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American families are feeling the pressure of a tightening economy from all sides. They are burdened with massive amounts of debt that have become harder to handle due to accelerated house price drops and the stagflationary nature of the downturn. Jobs are going away, wages are flat, and benefits are disappearing, while prices are skyrocketing everywhere.
Just like a balloon squeezed from all sides, family finances are increasingly being burst. And the overall economic outlook doesn’t help. Massive trade deficits pose a drain on our national resources, slowing innovation means that we are generating less of what we need, and long-term budget deficits due to tax cuts for the rich are preventing the government from addressing the economic needs of America’s families.
1. Job losses mount. The already weak labor market has taken a turn for the worse. Employment declined by 63,000 jobs in February 2008—the largest loss since March 2003. And average monthly job growth was only 71,200 jobs over the past 12 months, compared to 145,400 in the previous 12 months, and 225,300 in the 12 months before that.
2. Wages remain flat. Factoring in inflation, hourly wages were only 2.0% higher and weekly wages were only 0.8% higher in January 2008 than in March 2001. Real hourly and weekly wages in January 2008 were lower than at any point in the previous 15 months.
3. Fewer people have pensions and health insurance. The share of private-sector workers with a pension dropped from 50.3% in 2000 to 43.2% in 2006, and the share of people with employer-provided health insurance dropped from 64.2% to 59.7%.
4. Family debt hits record highs. Household debt averaged a record 133.7% of disposable income in the fourth quarter of 2007. In the third quarter of 2007, families spent 14.3% of their disposable income to service their debt, up from 13.0% in the first quarter of 2001.
5. The housing crisis deepens. New home sales in January 2008 were 33.9% lower than a year earlier, and existing home sales were 23.4% lower. The median sales price of existing homes was 4.6% lower in January 2007 than a year earlier, and the median sales price of new homes dropped 15.1%. The average monthly supply of homes for the six months ending in October was 9.3 months, the highest since February 1982.
6. Homeowners’ losses increase. The total values of all homes fell by 1.8%, in the fourth quarter of 2007 after accounting for inflation, the largest drop since the third quarter of 1975. Home equity as share of home values also fell to a record low of 47.9%.
7. Oil and gas prices rise. The price per barrel of light, sweet crude oil at the end of February 2008, which will be delivered in the next month, was 66.6% above the same price a year earlier. Gasoline prices increased by 31.4% during the same time.
8. People are paying more for basics. Transportation cost 10.2% more in January 2008 than a year earlier, college tuition was up by 6.3%, fuel and utilities by 5.5%, medical care by 4.9%, and food by 4.9%.
9. Families feel the pressure. The share of mortgages entering foreclosure was a record high 0.8% in the fourth quarter of 2007, and the share of all mortgages in foreclosure came to a record high of 2.0%. The bankruptcy rate rose by 85.2% from 1.5 cases per 1,000 people in the first quarter of 2006—the first quarter after the new bankruptcy law went into effect—to 2.8 cases per 1,000 people in the third quarter of 2007. Credit card defaults rose to 4.2% of all credit card debt, an increase of 32.6% from the first quarter of 2006.
10. Productivity growth remains low. Labor productivity growth fell below 2% in 2005, 2006, and 2007 for the first time since 1997.
11. The deficit increases again. In January 2008, the Congressional Budget Office estimated that the deficit for 2008 will amount to $219 billion—$56 billion more than in 2007. This does not include the cost of an economic stimulus or additional appropriations for the wars in Afghanistan and Iraq.
12. The trade deficit remains high despite strong export growth. In the fourth quarter of 2007, the trade deficit grew slightly to 5.2% of Gross Domestic Product from 5.0% in the third quarter of 2007.
13. The dollar reaches new low. By early March 2008, a dollar bought 42.6% fewer euros, 37.2% fewer Canadian dollars, 29.5% fewer British pounds, and 18.2% fewer Japanese yen than in March 2001. After inflation, the dollar has lost 22.2% of its value against its trading partner currencies between March 2001 and March 2008.
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