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Economic Outlook
May 2, 2005

Comment on Trade Deficit Numbers
April 12, 2005

CEO Pay Soars, While Middle Class Struggles
April 12, 2005

Comment on Trade Data
March 11, 2005

  • Dollar and Imports, 2001 to 2004
    Despite the dollar's decreased value, the U.S. continues to import more and more. The dollar started losing value on a broad basis in early 2002. Since then, it has declined by 15.0 percent. This should have made imports more expensive, and thus reduced them. Instead, imports have climbed steadily, reaching a record high of 15.7 percent of gross domestic product (GDP) by the end of 2004. In January, the trend continued, as the U.S. had the highest monthly imports on record with $159.1 billion.

Comment on Trade Deficit
February 10, 2005

  • Trade Balance in Selected Areas, 1995 to 2004
    The data once again show that the U.S. is losing ground in important areas where the U.S. should have a competitive advantage. Over the past decade the U.S. has enjoyed a productivity advantage due to its boom in new technologies. Yet it has steadily lost ground in advanced technology products. From 1997 to 2004, the U.S. trade balance in these products has turned from a surplus of $32 billion to a deficit of $37 billion.

Statement on Advance GDP Figures
January 28, 2005

  • Percent Change in Consumer Spending on New Homes and Renovations, 2001 to 2004
    Today's figures cast doubt on the sustainability of the recovery, especially since consumer spending on homes and other items weakened. The residential housing market had its weakest showing in three years with a gain of merely 0.3 percent. Thus, the slowdown in refinancing activity following higher interest rates earlier in 2004 eventually took a toll on families' spending on new homes and renovations.
    Source: BEA, 2005, Gross Domestic Product: Fourth Quarter 2004 (Advance). January 28.

Oil Prices Up, Dollar Down – Coincidence?
November 30, 2004

  • Oil Prices and Exchange Rates
    Oil prices have risen, while the dollar has simultaneously plummeted against the euro. We can measure how much these two prices move in tandem, using a correlation coefficient. This measure takes on the value of zero if there is no correlation, the value of one if there is perfect correlation, i.e. every time one price goes up the other one does, too, and the value of minus one if there is perfect negative correlation, i.e. every time one price goes up, the other goes down. The correlation coefficient between oil and dollar is -0.7. That is, most of the time, when the dollar fell against the euro, oil prices rose.
    Sources: Energy Information Administration, Spot Prices of Crude Oil, Motor Gasoline, and Heating Oils, 2003 to Present, Washington, D.c=: www.eia.doe.gov; Board of Governors, Federal Reserve System, Release H.10 Foreign Exchange Rates, Washington, D.C.: www.federalreserve.gov
  • Dollar and Euro Prices for Crude Oil
    Because oil prices and the dollar have moved in opposite directions, the increase of oil expressed in euros instead of dollars has been less pronounced than the oil price increase in dollars. This may not be coincidental. Oil producers sell their products in dollars. These dollars are used to purchase other goods in international markets. As the dollar lost its value starting in 2002, oil producers could afford to buy less in international markets with their dollars. To compensate for this loss of buying power, they may have raised the dollar price for oil. As a result, while oil prices in dollars rose by 162 percent from their low point in January 2002, they climbed by less than half that rate measured in euros, 77 percent. At that rate, oil prices would have only risen to $34 per barrel in October 2004, instead of the actual $52, without changes in the dollar's value.
    Sources: Energy Information Administration, Spot Prices of Crude Oil, Motor Gasoline, and Heating Oils, 2003 to Present, Washington, D.C.: www.eia.doe.gov ; Board of Governors, Federal Reserve System, Release H.10 Foreign Exchange Rates, Washington, D.C.: www.federalreserve.gov

The Dollar's Decline in Perspective
November 23, 2004

  • Net International Investment Position, Relative to GDP
    To finance its trade deficit, the U.S. has had to borrow money overseas for some time. Since 1986, the U.S. has owed more money to foreigners than the other way around. By 2003, the U.S. external debt, net of U.S. owned assets abroad was 22 percent of gross domestic product (GDP).
    Sources: Bureau of Economic Analysis, National Income and Product Accounts, Washington, D.C.: www.bea.gov; Bureau of Economic Analysis, International Investment Position, Washington, D.C.: www.bea.gov.
  • Average Share of Treasury Issues Purchased By Foreigners
    Foreigners have helped to finance the federal government’s debt. For the current business cycle, the average was close to 80 percent of new treasury issues that was financed by foreigners. This is the largest share of new federal debt financed by foreigners since the 1950s.
    Source: Board of Governors, Federal Reserve System, Flow of Funds, Washington, D.C.: www.federalreserve.gov
  • Share of Foreign Holdings, Major Five Foreign Holders
    Among foreign investors in U.S. government debt, a few stand out. Particularly, Japan has been a large investor in U.S. treasury securities – bills and bonds. By June 2004, Japan owned almost $700 billion in U.S. treasuries. This was the equivalent of 16.5 percent of outstanding treasury securities. The top five investors in U.S. treasuries in 2004 – Japan, Mainland China, the UK, Carribean Banking Centers, and Korea – raised their combined share of U.S. treasuries from 15.2 percent in 2001 to 26.9 percent in 2004, at a time when the U.S. deficit saw the return of large budget deficits.
    Sources: U.S. Department of the Treasury, Office of International Affairs, Treasury International Capital System, Washington, D.C.: www.treasury.gov.

