recent u.s. economic growth
TRANSCRIPT
Recent U.S. Economic Growth
MAY 2012
In Charts
The Growth Story Since 2009GROWTH SINCE 2009
Early May 2010Cost of borrowing spikes across Europe
Euro falls to four-year low against the dollar
Feb. 2011Egyptian President steps down
Libyan conflict beginsPresident Obama ratchets up sanctions on Libya
Oil prices pass $90/barrel
Apr. 15, 2011Government shutdown
narrowly averted
Oct. 28, 2011Italian 10y bond yieldsclose above 6 percent, remain near or above that level through late Jan. 2012
Japanese earthquake/tsunami
Debt limit
European debt crisisOct. 2010
Greece, Ireland Portugal bond spreads widen
1
U.S. DEPARTMENT OF THE TREASURYSource: Bureau of Economic Analysis, Wall Street Journal.
2008/09 financial crisis
Jul. 2011Greek, Irish, and Portuguese
spreads spike
Aug. 2011Oil prices fall
below $90/barrel
Aug. 2, 2011Debt limit deal reached
Oct. 2011Oil prices pass $90/barrel
High oil prices High oil prices
Despite the worst financial crisis since the Great Depression and a series of shocks in its aftermath, the economy has gradually strengthened since mid-2009, though more work remains.Real quarterly GDP growth
2008 Q4-8.9%
2009 Q1-6.7%
2009 Q2-0.7%
2009 Q31.7%
2009 Q43.8%
2010 Q13.9%
2010 Q23.8%
2010 Q32.5%
2010 Q42.3%
2011 Q10.4%
2011 Q21.3%
2011 Q31.8%
2011 Q43.0%
2012 Q12.2%
-15
-10
-5
0
+5
+10
Q12008
Q2 Q3 Q4 Q12009
Q2 Q3 Q4 Q12010
Q2 Q3 Q4 Q12011
Q2 Q3 Q4 Q12012
Personal consumption expenditures
Gross private domestic investment
Exports
Imports
Government consumption and grossinvestmentTotal GDP growth
+4.3 +3.8 +2.9
-3.5
-0.7
Total+6.8
-6-4-20
+2+4+6+8
U.S. economic growth has been led by consumption, private sector investment, and exports.Percentage point contribution to real quarterly GDP growth, by component
The Components of Growth Since 2009GROWTH SINCE 2009
Source: Bureau of Economic Analysis.
2
U.S. DEPARTMENT OF THE TREASURY
Cumulative contributions to growth since 2009 Q2, by component
90
92
94
96
98
100
102
104
Q12008
Q2 Q3 Q4 Q12009
Q2 Q3 Q4 Q12010
Q2 Q3 Q4 Q12011
Q2 Q3 Q4 Q12012
Growth in the U.S. has outpaced that of other advanced economies affected by the global financial crisis.Real GDP, 2008 Q1 = 100
International GrowthGROWTH SINCE 2009
Source: Regional sources (see Notes section).
3
U.S. DEPARTMENT OF THE TREASURY
U.S.
Euro area
JapanU.K.
Germany
-8%
-6%
-4%
-2%
0%
2%
4%
2006Q1
'07 '08 '09 '10 '11 '12
0
10
20
30
40
50
60
70
80
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
-$19.3 trillion2007 Q2 - 2009 Q1
$80 trillion
Despite challenges, growth in private demand has outpaced GDP growth since late 2010. Household net worth, inflation-adjusted (constant 2011 dollars)
Wealth, Savings, and Private DemandUNWINDING THE CRISIS
Source: Federal Reserve Flow of Funds, Bureau of Economic Analysis.
4
U.S. DEPARTMENT OF THE TREASURY
Year-on-year percent change in real GDP and final sales to private domestic purchasers
0%
1%
2%
3%
4%
5%
6%
7%
8%
80%
90%
100%
110%
120%
130%
140%
150%
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
Household debt-to-income
(left axis)
Household wealth
Household debt and savings as a percent of disposable income
Household wealth has begun to come back from a sharp decline in 2007-08, but has not fully returned...
1
…and families are saving more than before the crisis.
2
Despite these drags on spending, private demand has begun to show stronger growth as the overhang of the financial crisis fades.
