The decoupling of carbon pollution and economic growth in the United States is underway, and recent data from the International Energy Agency suggests that this trend is going global, as emissions have stayed flat in 2014 and 2015 while the global economy grew. When the Paris Agreement took effect in December 2015, the world took an important step toward avoiding the most dangerous impacts of climate change.  But Paris alone is not enough to avoid average global surface temperature increases that climate scientists say are very risky -- additional policies that reduce CO2 emissions are needed, in the United States and elsewhere, to ensure that these damages are avoided.   

Moreover, as we consider the interaction of climate change mitigation policies and the economy, it is important to remember that the counterfactual to serious mitigation is not free – the absence (or even delay of effective climate policy can be very costly over time. The figure below graphs estimates of the annual economic damages from climate change, expressed as a fraction of global gross domestic product (GDP), from mid- to late-century, under different climate policy scenarios. We can think of this as a “climate damage cost” that world nations will pay each year as the climate changes, in terms of lost economic output. This cost includes impacts of increased temperature on agricultural productivity, sea level rise, and deaths and illnesses related to heat, pollution and tropical diseases. In the reference curve (in blue), no action is taken to address climate change. Each of the other curves incorporate different assumptions about how much emissions mitigation the world will achieve, and how quickly.  If countries meet their individual nationally-determined contributions (INDCs) agreed to in Paris and go no further, moving the world from the blue to the purple curve, we can avoid significant economic damages. To move to the red curve, countries must meet the Paris INDCs and continue to decarbonize beyond 2030 at about the same rate represented in the INDCs.  If we achieve net-zero global GHG emissions in 2080, we can reduce climate damage impacts on the level of global GDP from more than 4 percent to less than 1 percent by 2100.

Failing to make investments in climate change mitigation could leave the global economy, and the U.S. economy, worse off in the future.  And the estimates graphed above are uncertain and may be conservative; they do not account for damages that are difficult to monetize (such as increases in the frequency and intensity of extreme weather), or for the possibility that we may cross critical greenhouse gas concentration thresholds that cause catastrophic damages (such as the melting of Greenland ice sheets and associated sea-level rise), or for the chance that climate change will reduce the rate of economic growth in some countries, rather than just the level of output.

We may have become used to reading about the predicted physical impacts of climate change, like inundated coasts and lower crop production. But the economic impacts, and their fiscal consequences, will be severe, as well.  For example, the U.S. Office of Management and Budget recently estimated that a reduction in annual global economic output of 4 percent—well within the range of what economic models suggest could happen by 2100 without further climate action—could translate to lost U.S. federal tax revenue of $340 to $690 billion per year (about 0.5 percent of expected U.S. GDP in 2100).

In deciding how much to reduce carbon pollution, and how quickly to act, countries must weigh the costs of policy action against estimates of avoided climate damages. But we should be clear-eyed about the fact that effective action is possible, and that the economic and fiscal costs of inaction are steep. 

THIRTEEN KEY POINTS ON LABOR MARKET PROGRESS OVER THE LAST EIGHT YEARS

1. U.S. businesses have now added 15.8 million jobs since private-sector job growth turned positive in early 2010. Today, we learned that private employment rose by 144,000 jobs in December. Total nonfarm employment rose by 156,000 jobs, slightly below the monthly average for 2016 as a whole but substantially higher than the pace of about 80,000 jobs per month that CEA estimates is necessary to maintain a low and stable unemployment rate given the impact of demographic trends on labor force participation. The unemployment rate ticked up to 4.7 percent in December, less than half its peak during the recession, while the labor force participation rate—which has been largely unchanged over the past three years despite downward pressure from demographic trends—increased to 62.7 percent. Average hourly earnings for all private workers increased 2.9 percent over the past year, the fastest twelve-month pace since the end of the recession and above the pace of inflation in 2016.