Labor Market Challenges
November 5, 2004

  • Change in Temporary Lay-offs and Number of Unemployed Relative to the Labor Force During Recoveries
    Typically, the number of unemployed relative to the labor force and the number of people on temporary lay-offs for business cycle reasons drop in a recovery as the labor market improves. Although both indicators declined in this recovery, it was their smallest declines since the 1960s, when data were first collected.
    Source: Bureau of Labor Statistics, Historical Data for the “A” Tables of the Employment Situation Release, Washington, D.C.: BLS; Bureau of Labor Statistics, Historical Data for the “B” Tables of the Employment Situation Release, Washington, D.C.: BLS, and authors’ calculations.
  • Long-Term Unemployment Averages in Recovery
    Declining long-term unemployment is one of the characteristics of a recovery. Not so in this one. Long-term unemployment has remained relatively high and even increased in recent months. As a result, this is the recovery with the longest stretches of unemployment for those out of work looking for a job.
    Source: Bureau of Labor Statistics, Historical Data for the “A” Tables of the Employment Situation Release, Washington, D.C.: BLS and authors’ calculations.
  • Job Openings Relative to 100 Job Seekers
    The number of job openings relative to the numbers of people who want a job dropped sharply in the recession, as one would expect, but job openings have grown only marginally in the recovery. The picture is worse when those are included who are marginally attached to the labor force and who are discouraged from looking for a job.
    Source: Bureau of Labor Statistics, Historical Data for the “A” Tables of the Employment Situation Release, Washington, D.C.: BLS; Bureau of Labor Statistics, Job Openings and Labor Turnover, Washington, D.C.: BLS; and authors’ calculations.

Higher Minimum Wage Can Lift Minorities
September 22, 2004

  • Change in Household Income During the Recovery
    In the past recession, incomes for everybody fell. However, in the recovery, incomes for the bottom 60 percent of income earners continued to decline, whereas they grew again for the top 40 percent. Moreover, total losses were largest for the bottom 20 percent of income earners.
    Source: U.S. Census Bureau, www.census.gov

  • Change in Mean Income of Lowest Fifth of U.S. Households: A Comparison to Past Recoveries
    In this recovery, the average (mean) income of the 20 percent of households with the lowest incomes declined by 5.1 percent. In the early 1990s, the decline was only 2.7 percent and in the early 1980s, their average income actually grew by 3.5 percent. .
    Source: U.S. Census Bureau, www.census.gov
  • Change in Usual Weekly Earnings: 2003:Q2 to 2004:Q2
    From the middle of 2003 to the middle of 2004, incomes for the 40 percent of households with the lowest incomes fell. This decline was even more pronounced for African-American households than for all households.
    Source: U.S. Census Bureau, www.census.gov
  • Erosion in Real Value of Minimum Wage by Recovery
    In each recovery, the federal minimum wage lost ground due to inflation. However, in this recovery, the inflation-adjusted minimum wage had its second lowest starting point and was never adjusted upwards.
    Notes: Author's calculations are based on information on federal minimum wages from www.dol.gov and CPI-U data from www.bls.gov

Don’t Lose (the) Heart (of the Economy)
September 17, 2004

  • Employment Change in Manufacturing and Non-manufacturing States, March 2001 to August 2004
    Employment in manufacturing states in August 2004 was still 2 percent below the employment levels of March 2001. In comparison, employment in non-manufacturing states has risen, albeit slowly, by 0.9 percent, which translates into a monthly growth rate of 0.02 percent.
    Note: Manufacturing states are states that had a manufacturing employment share in 1997 that was greater than the average employment share for all states by 0.25 times the standard deviation. These states are Alabama, Arkansas, Connecticut, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Maine, Michigan, Minnesota, Mississippi, Missouri, New Hampshire, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Vermont, Washington, and Wisconsin . Non-manufacturing states are defined as states that had an employment share that was more than 0.25 times the standard deviation below the average manufacturing employment share. These states are Alaska, Arizona, Colorado, Delaware, Florida, Hawaii, Louisiana, Maryland, Montana, Nevada, New Mexico, New York, North Dakota, West Virginia, and Wyoming . Other states were not classified. Averages are employment weighted averages.
    Source: Bureau of Labor Statistics, Current Employment Statistics.

