full 2012 economic report of the president

7/31/2019 Full 2012 Economic Report of the President

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ECONOMIC REPORTOF THE PRESIDENT

Transmitted to the CongressFebruary 2012

Together With

THE ANNUAL REPORT

of the

COUNCIL OF ECONOMIC ADVISERS


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F S D, U.S. G P OI: k.. P: (866) 58; DC () 58

Fx: () 5 M: S IDCC, W, DC ISBN 978698

transmitted to the congressfebruary 0

together with

the annual reportof the

council of economic advisers

united states government printing office

washington : 0

e c o n o m i cr e p o r to f t h e

p r e s i d e n t


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C O N T E N T S

ECONOMIC REPORT OF THE PRESIDENT ...............................................

ANNUAL REPORT OF THE COUNCIL OF ECONOMIC ADVISERS* 7

CHAPTER . TO RECOVER, REBALANCE, AND REBUILD .............

CHAPTER . THE YEAR IN REVIEW AND THE

YEARS AHEAD ....................................................................37

CHAPTER 3. RESTORING FISCAL RESPONSIBILITY........................8

CHAPTER 4. STABILIZING AND HEALING THE

HOUSING MARKET ...........................................................99

CHAPTER 5. INTERNATIONAL TRADE AND FINANCE ...............9

CHAPTER 6. JOBS AND INCOME:

TODAY AND TOMORROW ...........................................63

CHAPTER 7. PRESERVING AND MODERNIZING

THE SAFETY NET ............................................................97

CHAPTER 8. IMPROVING THE QUALITY OF LIFE THROUGH

SMART REGULATION, INNOVATION, CLEAN

ENERGY, AND PUBLIC INVESTMENT ......................3

REFERENCES .............................................................................................67

APPENDIX A REPORT TO THE PRESIDENT ON THE

ACTIVITIES OF THE COUNCIL OF ECONOMIC

ADVISERS DURING 0 ..............................................93

APPENDIX B. STATISTICAL TABLES RELATING TO INCOME,

EMPLOYMENT, AND PRODUCTION ......................307

P

____________

*F C R, .


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economic report of the president

To the Congress of the United States:

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the white house

february 2012


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the annual reportof the

council of economic advisers


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9

letter of transmittal

Council of Economic AdvisersW, D.C., F 7,

Mr. President:T C E A

A R E A 96

F E B G A 978.

S,

A B. K

Chairman

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PC O N T E N T S

CHAPTER . TO RECOVER, REBALANCE, AND REBUILD .......

RECOVERING FROM THE GREAT RECESSION ..........................................

REBALANCING AT HOME AND ABROAD ...................................................9

Restoring Fiscal Responsibility........................................................ REBUILDING A STRONGER ECONOMY .......................................................

Jobs and Income: Today and Tomorrow .......................................

Preserving and Modernizing the Safety Net ..................................

Improving the Quality of Life through Smart Regulation,Innovation, Clean Energy, and Public Investment .......................

CONCLUSION .........................................................................................................

CHAPTER . THE YEAR IN REVIEW AND THE

YEARS AHEAD ...........................................................................................7

AN ECONOMY IN RECOVERY: KEY EVENTS OF .............................8

AN ECONOMY IN RECOVERY: THE LINGERING EFFECTS OF

FINANCIAL CRISES...............................................................................................

DEVELOPMENTS IN AND THE NEAR-TERM OUTLOOK ..............6

Consumption and Saving ................................................................ 6Developments in Housing Markets ................................................ 5

Business Fixed Investment .............................................................. 5

Manufacturing Output ................................................................... 5

Business Inventories ........................................................................ 57

Government Outlays, Consumption, and Investment .................. 57

State and Local Governments ......................................................... 59

Real Exports and Imports ............................................................... 6

Labor Market Trends ...................................................................... 6

Wages, Labor Productivity, and Prices .......................................... 6

Financial Markets ........................................................................... 66


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Small Businesses and the Recovery................................................. 67

THE LONG-TERM OUTLOOK ...........................................................................7Growth in GDP over the Long Term.............................................. 76

CONCLUSION .........................................................................................................79

CHAPTER 3. RESTORING FISCAL RESPONSIBILITY .................8

DETERMINANTS OF CURRENT DEFICITS ...................................................8Falling Effective Tax Rates on Upper-Income Taxpayers............. 85

Heterogeneity in Effective Tax Rates among High-IncomeTaxpayers ......................................................................................... 86

Addressing the Role Of Exclusions and Deductions inEffective Tax Burdens...................................................................... 87

THE FISCAL OUTLOOK.......................................................................................88Medium-Term Budget Projections ................................................. 89

The Vital Role of Economic Growth in FutureFiscal Outcomes ............................................................................... 9

Improvement in Long-Run Budget Projections ............................. 9

THE IMPORTANCE OF RESTORING FISCALSUSTAINABILITY ..................................................................................................9

THE PRESIDENTS BALANCED APPROACH TO

DEFICIT REDUCTION .........................................................................................95

CHAPTER 4. STABILIZING AND HEALING THE

HOUSING MARKET .................................................................................99

THE HOUSING CRISIS AND THE INITIAL POLICY

RESPONSES ........................................................................................................... Initial Policy Responses to the Crisis ............................................

Negative Equity: An Unprecedented andPervasive Problem ......................................................................... 5

MACROECONOMIC EFFECTS OF HOUSING MARKET

WEAKNESS ........................................................................................................... 7Consumption Effects ......................................................................

Residential Construction and Home Ownership Patterns .........

STRUCTURAL PROBLEMS IN HOUSING MARKET ................................ 7Adjudicating Legal Disputes ......................................................... 8

Incentive Conflicts ......................................................................... 9


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POLICY ACTIONS............................................................................................... Building on the Experience of Existing Programs .......................

New Levers in Housing Policy ......................................................

CONCLUSION ...................................................................................................... 6

CHAPTER 5. INTERNATIONAL TRADE AND FINANCE .........9

THE EURO-AREA CRISIS AND ITS IMPLICATIONS

FOR THE UNITED STATES .............................................................................. Outlook for Europe and Implications for theU.S. Economy ................................................................................. 7

International Cooperation in Resolving Crises ........................... 8

FOREIGN DIRECT INVESTMENT, INTERNATIONAL TRADE,

AND THE U.S. ECONOMY ............................................................................... 9Investment in the United States by Foreign Companies .............

The National Export Initiative .....................................................

The Role of Services in Export Growth and AmericasCurrent Account Balance .............................................................. 8

Policy Initiatives to Support Export Growth in

Goods and Services ........................................................................ 5CONCLUSION ...................................................................................................... 6

CHAPTER 6. JOBS AND INCOME:

TODAY AND TOMORROW.................................................................6

JOBS AND EMPLOYMENT ............................................................................... 6

THE DYNAMICS OF LABOR MARKET TRENDS ...................................... 67

Job Dynamics ................................................................................. 67Worker Flows ................................................................................. 7

Earnings and Income Mobility over the Career andbetween Generations ..................................................................... 7

Overall Trends in Income and Rising Inequality ........................ 78

Long-Term Unemployment .......................................................... 8

PREPARING FOR TOMORROWS LABOR MARKET ............................... 8Education and the Workers of Tomorrow ................................... 8

Increasing Educational Attainment ............................................. 89

Federally Supported Job Training ................................................ 9

CONCLUSION ...................................................................................................... 95


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CHAPTER 7. PRESERVING AND MODERNIZING

THE SAFETY NET....................................................................................97

UNEMPLOYMENT INSURANCE .................................................................... The Economics of Unemployment Insurance ..............................

Recent Trends in UI Receipt and Its Effect onHousehold Income .........................................................................

Policy Innovations .........................................................................