2. Since job growth turned positive in October 2010, the U.S. economy has added jobs for 75 straight months—the longest streak of job growth on record and more than two years longer than the next-longest streak. Over this period, nonfarm employment growth has averaged a robust 199,000 jobs a month. On a calendar-year basis, the pace of job growth peaked at 251,000 jobs a month in 2014, the best year for job creation since the 1990s. In 2016, job growth remained strong, averaging 180,000 jobs a month. As of December 2016, total nonfarm employment exceeded its pre-recession peak by 6.9 million jobs. All of the net job creation in the current recovery has been in the private sector, as private-sector payroll employment exceeded its pre-recession peak by 7.0 million jobs as of December.

3. The unemployment rate has been cut by more than half since its peak in 2009, falling much faster and further than expected. After peaking at 10.0 percent in October 2009, the unemployment rate fell rapidly over the course of the recovery, and by mid-2015 had recovered fully to its pre-recession average. Since then, it has fallen even further, standing at 4.7 percent at the end of 2016. The rapid decline in the unemployment rate came far more quickly than most economists predicted: as recently as March 2014, private forecasters expected the unemployment rate to remain above 5.0 percent until at least 2020.

4. Real hourly wages have grown faster over the current business cycle than in any cycle since the early 1970s. In recent years, American workers have seen sustained real wage gains, as hourly earnings have grown faster than inflation. The chart below plots the average annual growth of real hourly earnings for private production and nonsupervisory workers—a group comprising about four-fifths of private nonfarm employment—over each business cycle, including both recessions and recoveries. (Economists prefer comparing across entire business cycles, as they generally represent economically comparable periods.) Since the beginning of the current business cycle in December 2007, real wages have grown at a rate of 0.8 percent a year, faster than in any other cycle since 1973.

5. Since the end of 2012, real wages for non-managerial workers have grown nearly 18 times faster than they did from 1980 to 2007. In fact, since the end of 2012, real wages for private production and nonsupervisory workers have grown over 5 percent cumulatively, more than double their 2.1-percent total growth from the business cycle peak in 1980 to the business cycle peak in 2007—a sign of the remarkable progress made by American families in the current recovery after years of slow growth in wages.

6. Robust real wage growth and strong employment growth have translated into rising real incomes for households, with the largest gains going to low- and middle-income families. From 2014 to 2015, real median household income increased by $2,800, or 5.2 percent, the largest annual increase on record. Gains were even larger in the lower half of the income distribution, ranging from an increase of 5.5 percent for households at the 40th percentile to an increase of nearly 8 percent for households at the 10th percentile. While households in the top half of the income distribution also saw increases, their gains were smaller, with an increase of 2.9 percent at the 90th percentile of household income. Growth in both real wages and employment in 2016 point to continued gains in real incomes for American households.

7. On net, essentially all of the increase in employment over the recovery has been in full-time jobs. As measured by the household survey, U.S. employment reached a trough in December 2009. Since then, full-time employment has increased by 13.7 million. In contrast, part-time employment has increased by just 420,000 over the course of the recovery.

8. Broader measures of labor underutilization have also steadily improved, and all but one are below their pre-recession averages. The headline unemployment rate, the U-3 rate, includes unemployed persons who have looked for work in the last four weeks. Broader measures of labor underutilization each include a progressively larger group of individuals: U-4 counts discouraged workers in addition to the unemployed, U-5 adds in others who are marginally attached to the labor force, and U-6 also includes people working part-time who would prefer a full-time job (“part-time for economic reasons”). Like the headline unemployment rate, all of these measures saw large increases during the recession, with the U-6 rate in particular reaching a record high. However, U-3, U-4, and U-5 all recovered fully to their respective pre-recession averages in the summer of 2015 and have fallen further since. As of December, the U-6 rate was just 0.1 percentage point above its pre-recession average.

