Year in Review Economic Briefing

Council of Economic Advisers

December 19, 2013

Table of Contents
I. II. III. IV. V. VI. Labor Market GDP Housing Energy Health Fiscal Situation

Businesses Have Added 8.1 Million Jobs Over the Last 45 Months
Monthly Change in Private Payroll Employment
Thousands, Seasonally Adjusted 400 200 0 -200 -400 -600 -800 -1000 Jan-07
I. Labor Market

400 200
Nov-13

0 -200

12-month moving average

-400 -600 -800 -1000

Jan-09

Jan-11

Jan-13
3

Source: Bureau of Labor Statistics.

The Unemployment Rate Has Fallen SteadilyBut the Long-Term Unemployment Rate Remains Significantly Elevated

Unemployment Rate by Duration

Percent of Ci vilian La bor Force 8 7 6 5 4 3 2 1 0 Jan-90
I. Labor Market
2001-07 Average Unemployed for 27 Weeks & Over Nov-13 Unemployed for 26 Weeks or Less

2001-07 Average

Jan-95

Jan-00

Jan-05

Jan-10
4

Source: Bureau of Labor Statistics.

Recent Months of Real Wage Growth Have Been Strongest Since 2009...

Growth in Real Average Hourly Earnings for Production and Nonsupervisory Workers
12-Month Percent Cha nge 6 5 4 3 2 1 0 -1 -2 -3 2007
I. Labor Market
Nov-2013

6 5 4 3 2 1 0 -1 -2 -3

2008

2009

2010

2011

2012

2013

2014
5

Source: Bureau of Labor Statistics.

But Wage Inequality Continued its Decades-Long Increase

Usual Weekly Earnings for Full-Time Wage & Salary Workers, by Percentile
3.0 T
Ratio of 90th Percentile to 10th Percentile (Left Axis)

Ra ti o 5.4 5.2 5.0 4.8 4.6 4.4

T 4.2 E S

2.9 S
2013:Q3

2.8 2.7 2.6 2.5 2.4

4.0 T 3.8 3.6 2000:Q1

I. Labor Market

Ratio of 90th Percentile to Median (Right Axis)

2.3 2.2 2.1

2003:Q1

2006:Q1

2009:Q1

2012:Q1
6

Source: Bureau of Labor Statistics.

Real GDP Growth in Q3 Was the Strongest in Over a Year

Annualized Quarterly Percent Change 8 6 4 2 0 -2 -4 -6 -8 -10 2007:Q1 2008:Q1 2009:Q1 2010:Q1 2011:Q1 2012:Q1 2013:Q1
Source: Bureau of Economic Analysis. II. GDP

Real Gross Domestic Product Growth

8
4.9 2.8 2.8 3.2 1.4 3.7 1.2 0.1 -0.4 2.8 1.1 2013:Q3 -1.3 3.6 2.5

6 4 2 0 -2 -4

3.1

3.9 2.7 1.5 2.0 1.6

3.9

1.3

0.3

-2.7

-2.0

-5.4

-6 -8

-8.3

-10
7

Vehicle Sales Rose to a 5-Year High in November

Mi l lions of Units, Seasonally Adjusted Annual Rate

Car and Light Truck Sales

22 21 20 19 18 17 Nov-13 16 15 14 13 12 11 10 9 8 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14

Source: Federal Reserve Board. II. GDP 8

Residential Investment Has Contributed to Growth For 12 Straight Quarters

Percent, Annual Rate 40 30 20 10 0 -10 -20 -30 -40 2007:Q1

II. GDP

Real Residential Investment: Quarterly Percent Change

40 30 20 10
2013:Q3

0 -10 -20 -30 -40

2009:Q1

2011:Q1

2013:Q1
9

Source: Bureau of Economic Analysis.

But Business Fixed Investment Has Grown More Slowly

Real Business Fixed Investment: Quarterly Percent Change
20 15
2013:Q3

Percent, Annual Rate 20 15 10 5 0 -5 -10 -15 -20 -25 -30 2007:Q1

II. GDP

10 5 0 -5 -10 -15 -20 -25 -30

2009:Q1

2011:Q1

2013:Q1
10

Source: Bureau of Economic Analysis.

The Trade Deficit Is Narrower than Pre-Crisis Years, Helped by a Falling Deficit in Petroleum ProductsAnd the Current Account Deficit is the Lowest As a Share of the Economy Since 1998

U.S. Merchandise Trade and Current Account Deficits

Avg. Monthly Goods Trade Deficit, Bil. Chn. 09$ Current Account Deficit Percent of GDP

80 70 60 50 40 30 20 10 0 00
II. GDP

8
All other goods Petroleum

7 6 5 4 3 2 1 0

01

02

03

04

05

06

07

08

09

10

11

12 13*
11

*2013 based on merchandise trade data through October and average current account through Q3. Source: Census Bureau; Bureau of Economic Analysis.

