The current business cycle passed its four-year mark at the end of March. Recently, the economy has been marked by slower growth, and by jaw-dropping trade and budget deficits, which highlight the fundamental weakness of an economy on an unsustainable path. At the same time, the weak labor market does not absorb the ranks of the unemployed. With employment growth well below historical averages, workers have little bargaining power, resulting in slow wage growth. In fact, wages are headed down, in inflation adjusted terms, while inflation has accelerated due to higher oil prices, among greater costs for other important items, such as education, energy, medical care and housing. To make ends meet, households have accumulated record amounts of debt. Subsequently, high debt levels amid a weak labor market have fostered large numbers of personal bankruptcies. At the same time, the federal government aggressively cut taxes for higher income earners and on capital income with apparently little effect on a flat labor market.
Notes: Figures are based on real gross domestic product (GDP).Calculations based on data from Bureau of Economic Analysis, National Income and Product Accounts, Washington, D.c=: www.bea.gov.
In the first four years of this business cycle, gross domestic product (GDP) grew at an average rate of 2.9 percent, which was at or below the rate of the previous six business cycles. Growth slowed in the first quarter of 2005, generating the lowest rate of increase in two years.
Notes: Calculations based on data from Bureau of Economic Analysis, National Income and Product Accounts, Washington, D.C.: www.bea.gov.
In this business cycle, the federal budget balance turned from its largest surplus in four decades of 2 percent of GDP to a deficit surpassing 4 percent of GDP, where it remained for two and a half years. This swing in the federal budget balance marked its sharpest deterioration over the span of any four years.
Notes: Calculations based on data from Bureau of Economic Analysis, National Income and Product Accounts, Washington, D.C.: www.bea.gov.
Throughout the business cycle, the trade deficit soared to new highs. By early 2005, the trade deficit had risen to close to 6 percent of GDP.
Notes: Calculations are based on data from the Bureau of Labor Statistics, Non-farm Payroll Employment, Washington, D.C.: www.bls.gov
One of the striking characteristics of this business cycle has been the anemic job growth, despite an economic expansion. For the first four years of the business cycle employment gains were essentially flat.
Notes: Calculations are based on data from the Bureau of Labor Statistics, Average Weekly Earnings (1982 dollars), Washington, D.C.: www.bls.gov
The worst employment record during a business cycle since World War II was matched by comparatively low earnings growth. For the first four years of the business cycle, weekly earnings were flat in inflation adjusted terms.
Notes: Calculations are based on data from the Board of Governors of the Federal Reserve System, Release Z.1 Flow of Funds, Washington, D.C.: www.federalreserve.gov.
With employment and wage growth flat, households were caught in a bind. They borrowed more money to maintain their consumption, but they also had a harder time repaying the new debt. Consequently, debt levels reached record highs of over 100 percent of disposable income.
Notes: Calculations are based on Bureau of Labor Statistics, CPI-All Urban Consumers (Current Series), Washington, D.C.:www.bls.gov
During the current business cycle, energy, health care and education costs have risen largely unchecked. For instance, costs for education increased two and a half times faster than overall prices.
Notes: Calculations are based on American Bankruptcy Institute, Non-Business Filings, Washington, D.C.: www.abiworld.org, and U.S. Census Bureau, Population, Washington, D.C.: www.census.gov.
Rising costs amid a flat labor market are reflected in continuously high bankruptcy rates. In 2003, the bankruptcy rate reached a record high of 5.6 filings per 1,000 people. In 2004, the bankruptcy rate was still at its second highest level since the 1980s.
Notes: Calculations based on data from Bureau of Economic Analysis, National Income and Product Accounts, Washington, D.C.: www.bea.gov.
The weak labor market persisted despite economic growth and despite massive tax cuts, which were targeted especially at higher income earners and corporations. The result was the lowest revenue collection relative to GDP since the 1970s.
Notes: Calculations based on data from Bureau of Economic Analysis, National Income and Product Accounts, Washington, D.C.: www.bea.gov.
While massive tax cuts trickled down to households on average, corporations, which saw record profit levels, saw their contribution to the federal government's finances drop to its lowest level since World War II.