Tag Archives: Obama Economy

Economy, Obama Administration

Obama Legacy: Eight Years of Economic Progress

Donald Trump has made it clear he intends to erase Obama’s legacy. The policies Trump is prescribing – tax cuts for the richest 1% and corporations, elimination of mortgage deductions that will steal the American Dream from middle class Americans, overturning clean energy, trade wars instead of promoting 21st century manufacturing, and policies sure to balloon the national debt, overturning Obama executive orders on overtime rules, raising the federal minimum wage, paid parental leave, overturning Dodd-Frank financial protections to prevent another overheated meltdown – will reverse the progress. So it is important to have a measure. Saving the US economy from collapse, saving Americans from another Great Depression, was one of the most significant successes of Obama’s presidency. Eight years after that uncertainty and insecurity, Americans seem to have forgotten. They take for granted what Obama accomplished in face of a Republican leadership determined to make his presidency fail, rather than rescue Americans losing their jobs, homes, health care, retirement and college funds. – Karen Rubin, News & Photo Features 

Here is a report on eight years of economic progress:

Eight Years of Macroeconomic Progress and the Third Estimate of Gross Domestic Product for the Third Quarter of 2016

WASHINGTON, DC – Jason Furman, Chairman of the Council of Economic Advisers, issued the following statement today on eight years of macroeconomic progress and the third estimate of Gross Domestic Product for the third quarter of 2016. You can view the statement HERE.

Summary: Real GDP grew 3.5 percent at an annual rate in the third quarter, with the U.S. economy now 11.6 percent larger than at its peak before the crisis.

Third-quarter economic growth was revised up 0.3 percentage point to 3.5 percent at an annual rate, the fastest quarterly growth since 2014. The U.S. economy is now 11.6 percent larger than its pre-crisis peak in 2007 amid its strong recovery since the worst economic crisis since the Great Depression. Rising incomes, improved household balance sheets, and high levels of consumer confidence have supported robust consumer spending growth over the recovery. Meanwhile, the housing sector has continued to recover from the crisis and shows further potential for expansion. However, economic growth has faced a number of headwinds in the current recovery, including contractions in State and local government spending, weak foreign growth (which has weighed on both exports and investment), and the demographic effects of the aging U.S. population. More work remains to further strengthen growth and to ensure that it is broadly shared, including promoting greater competition across the economy; supporting innovation; increasing investments in infrastructure; and opening new markets to U.S. exports.

SEVEN KEY POINTS ON MACROECONOMIC PROGRESS OVER THE LAST EIGHT YEARS

1. According to BEA’s third estimate, real gross domestic product (GDP) increased 3.5 percent at an annual rate in the third quarter of 2016, an upward revision of 0.3 percentage point (p.p.) from the second estimate. Real consumer spending grew a strong 3.0 percent in the third quarter following robust growth in the second quarter. Inventory investment—one of the most volatile components of GDP—added 0.5 percentage point to GDP growth in the third quarter after subtracting 1.2 percentage points in the second quarter. Residential investment declined for the second quarter in a row, though at a slower pace in the third quarter than in the second. Notably, exports grew 10.0 percent at an annual rate in the third quarter, their fastest quarterly growth since late 2013, boosted by a likely transitory jump in agricultural exports.

Real gross domestic income (GDI)—an alternative measure of output—increased 4.8 percent at an annual rate in the third quarter. (In theory, GDP and GDI should be equal, but in practice they usually differ because they use different data sources and methods.) The average of real GDP and real GDI, which CEA refers to as real gross domestic output (GDO), increased 4.1 percent at an annual rate in the third quarter. CEA research suggests that GDO is a better measure of economic activity than GDP (though not typically stronger or weaker).

The 0.3-p.p. upward revision to GDP growth was more than accounted for by upward revisions to consumer spending, business fixed investment, and State and local government spending. However, the overall contour of third-quarter growth was largely unchanged from last month’s second estimate.

