0 Structural Challenges and Opportunities in the U.S. Economy - - PowerPoint PPT Presentation

Structural Challenges and Opportunities in the U.S. Economy

Jason Furman Chairman, Council of Economic Advisers

London School of Economics November 5, 2014

U.S. Job Growth Has Strengthened

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*Year-to-date as of September. Source: Bureau of Labor Statistics.

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• 424

88 174 186 194 227*

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100 200 300 2008 2009 2010 2011 2012 2013 2014

Monthly Average Nonfarm Job Growth

Thousands of Jobs per Month

The U.S. Unemployment Rate Has Fallen to 5.9 Percent, Well Ahead of Forecasts

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Source: Bureau of Labor Statistics; Blue Chip Economic Indicators.

4.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

2012 Forecast 2013 Forecast 2014 Forecast 2011 Forecast 2010 Forecast Percent of Labor Force

Unemployment Rate and Consensus Forecasts

Wage Growth Has Exceeded Inflation Since the Beginning of 2013, But Still Well Below What is Needed to Make Up for Years of Stagnation

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Source: Bureau of Labor Statistics.

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1 2 3 4 5 6 7 8 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14

Average Hourly Earnings for Private Production & Nonsupervisory Workers

Percent, year-over-year

Inflation (CPI-U) Nominal Earnings Sep-14

Median Family Incomes in 2013 Were No Higher Than in 1997

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Source: U.S. Census Bureau.

2013 55 57 59 61 63 65 67 69 1984 1989 1994 1999 2004 2009 2014

Real Median Family Income

2013 '000s USD per Year

The U.S. Current Account Deficit is at its Narrowest Point Since the 1990s

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Source: Bureau of Economic Analysis.

1970:Q1 1980:Q1 1990:Q1 2000:Q1 2010:Q1

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Current Account Balance

Percent of GDP

14:Q2

A Rapidly Narrowing Federal Budget Deficit Has Helped to Raise Gross National Saving

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Source: Bureau of Economic Analysis.

12 14 16 18 20 22 24 26 1970:Q1 1980:Q1 1990:Q1 2000:Q1 2010:Q1

Gross National Saving

Percent of GDP

14:Q2

Low Interest Rates and Deleveraging Have Reduced the Household Debt Burden

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Source: Federal Reserve Board.

8 9 10 11 12 13 14 1980:Q1 1990:Q1 2000:Q1 2010:Q1

Household Debt Service Payments

Percent of Disposable Income

14:Q2

Brave New World Hard Times The Way We Live Now 1948-1973 1973-1995 1995-2013

Middle-Class Income Growth (annual rate) Average Income for the Bottom 90% 2.9%

• 0.2%

0.2% Median Household Income incl. Benefits N/A 0.4% 0.4% Productivity Growth (annual rate) Labor Productivity 2.8% 1.4% 2.3% Income Shares (pctg. point / yr.) Top 1%

• 0.14

+0.26 +0.32 Bottom 90% +0.07

• 0.39
• 0.42

Labor Force Participation Rate (pctg. point / yr. ) Prime Age Female (25-54) +0.70 +1.06

• 0.10

Determinants of Household Income Growth in Three Periods

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Notes: All income measures use nominal data, deflated by the personal consumption expenditures price index. Income for the bottom 90% is provided by the World Top Incomes Database, cited below, and median household income including benefits is provided by the Congressional Budget Office. Source: Alvaredo, Facundo, Anthony B. Atkinson, Thomas Piketty and Emmanuel Saez, The World Top Incomes Database; U.S. Census Bureau; Congressional Budget Office; Bureau of Labor Statistics; Bureau of Economic Analysis; CEA calculations.