OTHER SAFETY NET PROGRAMS ................................................................ 6

HEALTH INSURANCE ....................................................................................... 9The Economics of Employer-Sponsored Health Insurance ......... 9

Medicaid and CHIP: A Health Care Safety Net

for Children ....................................................................................

Expanding Health Care Coverage: The AffordableCare Act .........................................................................................

Provisions of the Affordable Care Act Now in Place .................. 5

The Economic Benefits of Expanding Insurance Coverage ........ 7

The Affordable Care Act and Medicare ....................................... 9

RETIREMENT SECURITY .................................................................................Declining Retirement Preparedness .............................................

Challenges to the Retirement Safety Net ......................................

Policies to Address Retirement Saving Challenges ...................... 8

CONCLUSION ...................................................................................................... 9

CHAPTER 8. IMPROVING THE QUALITY OF LIFE THROUGH

SMART REGULATION, INNOVATION, CLEAN ENERGY, ANDPUBLIC INVESTMENT ..........................................................................

A SMART APPROACH TO REGULATIONS ................................................ Designing Smart Regulations ........................................................

Smart Regulations in Practice ......................................................

Retrospective Analysis ................................................................... 8

Look-Back Initiative ...................................................................

Improvements in Everyday Life ....................................................

INNOVATION ...................................................................................................... Measuring Innovation ................................................................... 5

Intellectual Property Rights and Patent Reform ......................... 6


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Private and Public Investments in R&D ..................................... 7

Commercialization ........................................................................ 5

Wireless Broadband and Spectrum Policy ................................... 5

CLEAN & SECURE ENERGY ............................................................................ 5Enhancing Energy Security ........................................................... 5

Reducing Demand ......................................................................... 5

Increasing Domestic Energy Supplies ........................................... 5

Reducing Emissions ....................................................................... 5

Supporting Clean Energy R&D and Infrastructure .................... 55

INFRASTRUCTURE ............................................................................................ 59

The State of the Nations Infrastructure ...................................... 59Government and Private Sector Roles in Infrastructure ............ 6

Financing Infrastructure Investments .......................................... 6

Recent and Current Federal Infrastructure Initiatives ............... 6

CONCLUSION ...................................................................................................... 66

REFERENCES ............................................................................................67

APPENDIXES

A. R P A C

E A D ....................................................... 9

B. S T R I, E,

P .............................................................................................7

FIGURES

. M H I, 979 .............................................

. C N P, 7 ........................................... 7

. U R I R A

F C ....................................................................................... 8

. E R: C D M H S D,

96 ................................................................................................

. R GDP G Q, 7 ......................................... 9. R GDP D R ................................................................

. R GDP R A F C .............. 5

. U R I R A

F C ....................................................................................... 5


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6 | A R C E A

5. C W R D P

I (DPI), 95 ..................................................................... 7

6. B Fx I C F, 99 ................... 55

7. Wk I U I C, ........ 6

8. P N E D R ........................... 69. U R, 979 ......................................................... 6

. C P I, .................................................65

. P Mk U L C, N B,

97 ................................................................................................ 65

. Y T Y, ..................................................66

. P S J R F Sz, 7 ......................68

. S B C I L, 7 ....... 69

5. E Ok S B, .................. 76. L F P E E,

A 6, ......................................................................... 78

. S C D Pj: 99 ................. 8

. A Tx R S I G U

Fx I D, 96 ...............................................86

. A I I Tx R I Q,

8 ......................................................................................... 87. Pj MT B D, ..................... 89

. H B U.S. H ............................................................

. PR R M D ...........................................

. S&P/CS: J 9 Ex F

H P A P Ix ................................................

. T D U M B S, ...........6

5. E G: N I ................................

5. R GDP G, ...........................................................5. E F I S EA

C................................................................................................

5. Y B S R G, ...............

5. S E S G Ex E

U S, ............................................................................8

55. A FDI I, S C, 6 .....................

56. C M U L C, .............. 657. U.S. C A B I C,

..............................................................................................9

58. C S S S S

C, ....................................................................................... 5


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6. M C P S E, 98........ 6

6. U R, 98 .......................................................65

6. BDS E A G J G L R,

989 ..............................................................................................7

6. BED E Q G J G L R,99 ..............................................................................................7

65. H S, ..................................................... 7

66. F U P

L F, 99 ...................................................................... 7

67. T G G C: Iq I

M ..................................................................................................77

68. P H A I 5 P

M ........................................................................................ 7869. G R ATx I, 979 7 ..............................79

6. S T U.S. I E T P,

9 ..............................................................................................8

6. M D U LT

U P T U, 98 ........8

6. A A E Wk E L,

96 ..............................................................................................876. D B Pj E G R

E A Pj E G R,

..............................................................................................88

7. S H I U I

R , H T ..............................

7. P P S E O H

I N E, 996 ............................

7. P Wk W H I R P C H Ex M I,

979 ..............................................................................................

7. P C A W H I,

988 ..............................................................................................

75. P Y A W H I,

Q Q ..........................................................................6

76. T N R Rk Ix, 989............................77. P I V S F I

S S, A H, ........................5

8. B C R, .................................5

8. E G, V S, A Q,

98 ..............................................................................................


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8 | A R C E A

TABLES

. A E F ..................................................... 7

. A L Mk F, F ................ 75

. C A P R GDP G,

95 ................................................................................................ 77. D A F Tx R......................................... 88

5. G U.S. G Ex, P .....................................5

5. D U.S. G Ex G, Mk .....................8

5. CB S Ex T C, ..........5

5. CB S I T C, .........5

7. N P T F Ex

S N P, ............................................................7

7. D W C H

A 6569, 8 .................................................................................5

BOXES

Bx : SBA R F S F D R ......... 7

Bx 6: WkL B ............................................................................ 8

Bx 8 D D E: S G S O ...............56

DATA WATCH

D W : I M ................................................

D W : R E G D P .. 6

D W : T D I T

SB E ..................................................................... 5

D W : I I .................................................... 56

D W : D IRS S I D ............. 9

D W : M G D C ............... 96D W : N C S D

M D P .......................................................

D W : N C S D

H S.......................................................................................6

D W 5: T R N O F R

C G F Rk.....................................................6

D W 6: M S ................................................... 69

D W 6: I M ................................................76

D W 7: T C B S P M ..98

D W 7: H D P ........................................................8

D W 8: T V I PACE S ...............


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C | 9

ECONOMICS APPLICATIONS

E A Bx : M P

Tx C .....................................................................................9

E A Bx : Mk D

R M .......................................................................8E A Bx 6: C C C ............9

E A Bx 7: F L

C Mk M R S .............................6

E A Bx 8: C B C .............6


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C H A P T E R 1

TO RECOVER, REBALANCE,AND REBUILD

T 7 9 k . B , N G R k .T x q. A , q , (GDP) U S k 79. S O A, k 8.

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| C

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44,000

46,000

48,000

50,000

52,000

54,000

56,000

58,000

60,000

1979 1983 1987 1991 1995 1999 2003 2007

Dollars (2010)

Figure 1-1

Median Household Income, 19792010

Projection if median

household income hadgrown during the 2000s

at the same rate as itdid during the 1990s

Actual

2010

Note: Shading denotes recession.Source: CEA calculations and Census Bureau.


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Recovering from the Great Recession

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D W -: I M

Economic sttistics re centrl to understnding how the economyis workingwhether consumer spending is growing or shrinking, the

extent to which usinesses re investing in equipment nd softwre,the numer of people currently employed, nd the wges they reerning, mong mny other exmples. This yers Economic Report ofthe Presidenthighlights the role tht ccurte nd timely economic me-surement plys in supporting sound economic decisions y policymk-ers, usinesses, nd fmilies. In series of Dt Wtch oxes, the Reportoffers exmples of recently developed dt series tht shed light oneconomic performnce, significnt gps in ville economic dt, ndopportunities for improvements in the Ntions economic mesures.