9. Real average hourly wages have risen in every major industry over the current business cycle—and in nearly all, the pace of increase has been faster than in the previous cycle. Since the beginning of the current business cycle, real wages for non-managerial workers have grown at an average rate of 0.8 percent a year. However, this average masks considerable variation in real wage growth among workers in different industries. As the chart below shows, workers in all major sectors have seen real increases in their hourly earnings, ranging from average gains of 0.1 percent a year for workers in the transportation and warehousing industry to gains of 1.7 percent a year for workers in the financial activities sector. For nearly all major industries, real wage gains so far in the current business cycle have outpaced gains in the 2000s business cycle.

10. Unemployment rates for all major demographic groups have recovered to below their respective pre-recession averages, though more work remains to close longstanding disparities in the labor market. The unemployment rates for African Americans and Hispanic Americans peaked at 16.8 percent and 13.0 percent, respectively, after experiencing larger percentage-point increases from their pre-recession averages than the overall unemployment rate did. By mid-2015, both the African-American and Hispanic-American unemployment rates had recovered to their respective pre-recession averages. Similarly, the unemployment rates for white Americans and for Asian Americans, which have historically tended to be lower than the overall unemployment rate, have more than recovered to their pre-recession averages. Still, the fact that the unemployment rates for African Americans and Hispanic Americans are much higher than the overall unemployment rate is a reminder that much more work remains to ensure that the benefits of the strong labor market are shared among all Americans, including through efforts like the My Brother’s Keeper initiative.

11. Initial claims for unemployment insurance (UI) have been below 300,000 for 96 consecutive weeks, the longest such streak since 1970. During the Great Recession, claims for unemployment insurance—which are an important leading indicator of recessions—rose sharply to near-record highs. However, they have since declined to well below their pre-recession average, and average weekly initial claims in 2016 were the lowest of any calendar year since 1973. Still, the share of unemployed workers eligible for unemployment insurance has fallen in recent years, in part as a result of reductions in coverage within States’ UI programs. A number of reforms—including several in the President’s Fiscal Year 2017 Budget—would build on the strengths of the UI system to ensure that it both provides effective assistance for those who lose a job through no fault of their own and helps to stabilize the U.S. economy during future downturns.  

12. Two-thirds of States have seen their unemployment rates fall below their pre-recession averages. There was extremely wide variation in the effect of the Great Recession on unemployment rates across States and the District of Columbia, with increases ranging from nearly 200 percent (Nevada) to just 13 percent (Alaska) of their respective pre-recession averages. As of November 2016, however, 34 States and the District of Columbia have seen their unemployment rates recover fully, with a number of States seeing unemployment rates substantially below their pre-recession averages. The sixteen States that still have elevated unemployment rates include the six that saw the largest percentage increases in their unemployment rates in the recession. 

13. Since 2010, the United States has put more people back to work than all the other G-7 economies combined. The rebound of the U.S. economy from the Great Recession occurred much faster than in most other advanced economies and compares favorably with the historical record of countries recovering from systemic financial crises. As shown in the chart below, the United States has been responsible for a disproportionate share of employment growth in the G-7 economies during the recovery. Although the United States comprises about two-fifths of total employment in the G-7, it has been responsible for more than 55 percent of the net employment growth since 2010, a further sign of the strength and resilience of the U.S. economy and the importance of the policies of the last eight years in putting it on a sounder footing.

As the Administration stresses every month, the monthly employment and unemployment figures can be volatile, and payroll employment estimates can be subject to substantial revision. Therefore, it is important not to read too much into any one monthly report, and it is informative to consider each report in the context of other data as they become available.

SEVEN KEY POINTS ON MACROECONOMIC PROGRESS OVER THE LAST EIGHT YEARS

1. According to BEA’s third estimate, real gross domestic product (GDP) increased 3.5 percent at an annual rate in the third quarter of 2016, an upward revision of 0.3 percentage point (p.p.) from the second estimate. Real consumer spending grew a strong 3.0 percent in the third quarter following robust growth in the second quarter. Inventory investment—one of the most volatile components of GDP—added 0.5 percentage point to GDP growth in the third quarter after subtracting 1.2 percentage points in the second quarter. Residential investment declined for the second quarter in a row, though at a slower pace in the third quarter than in the second. Notably, exports grew 10.0 percent at an annual rate in the third quarter, their fastest quarterly growth since late 2013, boosted by a likely transitory jump in agricultural exports.

