“As 2014 comes to an end, we can enter the New Year with new confidence that America is making significant strides where it counts.”
— President Barack Obama, Weekly Address from December 20, 2014
Obama has claimed “America’s resurgence is real.” Resurgence is a flashy word, evoking not just recovery but rebirth and burgeoning strength. And if there is one piece of evidence that supports that assessment it is the growth in U.S. gross domestic product in the third quarter. GDP grew at a 5% annual rate from July through September — the biggest quarterly increase since the third quarter of 2003. As Bloomberg noted, “the U.S. economy roared into overdrive.” But there are caveats. The strokes painted by GDP data are broad, and say little about how the benefits of greater economic prosperity are divided. GDP numbers hide the bifurcated nature of economic growth in the United States. Strong headline growth numbers give politicians the opportunity to laud the strengthening of the economic recovery, while glossing over what that growth actually means.
With 2014 at an end, it is time to unpack Obama’s so-called resurgence.
Where does public sentiment stand?
Examining public opinion polls adds another dimension to GDP data. And while survey data is inherently limited in scope, it does provide a basis for understanding the degree to which the economic recovery is reaching the American public.
If there is any one number that supports the president’s assessment it is Gallup’s measure of the economic confidence of the American public. Finally, the index has crept into positive territory for the first time since before the Great Recession started in December 2007. Topping last June’s post-recession high of minus 3 and last week’s minus 5, the index recorded a reading of plus 2 in the week ending December 28, a jump that serves as “a possible sign that Americans are feeling the accelerating economic recovery.” This gauge remained relatively stable in negative numbers throughout the first half of the year, but since July, the index has climbed 16 points — leaving behind the abysmal readings recorded at the depths of the recession. What has changed since the middle of September, when the rapid improvements in economic confidence began? The U.S. job market has showed remarkable strength in recent months. November’s particularly strong addition of 321,000 jobs to private payrolls put the U.S. economy on track to post the strongest year of job creation in 15 years, and prompted TD Securities analyst Eric Green to call the growth “blockbuster.” Gallup’s recent readings are also framed by record stock market gains (the Dow Jones Industrial Average topped 18,000 for the first time) and the lowest gas prices since 2009.
A recent Pew Research survey added more nuance to what appeared to be a glowing picture of economic health from Gallup. While the economic future may look more prosperous now than it did this time last year or (really) anytime in the during the more than five years of economic recovery, the economy is still the most pressing concern for most Americans. It is undeniable that the employment situation has improved; the Department of Labor has yet to release December’s figures, but the headline unemployment rate has decreased at least nine tenths of a percentage point over the past year to 5.8%. And just as the national unemployment rate has decreased, so too, has the percentage of Americans citing unemployment as their number one concern. Since January of 2014, the share of respondents naming unemployment as the most important problem facing the United States has dropped from 20% to 10%. The economy now has top billing, followed by immigration. Of course, the nation’s economic fears have only been exacerbated by political gridlock in Washington — which was also listed as a chief concern, alongside dissatisfaction with government.
It is simple to explain why the economy remains such a large concern despite Obama’s glowing description. For a great majority of the economic recovery there has been a big disconnect between those who benefited from the stock market rally and those workers hurt by stagnant wages and growing income inequality.
That brings us to the stock market rally…
Investors have generally enjoyed solid returns since the end of the Great Recession. In 2013, the stock market underwent the broadest rally since at least 1990; in 2014, the S&P 500 avoided recording four consecutive down days for the first time in the index’s 90-plus-year history; and the S&P 500 has increased three-fold since 2009’s trough. This past year may have been more volatile for stocks than 2013, but it was still a record-breaking year: The S&P 500 hit new all-time highs 51 times and the Dow Jones did it 36 times. Most notably, fueled by evidence of the strongest GDP growth in 11 years, the Dow Jones jumped past the 18,000 milestone.
But stock market gains boost wealth for only a small percentage of households; according to a Bloomberg National Poll conducted earlier this year, 77% of Americans say a nearly six-year-old bull market has had little or no impact on their financial well-being. This data accurately reflects how financial assets are increasingly being concentrated among better-off Americans. The Fed’s 2013 Survey of Consumer Finances showed that stock ownership has fallen to its lowest level in 18 years, while stock ownership for the wealth is at an all-time high. Specifically, that survey found that 48.8% of Americans held stock directly or indirectly (including mutual funds, 401-K plans, other investment vehicles) in 2012; only 14% of Americans own stocks directly — a 21% decrease from 2001. 93% of the wealthiest 10% of Americans own stocks, nearly two times the ownership rate of the middle 50% and far more than the 26% ownership rate of the bottom 40%. Stock ownership is even more concentrated among the richest bracket when considering their share of total stock holdings. In 2010, which is the most-recently available data for this statistic, the wealthiest 10% of Americans held 81% of all directly held or indirectly held stocks — a figure that likely has increased over the past four years.
As a study conducted by the Russell Sage Foundation found, “through at least 2013, there are very few signs of significant recovery from the losses in wealth experienced by American families during the Great Recession.” And that loss of wealth was not distributed equally across all income brackets of the U.S. population, meaning wealth inequality greatly increased over the past decade. For America’s top earners, the Great Recession was only a “temporary interruption in wage growth,” but for the remainder of the population, median household wealth is well-below 2003 levels.