2. Strong consumer spending growth over the current recovery has been supported by growth in real incomes, improvements in household balance sheets, and high levels of consumer confidence. Consumer spending accounts for over two-thirds of GDP, and has contributed disproportionately to overall real GDP growth in recent years. This strength in domestic demand reflects improved economic conditions for American households across a wide range of measures. Real wages have grown faster over the current business cycle than in any since the early 1970s (measured peak to peak), and from 2014 to 2015 real median household income increased 5.2 percent, the fastest growth on record. Meanwhile, as a share of disposable income, household debt service—the amount that households must spend on interest and principal payments for their outstanding debt—has fallen sharply in recent years, driven both by low interest rates and by sharp reductions in outstanding household debt relative to income. Taken together, these factors have left households with more disposable income available for consumer purchases. Finally, consumers have been increasingly confident in recent years. As the chart below shows, the University of Michigan index of consumer sentiment—which tends to closely track real consumer spending growth—is close to its highest level in ten years.

3. The recent slowdown in real business fixed investment growth can be explained largely by changes in the rate of U.S. and foreign GDP growth, as discussed in Chapter 2 of the 2017 Economic Report of the President. While business fixed investment—private spending on structures and equipment, as well as expenditures on intellectual property products such as software and research and development (R&D)—constitutes just 12 percent of GDP, it is crucial to long-run growth because it provides workers with more capital and improves technology, thus contributing to productivity growth. Business fixed investment growth has slowed since 2014; while oil-related investment has dragged on overall investment growth due to low oil prices, non-oil related investment growth has slowed somewhat as well. CEA analysis finds that much of the slowdown in investment growth can be explained using an “accelerator model,” which assumes that businesses invest if they expect rising demand growth for their products, meaning that rising GDP growth rates will lead to faster investment growth. The analysis also finds that several factors that have historically impacted investment growth—including credit constraints and other financial stress—have little explanatory power in understanding the recent slowdown. However, because the model predicts that investment follows changes in the rate of GDP growth, it predicts a rebound in the future, since U.S. and global output growth are expected to stabilize or pick up slightly in the years ahead.

4. Ten years after the first signs of decline in the U.S. housing market, housing activity and investment have gradually recovered, with room for future expansion. Recovery in the housing sector has been supported by strong job growth, rising real wages, and low mortgage rates, with growth in real residential investment outpacing overall real GDP growth over the course of the recovery from the Great Recession. Even with the solid growth in recent years, there is room for further expansion in residential construction. As the chart below shows, housing starts remain well below the level needed to keep pace with population growth, household formation, and typical rates of housing stock replacement. CEA analysis suggests that excess housing supply from overbuilding during the 2000s has been more than offset by underbuilding in recent years. Low household formation, particularly among young adults, may be playing a role in reducing demand for housing. On the supply side, local barriers to housing development in high-demand areas may also be one factor holding back new residential construction. Still, residential investment has further room to grow in future quarters, presenting upside potential for domestic demand in the near-to-medium term.

5. Trends in real State and local government purchases have differed sharply from prior business cycles, with meaningful contractions amid budgetary cuts. Although in a typical recovery State and local spending tends to grow quickly and at a similar pace as in the pre-recession period, State and local spending contracted sharply in the current business cycle and, after seven years, has still not rebounded to its pre-crisis levels. During the four quarters of 2010, State and local purchases subtracted 0.5 percentage point from GDP growth and then subtracted about another 0.3 percentage point in both 2011 and 2012. Spending in this sector stabilized in 2013, added modestly to GDP growth during the four quarters of 2014 and 2015, and had a negligible impact on GDP during the first three quarters of 2016. Real State and local government purchases, as well as State and local government employment, remain below their respective pre-crisis levels. If State and local government purchases had increased at the average rate of expansions excluding the current cycle (as shown in the chart below), real GDP growth would have been approximately 0.4 percentage point faster per year on average in the current recovery. Due in part to contractions in State and local government spending, total real government purchases are below their level at the business cycle peak in 2007; in other words, all of the growth in real GDP in the current business cycle is attributable to the private sector.

6. Growth in U.S. exports closely tracks global demand, with slowing global growth creating key headwinds to U.S. growth in recent years. The volume of U.S. exports to foreign countries is sensitive to foreign GDP growth, and, as shown in the chart below, four-quarter foreign GDP growth—when weighting countries by their relative importance to U.S. trade—explains much of the variance in U.S. export growth. Over the last five years, global growth has consistently underperformed relative to forecasts, and in its October World Economic Outlook, the International Monetary Fund (IMF) revised down its forecast of global growth for the four quarters of 2016. Still, the IMF currently forecasts global growth to pick up in 2017, suggesting less downward pressure on U.S. export growth—and on the manufacturing sector, which tends to be more export-oriented than other industries—from weak foreign demand going forward.

