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Sunday, February 26, 2006

The real economy 

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What's wrong with the economy?

by EPI President Lawrence Mishel and Policy Director Ross Eisenbrey

1. Profits are up, but the wages and the incomes of average Americans are down.
• Inflation-adjusted hourly and weekly wages are still below where they were at the start of the recovery in November 2001. Yet, productivity—the growth of the economic pie—is up by 13.5%. 1
• Wage growth has been shortchanged because 35% of the growth of total income in the corporate sector has been distributed as corporate profits, far more than the 22% in previous periods. 2
• Consequently, median household income (inflation-adjusted) has fallen five years in a row and was 4% lower in 2004 than in 1999, falling from $46,129 to $44,389. 3

2. More and more people are deeper and deeper in debt.
• The indebtedness of U.S. households, after adjusting for inflation, has risen 35.7% over the last four years. 4
• The level of debt as a percent of after-tax income is the highest ever measured in our history. Mortgage and consumer debt is now 115% of after-tax income, twice the level of 30 years ago. 5
• The debt-service ratio (the percent of after-tax income that goes to pay off debts) is at an all-time high of 13.6%. 6
• The personal savings rate is negative for the first time since WWII. 7

3. Job creation has not kept up with population growth, and the employment rate has fallen sharply.
• The United States has only 1.3% more jobs today (excluding the effects of Hurricane Katrina) than in March 2001 (the start of the recession). Private sector jobs are up only 0.8%. At this stage of previous business cycles, jobs had grown by an average of 8.8% and never less than 6.0%. 8
• The unemployment rate is relatively low at 5%, but still higher than the 4% in 2000. Plus, the percent of the population that has a job has never recovered since the recession and is still 1.3% lower than in March 2001. If the employment rate had returned to pre-recession levels, 3 million more people would be employed. 9
• More than 3 million manufacturing jobs have been lost since January 2000. 10

4. Poverty is on the rise.
• The poverty rate rose from 11.3% in 2000 to 12.7% in 2004. 11
• The number of people living in poverty has increased by 5.4 million since 2000. 12
• More children are living in poverty: the child poverty rate increased from 16.2% in 2000 to 17.8% in 2004. 13

5. Rising health care costs are eroding families' already declining income.
• Households are spending more on health care. Family health costs rose 43-45% for married couples with children, single mothers, and young singles from 2000 to 2003. 14
• Employers are cutting back on health insurance. Last year, the percent of people with employer-provided health insurance fell for the fourth year in a row. Nearly 3.7 million fewer people had employer-provided insurance in 2004 than in 2000. Taking population growth into account, 11 million more people would have had employer-provided health insurance in 2004 if the coverage rate had remained at the 2000 level. 15

SOURCES

1. Bureau of Labor Statistics, Current Employment Statistics Survey: http://www.bls.gov/ces/home.htm. BLS, Labor Productivity and Costs: http://www.bls.gov/lpc/home.htm. Productivity is non-farm business output per hour.

2. Bureau of Economic Analysis. NIPA Table 1.14. http://www.bea.gov/bea/dn/nipaweb/index.asp

3. Census Bureau. Income, Poverty, and Health Insurance Coverage in the United States: 2004. http://www.census.gov/hhes/www/income/income.html

4. Total household liabilities, Federal Reserve Flow of Fund's Balance Sheet tables: http://www.federalreserve.gov/releases/z1/. Deflated using CPI-U from the Bureau of Labor Statistics.

5. For Disposable Income, Bureau of Economic Analysis Table 2.1. Mortgage and consumer debt from the Federal Reserve Flow of Fund's Balance Sheet tables: http://www.federalreserve.gov/releases/z1/

6. Federal Reserve: http://www.federalreserve.gov/releases/housedebt/default.htm

7. Bureau of Economic Analysis. NIPA Table 2.1, adjusted using the price index for Personal Consumption Expenditures (Table 2.3.4)

8. Analysis of Bureau of Labor Statistics data. For methodology see Price, Lee (2005) The Boom That Wasn't, EPI Briefing Paper #168. http://www.epi.org/content.cfm/bp168

9. Analysis of Bureau of Labor Statistics data. For methodology see Bernstein, Jared and Lee Price (2005) An Off-Kilter Expansion, EPI Briefing Paper #164. http://www.epi.org/content.cfm/bp164

10. Bureau of Labor Statistics, Current Employment Statistics Survey: http://www.bls.gov/ces/home.htm . See also Bivens, Josh (2005) "Trade deficits and manufacturing employment," Economic Snapshot, November 20, 2005. http://www.epi.org/content.cfm/webfeatures_snapshots_20051130

11. Census Bureau. Income, Poverty, and Health Insurance Coverage in the United States: 2004. http://www.census.gov/hhes/www/income/income.html

12. Census Bureau. Income, Poverty, and Health Insurance Coverage in the United States: 2004. http://www.census.gov/hhes/www/income/income.html

13. Census Bureau. Income, Poverty, and Health Insurance Coverage in the United States: 2004. http://www.census.gov/hhes/www/income/income.html

14. See Mishel, Lawrence et al. (2004) Less Cash in Their Pockets, Briefing Paper #154. http://www.epi.org/content.cfm/bp154

15. See Mishel, Lawrence et al. (2004) Less Cash in Their Pockets, Briefing Paper #154. http://www.epi.org/content.cfm/bp154
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