The growing integrtion of technology in our dily lives hs cre-ted n undnce of new possiilities for producing etter nd moretimely dt sed on nontrditionl sources of informtion. As CensusBureu Director Roert Groves hs written, (t)he volume of dt gener-ted outside the government sttisticl systems is incresing much fsterthn the volume of dt collected y the sttisticl systems; lmost ll ofthese dt re digitized in electronic files (Groves 0). Nontrditionlsources of informtion include oth digitl dministrtive dt (e.g.,

tx records nd records relted to prticiption in government trnsferprogrms) nd records generted in the privte sector (e.g., dt fromInternet serches, scnner dt nd socil medi dt).

There is long history of using dministrtive records to produceeconomic sttisticsunder strict stndrds of confidentility. TheOm Administrtion hs endevored to crete new dtses thttrck student performnce cross different stges of eduction, s wells the performnce of postsecondry eductionl institutions. Oncethese dtses hve een developed, nlyses of the outcomes chieved

y students with different eductionl experiences will help to guideimprovements in instructionl qulity nd college choice.

Innovtive sttistics sed on electronic records compiled s yproduct of commercil ctivity lso cn e informtive. Adding seriessed on Google Trends to economic forecsting models, for exmple,cn improve those models predictive power. The numer of serchqueries for prticulr mke of utomoiles in the lst two weeks of month, for instnce, turns out to e good predictor of sles of tht

cr, nd the numer of serches for rel estte gencies is one of the estpredictors of current home sles (Choi nd Vrin 009).

Unlike government survey dt, dt sed on electronic recordsgenerted for commercil or dministrtive purposes my not entionlly representtive, nd expnding ccess to these records, even


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T R, R, R | 5

q 8, .8 , q . T A k . Ik j k k A R R A 9 ( R A), k z k q k T A R P, A .

S R A , GDP k .7 q 9

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T G D. D , U.S. . P , F , 7, j , 8,

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for purely sttisticl purposes, cn pose privcy concerns tht must eddressed. But their use lso hs the potentil to improve nd enrichexisting officil sttistics. The Bureu of Economic Anlysis, for exm-ple, plns to use credit crd dt to improve its sttistics on interntionltrvel services. The Census Bureu is exploring the use of dministr-tive dt on receipt of government enefits to improve estimtes ofincome in its household surveys. Other uses of oth commercil nddministrtive dt to improve officil sttistics cn esily e imgined.Government sttisticl gencies cn ply vitl role in this urgeoningfield y providing survey dt to improve the representtiveness ofnonsurvey dt, nd the Federl sttisticl gencies cn improve theirmesures y integrting privte-sector informtion. Progress in this

re will ultimtely led to etter informed decisions y policymkers,usinesses, nd fmilies.


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D W -: R E G D P

The gross domestic product (GDP) is summry mesure ofthe Ntions economic ctivity, constructed s the sum of personl

consumption, gross privte investment, net exports, nd governmentexpenditures. The first estimte of GDP ppers within month fterthe end of the qurter to which it pplies nd is sed, in prt, onsource dt tht re preliminry nd incomplete. More complete dtre ville for the second estimte, pulished the following month,nd the third estimte, relesed the month fter tht; ech of theserevisions incorportes new or revised informtion from privte ndpulic sources, including monthly nd qurterly Census Bureu surveys.Annul revisions to the Ntionl Income nd Product Accounts llow

the Bureu of Economic Anlysis (BEA) to ctch up in n orgnizedwy with further revisions to the source dt used to compute GDPnd to incorporte dditionl dt ville only t yerly frequencies.Aout every five yers, enchmrk revision incorportes dt from theEconomic Censuses (Lndefeld, Seskin, nd Frumeni 008).

Between 983 nd 009, revisions in the nnulized growth rteof rel qurterly GDP etween the first nd ltest ville estimteverged . percentge points in solute vlue (Fixler, Greenwy-

McGrevy, nd Grimm 0). A drmtic exmple is provided y therevisions to the GDP growth rte for the fourth qurter of 008, whichws originlly reported s 3.8 percent nd lter revised down to 8.9percent in the nnul revision relesed in July 0. This ws the lrg-est downwrd revision to the qurterly dt ever reported. Tken s whole, the revised dt for 008 nd 009 indicted tht the recentrecession ws considerly more severe thn originlly reported.

While revisions to initil GDP estimtes for the United Sttes cne sustntil, they re smller thn the verge for other lrge devel-oped economies (see, for exmple, Fust, Rogers, nd Wright 005).And despite sometimes sizle revisions, erly estimtes of qurterlyGDP growth generlly do good jo of cpturing increses or decresesin growth rtes, s well s the timing of cyclicl peks nd troughs (Fixlernd Grimm 005). Further, reserch hs found tht there is only limitedpotentil to improve the initil GDP estimtes given the contemporne-ous informtion ville to the BEA (Dynn nd Elmendorf 00;McKenzie, Tosetto, nd Fixler 008).

Still, more ccurte erly estimtes of GDP would e helpful topolicymkers nd usinesses. Improving the qulity nd timeliness ofthe source dt ville to the BEA is the est wy to ccomplish thisojective.


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T R, R, R | 7

j k N .

O , GDP

99 , S . B x , k . I , R A , S k . B

.A , j

. J F ,8 79 , 99 . F F J ( 8 ), .7 j. O

99 , . j (N 99 O 99),

-1,000

-800

-600

-400

-200

0

200

400

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

Total (excluding Census hiring)Private

Figure 1-2

Change in Nonfarm Payrolls, 20072011

Thousands, seasonally adjusted

Jan-12

Note: Shading denotes recession.Source: Bureau of Labor Statistics.


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8 | C

, . j (J J ).

T x 8 . A C , . Y, G R , U S

x , k z . I C R K R x , GDP , . I, U.S. . I , k q k ,

7.7 (F ).

1 F , q k k.F , , q .

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14.8

12.5

10.5

7.7

6.6

6.5

6.4

6.0

5.5

5.1

3.8

3.7

3.12.9

1.1

0 5 10 15 20 25

U.S. (1929:Q3)

Finland (1990:Q1)

Spain (1978:Q2)

Sweden (1990:Q1)

Average 14

Indonesia (1997:Q4)

South Korea (1997:Q3)

Hong Kong (1997:Q3)

Argentina (1998:Q2)

Colombia (1998:Q2)

U.S. (2007:Q4)

Norway (1988:Q1)

Philippines (1998:Q1)

Japan (1993:Q1)Thailand (1996:Q3)

Malaysia (1997:Q4)

Figure 1-3Unemployment Rate Increases in Recessions

Associated with Financial CrisesPercentage point increase from business-cycle peak

Note: Financial crises are from recessions identified by Reinhart and Rogoff (2009) as associated with major, systemic financialcrises. Each data point represents the increase from the business-cycle peak to the subsequent peak in the unemployment rate.

U.S. business-cycle peaks are defined by the National Bureau of Economic Research, and the business-cycle peaks of othercountries refer to the peaks of real GDP. Unemployment rates for Argentina, Colombia, Indonesia, Malaysia, and Thailand are

based on annual data. "Average 14" excludes the 20072009 U.S. recession.Source: Reinhart and Rogoff (2009); National Bureau of Economic Research; International Monetary Fund, World EconomicOutlook and International Financial Statistics; Moore (1961); national sources; CEA calculations.


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T R, R, R | 9

A , U.S. 5. q 7 q 9, .6 x.

T x ,q , x , , x . C k, , x A k k .

Rebalancing at Home and Abroad

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P A .P

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. A C , . I S ,P O J S C D R $ x ,

P A .

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| C

k A C A, x . T . A, K

.

Restoring Fiscal Responsibility

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Rebuilding a Stronger EconomyP O z U S

, , . A q F G k . B q N k; ; , , I. I A, .