  • Change in Unemployment Rate in Manufacturing and Non-manufacturing States, March 2001 to August 2004
    The unemployment rate in manufacturing states has risen faster than in non-manufacturing states compared to the start of the recession. According to the Bureau of Labor Statistics, it increased in 13 manufacturing states in August 2004, compared to an increase in only nine non-manufacturing states.
    Note: Manufacturing states are states that had a manufacturing employment share in 1997 that was greater than the average employment share for all states by 0.25 times the standard deviation. These states are Alabama, Arkansas, Connecticut, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Maine, Michigan, Minnesota, Mississippi, Missouri, New Hampshire, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Vermont, Washington, and Wisconsin . Non-manufacturing states are defined as states that had an employment share that was more than 0.25 times the standard deviation below the average manufacturing employment share. These states are Alaska, Arizona, Colorado, Delaware, Florida, Hawaii, Louisiana, Maryland, Montana, Nevada, New Mexico, New York, North Dakota, West Virginia, and Wyoming . Other states were not classified. Averages are employment weighted averages.
    Source: Bureau of Labor Statistics, Current Employment Statistics.

The Economy Has Turned the Corner … Into a Dead End
August 9, 2004

Too Early To Declare Manufacturing’s Woes Over
June 17, 2004

'Upside-Down' Economy Takes a Bite out of Middle Class Wallets
May 28, 2004

  • Consumer Charge-Off Rates and Household Debt Service Burden
    The household debt service burden is the share of income that a household pays towards interest and principal payments on its debt. Over the last 9 quarters, the debt service burden has been above 13%, the highest since the Federal Reserve began keeping track in 1980. The rise in credit card charge-offs, or defaults, in the fourth quarter of last year is a further sign of households' financial distress. For the debt service burden to decrease, incomes will have to rise faster than they have been.
    Source: Board of Governors of the Federal Reserve System, Charge-Off Rates, Washington, D.C.: Board of Governors; Board of Governors, Federal Reserve System, Household Debt Service Burden, Washington, D.C.: Board of Governors.
  • Personal Bankruptcy Filings as a Proportion of Households
    The share of households that declared bankruptcy has increased fourfold since 1980 to a record high. In 2002, the last year for which data are available, there were 1.4 personal bankruptcies for every 100 households in the United States . This figure likely rose again last year given the increases in debt and delinquencies.
    Source: American Bankruptcy Institute (bankruptcy data); www.abiworld.org, and U.S. Census Bureau (household data), http://www.census.gov

Minorities, Rural American Need Stronger Labor Market to Regain Lost Ground
May 7, 2004

  • Job Less vs. Job Loss Recovery (Cumulative Employment Growth During the Current and Most Recent Recovery)
    A year into the recovery, cumulative employment was up in the recovery in the early 1990s. In comparison, the economy had fewer jobs in the third year of the most recent recovery compared to its start in November 2001.
    Source: Bureau of Labor Statistics (BLS), Establishment Data, Washington, D.C.: BLS.
  • Unemployment Rates by County, 1991, 2000, and 2002
    Comparing unemployment rates by county from 1991 to 2000 shows that the unemployment rate fell all across the country (lighter colors indicate lower unemployment rates). Although the unemployment rate rose from 2000 to 2002, the losses did not completely erase the gains of the 1990s.
    Source: Bureau of Labor Statistics (BLS), Local Area Unemployment Statistics, Washington, D.C.: BLS.
  • Percent Change in Mean Income Received for Each Fifth and Top 5%, White, Black and Hispanic Households, 1983 to 1989 and 1992 to 2000
    A comparison of income gains shows that minority households, especially lower income households, lost ground in the 1980s, but gained on white households in the 1990s. Moreover, in some instances, low income minority households gained on high income households in the 1990s.
    Source: Author's calculations from published U.S. Census Bureau data.