And minimum wage …
The minimum wage is set to increase in 21 states this week, meaning the hourly pay of 2.4 million workers will increase by approximately $1 to $8 on average and a high of $9.15, according to the Economic Policy Institute. This widespread increase means that now 29 states (home to 60% of the U.S. workforce) will have a base wage higher the federal minimum wage of $7.25. Additionally, more than 120 cities and counties across the United States have implemented what are called livable wages of between $12 and $15 per hour. “It’s not going to bring them a life of luxury, but it’s a substantial amount of money for somebody struggling to get by,” EPI senior economic analyst David Cooper told USA Today of the wage hikes. “They can make payment plans for a car or buy some extra groceries,” he added. Congressional Republicans and low-wage employers in the restaurant industry have been especially vocal critics of President Obama’s proposed increase of minimum wage to $10.10 per hour, claiming such a raise will force companies to hire less and cut workers’ hours. However, company spokeswoman Brooke Buchanan told the publication that Walmart, the largest American employer with a workforce of nearly 2.2 million people,“can absorb” the additional labor costs.
But what about income inequality and stagnant wages?
Minimum wage may be increasing around the country, job creation accelerating, and economic growth rebounding, but the twin issues of income inequality and stagnant wage growth remain pressing.
As the Economic Policy Institute noted, “in 2007, the last year before the Great Recession, incomes for the middle 60% of American households would have been roughly 23% (nearly $18,000) higher had inequality not widened,” meaning had their incomes grown at the overall average rate. The short-lived dip in incomes of the wealthiest Americans during the Great Recession did little to shrink the gap — which stood at 16%, or close to $12,000 — in 2011.
According to the Institute, the root of rising inequality is the failure of hourly pay for a large share of Americans to keep pace with productivity. Since 1979, productivity has risen eight times faster than pay. By comparison, when hourly wages for the vast majority of workers mirrored productivity in the decades following World War II, the American income distribution was stable. Had minimum wage increased alongside productivity, the base hourly wage would be over $18. Now, chief executives make an average of 295.9 times more than the typical American worker. While lower than 2001’s all-time high of 383.4 times, the CEO-to-worker compensation ratio has ballooned since 1965, when CEOs were paid an average of 20 times more. Not only have wages lagged productivity and the wage disparities between the heads of large American corporations and typically workers grown, but nominal wage growth has also slowed. In healthier economic times, average hourly wages of all private employees increased at a 4% annual rate. But since the recession, growth has hovered around 2%. Despite the falling unemployment rate and greater job growth, wages rose just 2.1% since November 2013.
Why then is Obama so confident that 2014 was a breakthrough year?
Congressional Republicans and the White House alike have recognized that addressing these problems are necessary. In the past congressional midterm elections, many Republicans campaigned on promises to improve the lives of middle class Americans; Obama, in his wide-ranging interview with NPR, acknowledged working-class white voters “haven’t seen enough” economic progress. “They hear about an immigration debate or they hear about, you know, debate surrounding Ferguson, and they think, ‘I’m being left out. Nobody seems to be thinking about how tough it is for me right now,'” he added. Throughout his presidency, Obama had been very vocal about the worsening conditions of middle class America. A fact sheet released alongside his State of the Union Address last January proclaimed 2014 would be “a year of action to expand opportunities for the middle class.”
On December 22, just days after Obama announced 2014 was a breakout year, National Economic Council Director Jeffrey Zients and Domestic Policy Council Director Cecilia Munoz wrote in a blog entry posted on the White House website that the administration had indeed been successful this past year in expanding opportunities. “As the year comes to a close, the results are crystal clear. The President and his Administration have taken more than 80 new executive actions this year to help grow the economy, create jobs, address the threat of climate change, and strengthen the middle class,” they wrote, noting in particular the executive orders that boosted the minimum wage for federal contract workers and deferred deportations for millions of undocumented immigrants.
In his final press conference of the year, the president did not focus on those actions, but painted a broader picture of economic prosperity, calling 2014 a breakthrough year. “The steps we took early on to rescue our economy and rebuild it on a new foundation,” he said, “helped make 2014 the strongest year for job growth since the 1990s.” In the 57 months of economic recovery, U.S. businesses have created nearly 11 million new jobs. “Almost all the job growth that we’ve seen have been in full-time positions,” Obama continued, and “much of the recent pickup in job growth has been higher-paying industries.” And while his use of the word “much” is helpfully ambiguous, the most recent employment situation report did note that the job gains were broad-based enough and big enough to support career creation.
The president highlighted the economic benefits of the boom in domestic natural gas production. He explained that the government’s bailout of the automobile industry was successfully concluded. The Department of the Treasury announced earlier in December that the government’s final shares in the auto lender Ally Financial would be sold, concluding its involvement in the industry’s recovery. And while the Treasury lost approximately $10 billion on the auto industry bailout, which also included aid to General Motors and Chrysler, the broader bank and auto bailout measure known as the Trouble Asset Relief Program, or TARP, brought taxpayers a tidy profit. And American automakers are on track for its strongest year since 2005. Obama also reminded Americans that thanks the Affordable Care Act, 10 million people have gained health insurance, pushing the uninsured rate to a near-record low. “Since the law passed, the price of health care has risen at its slowest rate in about 50 years,” he added, even though that assertion has some caveats. He noted that the government’s budget deficit has shrunk by two-thirds since he took office.
As the president’s summary makes clear, the economy is doing a little bit better. Poor wage growth is a major exception to that narrative, but adding a qualification to the assertion that 2014 was a breakthrough year has no place in year-end press conferences. Obama has been relatively open about the bad conditions of middle- and lower-income Americans even if the actions he has taken to expand economic opportunity might be questionable. Also up for debate are the actions Congress and Obama will take in the coming year to assist the middle class. Infrastructure spending and tax reform could do much to boost employment and change the trend in income inequality, and congressional Republicans and the White House have indicated they may be be able to ink agreements. Comparatively, the Affordable Care Act — the most contentious piece of Obama’s efforts to help the middle class — could become another battleground in 2015. Newly-elected Senate Majority Leader — Kentucky’s Mitch McConnell, a Republican — has already said lawmakers in the upper house of Congress will take another vote to repeal the health care reform when the new session begins.
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