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T R, R, R |

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z k . T P O C , , , , A .

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O j. F 7, j, . A j 79 . Tk, , P A , j 99.O , , j .T : 6 ,

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| C

I A k j . I

. A F , k k . A . Y , A k 98 (G Kz 8). I , , , P U S

5 . C6 O A , k , j .

Mk A k k j j .T U S , , j q k k. A

, U.S. . C, x, : , , , . T, P j .

Preserving and Modernizing the Safety NetT

A, , j . I k , k k k, k ,

.A j , . C 7 A k z k. T P A


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T R, R, R |

. H 6 , , .

Improving the Quality of Life through Smart Regulation,Innovation, Clean Energy, and Public Investment

R A , , . G q .

T P , , A ,, . A C 8, OA

1.3

1.4

1.5

1.6

1.7

1.8

1.9

2.0

2.1

2.2

1963 1972 1981 1990 1999 2008

Source: CEA calculations using March Current Population Survey data for workers aged2565 who worked at least 35 hours a week and for at least 50 weeks in the calendar year.Before 1992, education groups are defined based on the highest grade of school or year ofcollege completed. Beginning in 1992, groups are defined based on the highest degree ordiploma earned. Earnings are deflated using the CPI-U. Calculations are based on surveydata collected in March of each year and reflect average wage and salary income for therevious calendar ear.

Ratio

Figure 1-4Earnings Ratio: College Degree or More to High School Degree,

19632010


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| C

.

A q z . T k q

.C , x, GDP.S, , . A , x, , .

E A

q q N . E , P O ,T U S A . T A Blueprint for a Secure Energy Future, k : A , ; ;

. T k . I , . A , A .

Conclusion

T U.S. x , j 7. T U S k 79. W k ,

N . B , . F , . M,


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T R, R, R | 5

, , k 6. . A 99 ,

W x k .T N ,

, x, . T , : N k k, and

, , , , x .


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7

C H A P T E R 2

THE YEAR IN REVIEW ANDTHE YEARS AHEAD

T U.S. 7. T , j ( GDP), q.I q , k q 7. E x , j , 99 .

H, , k . T , . I

k , . G , x, j , .

T U.S. x, k C

K (978) C R K R (9), k. A , U.S. GDP 8 ,


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8 | C

. S, U.S. x x , k . A J , .7 k O 9.

T U.S. . I , ,

. H k . A , ,, . I , q , U.S.

. T U.S. x j x . C k z , k , k. S S . M k .

An Economy in Recovery: Key Events of 2011

R GDP .6 q . . O x .8 , k M E . A k ,

GDP k . (F ).N x . j

, . j . T , k , . P x , j k . T , 9. D 8.5

D , 8. J .A Series of Global Shocks and Revised GDP Data. A

k U.S. . T L k . T


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T Y R Y A | 9

$78 $ . T $ , $5 , . C . T x k P O

C .A k M ,

qk k J , q . E J . A , k .

I U S, J . U.S. . q q.

I , E k

0.5

3.6

3.01.7

-1.8

1.3

-3.7

-8.9

-6.7

-0.7

1.7

3.8 3.9 3.8

2.5 2.3

0.4

1.31.8

2.8

-10

-8

-6

-4

-2

0

2

4

6

2007:Q1 2008:Q1 2009:Q1 2010:Q1 2011:Q1

Percent change (annual rate)

Figure 2-1Real GDP Growth by Quarter, 20072011

2011:Q4

Note: Shaded area represents recession.Source: Bureau of Economic Analysis, National Income and Product Accounts.


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| C

. I , C k k q k .

I , U.S. GDP B

E A (BEA) J 79 . R GDP 7.8 q 8 q 9, q q GDP 97. T q 8 k. T BEA .8 q, J 8.9 . T

5. j q . T BEA ( q 9 q ) . , .6 .

Policy Developments in late 2010 and 2011. S Tx R, U IRz, J C A (TRUIRJCA) k x . P

k x x . I , GDP q .9 .8 , C B O (CBO ). B k ( ), .

T A R R A (R A),

9 GDP 6 7, j , GDP , , 9 , . I , R A , , x $7 , $5 , N I P A. T C E A (CEA ) R A

GDP q , , . .9 . . j. T CBO .


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| C

, FOMC k x x . I J, F R N $6

T , FOMC k F M F M.

T FOMC k k . I A , FOMC x x

. I J , x . T S x F R T . I E, FOMC x U.S. q k J N.1

An Economy in Recovery: The LingeringEffects of Financial Crises

T 78 . I , U.S. GDP 6., 5. . T GDP

99 (F ), .

A j GDP . A K (978) R R (9), k , q k . H () W() , ,

1 T F R . T x k x . T x , F x k .


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T Y R Y A |

. F , , R R (9) IMF (9).H (H, M, W ).

S U.S. , . I , U.S. x x . B x U.S. . R , , , U.S. . I , x S , , , , .

P x U.S. . T

90

92

94

96

98

100

102

104

106

108

110

112

-12 -10 -8 -6 -4 -2 Trough 2 4 6 8 10 12

Indexed to 100 at NBER-defined trough

Quarters from trough

Current(2009:Q2 trough)

1991

2001

Figure 2-2Real GDP During Recoveries

Source: Bureau of Economic Analysis, National Income and Product Accounts; NationalBureau of Economic Research; CEA calculations.


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| C

k . A , k k .

T 79 U.S. x, F 79 U S 99 U S, z R R(9) j k .2 T z , , q k

.W U.S. GDP 8.9

q 8, GDP 5. . T U.S. GD, x , . . T U.S. , x

q, . T , R A F S P, x FR B, , 9.

F US q 7 J

k F . B q 7 q 9, U.S. 8 q k, k x . I U S , .

J 8. .

2 T F j, k R R (9) T . T R R (9) j q GDP GDP .


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T Y R Y A | 5

-30.7

-19.9

-17.8

-14.9

-12.7

-11.2

-10.2

-8.8

-8.3

-6.8

-5.6

-5.1

-2.8-1.6

-1.2

-0.4

14

15

4

8

13

3

6.6

5

3

4

12

6

33

3

3

United States (1929:Q3)

Argentina (1998:Q2)

Indonesia (1997:Q4)

Thailand (1996:Q3)

Finland (1990:Q1)

Malaysia (1997:Q4)

Average 14

Hong Kong (1997:Q3)

South Korea (1997:Q3)

Colombia (1998:Q2)

Sweden (1990:Q1)

United States (2007:Q4)

Norway (1988:Q1)Japan (1993:Q1)

Philippines (1998:Q1)

Spain (1978:Q2)

-35 -30 -25 -20 -15 -10 -5 0 5 10 15 20 25

Figure 2-3Real GDP in Recessions Associated with Financial Crises

Percent decline peak-to-trough

Note: Financial crisis dates are from Reinhart and Rogoff (2009). U.S. business cycles are defined by the National Bureau ofEconomic Research, and the business cycles of other countries refer to the peaks and troughs of real GDP. "Average 14"excludes current U.S. cycle.Source: Reinhart and Rogoff (2009); National Bureau of Economic Research; International Monetary Fund, World EconomicOutlook (2010) and data from authors; Gordon and Krenn (2010); national sources; CEA calculations.