Labor Market Unease Unlikely to Go Away Soon
April 30, 2004

  • Concern about Economic Issues: Workers v. Employers
    Worker confidence in the economy is low, with 51% very concerned about job security and 44% very concerned about the unemployment rate. Both these measures are at their highest value since the start of the Work Trends series in 1998. Although employers are less concerned about the economy than workers, a majority (53%) of them still believe now is a bad time to find a quality job.
    Source: Dixon, K.A., Rodgers, III, W.M., Van Horn, C.E, Laid Off: American Workers and Employers Assess a Volatile Labor Market, Rutgers, NJ: John J. Heldrich Center for Workforce Development
  • Incidence of Layoffs, by Income
    Exposure to layoffs has cut across income levels. While workers earning less than $40,000 per year are more likely to have been laid-off than those earning more than $40,000 annually (27% v. 14%), members of the higher income group are much more likely to work in a firm where others were laid off (36% v. 22%).
    Source: Dixon, K.A., Rodgers, III, W.M., Van Horn, C.E, Laid Off: American Workers and Employers Assess a Volatile Labor Market, Rutgers, NJ: John J. Heldrich Center for Workforce Development
  • Earnings after Reemployment, by Education Level
    Although most dislocated workers have returned to work, half of this reemployed population now earns less than they did before being laid off. This drop in wages is more likely for those with schooling beyond high school–58% of workers with some college education report earning lower wages in their new jobs.
    Source: Dixon, K.A., Rodgers, III, W.M., Van Horn, C.E, Laid Off: American Workers and Employers Assess a Volatile Labor Market, Rutgers, NJ: John J. Heldrich Center for Workforce Development

Durable Growth More in Need of Labor Market Recovery than Before
April 29, 2004

  • Monthly Percent Change in 30-Year Fixed Rate Mortgage, 2001 to 2004
    Mortgage rates saw a sharp increase in the summer of 2003, but declined thereafter. This downward trend ended in April 2004. Mortgage rates increased by 0.5 percentage points from the end of March to the end of April.
    Source: Board of Governors, Federal Reserve System, Release H.15 Select Interest Rates, Washington, D.C.: Board of Governors, www.federalreserve.gov.
  • Consumer Credit as a Share of Wage and Salary, 1959 to 2004
    Because wage and salary increases have been slow, households continued to raise their debt levels. Since September 2003, consumer debt, excluding mortgages, has averaged close to 39% of wages and salaries.
    Source: Bureau of Economic Analysis, National Income and Product Accounts, Washington, D.C.: BEA, and Board of Governors, Federal Reserve System, Release G.19 Consumer Credit, Washington, D.C.: Board of Governors, www.federalreserve.gov

1. The threat of long-term unemployment is still high.

  • The average length of unemployment, as of March 2004, was 20.1 weeks, slightly below its 20-year high (figure 1). In addition, 23.9% of the unemployed have been looking for work for 27 weeks or more in March 2004.
  • The rate of underemployment was 9.9% in March 2004. This figure includes workers not looking for work but willing to work, people working part time for economic reasons, and the unemployed. The rate of underemployment is 2.6 percentage points higher than it was in March 2001 (figure 2).

2. Because the threat of unemployment is still high, wage demands and hence wage growth is slow.

  • After adjusting for inflation, average hourly earnings in March 2004 declined slightly, by 0.4%, compared to the previous month.
  • In inflation adjusted terms, average weekly earnings decreased 0.7% in March 2004. Real average weekly earnings are only 0.1% higher than they were at the start of the recovery (figure 3).
  • While GDP grew strongly – 4.1% in the fourth quarter following 8.2% in the third quarter of 2003 – total wage and salary income saw meager increases of 0.8% and 1.3% at the same time (figure 4).

3. At a time when wages have been virtually stagnant, benefits are declining and prices continue to soar.

  • Prices for important consumer items have grown faster than overall prices. Since the start of the recession in March 2001, consumer prices rose by 6.4%. In comparison, medical costs grew by 14.0%, costs for prescription drugs and for medical supplies grew by 12.5%, and hospital services grew by 24.3% during the same period (figure 5).
  • Health insurance coverage has declined over the past three years. As of 2002, only 85% of individuals were covered by private or government health insurance plans, down from 86% in 2000 (figure 6).
  • As health insurance coverage is declining, out-of-pocket medical expenditures continue to rise (figure 7). From 2000 to 2003, inflation adjusted out-of-pocket expenditures rose by more than 7% taking a bite out of consumption for other items.
  • Both pension coverage and employer sponsorship declined over the past four years. In 2002, only 54% of employees were participating in a retirement plan, down from 57% in 2000 (figure 8).
  • Reflecting the declining pension coverage and the gyrations of the stock market, household pension wealth relative to disposable personal income is still below where it was in 2000, despite substantial gains in 2003 (figure 9).