Brave New World Hard Times The Way We Live Now 1948-1973 1973-1995 1995-2013

Middle-Class Income Growth (annual rate) Average Income for the Bottom 90% 2.9%

• 0.2%

0.2% Median Household Income incl. Benefits N/A 0.4% 0.4% Productivity Growth (annual rate) Labor Productivity 2.8% 1.4% 2.3% Income Shares (pctg. point / yr.) Top 1%

• 0.14

+0.26 +0.32 Bottom 90% +0.07

• 0.39
• 0.42

Labor Force Participation Rate (pctg. point / yr. ) Prime Age Female (25-54) +0.70 +1.06

• 0.10

Determinants of Household Income Growth in Three Periods

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Notes: All income measures use nominal data, deflated by the personal consumption expenditures price index. Income for the bottom 90% is provided by the World Top Incomes Database, cited below, and median household income including benefits is provided by the Congressional Budget Office. Source: Alvaredo, Facundo, Anthony B. Atkinson, Thomas Piketty and Emmanuel Saez, The World Top Incomes Database; U.S. Census Bureau; Congressional Budget Office; Bureau of Labor Statistics; Bureau of Economic Analysis; CEA calculations.

Determinants of Household Income Growth in Three Periods

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Notes: All income measures use nominal data, deflated by the personal consumption expenditures price index. Income for the bottom 90% is provided by the World Top Incomes Database, cited below, and median household income including benefits is provided by the Congressional Budget Office. Source: Alvaredo, Facundo, Anthony B. Atkinson, Thomas Piketty and Emmanuel Saez, The World Top Incomes Database; U.S. Census Bureau; Congressional Budget Office; Bureau of Labor Statistics; Bureau of Economic Analysis; CEA calculations.

Brave New World Hard Times The Way We Live Now 1948-1973 1973-1995 1995-2013

Middle-Class Income Growth (annual rate) Average Income for the Bottom 90% 2.9%

• 0.2%

0.2% Median Household Income incl. Benefits N/A 0.4% 0.4% Productivity Growth (annual rate) Labor Productivity 2.8% 1.4% 2.3% Income Shares (pctg. point / yr.) Top 1%

• 0.14

+0.26 +0.32 Bottom 90% +0.07

• 0.39
• 0.42

Labor Force Participation Rate (pctg. point / yr. ) Prime Age Female (25-54) +0.70 +1.06

• 0.10

Impact of Sustained Growth in Productivity, Equality, & Participation

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Notes: The first and third thought experiments assume that income gains are distributed proportionately across all households.

Thought Experiment Percentage Impact

• n 2013 Avg. Income

Income Gain to 2013 Typical Household Impact of Higher Growth 58% $30,000 Impact of Greater Equality 18% $9,000 Impact of Labor Force Participation 7% $4,000 Combined Impact 99% $52,000

Impact of Sustained Growth in Productivity, Equality, & Participation

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Thought Experiment Percentage Impact

• n 2013 Avg. Income

Income Gain to 2013 Typical Household Impact of Higher Growth 58% $30,000 Impact of Greater Equality 18% $9,000 Impact of Labor Force Participation 7% $4,000 Combined Impact 99% $52,000

Notes: The first and third thought experiments assume that income gains are distributed proportionately across all households.

Impact of Sustained Growth in Productivity, Equality, & Participation

14

Thought Experiment Percentage Impact

• n 2013 Avg. Income

Income Gain to 2013 Typical Household Impact of Higher Growth 58% $30,000 Impact of Greater Equality 18% $9,000 Impact of Labor Force Participation 7% $4,000 Combined Impact 99% $52,000

Notes: The first and third thought experiments assume that income gains are distributed proportionately across all households.

Impact of Sustained Growth in Productivity, Equality, & Participation

15

Thought Experiment Percentage Impact

• n 2013 Avg. Income

Income Gain to 2013 Typical Household Impact of Higher Growth 58% $30,000 Impact of Greater Equality 18% $9,000 Impact of Labor Force Participation 7% $4,000 Combined Impact 99% $52,000

Notes: The first and third thought experiments assume that income gains are distributed proportionately across all households.

Productivity Growth Has Slowed Steadily in Many Advanced Economies, Although the United States Saw a Rebound in the 1990s

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Source: Conference Board; CEA calculations.

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2 4 6 8 10 1950 1960 1970 1980 1990 2000 2010

Labor Productivity Growth

Germany France Italy United Kingdom Canada Japan United States 15-Year Centered Moving Average of Annual Percentage Growth

Inequality Has Risen Substantially, with the U.S. Income Gap Widening More than in Other Advanced Economies

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Source: Alvaredo, Facundo, Anthony B. Atkinson, Thomas Piketty and Emmanuel Saez, The World Top Incomes Database. Note: Data for all countries exclude capital gains. For Germany, data excluding capital gains is unavailable after 1998, so this chart displays data including capital gains adjusted for the historical relationship between the capital-inclusive and capital-exclusive ratios.