3
Household savings rate(right axis)
Growth in final sales to private
domestic purchasers
Growth in real GDP
recession
recession
recession
0.25
0.16
0.02
0.16
-0.08 -0.01
0.01
-0.34
-0.08
0.12
-0.19
-0.37
-0.49
0.05
-0.06
-0.33
-0.41
-0.34
-0.19
-0.26
-0.14
-0.90%
-0.75%
-0.60%
-0.45%
-0.30%
-0.15%
0%
+0.15%
+0.30%
-300
-250
-200
-150
-100
-50
0
+50
+100
2007Q1
'08 '09 '10 '11 '12
State and local government
contribution to real GDP growth
(right axis)
-15%
-10%
-5%
0%
+5%
-3,000
-2,000
-1,000
0
+1,000
'07 '08 '09 '10 '11 '12
Private sector job growth (Thousands, left axis)
Private contribution to real GDP growth1
(right axis)
State and local governments have been forced to cut deeply and shed jobs in response to fiscal challenges… Change in quarterly state and local employment, end-of-period (line, left axis)
Fiscal Drag
Source: BLS, BEA. U.S. DEPARTMENT OF THE TREASURY
Change in state and local
employment(left axis)
State and local government contribution to real GDP growth, percentage points (bars, right axis)
+100 thousand
UNWINDING THE CRISIS5
…while private sector growth has continued.Quarterly private sector changes in employment and contributions to real GDP growth
Three Misconceptions About Recent Economic GrowthMISCONCEPTIONS6
U.S. DEPARTMENT OF THE TREASURY
Some analysts have asserted that the following factors have been impediments to growth:
1.Regulations. Have increased regulations or regulatory uncertainty been a major factor in holding back growth?
2.Taxes. Is a high tax burden – or fears of future tax burdens – impeding growth?
3.Government. Is government so large that it is getting in the way of private sector-led growth?
But the facts do not support these assertions.
1,100
1,300
1,500
1,700
Jan2008
'09 '10 '11 '12
Regulations are not impeding business lending or investment.Commercial and industrial loans outstanding, constant 2011 dollars (log scale)
Are Regulations Holding Back Growth?MISCONCEPTIONS
Source: Federal Reserve, BEA.
7
U.S. DEPARTMENT OF THE TREASURY
Percent change in real investment in equipment and software 11 quarters after NBER trough
$1,700 billion
2%
8%
19%
21%
21%
26%
28%
28%
+34%
38%
1980 Cycle
1957-58 Cycle
2001 Cycle
1969-70 Cycle
Average(excl. 2007-09)
1960-61 Cycle
1973-75 Cycle
1990-91 Cycle
2007-09 Cycle
1981-82 Cycle
Jul. 15, 2010Wall Street reform enacted
+12%($144b)
Since Oct. 2010
Commercial and industrial
loans
600
800
1,000
1,200
1,400
1,600
2007Q1
'08 '09 '10 '11
Regulations have not dampened corporate profits, even in the industries undergoing significant regulatory change, such as energy, health care, and finance. Corporate profits after tax, constant 2011 dollars (log scale)
Are Regulations Holding Back Growth?MISCONCEPTIONS
Source: BEA, Barclay’s.
8
U.S. DEPARTMENT OF THE TREASURY
S&P 500 Economic Sectors Index, trailing 12-month earnings per share
$1,600 billion
+57%($570b)
Since 2009 Q1
After-tax corporate profits
-20
-10
0
10
20
30
40
50
60
70
'05 '06 '07 '08 '09 '10 '11 '12
Consumer DiscretionaryIndustrialsUtilitiesMaterialsTelecommunications ServicesInformation TechnologyConsumer Staples
Energy
HealthCare
Financial
recessionrecession
12
13
14
15
16
17
18
19
20
21
22
1946 '51 '56 '61 '66 '71 '76 '81 '86 '91 '96 '01 '06 '11
From 2009 to the present, federal revenues relative to the economy have been at their lowest levels in 60 years.Total federal revenues as a percentage of GDP (line, left axis)
Is a High Tax Burden Damaging Growth?MISCONCEPTIONS
Source: OMB, BEA, NBER.
922 percent of GDP
Federal revenues
14.4%of GDP
1950
15.4%of GDP
2011
U.S. DEPARTMENT OF THE TREASURY
recession
The President’s Budget proposes new revenues that amount to less than 1 percent of GDP.Projected revenue raised in the President’s FY2013 Budget and projected cumulative GDP, Fiscal Years 2013 – 2022.