A National Transportation System Requires Public Support in Times of Crisis
April 7, 2004

  • Pricing Pressures are a Long-Term Problem for the Airline Industry
    While prices in the economy have risen by more than 120% from 1980 to 2003, airline yields, the price that airlines charge for their tickets, have gone up by only 6% at the same time. That is, fierce competition has kept airline prices stable, thus prohibiting firms to build up enough reserves to withstand even cyclical downturns.
    Source: Author's analysis of data from the Bureau of Labor Statistics, Washington, D.C. , and the Air Transportation Association's 'Monthly Passenger Yield Report', Washington , D.C. , www.airlines.org

Taking Credit Where Credit is Not Due
April 6, 2004

  • Change in Home Ownership Rate, 1995 to 2003
    Since the end of 1994, home ownership has increased, including the past three years. Thus, the increases in the past few years continued the trend of the prior six years, albeit at somewhat slower rates.
    Source: Census Bureau, Homeownership Rates for the U.S. and Regions, Fourth Quarter 2003, Washington , D.C.: Census Bureau
  • Annual Real Income Gains, 1995 to 2003
    Due to the tax advantages that home buyers enjoy, it is pre-tax income that matters for the actual purchasing power to buy a home. Inflation adjusted, real, income growth has been substantially slower than in the previous years due to the poor performance of the labor market.
    Source: Bureau of Economic Analysis, National Income and Product Accounts, Washington , D.C.: Bureau of Economic Analysis
  • Household Credit Relative to Disposable Income
    Households have borrowed increasing amounts of debt to make ends meet as home prices, health care costs and the costs of education have risen, while income growth was low. By the end of 2003, households owed 110% of their disposable income.
    Source: Board of Governors, Federal Reserve System, Flow of Funds Accounts of the United States, Washington, D.C.: Board of Governors

How Do We Know When the Job Loss Recovery is Over?
April 2, 2004

  • Actual, Projected, and Benchmark Employment Growth, March 2001 to December 2005
    Actual employment has risen in recent months, with its strongest increase in March 2004. Even at the rate of March it would take months to recover the jobs that were lost since the beginning of the recession and years to meet other reasonable standards. The easiest to meet would be to expect that employment growth resembles the pace of the first 28 months of the last recession in the early 1990s. In this case, it would be August 2005, before employment reached its target. Harder to reach benchmarks are that employment growth should keep pace with population growth and that the share of the employed population grows steadily. In either case, employment would meet its target only well after 2006.
    Source: Bureau of Labor Statistics, Employment Situation, Washington, D.C.: BLS, and author's calculations.

Are Accounting Scandals Good for the Economy?
March 12, 2004

  • Gross Domestic Product (GDP) vs. Genuine Progress Indicator (GPI) (in 2000 dollars)
    From 2000 to 2002 the GDP per capita increased by $180, while the GPI decline by $212 over the same period. The difference is caused by the adjustments in the GPI, which, for instance, subtract environmental degradation and crime from the GDP.
    Sources: Bureau of Economic Analysis, National Income and Product Accounts; Jason Venetoulis and Cliff Cobb, Genuine Progress Indicator: Measuring the State of the Real Economy, 1950 to 2002 (2004 Update).
  • Gross Domestic Product versus Genuine Progress Indicator, 1950-2002, Per Capita ($2000)
    While DGP has continuously grown, the real GPI has remained flat or even declined a little since the early 1970s.
    Sources: Bureau of Economic Analysis, National Income and Product Accounts; Jason Venetoulis and Cliff Cobb, Genuine Progress Indicator: Measuring the State of the Real Economy, 1950 to 2002 (2004 Update).

Working Families in a Bind Due to 'Job Loss' Recovery
March 8, 2004

  1. The labor market still has a long way to go for a full recovery.
    In February, a mere 21,000 jobs were created. Since August 2003, 364,000 jobs have been created (figure 1).
    Despite job growth for the past six months, there are still more than 2.4 million fewer jobs than at the start of the recession in March 2001 (figure 2).
    Also, there are more than 700,000 fewer jobs than at the start of the recovery in November 2001 (figure 2).
    Compared to job growth in a typical recovery, employment was down more than 9.2 million jobs in February (figure 3).
  2. Because the labor market is recovering at an anemic rate, wage growth is essentially flat.
    After adjusting for inflation, average hourly earnings in January 2004 declined slightly, by 0.5%.
    Inflation-adjusted hourly wages increased by less than 1% from the start of the recovery to January 2004, about half of their typical rate of increase in a recovery (figure 4).
    In inflation adjusted terms, average weekly earnings increased a mere 0.2% in January 2004. Real average weekly earnings for January 2004 were 0.1% lower than they were a year earlier in January 2003 (figure 5).
  3. The weak labor market puts working families in a bind. As prices for important items, such as health care and education experienced strong growth, the labor market is experiencing its worst recovery since WWII. Households make up the difference by borrowing more.
    Prices for important consumer items have grown faster than overall prices. Since the start of the recession in March 2001, consumer prices rose by 5.6%. In comparison, medical care grew by 12.6% and education increased by 19.8% during the same period (figure 6).
    While GDP has been growing strongly – 4.1% in the fourth quarter following 8.2% in the third quarter of 2003 – total wage and salary income saw meager increases of 0.8% and 1.3% at the same time (figure 7).
    Consumer credit, i.e. credit card debt and loans for consumer items, such as cars or furniture, amounted to a record 39% of wages and salaries in January 2004 (figure 8).
    Despite historically low interest rates, consumer debt service burdens have been near record highs. Since the start of the recession, the debt service burden of households has been above 13% of disposable income – a level never seen since the Fed began collecting the data in 1980 (figure 9).