7. The aging of the U.S. population, a trend that will continue in the coming years, has placed constraints on growth in potential real GDP. The growth of the working-age (15-64) population in the United States has slowed notably in recent decades, putting downward pressure on labor force participation and real GDP growth. The working-age population grew 1.4 percent at an annual rate in the 1960s through the 1980s, but just 0.6 percent during the current business cycle. (The rate of growth of the prime-age [25-54] population has declined even more steeply, and the prime-age population even contracted between 2012 and 2015.) The decline in the growth rate of the working-age population is expected to continue through 2028, suggesting continued demographic headwinds to overall growth for at least the next decade. As noted in Chapter 2 of the 2017 Economic Report of the President, research has found that demographic shifts towards an older workforce may have also reduced productivity growth in recent years, though projections of the composition of the labor force suggest that the drag on productivity from demographics may soon abate. Still, slowing productivity growth remains a key structural challenge that the United States shares with all other major advanced economies.

As the Administration stresses every quarter, GDP figures can be volatile and are subject to substantial revision. Therefore, it is important not to read too much into any single report, and it is informative to consider each report in the context of other data as they become available.

Economy, Employment & Labor Issues

Obama Hands Trump Rising Economy: November Continues Record Job Growth, Lowest Unemployment Since 2007

By Karen Rubin, News & Photo Features

With Donald Trump continuing to rewrite history, advance falsehoods about Obama’s Presidency, it is important to examine the Employment report for November. Trumpsters depend upon disaffection and dissatisfaction. A strong economy is the antithesis. Also, Trump wants to take credit as the forward momentum of Obama’s policies continue on into the new administration, before the administration’s policies, undoing everything Obama accomplished, have their impact.

Trump was able to exploit years of propaganda from the Republicans aimed at destroying his presidency. Obama found a way to thread the needle in coming up with solutions, despite unprecedented obstruction of infrastructure spending, the America Jobs Act, spending for transportation and highways, defeating his plans to build high-speed rail and invest in clean, renewable energy.

Obama was almost a victim of his own success – like President Bill Clinton before him, who presided over a golden era of peace and prosperity, when everyone’s income and standard of living rose, only to see Al Gore denied the presidency – people take for granted how much better they are off from when Obama took office, when 850,000 jobs a month were being lost, 20,000 people a month were losing their health care, millions were losing their homes to foreclosure.

Obama also had in place programs to help the people who found themselves unable to pursue the 5.5 million unfilled jobs because of lack of training. He had programs to boost advanced manufacture, and open up markets to the 95% of the world that is outside the US.

Trump is profiting from being handed a growing economy, and he has signaled he will install the very same people who profited from millions of Americans misery, he will undo the financial and consumer protections, he will throw people back into the insecurity of losing health insurance and jobs and homes. He has shown in his appointments and in his business record that he will exploit workers and further weaken unions.

Statement on the Employment Situation in November

WASHINGTON, DC – Jason Furman, Chairman of the Council of Economic Advisers, issued the following statement today on the employment situation in November. 

Summary: The economy added 178,000 jobs in November, extending the longest streak of total job growth on record, as the unemployment rate fell to 4.6 percent.

The economy added a solid 178,000 jobs in November as the longest streak of total job growth on record continued. U.S. businesses have now added 15.6 million jobs since early 2010. The unemployment rate fell to 4.6 percent in November, its lowest level since August 2007, and the broadest measure of underemployment fell for the second month in a row. Average hourly earnings for private employees have increased at an annual rate of 2.7 percent so far in 2016, faster than the pace of inflation. Nevertheless, more work remains to ensure that the benefits of the recovery are broadly shared, including opening new markets to U.S. exports; taking steps to spur competition to benefit consumers, workers, and entrepreneurs; and raising the minimum wage. 

FIVE KEY POINTS ON THE LABOR MARKET IN NOVEMBER 2016 

1. U.S. businesses have now added 15.6 million jobs since private-sector job growth turned positive in early 2010. Today, we learned that private employment rose by 156,000 jobs in November. Total nonfarm employment rose by 178,000 jobs, in line with the monthly average for 2016 so far and substantially higher than the pace of about 80,000 jobs per month that CEA estimates is necessary to maintain a low and stable unemployment rate given the impact of demographic trends on labor force participation. 