Housing Has Been Recovering and There Is Still Upside Potential

New Residential Construction: Building Permits
2800 2400 2000 1600 1200 800 400 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15
Source: Census Bureau. III. Housing 12
Estimate of Current Average Annual Demand Nov-13

Thousands, Annual Rate

2800 2400 2000 1600 1200 800 400

Despite the Run-Up in Mortgage Rates, Home Prices Remain Affordable

Composite Housing Affordability Index
220 200 180 160 140 120 100 80 60 Jan-71
III. Housing
More Affordable Less Affordable Oct-13

Index (Median Income = Qualifying Income = 100)

220 200 180 160 140 120 100 80 60

Jan-81

Jan-91

Jan-01

Jan-11
13

Source: National Association of Realtors.

But Higher Rates Have Dampened Refinancing Activity

Percent

Mortgage Rates and Refinancing Applications

Index (3/16/90=100)

7.0 6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0 Jan-07
III. Housing
30-Year Fixed Rate Mortgage (Left Scale) Dec. 12-13 Refinancing Applications (Right Scale)

8000 7000 6000 5000 4000 3000 2000 1000 0 Jan-09 Jan-11 Jan-13
14

Source: Mortgage Bankers Association; Freddie Mac.

Household Debt Service Payments are At Lowest on Record

Percent of Disposable Income 15 14 13 12 11 10
2013:Q3

Household Debt Service Ratio

9 8 1980:Q1
III. Housing

Note: Reflects estimated payments on mortgage and consumer debt. Source: Federal Reserve Board.

1990:Q1

2000:Q1

2010:Q1
15

The U.S. is Now Projected to Produce More Natural Gas and Total Liquid Fuels than Russia and Saudi Arabia

Qua drillion British Thermal Units 50

Russia

U.S., Russia, and Saudi Arabia Liquid Fuels and Natural Gas Production, 2008-2013 (est.)

40 30 20 10 0
Saudi Arabia

U.S.

Natural Gas

Liquid Fuels

2008
IV. Energy

2009

2010

2011

2012

2013
16

Source: Energy Information Administration.

Domestic Oil Production Has Exceeded Imports For First Time Since 1995

Crude Oil Production & Imports

Mi l lions of Barrels Per Day 11 10 9 8 7 6 5 4 3 2000
IV. Energy
Domestic Production (4-Week Moving Average) Week Ended 12/13/2013 Imports (4-Week Moving Average)

2002

2004

2006

2008

2010

2012

2014
17

Source: Energy Information Administration.

Recent Years of Health Care Cost Growth Are Lowest On Record

Real Per Capita Growth in National Health Expenditures
Percent 8 7 6 5 4 3 2 1 0 1961
V. Health Care

2013*

1971

1981

1991

2001

2011
18

*Data for 2012 and 2013 are projections. Source: CEA calculations based on data from the Centers for Medicare and Medicaid Services and the Bureau of Economic Analysis.

Health Care Cost Slowdown is Broad-Based

Real Per Enrollee Growth in Health Spending by Payer
Average Annual Growth Rate 6 5 4 3 2 1 0 -1 Private Insurance
V. Health Care

2000-2007 2007-2010 2010-2013

Medicare

Medicaid
19

*Data for 2012 and 2013 are projections. Source: CEA calculations based on data from the Centers for Medicare and Medicaid Services and the Bureau of Economic Analysis.

The Budget Deficit Has Fallen Rapidly the Presidents Proposals Would Stabilize Debt as a Percentage of GDP Over The Next 10 Years
Percent of GDP (Fiscal Year)

Federal Budget Deficit

11 10 9 8 7 6 5 CBO's Current Law Baseline (May 2013) 4 3 2 CBO's Estimate of Administration's 1 FY 2014 Budget (May 2013) 0 -1 -2 -3 2015 2018 2021 2024
20

11 10 9 8 7 6 5 4 3 2 1 0 -1 -2 -3 2000
VI. Fiscal Situation

Actual

2003

2006

2009

2012

Source: Office of Management and Budget; Congressional Budget Office.

The Decline in the Deficit Since FY2009 Represents the Largest Four-Year Improvement Since the Demobilization from WWII

Largest Post-War Four-Year Deficit Reductions

Percent of GDP (Fiscal Year) 7 6 5 4 3 2 1 0 2009-2013
VI. Fiscal Situation

5.7

3.7

3.2

2.7

1996-2000

1992-1996

1983-1987
21

Source: Office of Management and Budget; Congressional Budget Office.

Slowing Cost Growth Has Contributed to Lower Cost Estimates for Medicare and Medicaid
Percent of GDP

Recent CBO Projections of Medicare and Medicaid Outlays

Aug-12 Aug-10 Aug-11 May-13

6.3 6.0 5.8 5.5 5.3 5.0 4.8

4.5 2014
VI. Fiscal Situation

2015

2016

2017

2018

2019

2020

2021

2022

2023
22

Source: Congressional Budget Office.