Sources: Figures 1, 2, 3, 4, 5, and 6: Bureau of Labor Statistics, Employment and Unemployment; Prices and Living Conditions, http://www.bls.gov/data/home.htm; figure7: Bureau of Economic Analysis, National Income and Product Accounts; figure 8: Board of Governors, Federal Reserve System, Consumer Credit, Bureau of Economic Analysis, National Income and Product Accounts; figure 9: Board of Governors, Federal Reserve System, Consumer Debt Service Burden.

Working Families Are Disenchanted with Labor Market Outlook for Good Reason
March 5, 2004

  • Median Weeks of Unemployment
    The median number of weeks, i.e. half of all unemployed have been unemployed for longer than that and the other half has been unemployed for fewer weeks, has been on an upward trend since the start of the recession. For the past eleven months, the median number of weeks of unemployment has been greater than ten. Thus, the current recovery is the period with the second longest unemployment spells since WWII.
    Source: Bureau of Labor Statistics, Current Population Survey.
  • Average Weeks of Unemployment
    The average number of weeks of unemployment has been on an upward trend since the start of the recession in March 2001. In February 2004, it reached a twenty year high with 20.3 weeks.
    Source: Bureau of Labor Statistics, Current Population Survey

Investment May Not Run on All Cylinders
March 4, 2004

  • Investment as Share of GDP
    Investment as share of GDP declined for an unprecedented nine consecutive quarters from the first quarter of 2001 to the second quarter of 2003. Even with a small recovery, investment’s share in the economy is still a long way away from its peak in the third quarter of 2000. With typical growth of the economy and of investment in a recovery, it would take almost 20 years before investment reached its last peak again.
    Source: Bureau of Economic Analysis, National Income and Product Accounts; National Bureau of Economic Research, Business Cycle Dates.
  • Liquid Assets as Share of Total Assets
    Non-financial corporations have increased their share of liquid assets – checking accounts, savings accounts, money market accounts, and the likes – out of total assets since March 2001. By September 2003, liquid assets amounted to 5.6% of total assets, their highest share since the end of 1966.
    Notes: Source is Board of Governors, Federal Reserve System, Flow of Funds Accounts of the United States. Liquid assets are the sum of checkable deposits and currency, time and savings deposits, money market fund shares, Security RPs, commercial paper, U.S. government securities, municipal securities and mutual fund shares.

Ignore at Your Own Peril: The Manufacturing Crisis in Perspective
February 6, 2004

  • Manufacturing Employment, 1946 to 2003
    Although manufacturing employment has steadily declined as share of total employment from 1946 to 2003, the decline in the number of jobs over the past three and a half years is unprecedented both in size and in length. From March 1998 to January 2004, manufacturing employment fell by 3.3 million. Job losses accelerated after March 2001. Since then, manufacturing lost 2.6 million jobs.
    Source: Bureau of Labor Statistics, Current Employment Statistics.

  • Average Employment Changes in Manufacturing and Non-manufacturing States , 1998 to 2003
    Employment began to decline in March 1998, but its decline accelerated in March 2001. Consequently, manufacturing states experienced on average smaller employment gains from March 1998 to March 2001. And they experienced actual employment losses from March 2001 to December 2003, while non-manufacturing states registered a small employment gain.
    Note: Manufacturing states are states that had a manufacturing employment share in 1997 that was greater than the average employment share for all states by 0.25 times the standard deviation. These states are Alabama, Arkansas, Connecticut, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Mississippi, New Hampshire, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina, Tennessee, Vermont and Wisconsin. Non-manufacturing states are defined as states that had an employment share that was more than 0.25 times the standard deviation below the average manufacturing employment share. These states are Alaska, Arizona, Colorado, Delaware, Hawaii, Louisiana, Maryland, Montana, Nevada, New Jersey, New Mexico, New York, Oklahoma, Texas, Virginia, West Virginia, and Wyoming. Other states were not classified. Averages are weighted averages.
    Source: Bureau of Labor Statistics, Current Employment Statistics.