In November, the unemployment rate fell to 4.6 percent, its lowest level since August 2007. The labor force participation rate ticked down, though it is largely unchanged over the last three years (see point 3 below). The U-6 rate, the broadest official measure of labor underutilization fell 0.2 percentage point for the second month in a row in part due to a reduction in the number of employees working part-time for economic reasons. (The U-6 rate is the only official measure of underutilization that has not already fallen below its pre-recession average.) So far in 2016, nominal hourly earnings for private-sector workers have increased at an annual rate of 2.7 percent, faster than the pace of inflation (1.6 percent as of October, the most recent data available).

2. New CEA analysis finds that State minimum wage increases since 2013 contributed to substantial wage increases for workers in low-wage jobs, with no discernible impact on employment. In his 2013 State of the Union address, President Obama called on Congress to raise the Federal minimum wage, which has remained at $7.25 an hour since 2009. Even as Congress has failed to act, 18 States and the District of Columbia—along with dozens of local government jurisdictions—have answered the President’s call to action and have raised their minimum wages. (In addition to the States that have already raised their minimum wages, voters in four States approved measures to raise the minimum wage in November.) To assess the impact of minimum wage increases implemented by States in recent years, CEA analyzed data from the payroll survey for workers in the leisure and hospitality industry—a group who tend to earn lower wages than those in other major industry groups and thus are most likely to be affected by changes in the minimum wage. As the chart below shows, hourly earnings grew substantially faster for leisure and hospitality workers in States that raised their minimum wages than in States that did not. By comparing trends in wage growth for the two groups, CEA estimates that increases in the minimum wage led to an increase of roughly 6.6 percent in average wages for these workers. At the same time—consistent with a large body of economic research that has tended to find little or no impact of past minimum wage increases on employment—leisure and hospitality employment followed virtually identical trends in States that did and did not raise their minimum wage since 2013. (See here for more details on CEA’s analysis.)

3. The strengthening labor market is drawing individuals into the labor force, offsetting downward pressure on employment growth from the aging of the population. Employment growth depends on three factors: population growth, the rate at which the population participates in the labor force, and the share of the labor force that is employed. The chart below decomposes employment growth (from the household survey) into contributions from each of these factors for each year of the current recovery. It further decomposes labor force participation into shifts attributable to demographics (such as the aging of the U.S. population) and shifts attributable to other factors (such as the business cycle). Throughout the recovery, demographic changes in labor force participation—primarily driven by a large increase in retirement by baby boomers that began in 2008—have consistently weighed on employment growth. In recent years, however, non-demographic changes in labor force participation have supported employment growth, as the strengthening of the labor market and increasing real wages have drawn more individuals into the labor force. The entry (or reentry) of workers into the labor force has helped employment growth maintain its recent solid pace even as the unemployment rate has fallen more slowly. These two shifts in labor force participation—demographic and non-demographic—have largely offset one another in recent months, and as a result the overall labor force participation rate has remained broadly stable since the end of 2013.

4. The number of unemployed workers per job opening, an indicator of labor market slack, is near its lowest level prior to the recession. Using data from the household survey and the Job Openings and Labor Turnover Survey, the chart below plots the ratio of unemployed workers to total job openings. In the recession, unemployment rose rapidly while job openings plummeted, sending the ratio of unemployed workers to job openings to a record peak of 6.6 in July 2009. As the unemployment rate has decreased over the course of the recovery, and as job openings have climbed to record highs this year, the ratio of unemployed workers to openings has fallen steeply, standing at 1.4 as of September (the most recent data available for openings). This is close to the ratio’s lowest level in the 2000s expansion, another indicator—in addition to recent increases in real wages—of a strengthening labor market.

5. The distribution of job growth across industries in November diverged from the pattern over the past year. Above-average gains relative to the past year were seen in professional and business services (+49,000, excluding temporary help services), while mining and logging (which includes oil extraction) posted a gain (+2,000) for the second time in recent months amid moderation in oil prices. On the other hand, retail trade (-8,000), information services (-10,000), and financial activities (+6,000) all saw weaker-than-average growth. Slow global growth has continued to weigh on the manufacturing sector, which is more export-oriented than other industries and which posted a loss of 4,000 jobs in November. Across the 17 industries shown below, the correlation between the most recent one-month percent change and the average percent change over the last twelve months was -0.06, the lowest level since September 2012.