5 7 9 11 13 15 17 19 1975 1980 1985 1990 1995 2000 2005 2010

Share of Income Earned by Top 1%

United States United Kingdom Canada France Italy Japan Germany Percent

The United States Has Been Behind Other Advanced Economies in the Share of Prime-Age Workers Employed

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Source: OECD.

Japan Japan UK UK OECD OECD US US Euro Euro 75 77 79 81 83 85 87 89 91 93 95 Q4-2007 Q2-2014

Employment-Population Ratios, Prime Age Males

Percent

Gains in Female Labor Force Participation in the United States Stalled in the 1990s

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Source: International Labor Organization.

50 55 60 65 70 75 80 85 90 95 100 1991 1995 1999 2003 2007 2011

Netherlands Sweden

Percent

Labor Force Participation Rate of Women Aged 25-54

Germany United States France UK

2013

Health Care Prices are Growing at the Slowest Rate in Nearly Fifty Years

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Source: Bureau of Economic Analysis; CEA calculations.

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2 4 6 8 10 12 14 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Health Care Price Inflation versus General Price Inflation

Year-over-year inflation rate Health care goods and services All consumer goods and services

Sep-14

The Affordable Care Act Has Expanded Health Insurance Coverage to Over 10 Million People as of Mid-2014

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Source: Sommers, Benjamin D., Thomas Musco, Kenneth Finegold, Munira Z. Gunja, Amy Burke, and Audrey M. McDowell. 2014. “Health Reform and Changes in Health Insurance Coverage in 2014.” New England Journal of Medicine 371: 867–74.

Jun 14 15 16 17 18 19 20 21 22 23 24 25 Jan 12 May 12 Sep 12 Jan 13 May 13 Sep 13 Jan 14 May 14

Percent of Non-Elderly Adults Without Health Insurance

Percent

Many Advanced Economies Have Seen Slowing Health Cost Growth

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Note: Country averages are weighted by population. Counties experiencing a break in series in a specific year are excluded from averages. Source: OECD.

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2 4 6 8 10 1990 1995 2000 2005 2010

Growth in Real Health Consumption Expenditure per Capita

United States OECD ex-US G7 ex-US United Kingdom

Percent per Year

U.S. Oil and Natural Gas Production Have Surged in Recent Years, While Forward Projections Have Continually Been Revised Upward

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Source: Energy Information Administration, CEA calculations.

Actual 2006 Forecast 2010 Forecast 2014 Forecast 2 4 6 8 10 12 14 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 U.S. Petroleum Production

Million barrels per day

Actual 2006 Forecast 2010 Forecast 2014 Forecast 5 10 15 20 25 30 35 40 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 U.S. Natural Gas Production

Trillion cubic feet per year

Expanded U.S. Energy Production Has Been a Meaningful Tailwind in the Recovery

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Source: Energy Information Administration, CEA calculations. .

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0.01 0.04 0.03 0.09 0.04 0.08 0.22 0.22

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0.00 0.05 0.10 0.15 0.20 0.25 0.30 '95-'05 2006 2007 2008 2009 2010 2011 2012 2013

Direct Contribution of Oil and Natural Gas Production to GDP Growth

Percentage Points, Annual Rate

Rising U.S. Oil Production Has Offset Supply Outages Elsewhere, Stabilizing Global Oil Prices

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Source: Energy Information Administration.

20 40 60 80 100 120 140

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0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 Jan-11 Jan-12 Jan-13 Jan-14

Growth of U.S. Production and Global Supply Disruptions

Million Barrels Per Day Dollars Per Barrel

Growth of U.S. Crude Oil Production (left axis) Growth of Unplanned Global Supply Disruptions (left axis) Brent Crude Price (right axis)

Structural Challenges and Opportunities in the U.S. Economy

Jason Furman Chairman, Council of Economic Advisers

London School of Economics November 5, 2014

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