economic snapshot: may 2014

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1 Center for American Progress | Economic Snapshot: May 2014

Economic Snapshot: May 2014

Christian E. Weller on the State of the Economy

By Christian E. Weller and Jackie Odum May 28, 2014

Many middle-class amilies sruggle wih modes job growh, slow income growh, high

povery, and a lack o employer-sponsored benefis, while corporae profis remain high.

Te Unied Saes needs o ake acion and adop policies ha creae economic opporu-

niies or all o become financially secure. Progressive policies such as a higher minimum

wage, exended unemploymen insurance benefis, and affordable healh insurance canconribue o sronger economic and job growh and lead o more and beter economic

opporuniies or millions o middle-class Americans.

Te Affordable Care Ac, or ACA, is jus one example o good policy ha promoes finan-

cial growh and securiy or boh middle-class amilies and our naions economy. Since is

enacmen, he ACA has lowered projeced budge deficis and provided Americans wih

he financial securiy hey need by expanding coverage, providing access o ree prevenive

care, and prevening insurance companies rom charging women more han men.

Te presiden can coninue o ake some small seps oward progressive policies, despiea dysuncional Congress ha is symied by a radical conservaive minoriy inen on

obsrucing popular policies designed o help sruggling American amilies. Such presi-

denial policies include creaing beter jobs or low-wage workers in he ederal govern-

men and among governmen conracors, invesing in job raining and subsidies or

green energy, and promoing responsible conracing by encouraging pay ransparency

and srenghening rules on employer realiaion.

1. Economic growth lags behind similar points in prior business cycles. Gross domes-

ic produc, or GDP, slighly increased in he firs quarer o 2014 a an inflaion-

adjused annual rae o 0.1 percen. Domesic consumpion increased by an annual

rae o 3 percen, and housing spending subsanially shrank by 5.7 percen, while

business invesmen growh ell a a rae o 2.1 percen. Expors decreased by 7.6

percen in he firs quarer, and governmen spending decreased by 0.5 percen.1Te

economy expanded by 11.1 percen rom June 2009 o December 2013is slowes

expansion during recoveries o a leas equal lengh.2Policymakers need o ocus on

srenghening economic growh, e.g. by invesing in inrasrucure and educaion.


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2. Improvements to U.S. competitiveness lag

behind previous business cycles.Produciviygrowh, measured as he increase in inflaion-

adjused oupu per hour, is key o increasing

living sandards. U.S. produciviy rose by 7.3

percen rom June 2009 o December 2013, he

firs 18 quarers o he economic recovery sincehe end o he Grea Recession.3Tis compares

o an average o 11.9 percen during all previous

recoveries o a leas equal lengh.4No previous

recovery had lower produciviy growh han

he curren one. Produciviy growh is he main

driving orce behind he counrys abiliy o raise

living sandards. Weaker produciviy growh

han in he pas will make i harder o build a

srong middle class, requiring policymakers

atenion o inves in U.S. compeiiveness.

3. The housing market continues to recover

from historic lows. New-home sales amouned o an annual rae o 433,000 in April

2014a 4.2 percen decrease rom he 452,000 homes sold in April 2013, and well

below he hisorical average o 698,000 homes sold beore he Grea Recession.5

Te median new-home price in April 2014 was $275,800, up rom one year earlier.6Exising-home sales were down by 7.5 percen in March 2014 rom one year ear-

lier, bu he median price or exising homes was up by 7.9 percen during he same

period.7Home sales have o go a lo urher, given ha homeownership in he Unied

Saes sood a 64.8 percen in he firs quarer o 2014, down rom 68.2 percenbeore he recession. Te curren homeownership raes are similar o hose recorded

in 1996, well beore he mos recen housing bubble sared.8Alhough he housing-marke recovery sared laer han he wider economic recoveryand sared ou

a a record lowhe housing marke has laely conribued a much-needed boos

o economic progress. As such, here is si ll pleny o room or he housing marke

o provide more simulaion o he economy more broadly. Te fledgling housing

recovery could gain urher srengh i policymakers suppor economic growh and

job creaion a he same ime.

