Several indicators point toward a weak and weakening economy, especially in the
housing and labor markets. The slowdown in economic activity is largely a result
of the end of the housing boom, which has spilled into the economy at large and
which so far has not been replaced by another driver of stronger economic
activity. At the same time, the economy still faces large risks, such as massive
household debt, a comparatively high trade deficit and continued budget
- Wage growth is low. Factoring in inflation, hourly wages were 2.6% higher
and weekly wages were 1.7% higher in July 2007 than in March 2001.
- Benefits are disappearing. The share of private sector workers with a
pension dropped from 50.3% in 2000 to 43.2% in 2006, the last year for which
data are available, and the share of people with employer-provided health
insurance dropped from 64.2% to 59.7%.
- Family debt is on the rise. In the first quarter of 2007, household debt
fell relative to disposable income for the first time in five years, but still
stayed at a comparatively high 130.7%, the third highest on record. In the first
quarter of 2007, families spent 14.3% of their disposable income to service
their debt, up from 13.0% in the first quarter of 2001.
- Families feel the pressure. The share of new mortgages entering foreclosure
was 0.7% in the second quarter of 2007, reflecting the fifth increase in a row
to the highest level on record since 1979.
- Housing market slows. New home sales in July this year were 10.2% below the
level of July 2006 and existing home sales were 9.0% lower. The median sales
price of existing homes was 0.6% lower in July 2007 than a year earlier and the
median sales price of new homes was 1.0% higher than a year earlier. The average
monthly supply of homes for the six months ending in July was 7.7 months, the
highest since June 1991.
- Home equity declines. Home equity dropped by 1.8 percentage points relative
to disposable income in the first quarter of 2007, the largest such decline
since the second quarter of 1992.
- Already weak job growth drops sharply. Monthly job growth since March 2001
has averaged an annualized 0.6%. In August, employment declined by 4,000 jobs,
the first job decline since August 2003. Over the past 12 months, the average
monthly job growth was 133,300 jobs, compared with 191,600 in the preceding 12
months and 210,800 in the 12 months before that.
- Poverty stays high. The poverty rate fell slightly to 12.3% in 2006, down
from 12.6% in 2005. But this is still substantially higher than the last low
point in 2000, when it was 11.3%.
- Improvements in the government’s finances are temporary. In August 2007, the
Congressional Budget Office estimated that the deficit for 2007 amounted to $158
billion, $14 billion less than projected in January. Yet the cumulative budget
deficit from 2008 to 2012 increased sharply from $194 billion to $696 billion in
the CBO’s projections.
- Tax cuts do not pay for themselves. The Joint Committee on Taxation
estimated that the tax cuts enacted since 2001 would cost $300 billion in 2007
alone. The federal government would therefore have shown a surplus had it not
been for President Bush’s tax cuts.
- Federal debt endangers our economic independence. Foreign investors bought
82% of new Treasury debt, and the share of U.S. foreign-held debt grew to 46% in
March 2007 from 32% in March 2001. The quarterly interest payments from the
federal government to foreigners rose to $38 billion in the first quarter 2007
from $21 billion in the first quarter of 2001.
- Trade deficit remains high despite strong export growth. In the second
quarter of 2007, the trade deficit fell slightly to 5.2% of the Gross Domestic
Product from 5.3% in the first quarter of 2007. Yet the last trade deficit is
still larger than any trade deficit since the Great Depression recorded before
the second quarter of 2004.
Source: Center for American Progress