0 10 20

Duration of downturn(quarters)

Percent decline Duration in quarters

0

1

2

3

4

5

6

0 2 4 6 8 10 12 14 16 18 20

Figure 2-4Unemployment Rate Increases in Recessions

Associated with Financial CrisesPercentage point change from business-cycle peak

Quarters after business-cycle peak

Average 14

United States(2007:Q4-2012:Q1)

Note: "Average 14" shows the average rise in the unemployment rate in each quarter after the business-cycle peaks identified by Reinhartand Rogoff (2009) as being associated with major, systemic financial crises. Financial crises are shown in Figure 2-3. U.S. business-cyclepeaks are defined by the National Bureau of Economic Research, and the business-cycle peaks of other countries refer to the peaks of realGDP. Quarterly unemployment rates for Argentina, Colombia, Indonesia, Malaysia, and Thailand are based on annual data. The 2012:Q1value for the United States is through January 2012.Source: Reinhart and Rogoff (2009); National Bureau of Economic Research; International Monetary Fund, International FinancialStatistics, World Economic Outlook (2010), and data from authors; Moore (1961); national sources; CEA calculations.


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A C B O , R A, F S P, x x k F R z, U.S. GDP 9. R

k G D, U.S. 9. A , 79 x j , .

Developments in 2011 and the Near-Term Outlook

Consumption and Saving

C k 7 GDP , , , k . G , , . P k, . ,

. T k x , k .

T , ; z , q, ( )

qk J . T , . C k z E , C qk. T k k q q . D , k q .9 .

S k .

Household Income in 2011. N .9 q ,


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T Y R Y A | 7

. G j . R , x j , . q

.5 . T , . A ,x . T A k x k x

x A J A.

Household Wealth and Saving in 2011. T , F 5, q , , 9. T ( ) . A , ,

( q, x)

0

1

2

3

4

5

6

7

0.75

0.80

0.85

0.90

0.95

1.00

1.05

1.10

1952 1960 1968 1976 1984 1992 2000 2008

Total-wealth-to-DPIratio (right axis)

Consumption/DPI ratio Years of disposable income

2011:Q4Consumption-to-DPI ratio (left axis)

Figure 2-5Consumption and Wealth Relative to

Disposable Personal Income (DPI), 19522011

Source: Bureau of Economic Analysis, National Income and Product Accounts; FederalReserve Board, Z.1; CEA calculations.

Net housingwealth-to-DPI ratio

(right axis)

Stock marketwealth-to-DPI

ratio (right axis)

2011:Q3

2011:Q3

2011:Q3


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T Y R Y A | 9

. (S C 6 .)

T ,

C Ex S q . F x, x , , , , , (A B ).

S q k .3 F x, q ,

z . T . A Pk Sz (, ), , .5 , .5 , 979 7. T q $. 7. R ( )

, (D, Sk, Z ) , .4 T $. 99 , $8 5 .

T ,

x . I , 5 k . I k FaultLines, R Rj (Rj ) , , 78 .

3 S Rj () R (). K (956) .4 T x, N I P A. N x .


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I q , k . I 9797 k q

, , , . W , , . A , , , k . S ,

. B Ak P A J A,k x x , k .

Other Influences on Consumption in 2011. F , , F R

, x q . T , . T , z .

R, , 9, ,

, , 99 . H , , U.S. . R .9 , .7

q . C k , , , k


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T Y R Y A | 5

, , .

R k,

U.S. GDP U.S. . (F D W .) A ( j , x), j 68 7.

Developments in Housing MarketsA 79 ,

. N 67, , .7 . N U.S. .A J C H S HU, j

.6 .9 (Mk, MC, Bk ).A k , , z .

H , C , .7 , , , CL x. D ( , REO) : CL .6 q, , O , q . T k .

C , S A S National Income and Product Accounts. N, k q , . I , , , , .


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D W -: T D I T S-B E

In 947, services represented less thn 40 percent of U.S. gross

domestic product (GDP). Tody, service industries ccount for lmost70 percent of totl U.S. domestic output. For mny yers, however, themesurement of service ctivity lgged the sectors growing importnce.

A fundmentl chllenge in mesuring the vlue of services isthe disprte rnge of ctivities encompssed within the service sector.The Bureu of Economic Anlysis (BEA) defines services s productstht cnnot e stored nd re consumed t the plce nd time of theirpurchse. This includes, for instnce, medicl consulttions, dmissionto movie theters, Internet suscriptions, hircuts, nd prtment rents,

ut lso some less pprent things such s mels t resturnts, checkclering y nks, nd the rentl vlue of homeownership. (Althoughthe purchse of newly constructed home is ctegorized under residen-til investment, the BEA estimtes the mount homeowners would hvehd to py to rent similr houses nd clssifies this imputed rent underhousing services.)

A mjor rekthrough in the mesurement of service output cmewith the introduction of the North Americn Industry Clssifiction

System (NAICS) eginning in 997 to replce the Stndrd IndustrilClssifiction (SIC) system. Originlly developed during the 930s ndreflecting the economy of its time, the SIC provided fr more detil forgoods-producing industries such s mnufcturing nd mining thn forservice-producing industries. The 997 NAICS dded more thn 49new services industries. Just s importnt, process ws put in plceto dd new industries to NAICS s they develop. A prllel effort cr-ried out over the pst decde, the development of the North AmericnProduct Clssifiction System, similrly will provide consistent sis

for ctegorizing the rich rry of outputs produced in the growingservice sector.

The qulity of the source dt on the volume of service trnsctionslso hs improved over time. Since the 980s, the BEA hs collecteddt on interntionl trde in services. In 004, the Census Bureuintroduced the Qurterly Services Survey (QSS) to provide more timelydt on domestic consumption of services. The QSS, normlly pulishedout months fter the end of ech qurter, llows the BEA to incor-

porte ctul survey dt on mny services into its qurterly estimtesof GDP, rther thn relying on judgmentl trends. Furthermore, theCensus Bureu hs expnded the scope of its nnul surveys of theservice sector. In fct, the Services Annul Survey nd the QurterlyServices Survey oth now cpture 55 percent of U.S. GDPequling the


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T Y R Y A | 5

A z,CL q ( , x ). T , MBk A.

F A , C .

Business Fixed Investment

B x 7. q , .

coverge of services in the Economic Census nd mrking sustntilimprovement reltive to even just few yers go.

Mesurement of rel ctivity in the service sector requires ppro-prite price defltors for service outputs. In 990, the Producer PriceIndex (PPI) covered less thn 5 percent of U.S. service output. Tody,thnks to concerted effort y the Bureu of Lor Sttistics, PPI defl-tors re ville for more thn three-qurters of domesticlly providedservices. This hs trnslted directly into more ccurte estimtes of relGDP.

Nevertheless, s the U.S. economy continues to evolve, the work ofccurtely mesuring service ctivity grows ccordingly. Despite recentinnovtions in the collection of primry source dt, there re still

conceptul issues pertining to the pprisl nd definition of servicestht remin unresolved. As n exmple, improvements in helth crehve contriuted to longer life spns nd etter qulity of life, ut thereis not consensus out how to vlue nd incorporte these enefitsin ntionl income ccounting frmework. Similrly, industries suchs finnce lrgely produce intngile outputs tht re difficult evento identify, much less quntify. Furthermore, lthough estimtes ofinterntionl trde in services re now more detiled thn ws the cseefore the 980s, the sttistics still could nd should e improved. Dton the prices of trded services re extremely limited, nd even the mostdisggregted dt collected y the BEA on services extend to only 36ctegories, in contrst to thousnds of ctegories for mnufcturedgoods. Continued reserch nd investment in the development of dton services re needed to ensure timely nd ccurte mesurement ofthe U.S. economy.


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q . A x , q 9. q , .7 .

W q , q k .7 q , 68. . B . q , . I q , q 5. . (F , DW .)

I x . O , , . (S C 8.)I , , q .

T x 9 . I , ,

, q. I , A x k q . T P x .

B (F 6).

C , . L , , , . A , q .

Manufacturing Output

T U.S. .7 6. , x


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T Y R Y A | 55

F R B. T , 5.7 J 9 .

T U.S. . F k k U S , j J . T j k U S, , Investing in America: Building an Economythat Lasts (W H ). T k , , U S . (S C 5 U.S. .)

