economic snapshot: march 2015

8/9/2019 Economic Snapshot: March 2015

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1 Center for American Progress | Economic Snapshot: March 2015

Economic Snapshot: March 2015

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

By Christian E. Weller and Jackie Odum March 27, 2015

Tis monh’s economic daa shed some ligh on a recovery ha, up unil recenly,

seemed o have been reading waer. Recen daa show ha he labor marke is on he

rise wih he unemploymen rae alling o 5.5 percen, is lowes rae since he end o

he Grea Recession.1 Te unemploymen rae or hisorically vulnerable groups, such as

Arican Americans and Lainos, is finally a or near pre-recession levels. Addiionally,February saw a gain o 295,000 jobs wih an average o almos 300,000 jobs added per

monh over he pas 6 monhs.2 Tere has also been modes economic growh wih

gross domesic produc, or GDP, increasing a a air rae o 2.2 percen beween

Sepember 2014 and December 2014.3

While hese economic gains are promising, hey sill all shor by hisorical sandards.

Te economy has expanded 13.6 percen since he end o he Grea Recession, ar below

he hisorical average o 25.9 percen during prior recoveries o a leas equal lengh.4

Employmen levels show a similar rend: Te oal number o jobs has now grown 7.8

percen during his recovery compared o an average o 14.1 percen during all priorrecoveries o a leas equal lengh.5

Addiionally, alhough he unemploymen rae or Lainos has ully recovered, reurning

o is pre-recession levels, and he unemploymen rae or Arican Americans has

recovered abou 91 percen o he way, hese vulnerable groups, among ohers, coninue

o sruggle disproporionaely compared wih heir whie counerpars.6 Whereas he

whie unemploymen rae remains below he naional average a 4.7 percen, he Arican

American unemploymen rae is more han double ha a 10.3 percen and he Hispanic

unemploymen rae remains high a 6.7 percen.7 Moreover, hese communiies con-

inue o grapple wih dispariies in wages, povery raes, and access o vehicles or saving.

I is quie eviden ha he weigh o he Grea Recession coninues o all on American

workers, and he only way o relieve his pressure is o build an economy ha booss

inclusive prosperiy and bolsers a srong middle class. Policymakers can do so by

ocusing heir effors on measures ha boos wages and provide vulnerable communi-

ies wih a sho oward achieving he American dream.


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1. Economic growth, while positive, has been lackluster for years: GDP increased in

he ourh quarer o 2014 a an inflaion-adjused annual rae o 2.2 percen, afer an

increase o 5 percen in he previous quarer. Domesic consumpion increased by an

annual rae o 4.4 percen, and housing spending rose by 3.8 percen, while business

invesmen grew a a slower rae o 4.4 percen. Expors only increased by 4.5

percen in he ourh quarer, while impors increased by a much aser rae o 10.4

percen, resuling in a widening rade defici. Governmen spending coninues o bea weak spo in he economy as ederal governmen spending ell by 7.3 percen, and

sae and local governmen spending rose only by 1.6 percen. Economic growh

improved in 2014 compared o earlier years o his economic recovery, which began

in June 2009. Bu, he economy needs o mainain and even accelerae is momen-

um in order o creae real economic securiy or America’s amilies. Afer all, he

economy expanded 13.5 percen rom June 2009 o December 2014, ar below he

average o 25.9 percen during recoveries o a leas equal lengh.

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 srong economic growh over he longer erm and 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 percen rom

June 2009 o December 2014, he firs 22 quarers o he economic recovery since

he end o he Grea Recession.8 Tis compares o an average o 15.3 percen during

all previous recoveries o a leas equal lengh.9 No previous recovery had lower

produciviy growh han he curren one. Tis slow produciviy growhogeher

wih high income inequaliyconribues o he widespread sense o economicinsecuriy and slowing economic mobiliy.

FIGURE 1

Productivity growth in recovery compared with previous recessions

Percentage of growth during first 22 quarters

20%

5%

10%

15%

0%

Average of previous recoveries

Current economic recovery

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).

