Years of Recovery and Reinvestment

Michelle 21 - 56

Scott 57 - 92

Dave 93- 126

Collin 127 - 162

Raj 163  - 194

Chapter 1: 8 Years of Recovery and Reinvestment (21-56)

Recovery in Review

• Employment and Wages

• Added jobs for 74 months
• Accelerated real wage growth

• Output and Economic Growth

• By the fourth quarter of 2013, per-capita real GDP had fully recovered to its pre-recession peak, and by the third quarter of 2016, per-capita GDP exceeded its pre-crisis peak by 4 percent.

• Equity Markets, House Prices, Household Wealth, and Other Measures

• Home prices and S&P has increased
• Health care prices have risen at a slower rate

The Crisis and the Response

• Once in a lifetime crisis

• HOusing, employment etc worse than depression in 1929

• Policy response:  

• 2008- tax incentives to encourage business investment
• Recovery Act: tax cuts and other temporary assistance that put cash in the hands of households who needed it immediately and who were likely to spend it, boosting aggregate demand.
• Monetary policy - Fed to retain near-zero interst rate
• Stabilizing Financial Markets -package of short term measures
• Rescuing Automobile Market - GM and Chrysler bankruptcy/restructuring. Helped manufacturing industry
• Supporting the Housing Market - help to refinance homes

• Impact of Policy Response

• Recovery Act - saved/recovered 6 Mil jobs

 The Administration has achieved its most substantial and immediate success in this respect in three areas: restoring economic growth, expanding health insurance coverage, and enacting a fairer tax code.

Chapter 1 continued (p. 57-64, Scott)

Four Continued Structural Challenges: Productivity, Inequality, Participation, and Sustainability

• Administration addressed many barriers to growth, making sure that future growth is stronger and benefits are more widely shared. But, there are many ingrained barriers still to work on.
• Productivity Growth

• Huge slowdown in labor productivity from 2005-2015
• Important contributor to living standards
• How to spur

• increasing public investment in infrastructure;
• providing greater funding for research and development;
• reforming the business tax code to better incentivize innovation and investment;
• promoting high-skilled immigration;
• continuing to improve education and worker training;
• expanding trade, which can boost innovation through the spread of ideas across borders, greater specialization in innovative activities, access to larger markets by high- productivity firms, and expanded competition

• Income Inequality

• USA - highest inequality, increasing the fastest among G7 economies
• Policies to help

• Quality education - expand and access
• Minimum wage - increase
• Worker Voice/Collective Bargaining - greater support
• Rents - reform
• Tax reform

• Labor Force Participation

• Stable since 2013: (Baby boomer aging = decrease) + (increase in labor force workers)
• Reduced participation rate for prime-age workers (25-54)

• Policies to combat:

• modernizing the unemployment insurance system and expanding wage insurance
• expanding tax credits for low-income workers and raising the minimum wage
• increasing workplace flexibility by increasing access to paid leave and affordable child care

• Economic Sustainability

• Guard against future downturns: Modify the design of automatic stabilizers

• Unemployment Insurance - auto expand in times of need
• Further curbs to entitlement costs in health care and limiting tax breaks for top %
• Climate Change - carbon emissions and clean energy economy

Chapter 2: THE YEAR IN REVIEW AND THE YEARS AHEAD (p. 65-92, went to 98, Scott)

• Year in Review

• Real GDP & Consumer Spending up
• Investment and Government Purchases up/down
• More jobs added, Inflation low
• Global, Productivity and Labor Force Growth a challenge moving forward

• Years Ahead (based on policies)

• Up: GDP, consumer spending, inflation (up then stabilize)
• Down: Unemployment rate

• Policy Developments

• Fiscal Policy (restraint)

• Discretionary spending limits, infrastructure improvements, tax credits

• Federal - purchases up
• State and Local - purchases weak, up and down
• Monetary Policy

• Federal Open Market Committee (FOMC) tightens monetary policy because confident inflation would hit desired target range (2%), but federal funds rate down

• Labor Market

• Recovery near to or to pre-recession levels
• Jobs & Earnings up, Unemployment down

• Growth: “Professional and business services” and “education and health services”
• Decline: Mining and Manufacturing

• Slack, some still

• Long term unemployment rate still falling to pre-recession levels
• Underemployment rate (Part time work, not by preference) still falling

• Output

• Consumer Spending - Up

• Disposable Income - nominal wages, lower oil prices - upbeat sentiment

• Debt to Income down, interest rates down

P 98 - 126 (Dave)

HOUSING

• Housing market has recovered, but there are supply constraints, low affordability in some areas, and young people aren’t buying
• National home ownership is down from historical average = young people not getting married or buying houses
• Housing starts down = constrained supply = not meeting demand in long run could be problem
• Houses now more affordable than average

BUSINESS FIXED Investment

• Down overall because of slow growth in US and low oil prices,( IP investments up though) = threat to labor productivity
• Investment only about 12% of GDP but has disproportionate effect because it affects labor productivity and future consumption

REAL Inventory Investment - has been down for awhile, which is unusal outside of recessions

Net Exports - strong dollar = bad for exports

• Export grew a bit faster than imports, still a trade deficit

PRODUCTIVITY-

        Growth rate slowing over past decade because higher employment growth than gdp growth, recession lowered investment, less capital deepening

• Lower productivity common in other nations too
• Want to remediaite it by infastricture spending, investing in education/job training, TPP, encourage R&D

WAGES/PRICE Inflation

• nominal wage inflation has increased with the strong recovery in the labor market. However, the pace remains below the pre-crisis pace.
• Inflation was below 2% target of Fed mainly because of lower energy prices
• Put the following 2 bullet points together and american workers have had some real wage gains :)
• Household income has gone up; largest gains at bottom of income distribution

FINANCIAL MARKETS

• Robust in 2016, investor sentiment cautisouly optimisitic, volatile equity markets, but overall up.
• Equity markets were down at start of year then recovered

• ERP: Consumption & Investment (Pages 127-162)

Collin

Interest Rates & Credit Spreads