As the Administration stresses every month, the monthly employment and unemployment figures can be volatile, and payroll employment estimates can be subject to substantial revision. Therefore, it is important not to read too much into any one monthly report, and it is informative to consider each report in the context of other data as they become available.

Economic Policies, Economy

Census Data: Household Income Grew at Record Pace; Poverty Rate Fell Fastest since 1968; Uninsured Rate Continued to Fall in 2015

WASHINGTON, DC – Jason Furman, Chairman of the Council of Economic Advisers; Sandra Black, Member of the Council of Economic Advisers; and Matt Fielder, Chief Economist of the Council of Economic Advisers; issued the following statement today on the Census Income, Poverty, and Health Insurance Data. You can view the statement HERE.

Summary: In 2015, household income grew at the fastest rate on record, the poverty rate fell faster than at any point since 1968, and the uninsured rate continued to fall. 

Today’s report from the Census Bureau shows the remarkable progress that American families have made as the recovery continues to strengthen. Real median household income grew 5.2 percent from 2014 to 2015, the fastest annual growth on record. Income grew for households across the income distribution, with the fastest growth among lower- and middle-income households. The number of people in poverty fell by 3.5 million, leading the poverty rate to fall from 14.8 percent to 13.5 percent, the largest one-year drop since 1968, with even larger improvements for African Americans, Hispanic Americans, and children. Meanwhile, the ratio of earnings for women working full-time, full-year to earnings for men working full-time, full-year increased to 80 percent in 2015, the highest on record. Every State has seen declines in its uninsured rate since 2013 as the major coverage provisions of the Affordable Care Act have taken effect. Solid employment growth and robust real wage growth so far this year suggest that incomes are continuing to rise in 2016, and, building on the progress shown in today’s Census report, the President will continue to call on Congress to take steps to invest in job creation, wage growth, and equal pay for equal work.

SIX KEY POINTS IN TODAY’S REPORT FROM THE CENSUS BUREAU

1. Real median household income rose by 5.2 percent in 2015, the fastest growth on record. Median household income grew $2,798 to $56,516 in 2015, the first time that annual real income growth exceeded 5 percent since the Census Bureau began reporting data on household income in 1967. Data from 2016 so far point to further strong gains in real household incomes, which depend on employment, nominal wages, and inflation. As of August, total nonfarm job growth has averaged a solid 182,000 jobs a month so far in 2016, and hourly earnings for private-sector workers have increased at an annual rate of 2.8 percent, much faster than the pace of inflation (1.3 percent as of July, the latest data available).

2. The total number of Americans below the poverty line fell by 3.5 million from 2014 to 2015, and the official poverty rate fell to 13.5 percent due to the largest one-year drop since 1968. The poverty rate for children under age 18 fell by 1.4 percentage point (p.p.) from 2014 to 2015, equivalent to more than 1 million children lifted out of poverty. Meanwhile, the poverty rate for those ages 18 to 64 saw its largest one-year decline on record (-1.1 p.p.), and poverty fell 1.1 p.p. for those ages 65 and older. As noted below (see point 5), the official poverty rate does not reflect the full effect of antipoverty policies because it includes only pre-tax income and excludes the direct effect of key policies like the Supplemental Nutrition Assistance Program (SNAP) and the Earned Income Tax Credit (EITC). The Supplemental Poverty Measure, which is designed to include the effects of these programs but also takes into the cost of basic needs when setting the poverty threshold, decreased 1.0 percentage point in 2015, from 15.3 percent to 14.3 percent.

3. Households at all income percentiles reported by the Census Bureau saw gains in income, with the largest gains among households at the bottom of the income distribution. While real median household income increased 5.2 percent, gains were even larger in the lower half of the income distribution, ranging from an increase of 5.5 percent for households at the 40th percentile to an increase of nearly 8 percent for households at the 10th percentile. While households at the top half of the income distribution also saw increases, their gains were smaller, with an increase of 2.9 percent in the 90th percentile of household income. 2015 marked the first time real household income grew at all percentiles reported by the Census Bureau since 2006, and real income growth in 2015 was the fastest since 1969 for the 10th, 20th, 40th, 50th, and 60thpercentiles. Although the level of income inequality remains high, multiple measures of inequality—including the Gini coefficient, the ratio of the 90th percentile of income to the 10th percentile, and the share of income going to households at the top of the income distribution—fell modestly in 2015 as a result of this pattern of income growth.