T . T U.S.

, 9. A U.S.

5

6

7

8

9

10

11

12

13

14

1990:Q1 1993:Q1 1996:Q1 1999:Q1 2002:Q1 2005:Q1 2008:Q1 2011:Q1

Liquid assets held bynonfinancial corporations

Nonresidential fixed

investment

Cash flow

Note: Potential GDP is a CBO estimate. Cash flow, from the National Income and Product Accounts,and nonfinancial liquid assets are plotted using three-quarter moving averages.Source: Bureau of Economic Analysis, National Income and Product Accounts; Federal Reserve Board(Flow of Funds L.102); Congressional Budget Office.

Percent of potential GDP

Figure 2-6Business Fixed Investment and Cash Flow, 19902011

2011:Q3

2011:Q4


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D W -: I I

Investment cn e defined s devoting resources to produce durle sset tht will yield future flow of services. Until recently,

mesures of investment in the Ntionl Income nd Product Accounts(NIPAs) were restricted to investments in physicl cpitl such suildings, mchinery, nd equipment; new residentil construction; ndnet dditions to inventories. In todys knowledge economy, however,intngile ssets such s computer softwre nd scientific innovtionsmke incresingly importnt contriutions to economic growth.

The Bureu of Economic Anlysis (BEA) hs egun to incorporteinvestments in intngile cpitl into the NIPAs. The first step in thisdirection, tken in 999, ws to tret spending on computer softwre

s n investment outly, which enters GDP directly, rther thn s usiness expense, which is considered n intermedite input rtherthn prt of finl demnd; the tretment of government spending oncomputer softwre ws chnged t the sme time. Becuse usiness ndgovernment spending on computer softwre hd een growing rpidlycompred to other types of spending, these chnges rised the mesuredgrowth rte of GDP slightly. In 03, BEA plns to egin treting spend-ing on scientific reserch nd development s n investment rther thn

n expense; hd this tretment een in effect historiclly, it too wouldhve rised the verge mesured rte of growth of GDP in recentdecdes.

Some reserchers hve rgued tht investment in intngilesshould e defined even more rodly (Corrdo, Hulten, nd Sichel009; Corrdo nd Hulten 00). In ddition to reserch nd develop-ment tht uilds on scientific se of knowledge, for exmple, thereis n rgument for treting s investment the money firms spend onother sorts of new product development, such s the development ofnew motion pictures or new finncil services products. Businesses lsospend money on strtegic plnning, the implementtion of new usinessprocesses, nd employee trining, ll of which my dd significntly tofuture productivity nd thus rguly should e treted s investments well. Tking n even roder perspective, time nd money devoted toforml eduction dd to the humn cpitl of the Americn workforcend thus to its future productivity. While ccounting ccurtely for thevlue of these investments poses some difficult mesurement chllenges

(Arhm 00), their importnce to future economic growth shouldnot e overlooked. According to some reserch (Krueger 999), returnson humn cpitl generte the lions shre of ntionl income.


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T Y R Y A | 57

, D x U.S. U.S. k. O , U.S.

6, j. G M k , F A , C .

I A , A A A .T , P S U B A B L,

j U S x j .

Business Inventories

B , .I q x

GDP .O ,

q q, . T q , , qk J. A, . GDP q q .

Government Outlays, Consumption, and Investment

T F F Y S $. , .A GDP, 8.7 FY 9. FY . F 6.5 FY ,

.5 x . C x 5. FY , q ( 5 ), . Cx FY FY 7,


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(x F R Bk) . I , x FY 9 FY 7 .

F . FY FY

GDP . . A CBO,x F T A R P(TARP). T P FY B TARP $67.8 , A 9 $ .

N FY . C S S, M,

M FY , . A D L, x k $6 , $8 . T z . I, x x $ .

D q , F x , NI P A, . ; .7 q , .6 .

A j A FY B, FY C, GDP 8.7

FY 5.5 FY , . FY 5. T GDP ( x ) FY FY .5 FY . T

T x 7 x N I P A (NIPA) x . B 7 . T NIPA x , , F R . T CBO () TARP B . T CBO j FY FY, j FY FY .


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, j .

Lk , B C A x x

A , A Iq, x .8 GDP . P FY B .

State and Local GovernmentsS

, , , S U.S. . A S x , F RA S 9 , .

S x , $5 , q q , . A x. S x x $ , x $8 . F $87.8 q 9 ; R A, S .

C S x . q , . . R, , F q , S

$8 q , S .

E S 5, , 66, k A


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8 D . A 6 j .

R S , , , , 9.9 q ,

. S x B A B . P R A, z $8 j, , , (D T ).

S . T k F

, x. T A k S . I RA, A S A j x F x S. I , P

A J A , , . T , A A J A z 5, .

Real Exports and Imports

R x 5. q j 8.8 . A , x U.S. . T x 6 9 N , j U.S. k U.S.x k P x 9 . M , , ; , ,

E.M x k A ( C 5).

R , x .8 q . T k


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, x, .

A , xx GDP q ,

GDP .

Labor Market Trends

T j k , .8 j. T . j , S 5,. T j 5. P F ,

k (F7). T k J .

P j 99 , F 8. A , j 9 . G j

. B ,

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

200

300

400

500

600

700

Figure 2-7

Weekly Initial Unemployment Insurance Claims, 20042012Thousands, seasonally adjusted

Note: Four-week moving average. Shading denotes recession.Source: Department of Labor, Employment and Training Administration.

Week ended1/28/2012


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x 999, j . T, 79 j

999 , k .N, j

. D k . O 9 8. J . T .6 O J (F 9). O k k U6

B L S . T U6 k , , k

j k. T U6 J .

I k j , k j kk . A k

q 7, kk

96

98

100

102

104

106

108

-36 -30 -24 -18 -12 -6 Trough 6 12 18 24 30 36

Indexed to 100 at NBER-defined trough

Figure 2-8Private Nonfarm Employment During Recoveries

2001

Current (June

2009 trough)

Months from trough

Source: Bureau of Labor Statistics, Current Employment Statistics; National Bureau ofEconomic Research; CEA calculations.

1991


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.6 . B q 9, .8. B q , kk . , . A . kk q, , , j.

Wages, Labor Productivity, and Prices

H .

T x k, , . , . N N I P A .7 q , . 6 7.

L ( ,

k) .5 q , . A k, .8 .

3

4

5

6

7

8

9

10

11

1979 1983 1987 1991 1995 1999 2003 2007 2011

Figure 2-9Unemployment Rate, 19792012

Percent

Note: Shaded areas represent recessions.Source: Bureau of Labor Statistics, Current Population Survey.

Jan-12


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C x (CPI) , .6 (F ). T , , ,

. Ex , CPI . .8 .

O , . A .8 x , .

J D.M

k . H k, , . O ,

, k , . A F , U.S. k . T k W WII , k .B k , k

q .

T A x x , . . T j F R , x 5

T .1 M, k k , x .

1 T S P F j CPI .5 .


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T Y R Y A | 65

-3

-2

-1

0

1

2

3

4

5

6

2004 2005 2006 2007 2008 2009 2010 2011 2012

Figure 2-10Consumer Price Inflation, 20042011

12-month percent change

Dec-11

Source: Bureau of Labor Statistics, Consumer Price Index.

Core

Headline

1.25

1.50

1.75

2.00

1947:Q1 1957:Q1 1967:Q1 1977:Q1 1987:Q1 1997:Q1 2007:Q1

Markup overunit labor costs

2011:Q4

Average markup1947:Q1-2011:Q4: 1.57

Figure 2-11Price Markup over Unit Labor Costs, Nonfarm Business, 19472011

Note: Shading denotes recession.Source: Bureau of Economic Analysis, National Income and Product Accounts; Bureau ofLabor Statistics, Productivity and Costs; CEA calculations.