Strong Growth Continues Amid Signs of a Weak Labor Market
January 30, 2004

  • Year-on-year change in real GDP, 1948 to 2003
    The year-on-year change in inflation adjusted gross domestic product (GDP), which fluctuates less than quarterly growth rates, has gradually increased for the past four quarters. In the fourth quarter of 2003 it reached its highest level since the second quarter of 2002.
    Source: Bureau of Economic Analysis, National Income and Product Accounts, www.bea.gov

  • Trade deficit relative to GDP, 1947 to 2003
    Since 1995, the trade deficit relative to gross domestic product (GDP) has eroded. In the last few quarters of 2003, the situation reversed slightly. In the fourth quarter of 2003, the trade deficit relative to GDP had shrunk to its lowest level in a year and a half.
    Source: Bureau of Economic Analysis, National Income and Product Accounts, www.bea.gov

  • Wages and salaries relative to GDP, 1947 to 2003
    For the past eleven quarters, total wage and salary income has declined relative to GDP. This is the longest decline since WWII. It is also ends the largest decline over any three year period in the post-war period with a 3.6 percentage point decline relative to GDP.
    Source: Bureau of Economic Analysis, National Income and Product Accounts, www.bea.gov

Insuring Pensions: Making the System Work for the Retirees of Today and Tomorrow
January 23, 2004

  • Average Year-on-year Change in Total Real Rate of Return during First 12 Months after Stock Market Peak
    The real rate of return on the stock market, based on the S&P 500, typically declines right before and during a recession. In the most recession recent, the decline 12 months after the stock market peak was largest, with 32.2% compared to prior recessions.
    Source: S&P, www.standardandpoors.com; Bureau of Labor Statistics, Consumer Price Index; author's calculations.

  • PBGC Assets Relative to Benefit Payments and Expenses
    By 2003, the Pension Benefit Guaranty Corporation (PBGC) had total assets that were more than thirteen times greater than the sum of its benefit payments and administrative expenses. This ratio is greater than the same ratio was at any time from 1980 to 1996, prior to the stock market boom of the late 1990s.
    Source: PBGC, 2002 Pension Insurance Data Book; PBGC, 2003 Annual Report

Buyer Beware: Pension Wealth Inequality Rises as 401(k) Plans Become More Popular
January 16, 2004

  • Defined Benefit and Defined Contribution Pension Wealth among Account Holders by Pension Wealth Percentile, Ages 47-64, 2001
    In 2001, defined contribution pension wealth, held in individual accounts, such as 401(k)s, was more concentrated among wealthy account holders than pension wealth in traditional defined benefit pension plans. Among the 80% of households with the smallest account balances, the typical account balances in defined pension plans were greater than for defined contribution plans. The opposite was true for the 20% of households with the largest account balances.
    Source: Authors' calculations. Board of Governors, Federal Reserve System, Survey of Consumer Finances.

  • Pension Wealth in 2001 Dollars by Pension Wealth Percentile, Ages 47-64, 1983 and 2001
    Total pension wealth – the sum of pension wealth in defined contribution and defined benefit pension plans – has become more unequally distributed from 1983 to 2001. Households in the middle of the pension wealth distribution saw gains of about 5% in their inflation-adjusted pension wealth from 1983 to 2001. In contrast, the pension wealth held by the one-fifth of households with the largest pension wealth accounts grew by 25%, and the pension wealth held by the top 1% increased by 123%.
    Source: Authors' calculations. Board of Governors, Federal Reserve System, Survey of Consumer Finances.

When, Not If – The Inevitable End to the Refinancing Boom Requires Attention
January 15, 2004

  • Additional Resources from Mortgages Relative to Personal Disposable Income, 1952 to 2003
    Due to higher house prices, households had more collateral. Borrowing was also facilitated by low interest rates. Consequently, households increased their mortgages by larger amounts than they raised their spending on their homes. By June 2003, the additional funds amounted to 4.9% of disposable income. Put differently, households had about 5% more money to spend on items other than their homes thanks to the housing finance boom. From June 2001 to June 2003 alone, households thus got an additional $545 billion, which was largely used for consumption.
    Source: Author's calculations. Board of Governors, Federal Reserve System, Flow of Funds Accounts of the United States .

  • Rental Vacancy Rate for the U.S. , 1956 to 2003
    As house prices are soaring, potential house buyers increasingly have an alternative in the rental market. Rental vacancies reached a record high of 9.9% in the third quarter of 2003.
    Source: Bureau of the Census, Rental Vacancy Rates, Historical Tables.

The African-American Experience in the Recent Recession and Job Loss Recovery
January 14, 2004

  • Unemployment Rates Since March 2001 by Race
    The unemployment rate for African-Americans tends to be 4 to 5 percentage points higher than for whites. By the end of 2003, the unemployment rate for whites remained below 5%, whereas it was above 10% for African-Americans. It was above 10% for the past 13 months.
    Source: Author's calculations. Bureau of Labor Statistics, Current Population Survey.