4. All racial and ethnic groups saw increases in household incomes and decreases in poverty in 2015. As shown in the chart below, all racial and ethnic groups saw gains in real median household income and reductions in their respective poverty rates. Hispanic Americans saw both the largest gains in median income (6.1 percent), while Black Americans and Hispanic Americans saw the largest reductions in poverty (-2.1 p.p. and -2.2 p.p., respectively). The Supplemental Poverty Measure (SPM), which includes the effects of a number of important antipoverty programs (see point 5 below), shows a similar pattern, with all racial and ethnic groups seeing reductions in poverty.

5. In 2015, refundable tax credits like the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC) lifted 4.8 million children out of poverty. The Supplemental Poverty Measure (SPM), which includes the effects of a large number of antipoverty programs, is widely acknowledged to measure poverty more accurately than the official measure. Unlike the official poverty measure, the SPM measures post-tax and post-transfer resources, combining earnings with assistance from government programs—including in-kind transfers like food assistance—minus net tax liabilities and necessary expenditures on work, child care, and health care. The measure also bases the poverty line on the cost of meeting basic expenses. Together, in 2015, 9.2 million Americans, including 4.8 million children, were lifted above the poverty line by refundable tax credits, including the EITC and the CTC, illustrating their critical importance to the social safety net. Additionally, research has shown that helping low-income working families through the EITC and CTC not only reduces poverty, but also has positive longer-term effects on children, including improved health, educational outcomes, and labor force participation and earnings in adulthood. Expansions to the EITC and CTC signed into law by President Obama as part of the American Recovery and Reinvestment Act of 2009 lifted 1.0 million children out of poverty in 2013 according to the Center on Budget and Policy Priorities; these provisions were made permanent under the bipartisan agreement at the end of 2015. The President’s Fiscal Year 2017 Budget includes a number of provisions to further strengthen tax credits for working families, including an expansion of the EITC to workers without qualifying children. (Note that some of these estimates rely on survey data, which research has shown tend to underreport household use of certain programs like the Supplemental Nutrition Assistance Program, leading to underestimates of the poverty-reducing effects of these programs.)

6. In 2015, the share of people without health insurance declined in almost every State, and all States have seen gains since 2013, reflecting continued progress under the Affordable Care Act (ACA). Today’s new data from the American Community Survey (ACS) show that 49 States and the District of Columbia saw their uninsured rates decline in 2015. The uninsured rate has fallen in every State (as well as in the District of Columbia) since 2013. While the ACS is not the first survey to report estimates of State-level insurance coverage in 2015, the survey’s extremely large sample size allows it to provide particularly reliable estimates.

While all States have seen increases in insurance coverage since the ACA’s major coverage provisions took effect in the beginning of 2014, the extent of those gains have varied widely by State. Notably, States that have expanded Medicaid under the ACA have seen larger coverage gains on average, particularly if they started with a larger uninsured population. If Medicaid non-expansion States had seen coverage gains comparable to those seen by Medicaid expansion states with similar uninsured rates, the uninsured rate in these states would have been nearly 3 percentage points lower in 2015, increasing the magnitude of these states’ coverage gains since 2013 by almost two-thirds.

Today’s Census release also included an estimate of the national change in the uninsured rate based on the Current Population Survey (CPS). According to the CPS, the national uninsured rate dropped by 1.3 percentage points from 10.4 percent in 2014 to 9.1 percent in 2015, bringing the cumulative gain since 2013 to 4.3 percentage points. The new data from the CPS are broadly consistent with evidence from other Federal and private surveys showing that coverage gains continued during 2015; those surveys show that gains have continued into early2016. The cumulative coverage gains since 2013 have put the uninsured rate at its lowest level ever.

Jason Furman is Chairman of the Council of Economic Advisers. Sandra Black is a Member of the Council of Economic Advisers. Matt Fiedler is Chief Economist of the Council of Economic Advisers.