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

15.3%

7.0%


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3. The housing market is still only a shadow of its former self. New-home sales

amouned o an annual rae o 539,000 in February 2015a 24.8 percen increase

rom he 432,000 homes sold in Februrary 2014 bu well below he hisorical

average o 698,000 homes sold beore he Grea Recession.10 Te median new-home

price in February 2015 was $275,500, up rom one year earlier.11 Exising-home sales

rose by 1.2 percen in February 2015 rom one year earlier, and he median price or

exising homes was up by 7.5 percen during he same period.12 Home sales have alo urher o go, given ha homeownership in he Unied Saes sood a 64 percen

in he ourh quarer o 2014, down rom 68.2 percen beore he sar o he

recession a he end o 2007. Te curren homeownership raes are similar o hose

recorded in 1996, well beore he mos recen housing bubble sared.13

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 March 2015 ha he ederal governmen will have adeficihe difference beween axes and spendingo 2.7 percen o GDP or

fiscal year 2015, which runs rom Ocober 1, 2014, o Sepember 30, 2015.14 Tis

defici projecion is slighly down rom he defici o 2.8 percen o GDP or FY

2014.15 Te esimaed defici or FY 2015 is much smaller han deficis in previous

years due o a number o measures ha policymakers have already aken in order 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, especially or hose groups disproporionaely impaced by high

unemploymen.

5. Moderate labor-market gains follow in part from modest economic growth.

Tere were 10.2 million more jobs in February 2014 han in June 2009. Te privae

secor added 10.8 million jobs during his period. Te loss o some 590,000 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.16 Te oal

number o jobs has now grown by 7.8 percen during his recovery, compared o an

average o 14.1 percen during all prior recoveries o a leas equal lengh.17 Faser

economic growh is necessary o generae more labor-marke momenum.


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FIGURE 2

Employment growth falls behind historical average

Source: Bureau of Labor Statistics.

-5%

0%

5%

10%

15%

603020 40 5010

Month

Historical average

Current recovery

14.1%

7.8%

6. 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 53.9

percen in 2013, he mos recen year or which daa are available.18 Te 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 2007.19 Families now have less eco-

nomic securiy han hey did in he pas due o ewer employmen-based benefis,

no jus because o modes job and wage gains.

7. Some communities continue to struggle disproportionately from unemployment.

Te unemploymen rae was 5.5 percen in February 2014. Te Arican Americanunemploymen rae increased slighly o 10.4 percen, he Hispanic unemploymen

rae ell slighly o 6.6 percen, and he whie unemploymen rae also ell slighly o

4.7 percen. Meanwhile, youh unemploymen decreased o 17.1 percen. Te

unemploymen rae or people wihou a high school diploma was 8.4 percen,

compared wih 5.4 percen or hose wih a high school degree, 5.1 percen or hose

wih some college educaion, and 2.7 percen or hose wih a college degree.20

Populaion groups wih higher unemploymen raes have sruggled disproporion-

aely more amid he weak labor marke han whie workers, older workers, and

workers wih more educaion.

FIGURE 3

January 2015 unemployment rate by race

Source: Bureau of Labor Statistics, Current Population Survey (U.S. Department of Labor, 2015).

White 4.9%

6.7%

10.3%

Hispanic

African American


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8. 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 1995.21

9. Corporate profits stay elevated near pre-crisis peaks. Inflaion-adjused corporae

profis were 102.7 percen larger in December 2014 han in June 2009. Te afer-ax

corporae profi raeprofis o oal assessood a 3 percen in December

2014.22 Corporae 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 prerecession 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 R eserve 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 (U.S. Department of Commerce, 2000–2014).

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

2000 2002 2004 2006 2008 2010 2012 2014

3.02%

2.51%

Dec.2007

Dec2014


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

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

nancial corporaions spen, on average, 97.8 percen o heir afer-ax profis on

dividend payous and share repurchases.23 In 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, 5.4 percen

o all o heir asses in cashhe highes average share since he business cycle haended in December 1969. Nonfinancial corporaions spen, on average, 168.7

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 profits

Average share of after-tax profits

Source: Average of dividend and share repurchases as a share of after-tax profits 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 (U.S. Department of Commerce,

2000–2014).

