economic snapshot: march 2014

8/12/2019 Economic Snapshot: March 2014

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1 Center for American Progress | Economic Snapshot: March 2014

Economic Snapshot: March 2014

Christian E. Weller on the State of the Economy

By Christian E. Weller and Sam Ungar March 26, 2014

Te economic daa or March sugges a pressing need or policy atenion on economic

growh and he labor marke. Te economy and he labor marke coninue o grow a

a modes pace wih he resul ha many people are financially sruggling, even as he

economic recovery ha sared in June 2009 is closing in on compleing is fifh year.

A range o new policies are necessary o boos economic growh and employmen.

Macroeconomic policy since 2012 has resed largely wih moneary policy. Te Federal

Reserve has kep shor-erm ineres raes low and underaken a series o unprecedened

bond purchases o sabilize major credi markes such as morgage markes. Bu low

ineres raes alone have no been enough o creae a robus economic recovery wih

quickly rising incomes and employmen. A number o addiional policiessuch as

invesmens in inrasrucure and educaion, exended unemploymen benefis, and a

higher minimum wageare necessary o boos

economic and job growh. Such policies are also

gaining added imporance as he Federal Reserveis gradually preparing o ighen moneary policy

wih higher ineres raes and ewer bond pur-

chases. Tis leaves a void ha needs o be filled

agains he backdrop o a subpar economic recov-

ery ha has benefied in large par only upper

income households and corporae profis.

1. Economic growth lags behind previous

recoveries. Gross domesic produc, or GDP,

increased in he ourh quarer o 2013 a an

inflaion-adjused annual rae o 2.4 percen.

Domesic consumpion increased by an annual

rae o 2.6 percen, and housing spending sub-

sanially shrank by 8.7 percen, while business

invesmen growh grew a a rae o 7.3 percen.

Expors increased by 9.4 percen in he firs

FIGURE 1

GDP growth in recovery in comparisonto previous recoveries

90

120

125

130

115

110

105

100

95

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

Growth

index(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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quarer, and governmen spending decreased by 5.6 percen.1Te economy expanded

by 11 percen rom June 2009 o December 2013is slowes expansion during

recoveries o a leas equal lengh.2Policymakers need o ocus on srenghening key

pars o economic growh, paricularly invesmen and expors, wih argeed mea-

sures ha go beyond removing fiscal uncerainy.

2. Improvements to U.S. competitiveness lag behind previous business cycles.

Produciviy growh, 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 since he end

o he Grea Recession.3Tis compares o an average o 11.9 percen during all previ-

ous 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 aten-

ion 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 468,000 in January 2014a 2.2 percen increase

rom he 458,000 homes sold in January 2013 bu well below he hisorical average

o 698,000 homes sold beore he Grea Recession.5Te median new-home price

in January 2014 was $260,100, up rom one year earlier.6Exising-home sales weredown by 7.1 percen in February 2014 rom one year earlier, bu he median price or

exising homes was up by 9.1 percen during he same period.7Home sales have o go

a lo urher, given ha homeownership in he Unied Saes sood a 65.2 percen in

he ourh quarer o 2013, down rom 68.2 percen beore he recession. Te curren

homeownership raes are similar o hose recorded in 1996, well beore he mosrecen housing bubble sared.8Alhough he housing-marke recovery sared laerhan 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 sill 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. Moderate labor-market recovery shows less job growth than in previous recoveries.

Tere were 6.8 million more jobs in February 2013 han in June 2009. Te privae

secor added 7.5 million jobs during his period. Te loss o nearly 630,000 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 5.2 percen during his recovery, compared o an average o 12.3 per-

cen during all prior recoveries o a leas equal lengh.10Tose looking or jobs sill

need assisance such as exended unemploymen insurance benefis.


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FIGURE 2

Employment-to-population ratio

for 2554 year-olds, 19472013

5. Employment opportunities grow very slowly

for people in their prime earning years. Te

employed share o he populaion rom ages

25 o 54which is unaffeced by he aging o

he overall populaionwas 76.5 percen in

February 2014. Tis was jus above he level

recorded in June 2009 and well below he levelsrecorded 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.11

Specifically, here has been insufficien job

growh o creae real economic opporuniies

or people in he mids o heir main earning

yearsyears when hey need hose opporuni-

ies he mos.

6. Employer-sponsored benefits disappear.Te

share o people wih employer-sponsored healh

insurance dropped rom 59.8 percen in 2007

o 54.9 percen in 2012, 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 39.4 percen in 2012, 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.

7. Some communities continue to struggle disproportionately from unemploy-

ment. Te unemploymen rae sood a 6.7 percen in February 2014: Te Arican

American unemploymen rae was 12 percen; he Hispanic unemploymen rae was

8.1 percen; and he whie unemploymen rae was 5.8 percen. Meanwhile, youh

unemploymen sood a 21.4 percen. Te unemploymen rae or people wihou a

high school diploma icked back up o 9.8 percen, compared o 6.4 percen or hose

wih a high school degree, 6.2 percen or hose wih some college educaion, and 3.4

percen or hose wih a college degree.14Populaion groups wih higher unemploy-

men raes have sruggled disproporionaely more amid he weak labor marke han

whie workers, older workers, and workers wih more educaion.

8. 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

60%

80%

1948

1953

1958

1963

1968

1973

1978

1983

1988

1993

1998

2003

2008

2013

65%

70%

75%

85%

Share

ofpopulation(

inp

ercent)

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


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12. 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 2007.19

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 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 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. Sam Ungar is a

Research Assisan 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, February Existing HomeSales Remain Subdued, Press release, March 20, 2014.

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

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, 2014).

12 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 thepoverty report.

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

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: 2012.

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

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

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

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

economic snapshot: march 2014

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