4. The outlook for budget deficits improves. Te nonparisan Congressional Budge

Office, or CBO, esimaed in April 2014 ha he ederal governmen will have a

deficihe difference beween axes and spendingo 2.8 percen o GDP or fiscal

year 2014, which runs rom Ocober 1, 2013, o Sepember 30, 2014.9Tis defici

projecion is down rom 4.1 percen in FY 2013.10Tis projeced defici or FY 2014

is slighly beter han wha CBO prediced in February 2014, when i esimaed a

defici o 3 percen o GDP or FY 2014.11Te esimaed defici or FY 2014 is much

FIGURE 1

GDP growth in recovery in comparison

to previous recoveries

90

120

125

130

115

110

105

100

95

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

Growthindex(lastquarterofrecession=100)

Mar 61

Mar 75

Dec 82

Mar 91

Dec 01

Jun 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.


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FIGURE 2

Employment-to-population ratio

for 2554 year-olds, 19472014

smaller han i was in previous years due o a

number o measures ha policymakers have

already aken o slow spending growh and raise

a litle more revenue han was expeced jus

las year. Te slowdown in healh care cossa

resul parially atribued o provisions wihin

he ACAhas significanly conribued o heseshrinking defici projecions.12Te improving

fiscal oulook generaes breahing room or poli-

cymakers o ocus heir atenion on argeed,

efficien policies ha promoe long-erm growh,

job creaion, and defici reducion.

5. Moderate labor-market recovery shows less

job growth than in previous business cycles.

Tere were 7.3 million more jobs in April 2014

han in June 2009. Te privae secor added8 million jobs during his period. Te loss o

some 601,000 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.13Te oal number o jobs

has now grown by 5.5 percen during his recovery, compared o an average o 12.7

percen during all prior recoveries o a leas equal lengh.14Tose looking or jobs

sill need assisance such as exended unemploymen insurance benefis.

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 76.5 percen in April 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 3.6 percenage poins a his sage

during previous recoveries o a leas equal lengh.15Specifically, here has been insu-

ficien job growh o creae real economic opporuniies or people in he mids o

heir main earning yearsyears when hey need hose opporuniies he mos.

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

sored healh insurance dropped rom 59.8 percen in 2007 o 54.9 percen in 2012,

he mos recen year or which daa are available.16Te share o privae-secor workers

who paricipaed in a reiremen plan a work ell o 39.4 percen in 2012, down rom

41.5 percen in 2007.17Families now have less economic securiy han in he pas due

o ewer employmen-based benefis, which requires hem o have more privae sav-

60%

80%

65%

70%

75%

85%

Share

ofpopulation(

inp

ercent)

1948

1954

1960

1965

1971

1977

1983

1989

1996

2002

2008

2014

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


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ings o make up he difference. Te ACA appears

o se a welcome counerpoin o he rend o

disappearing healh insurance benefis. Since

he ACAs markeplace open enrollmen period

began in Ocober 2013, he uninsured rae has

dropped o 13.4 percen, he lowes monhly

rae recorded since 2008.18Moreover, uninsuredraes coninue o decline among communiies o

color and low-income Americans. Since January

2014, he uninsured rae has dropped by 7.1

percen or Arican Americans, 5.5 percen or

Hispanics, and 5.5 percen or lower-income

Americans.19

8. Some communities continue to struggle

disproportionately from unemployment. Te

unemploymen rae icked down o 6.3 percenin April 2014: Te Arican American unemploy-

men rae was 11.6 percen; he Hispanic unem-

ploymen rae was 7.3 percen; and he whie unemploymen rae was 5.3 percen.

Meanwhile, youh unemploymen sood a 19.1 percen. Te unemploymen rae or

people wihou a high school diploma icked down o 8.9 percen, compared o 6.3

percen or hose wih a high school degree, 5.7 percen or hose wih some college

educaion, and 3.3 percen or hose wih a college degree.20Populaion groups wih

higher unemploymen raes have sruggled disproporionaely more amid he weak

labor marke han whie workers, older workers, and workers wih more educaion.

