly-tightenshttp://www.realtor.org/news-releases/2014/12/existing-home-sales-lose-momentum-in-november-as-inventory-slightly-tightenshttp://www.realtor.org/news-releases/2014/12/existing-home-sales-lose-momentum-in-november-as-inventory-slightly-tightens

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