Ratio of prices to unit labor costs


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Financial Markets

T k. C 9 G P E U,

.F .8 , U.S. q

S P 5 C Ix . Ex . A 8 A, q , E U.S. F

. M k Mk V Ix(VIX) .T VIX q 9 8. T S&P x x 96 , . I 5 6, S&P x x .

Y T .98 D , .9 D (F ). T .58 F ,

2004 2005 2006 2007 2008 2009 2010 2011 2012-1

0

1

2

3

4

5

6

Real

Nominal

Figure 2-1210-Year Treasury Yields, 20042012

Percent

Source: Federal Reserve Board, H.15.

Feb.2

1.86%

-0.30%


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T Y R Y A | 67

k U.S. . R E, , , , . TF R S

U.S. . O , T , , k T IP S, z.

W A z N , , , z . Y, FR A 9 k

x , A . T, A

j 9 T , k , x . T FOMC J .

Small Businesses and the RecoveryS 5

. B 99 , , 98 . F x j . S, k z ( F ). I q 7:Q :Q, F R S L O O S ( $5 ) , , .

S k ,

, q k, . P Rj (99) k


74/453

68 | C

k . E k (Bk 98; H T997; Pk R ). C , , , (Fzz,H, P 988; K L 99; K, L, S 99; L Z 998; Rj Z 998; G,Sz, Z ). G G (99)

, Kz, L, K (7) k k k .

T x . U , , . D

B, Lk, MG () CP S, C, N S S B

11 S k . T , F R N S S B F 988 989, , 5.

88

90

92

94

96

98

100

102

2007:Q1 2008:Q1 2009:Q1 2010:Q1 2011:Q1

Indexed to 100 at 2007:Q4

Note: Small firms have fewer than 500 employees. Shaded area denotes recession.Source: Bureau of Labor Statistics, Business Employment Dynamics.

Figure 2-13Private Sector Job Recovery by Firm Size, 20072011

Large firms

Small firms

2011:Q2


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F . T , k , 79, k x . F, k , k ( 99 ). T x .

P , k $5 (C Bk ). S 9, , k .S, k, , . B J D , BzC, .5

k 5 , k . , .6 k, 8.5

12 T q.

0

5

10

15

20

25

30

35

40

0

50

100

150

200

250

300

350

400

2007 2008 2009 2010 2011

Figure 2-14Small Business Commercial and Industrial Loans, 20072011

2011:Q3

Note: Loans with original amounts of less than $1 million.Source: Federal Deposit Insurance Corporation, Statistics on Banking.

Billions of dollars Millions of loans

Value of loans

(left axis)

Number of loans

(right axis)


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Bx -: SBA R F S F D R

The Smll Business Administrtion (SBA) ws creted y Congressin 953 to id nd provide technicl support for smll usinesses.1 Mny

SBA progrms seek to minimize the riskiness of smll-usiness lonsfor lenders y gurnteeing portion of these lons ginst defult. SBAcollortes with federl gencies nd the White House to ensure thtt lest 3 percent of Federl Government contrct opportunities, worthnerly $00 illion, re ville to smll usinesses.

Trditionl SBA progrms, the 7() nd 504 lons, trget smllfirms. These progrms hve een found to hve positive impct onlocl economic performnce (Crig, Jckson, nd Thomson 005). Inresponse to ongoing tight credit conditions fcing smll firms during the

recovery, the Smll Business Jos Act of 00 incresed the lon limitsfor SBA lon gurntees. The limits for equipment nd rel estte lonswere incresed permnently nd the limits for working cpitl lonsthrough the SBA Express progrm were incresed temporrily. BetweenFY00 nd FY0, the numer of SBA lons pproved incresed .5percent, while the vlue of SBA lons pproved incresed 45.4 percent(see ox figure). SBA incresed overll lending supported to $30.5 il-lion in FY 0, the highest ever lending yer in its 60-yer history.2

Recent economic reserch shows tht new nd young firms con-triute disproportiontely to jo growth in the U.S. (see Chpter 6). TheOm Administrtion hs creted the Strtup Americ inititive tosupport the role tht strtups ply in economic growth nd jo cretion.The inititive ims to ccelerte high-growth entrepreneurship throughpolicies tht unlock ccess to cpitl for high-growth compnies, cretementoring progrms, ccelerte l-to-mrket innovtion, nd mkegovernment work etter for entrepreneurs.

As prt of the Strtup Americ inititive, SBA is improving ccessto cpitl for high-growth smll usinesses. The SBA hs lunched twonew Smll Business Investment Compny (SBIC) progrms, ech seek-ing to gurntee n dditionl $ illion in privte investment withinfive yers: the Erly-Stge Innovtion Fund for seed- nd erly-stgecompnies nd the Impct Investment Fund for compnies in resof ntionl priority, including underserved mrkets nd emerging

1T S B A

, , , , . T ://..////Sz_S_T..2 L SBA 7() 5 5 k. T x 7() 5 , .


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sectors, such s energy nd eduction. SBA licensed the first SBICImpct Investment Fund in Michign in July 0. The InvestMichign!Mezznine Fund, with resources of $30 million, is pulic-privteprtnership etween SBA, Dow Chemicl Compny, nd MichignGrowth Cpitl Prtners tht will e mnged privtely nd will focuson funding new nd smll firms with plns to expnd their opertionsnd crete jos. SBA lso deepened its commitment to underservedmrkets in 0 with the implementtion of the Underserved MrketsInititive, which will disseminte SBA resources to youth, rurl, vetern,low-income, nd other communities.

40

50

60

70

80

90

100

110

120

10

12

14

16

18

20

22

24

26

28

30

2006 2007 2008 2009 2010 2011

Value of Loans

Number of Loans

Billions of dollars

Source: Small Business Administration, Agency Financial Report, 2011.

SBA Loans Approved, 2006-2011

Thousands of loans

SBA ugmented its role s coordintor of federl gencies insupporting smll usinesses in 0. As is common fter finncil crises,smll firms re experiencing difficulties mnging csh flow due todverse credit conditions. To improve ccess to working cpitl forthousnds of smll firms, in Septemer, President Om issued n

executive order to institute the QuickPy progrm, which requires ngency to py its contrctors within 5 dys nd, t mximum, within30 dys. As with the QuickPy progrm, SBA plys coordinting rolefor the Smll Business Innovtion Reserch (SBIR) progrm, whichfocuses on smll high-technology firms nd includes grnting gen-cies. Evidence suggests tht SBA nd SBIR involvement mke differ-ence to young firms. Between 983 nd 997 wrdees of the SBIR pro-grm susequently hd sustntilly higher employment nd sles

growth compred to mtched smple of similr firms (Lerner 999). InDecemer, Congress pssed long-term reuthoriztion of the SBIRprogrm tht will increse its funding.


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, .9 , CDFI, , .

I 9, O A

. T : x . I , A $ , , k , C D F I (CDFI), . T

S S B C I (SSBCI), x $5 , x , S B A (SBA), D A, ExI Bk. O A . F x, FS 9 , 8 k,

, . G , , ,, .

B FY, k T S B L F (SBLF)

SSBCI . A J, SBLF $.5 , , F Y , SBA $ . (Bx A SBA k S A.)

T x

j ,

13 S BzC 5 $6 . L , BzC J D .14 I x. j (W H ).


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, . S W FG J 9 , , x, J 8. T x , .., .5 M, J 8, F 5 .I , x x ( ) x (8 ). T x

j x j 8.

The Long-Term Outlook

Lk , A j 9 (T ). I , FY B,

1 T W FG 6 x D & B $ . S J ().

0

5

10

15

20

25

30

35

2003-Q3 2005-Q3 2007-Q3 2009-Q3 2011-Q3

Percent of respondents

Note: Small firms have less than $20 million in annual revenue. Shaded area denotesrecession.Source: Wells Fargo/Gallup Small Business Survey cited in Jacobe (2012).