9. The rich continue to pull away from most Americans. Incomes o households in he

95h percenilehose wih incomes o $191,000 in 2012, he mos recen year or

which daa are availablewere more han nine imes he incomes o households in

he 20h percenile, whose incomes were $20,599. 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 $51,017 in 2012, is lowes level in inflaion-adjused dollars since 1995. And he

povery rae remains higha 15 percen in 2012as he economic slump coninues

o ake a massive oll on he mos vulnerable ciizens.21

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

profis were 88 percen larger in December 2013 han in June 2009. Te afer-ax

corporae-profi raeprofis o oal assessood a 3.2 percen in December

2013, nearing he previous peak afer-ax profi rae o 3.3 percen ha occurred

prior o he Grea Recession.22Corporae profis recovered quickly during he eco-

nomic recovery, highlighing he biurcaed naure o he economy.

FIGURE 3

U.S. poverty rate, 2007 to 2012

54%

56%

58%

55%

57%

59%

60%

2007 2008 2009 2010 2011 2012

59.8%58.9%

56.1%

55.3%55.1%

54.9%

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


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

December 2007when he Grea Recession saredo December 2013, nonfi-

nancial corporaions spen, on average, 98 percen o heir afer-ax profis on divi-

dend payous and share repurchases.23In shor, almos all o nonfinancial corporae

afer-ax profis wen o keep 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 ha ended in December1969. Nonfinancial corporaions spen, on average, 168 percen o heir afer-ax

profis on capial expendiures or invesmensby selling oher asses and by bor-

rowing. 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.

12. Poverty is still widespread. Te povery rae remained fla a 15 percen in 2012

he mos recen year or which daa are availablewhich is an increase o 0.7 per-

cenage poins over he hree years o he recovery rom 2009 o 2012. Te povery

rae has allen on average by 0.7 percenage poins in previous recoveries o a leasequal lengh. Moreover, 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 25.6 percen, while he whie povery rae was 9.7

percen. Te povery rae or children under age 18 sood a 21.8 percen. More han

one-hird o Arican American children37.9 percenlived in povery in 2012,

compared o 33.8 percen o Hispanic children and 12.3 percen o whie children.24

13. Household debt is still high. Household deb equaled 103.8 percen o afer-ax

income in December 2013, down rom a peak o 129.7 percen in December 2007.25

A reurn o deb growh oupacing income growh, which was he case prior o hesar o he Grea Recession in 2007, rom already-high deb levels could evenu-

ally 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 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

Special Assisan for he Economic Policy eam a he Cener.


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Endnotes

1 Bureau of Economic Analysis, National Income and ProductAccounts(U.S. Department of Commerce, 2014).

2 Ibid.

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

Labor, 2014).

4 Ibid.

5 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).

6 Ibid.

7 National Association of Realtors, Existing Home SalesRemain Soft in March, Press release, April 22, 2014.

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

9 Congressional Budget Office, Updated Budget Projections:2014 to 2024 (2014), available athttp://www.cbo.gov/sites/

default/files/cbofiles/attachments/45229-UpdatedBudget-Projections_2.pdf.

10 Ibid.

11 Ibid.

12 Richard Kogan and William Chen, Projected Ten-YearDeficits 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.

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

14 Ibid.

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

16 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 the

poverty report.

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

18 Jenna Levy, U.S. Uninsured Rate Drops to 13.4%, Gal-lup, May 5, 2014, available at http://www.gallup.com/poll/168821/uninsured-rate-drops.aspx.

19 Ibid.

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

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

22 Profit rates are calculated based on data from Board of Gov-ernors of the Federal Reserve System, Release Z.1 FinancialAccounts of the United States (2014). Inflation adjustments

are based on the Personal Consumption Expenditure Indexfrom Bureau of Economic Analysis, National Income andProduct Accounts.

23 Calculations based on Board of Governors of the Federal Re-serve System, Release Z.1 Financial Accounts of the UnitedStates.

24 Calculations based on Bureau of the Census, Income, Pov-erty, and Health Insurance Coverage in the United States: 2012.

25 Calculations based on Board of Governors of the Federal Re-serve System, Release Z.1 Financial Accounts of the UnitedStates.
http://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.gallup.com/poll/168821/uninsured-rate-drops.aspxhttp://www.gallup.com/poll/168821/uninsured-rate-drops.aspxhttp://www.gallup.com/poll/168821/uninsured-rate-drops.aspxhttp://www.gallup.com/poll/168821/uninsured-rate-drops.aspxhttp://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.pdf

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