How Large are Proposed Tax Changes? MISCONCEPTIONS10
Source: Office of Management and Budget. U.S. DEPARTMENT OF THE TREASURY
CUMULATIVEGDP
2013 - 2022
Total new revenue proposed in
President’s FY2013 Budget, 2013 - 2022
<1% of GDP
Letting the top two income tax brackets return to pre-2001 levels has a minimal impact on small businesses with employees.Projected revenue effect of reinstating 36 and 39.6 individual income tax brackets as proposed in the President’s FY2013 Budget, Fiscal Year 2013
Would Proposed Tax Changes Hurt Small Business?MISCONCEPTIONS11
Total income of high-income filers in the top two brackets2
$1.2 trillion13% of total income
Total income of high-income filers in the top two brackets who own small
businesses with employees3
$400 billion4% of total income
Small business income of high-income filers in the top two
brackets who own small businesses with employees
$113 billion1% of total incomeNew revenue4 from small business income of
high-income filers in the top two brackets who own small businesses with employees
$2.9 billion<0.03% of total income
Total income1 of all filers$9 trillion
Source: Treasury analysis. See Notes section for methodology. U.S. DEPARTMENT OF THE TREASURY
0%
1%
2%
3%
4%
5%
'48 '52 '56 '60 '64 '68 '72 '76 '80 '84 '88 '92 '96 '00 '04 '08 '12
Federal employment is at historic lows relative to the overall workforce.Federal civilian employment as a percentage of the labor force*
Has Government Grown?MISCONCEPTIONS
Source: OMB, BEA, BLS. U.S. DEPARTMENT OF THE TREASURY
Federal civilian
employment
1.8%February 2012
* Periods after 1980 exclude temporary Census workers.
12
recession
Investors remain confident that the U.S. government will meet its real fiscal obligations, as demonstrated by…5-year sovereign credit default swap prices
Is There Concern About the Size of Government?MISCONCEPTIONS
Source: Bloomberg, Federal Reserve Bank of Cleveland, Treasury. U.S. DEPARTMENT OF THE TREASURY
0
50
100
150
200
250
300
'10 '11 '12
Germany
One-, five-, and ten-year U.S. inflation expectations
-1
0
1
2
3
Jan2009
'10 '11 '12
France
United States
300 basis points
1-yr inflation expectations
10-yr inflationexpectations
5-yr inflation expectations
3 percent
…low cost of insurance against default and…
1
…low inflation expectations.
2
13
NotesNChart 1Oil prices are West Texas intermediate crude oil spot prices.
Chart 3Regional sourcesEuro Area: Statistical Office of the European CommunitiesJapan: Cabinet Office of JapanU.K.: Office for National StatisticsU.S.: Bureau of Economic Analysis
“Euro Area” consists of the following 17 European Union member countries who have adoptedthe euro (European Monetary Union): the 11 original members - Austria, Belgium, Finland,France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain - and Greece(from January 2001), Slovenia (from January 2007), Cyprus and Malta (from January 2008),Slovakia (from January 2009) and Estonia (from January 2011).
Chart 5“Private contribution to real GDP growth” defined as the sum of the contributions of realpersonal consumption expenditures, real gross private domestic investment, and real exports tooverall annualized quarterly real GDP growth, in percentage points.
Chart 101 “Income” defined as adjusted gross income.
Chart 10 cont.2 “High-income filers” are those who would be subject to the top two individual income taxbrackets under the President’s FY2013 Budget proposal.
3 “Small business owners” defined as filers a) with business income and deductions of lessthan $10 million, and b) who employ other individuals. See Knittel et al, “Methodology toIdentify Small Businesses and Their Owners”, Office of Tax Analysis Technical Paper 4, August2011.
4 “New revenue” includes revenues raised in Fiscal Year 2013 by reversing theEGTRAA/JGTRAA rate cuts on the top two individual income tax brackets to small businessincome of high-income filers who own small businesses with employees.
U.S. Department of the Treasury, Office of Tax Analysis calculations. Revenue estimate excludesincreased revenue that would come from the expiration of other upper-income EGTRAA/JGTRAAtax cut provisions such as those affecting itemized deductions, personal exemptions, qualifieddividends, and capital gains.
The calculation of the additional revenue from small business employers takes into account thevariation among taxpayers in the importance of small business income. Since the highestincome classes pay most of the added tax but are less dependent on small employer income,the small employer share of the total tax increase is lower than the small business share of totalincome.
U.S. DEPARTMENT OF THE TREASURY