  • Decline in Inflation-Adjusted Median Household Income from 2000/2001 to 2001/2002
    The inflation-adjusted household income for the median household – half of all households fall below this figures, while the other half remains above it – declined by 0.8% for whites and by 3.2% for African-Americans from 2000/2001 to 2001/2002. That is, the income decline was about four times as large for African-Americans than for whites.
    Source: Author's calculations. Department of the Census, Median Income of Households by Race and Hispanic Origin Using 2-Year-Averages: 2000-2002. Figures are for White and African-American alone.

  • Unemployment Rates for College Graduates by Race
    Prior to the recession and throughout the recession, the difference in unemployment rates between white and African-American college graduates was barely noticeable. However, during the job loss recovery, the unemployment rate for African-American college graduates rose to 4.7%, compared to 2.5% for whites.
    Source: Bureau of Labor Statistics, Current Population Survey. Figures are from non-seasonally adjusted from November of each month.

Declaring the Job Loss Recovery Over Doesn't Make it So
January 9, 2004

  • Share of Long-Term Unemployed relative to All Unemployed, 1948 to 2003
    Long-term unemployment is typically measured as the share of people unemployed for more than 26 weeks out of all unemployed. Long-term unemployment spiked in the early 1980s, and it reached similarly high levels in 2003. By December 2003, 22.3% of the unemployed had been unemployed for more than half a year.
    Source: Bureau of Labor Statistics, Employment Situation.

Heed History's Lessons
December 30, 2003

  • Trade Balance and Current Account Balance relative to GDP
    Important measures for the U.S. external balance are the trade balance and the current account balance. The trade balance is the difference between exports minus imports. The current account balance is the trade deficit plus the difference between interest earned abroad on U.S. held assets minus the interest paid to foreigners holding U.S. assets, minus current transfer payments, such as Social Security, from the U.S. to foreign residents. Both balances have been negative for the past twenty years. The current account deficit has been more negative than the trade deficit since 1992. Since then, the U.S. has been paying more on its external debt than it is earning on the assets held abroad by U.S. residents.
    Source: Author's calculations. Bureau of Economic Analysis, National Income and Product Accounts and Balance-of-Payments.

  • External Indebtedness relative to GDP
    When the U.S. imports more than it exports, it needs to borrow funds from abroad to pay for the difference. Over the past three decades, the U.S. has accumulated large amounts of debt. Until 1986, this external debt was smaller than the assets owned by U.S. residents abroad. However, since then the debt has exceeded the assets held abroad. By 2002, the net indebtedness – the difference between assets held abroad and debt owed to foreign residents – reached 22.8% of GDP.
    Source: Author's calculations. Bureau of Economic Analysis, International Investment Position.

Falling Into the Gap: The Economic Recovery and Labor Market
December 30, 2003

  • Annualized Average Quarterly Productivity Growth during First Seven Quarters of Recovery
    Although productivity growth during this recovery has been stronger than in previous recoveries, it is not strong enough to explain the first job loss recovery since WWII. The average annualized quarterly productivity growth rate for the first seven quarters of the recovery was 5.0% for this recovery, close to the 4.9% for the recovery in the early 1960s and less than the 5.2% of the recovery in the early 1950s.
    Source: Bureau of Labor Statistics, Output per Hour, and author's calculations.

  • Real Consumption Growth in Recessions and Recoveries
    Consumption remained surprisingly steady in this recession compared to earlier recession. While in earlier recessions inflation adjusted recessions declined at an average annualized rate of 0.9%, it increased by 2.8% in this recession. Hence, there was no consumption acceleration because their was no pent-up demand. In the first 22 months of previous recoveries, inflation adjusted consumption grew at an average annualized rate of 4.9%, whereas it increased at only 2.8% in this recovery.
    Sources: Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers; Bureau of Economic Affairs, Personal Income; and author’s calculations.

Faster Income Growth Needed to Escape Debt Trap
December 5, 2003

  • Actual and Hypothetical Payroll Employment in Recovery, Based on Past Recoveries since 1960s
    During the first 24 months of past recoveries since the 1960s, payroll employment grew by an average annualized rate of 2.7%. In this recovery, it shrank at an annualized rate of 0.6%. If employment had grown at the rate of past recoveries, there would have been 7.9 million more jobs than there were in November 2003.
    Source: Bureau of Labor Statistics, Employment Release, author's calculations.

  • Consumer Credit Relative to Disposable Income
    Because income growth was slow during the recent recession and recovery, but prices for big ticket items, such as education and health care, rose rapidly, households increasingly borrowed money, aided by low interest rates. Total debt amounted to a record high 115%, credit market debt to 110%, and mortgage debt to 80% of personal disposable income by the end of the second quarter of 2002.
    Source: Board of Governors, Federal Reserve System, Flow of Funds and author's calculations.

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