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% 93.3%38.2% 96.5% 92.1%

11. 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, com-

pared 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 raes 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.24


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

income in December 2014, down rom a peak o 129.7 percen in December 2007.25

Bu, nonrevolving consumer crediypically insallmen credi such as suden and

car loanshas oupaced afer-ax income growh. I has grown rom 14.6 percen o

afer-ax income in June 2009 o 18.4 percen in December 2014. A reurn o deb

growh oupacing income growhwhich was he case or oal deb prior o he

sar o he Grea Recessionrom already-high deb levels could evenually sloweconomic growh again. Tis would be especially rue i ineres raes also rise rom

hisorically low levels due o a change in he Federal Reserve’s policies. Consumers

would have o pay more or heir deb, and hey would have less money available 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 Unemployment numbers are taken from Bureau of LaborStatistics, Current Population Survey .

2 Ibid.

3 Calculations are based on Bureau of Economic Analysis, RealGross Domestic Product, Chained Dollars (U.S. Department ofCommerce, 2015).

4 GDP growth is calculated based on data from Bureau ofEconomic Analysis.

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

6 Council of Economic Advisers, “Achievement and Challengesin the U.S. Labor Market,” available at https://www.whitehouse.gov/sites/default/files/docs/2015_erp_chap-ter_3.pdf (last accessed March 2015).


8 Calculations are based on productivity growth (output perhour) for nonfarm businesses from Bureau of LaborStatistics, Current Employment Statistics (U.S. Department ofLabor, 2015).

9 Ibid.

10 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.Department of Commerce, 2015).

11 Ibid.

12 National Association of Realtors, “Existing-Home SalesSlightly Improve in February, Price Growth Gai ns Steam,”Press release, March 23, 2015, available at http://www.realtor.org/news-releases/2015/03/existing-home-sales-slightly-improve-in-february-price-growth-gains-steam.

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

14 Congressional Budget Office, “Updated Budget Projections:2015 to 2025” (2015), available at http://www.cbo.gov/sites/default/files/cbofiles/attachments/49973-UpdatedBudget-Projections.pdf .

15 Ibid.

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

17 Ibid.

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

19 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.


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

22 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). Inflationadjustments are based on the Personal ConsumptionExpenditure Index from Bureau of Economic Analysis,National Income and Product Accounts.

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

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

25 Calculations are based on Board of Governors of the FederalReserve System, “Z.1 Release—Financial Accounts of theUnited States.”

https://www.whitehouse.gov/sites/default/files/docs/2015_erp_chapter_3.pdfhttps://www.whitehouse.gov/sites/default/files/docs/2015_erp_chapter_3.pdfhttps://www.whitehouse.gov/sites/default/files/docs/2015_erp_chapter_3.pdfhttp://www.realtor.org/news-releases/2015/03/existing-home-sales-slightly-improve-in-february-price-growth-gains-steamhttp://www.realtor.org/news-releases/2015/03/existing-home-sales-slightly-improve-in-february-price-growth-gains-steamhttp://www.realtor.org/news-releases/2015/03/existing-home-sales-slightly-improve-in-february-price-growth-gains-steamhttp://www.cbo.gov/sites/default/files/cbofiles/attachments/49973-UpdatedBudgetProjections.pdfhttp://www.cbo.gov/sites/default/files/cbofiles/attachments/49973-UpdatedBudgetProjections.pdfhttp://www.cbo.gov/sites/default/files/cbofiles/attachments/49973-UpdatedBudgetProjections.pdfhttp://www.cbo.gov/sites/default/files/cbofiles/attachments/49973-UpdatedBudgetProjections.pdfhttp://www.cbo.gov/sites/default/files/cbofiles/attachments/49973-UpdatedBudgetProjections.pdfhttp://www.cbo.gov/sites/default/files/cbofiles/attachments/49973-UpdatedBudgetProjections.pdfhttp://www.realtor.org/news-releases/2015/03/existing-home-sales-slightly-improve-in-february-price-growth-gains-steamhttp://www.realtor.org/news-releases/2015/03/existing-home-sales-slightly-improve-in-february-price-growth-gains-steamhttp://www.realtor.org/news-releases/2015/03/existing-home-sales-slightly-improve-in-february-price-growth-gains-steamhttps://www.whitehouse.gov/sites/default/files/docs/2015_erp_chapter_3.pdfhttps://www.whitehouse.gov/sites/default/files/docs/2015_erp_chapter_3.pdfhttps://www.whitehouse.gov/sites/default/files/docs/2015_erp_chapter_3.pdf

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