Figure 2-15Employment Outlook for Small Businesses, 20032012

Employment expected toincrease over next

12 months

2012:Q1

Employment expected todecrease over next

12 months


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, , . T A j GDP .6 q .

T A x : T A N , 9. O, T . T B j k z. S , 8. , 8.9

. T j : , . T , , T k .

T A E F

NominalGDP

RealGDP

(chain-type)

GDPpriceindex

(chain-type)

Con-sumerpriceindex

(CPI-U)

Interestrate,91-day

Treasurybills

(percent)

Interestrate,10-year

Treasurynotes

(percent)

Percent change, Q4-to-Q4 Level, calendar year

() 4.7 3.1 1.6 1.2 0.1 3.2

4.0 1.7 2.2 3.6 0.1 2.8

4.6 3.0 1.6 1.9 0.1 2.8 4.7 3.0 1.6 1.9 0.2 3.5

5.8 4.0 1.7 2.0 1.4 3.9

5 6.1 4.2 1.8 2.0 2.7 4.4

6 5.8 3.9 1.8 2.1 3.8 4.7

7 5.7 3.8 1.8 2.1 4.1 5.0

8 4.6 2.8 1.8 2.1 4.1 5.1

9 4.4 2.6 1.8 2.1 4.1 5.1

4.3 2.5 1.8 2.1 4.1 5.1

4.3 2.5 1.8 2.1 4.1 5.3

4.3 2.5 1.8 2.1 4.1 5.3

Note: 2011-2022 orecasts were based on data available as o November 15, 2011, and were used or the FY 2013Budget. e interest rate on 91-day T-bills is measured on a secondary-market discount basis.

Source: e orecast was done jointly by the Council o Economic Advisers, the Department o Commerce(Bureau o Economic Analysis), the Department o the Treasury, and the Ofce o Management and Budget.


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I F,

B C j 8. 7. j 8.6 8. .S, F R O Mk Cj 8. 8.5 q 7. 8. . A CBO FOMC J k .

T C E A z F, k 57,, ,, , N,D, J, . Lk , j 6,

T A L Mk F, F

Unemployment rate (percent) Nonarm payrollemploymente

(averagemonthlychange,

Q4-to-Q4,thousands)Feb-2012

Annual averageFourthquarter

FY 2013Budget

Nov-2011

CBODec-2011

Blue Chipc

low-highFeb-2012

FOMCd

low-highJan-2012

9.0 9.0 146

8.9 8.8 8.0 8.6 8.2 8.5 167

8.6 9.1 7.4 8.4 7.4 8.1 220

8.1 8.7 6.7 7.6 264

5 7.3 7.4 284

6 6.5 6.3 2597 5.8 5.7 251

8 5.5 5.5 131

9 5.4 5.5 101

5.4 5.4 92

5.4 5.4 97

5.4 5.3 89

a e Administration Budget orecast (done jointly by the Council o Economic Advisers, the Ofce o Manage-ment and Budget, the Department o the Treasury, and the Department o Commerce) was based on data available

as o November 15, 2011.b e Congressional Budget Ofce orecast was completed in early December.c e Blue Chip Economic Indicators or February 2012 was based on a survey o more than 50 proessional ore-

casters conducted on February 6-7, 2012. e high-10 and low-10 orecasts are the average o the ten highest andten lowest orecasts.

d e high and low end o the central tendency o the Federal Open Market Committee announced on January25, 2012.

e Based on data available on February 5, 2012.Source: Aspen Publishers, Blue Chip Economic Indicators; Federal Reserve, Federal Open Market Committee.


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67, . A , j , .8 .

D k , Ax . W

z, .

Growth in GDP over the Long Term

T , . T z U.S. GDP GDP

A , GDP . B :Q :Q j FY B GDP j .5 .

T A GDP. T , , ,

, kk, , GDP . E T : T k 95 k 7, k . T 7:Q :Q, 79 . T A j :Q :Q, j 7:Q :Q, .

T k j . , , j ( , ),

j C B. O , j . (, ), . Tj . T x


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, j k . T . T 6 J 8 D , (F 6). A , x .Tk , j . .

T q x . x ( , ) , ,

7 ( , ).

1 B , GDP

1 T , GDP . 7:Q :Q, 7:Q (.8 ) , x 5. 7 j .

T C A P R GDP G, 95

Component

Growth ratea

History,peak-to-

peak

Recent his-tory, since

peak

ForecastHistory and

orecast,

since peak

1953:Q2 to2007:Q4b

2007:Q4 to2011:Q3

2011:Q3 to2022:Q4

2007:Q4 to2022:Q4

1 C 6+ 1.4 1.1 1.0 1.0

2 L 0.2 0.8 0.1 0.3

3 E 0.0 1.2 0.4 0.0

4 R

0.0 1.0 0.1 0.2

5 A k ( ) 0.3 0.1 0.0 0.0

6 O (, )

2.1 1.9 2.3 2.2

7 R GDP 0.2 0.2 0.5 0.3

8 S: A GDP 3.2 0.1 3.1 2.4

9 M: P GDP 3.2 2.5 2.5 2.5

a All contributions are in percentage points at an annual rate.b 1953:Q2 and 2007:Q4 are business-cycle peaks.Note: Population, labor orce, and household employment have been adjusted or discontinuities in the population

series. Nonarm business employment, workweek, and productivity come rom the Labor Productivity and Costsdatabase maintained by the Bureau o Labor Statistics.

Source: Bureau o Labor Statistics, Current Population Survey, Labor Productivity and Costs; Bureau o EconomicAnalysis, National Income and Product Accounts; Department o the Treasury; Ofce o Management and Budget;CEA calculations.


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, j j .

T kk j j ( 5, ) . , , ( 5, ). T kk x k .

L j .

z ( 6, ), 957 ( 6, ). T k j k . O , , , .

T GDP x GDP j ( 7, ),

. T , , , , z .

40

50

60

70

80

90

100

2002:Q1 2004:Q1 2006:Q1 2008:Q1 2010:Q1 2012:Q1

Educational enrollment rate

Labor force participationand enrollment rate

Labor forceparticipation rate

Note: Enrollment rate is defined as the number of those enrolled in school but not in the labor forceas a share of the population. Shading denotes recession.Source: Bureau of Labor Statistics; CEA calculations.

Percent, seasonally adjusted

Figure 2-16Labor Force Participation and Educational Enrollment,

Ages 1624, 20022011

2011:Q4


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S , GDP j . j ( 8, ), .5 GDP( 9, ). A GDP x

GDP j (, ) k j. S , GDP x . , , 5 7 , j GDP .5 7 .

R GDP j .5 7( 8, ),

. ( 8, ). T j GDP j k . T 79 , , x GDP j, x .

A q k, ,

qk GDP . I A B , U.S. GDP . T . T GDP GD U.S. k .

Conclusion

T U.S. . T GDP 99 , . T k , k ,

.A , k

, q ,


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. E q x . W A , k

U.S. . O x j , . T

j k 99 x , .


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C H A P T E R 3

RESTORING FISCALRESPONSIBILITY

W P O k , A $. j $8 .1 T A k N . Pk x . I , . I , , , , . T k .

Rz k , O A .I F , P S PAYG A, x . I M , P AC A, x k , . L

, P C $ k B C A , $.

1 I , , x .


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. A , P BC A k $ ,

x, . T , x k , M , Iq A .

T ,

j k, A , z z k A , . TP k k ,

.T k.

R . A A C A B C A F , k . B j , C k A N k.

Determinants of Current Deficits

U , j O M B (OMB), , $. (8.7 GDP) $66 (.9 GDP). D j ,

full 2012 economic report of the president

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