The economy is finishing 2013 in a stronger place than where it began the year, though more work remains to grow the economy, create jobs, and strengthen the middle class. This is especially notable given the general fiscal environment, including the onset of the sequester in March, and the government shutdown and debt limit brinksmanship in October. The recent budget bill passed by Congress on a bipartisan basis will contribute to certainty, a better fiscal stance over the next year, and more funding for the critical ingredients of longer run growth. But more needs to be done, most immediately extending Unemployment Insurance benefits, and beyond that increasing investments to strengthen growth and making sure that growth is shared.
The slides below highlight the key themes and developments in the economy over the course of the year, and also touch on a few longer-term structural trends that continued to unfold in 2013 and will support growth into the future.
The strengthening of the economy over the course of 2013 is a testament to America’s resilient private sector and America’s workers. Businesses have added 8.1 million jobs over the past 45 months, and are on track to register the third consecutive year of job growth in excess of two million.
The growth rate of gross domestic product has risen for four straight quarters, and the private components of GDP have grown at a robust 3.7 percent annualized rate over the last two quarters. One of the biggest contributors to recent GDP growth has been the housing sector, which was the epicenter of the financial crisis but is bouncing back and has significant potential going forward.
There are also several emerging structural trends that supported growth in 2013 and will continue to play an important role in our economy. The United States is now the largest producer of oil and gas in world, passing Russia and Saudi Arabia, and for the first time since 1995, the United States is producing more oil domestically than it imports. A second, less widely appreciated trend is the dramatic slowdown in health care cost growth that in part reflects critical reforms under the Affordable Care Act. Slower health care cost growth means less pressure on employers and the federal budget and more take-home pay for families. Lastly, technological contributions such as cloud computing and mobile broadband and mobile devices continue to help the economy.
The United States has seen most rapid deficit reduction since the demobilization from World War II, which is important for fiscal sustainability but has also been a headwind on macroeconomic performance. The deficit has fallen by 5.7 percentage points of GDP over the last four years, with nearly half of that—2.7 percentage points—taking place in FY2013 alone – highlighting that the strengthening growth over the course of 2013 was driven by the private sector.
While these statistics paint an encouraging picture, more must be done to help make sure the economy works for every working American. The average inflation-adjusted hourly wage has only recently begun to show positive growth, and over the last four decades, has failed to keep pace with productivity gains (even when you include benefits). The decades-long trend of rising earnings inequality also appears to be largely continuing, according to the latest data.
Finally, while the unemployment rate has been trending down, it remains unacceptably high, which is almost entirely due to a large number of long-term unemployed, underscoring the need for Congress to extend the emergency unemployment insurance program that expires later this month, so that more than a million of our fellow Americans are not cut off from a vital lifeline while they look for work.
Jason Furman is Chairman of the Council of Economic Advisers