Real gross domestic income (GDI)—an alternative measure of output—increased 4.8 percent at an annual rate in the third quarter. (In theory, GDP and GDI should be equal, but in practice they usually differ because they use different data sources and methods.) The average of real GDP and real GDI, which CEA refers to as real gross domestic output (GDO), increased 4.1 percent at an annual rate in the third quarter. CEA research suggests that GDO is a better measure of economic activity than GDP (though not typically stronger or weaker).

The 0.3-p.p. upward revision to GDP growth was more than accounted for by upward revisions to consumer spending, business fixed investment, and State and local government spending. However, the overall contour of third-quarter growth was largely unchanged from last month’s second estimate.

2. Strong consumer spending growth over the current recovery has been supported by growth in real incomes, improvements in household balance sheets, and high levels of consumer confidence. Consumer spending accounts for over two-thirds of GDP, and has contributed disproportionately to overall real GDP growth in recent years. This strength in domestic demand reflects improved economic conditions for American households across a wide range of measures. Real wages have grown faster over the current business cycle than in any since the early 1970s (measured peak to peak), and from 2014 to 2015 real median household income increased 5.2 percent, the fastest growth on record. Meanwhile, as a share of disposable income, household debt service—the amount that households must spend on interest and principal payments for their outstanding debt—has fallen sharply in recent years, driven both by low interest rates and by sharp reductions in outstanding household debt relative to income. Taken together, these factors have left households with more disposable income available for consumer purchases. Finally, consumers have been increasingly confident in recent years. As the chart below shows, the University of Michigan index of consumer sentiment—which tends to closely track real consumer spending growth—is close to its highest level in ten years.

3. The recent slowdown in real business fixed investment growth can be explained largely by changes in the rate of U.S. and foreign GDP growth, as discussed in Chapter 2 of the 2017 Economic Report of the President. While business fixed investment—private spending on structures and equipment, as well as expenditures on intellectual property products such as software and research and development (R&D)—constitutes just 12 percent of GDP, it is crucial to long-run growth because it provides workers with more capital and improves technology, thus contributing to productivity growth. Business fixed investment growth has slowed since 2014; while oil-related investment has dragged on overall investment growth due to low oil prices, non-oil related investment growth has slowed somewhat as well. CEA analysis finds that much of the slowdown in investment growth can be explained using an “accelerator model,” which assumes that businesses invest if they expect rising demand growth for their products, meaning that rising GDP growth rates will lead to faster investment growth. The analysis also finds that several factors that have historically impacted investment growth—including credit constraints and other financial stress—have little explanatory power in understanding the recent slowdown. However, because the model predicts that investment follows changes in the rate of GDP growth, it predicts a rebound in the future, since U.S. and global output growth are expected to stabilize or pick up slightly in the years ahead.

4. Ten years after the first signs of decline in the U.S. housing market, housing activity and investment have gradually recovered, with room for future expansion. Recovery in the housing sector has been supported by strong job growth, rising real wages, and low mortgage rates, with growth in real residential investment outpacing overall real GDP growth over the course of the recovery from the Great Recession. Even with the solid growth in recent years, there is room for further expansion in residential construction. As the chart below shows, housing starts remain well below the level needed to keep pace with population growth, household formation, and typical rates of housing stock replacement. CEA analysis suggests that excess housing supply from overbuilding during the 2000s has been more than offset by underbuilding in recent years. Low household formation, particularly among young adults, may be playing a role in reducing demand for housing. On the supply side, local barriers to housing development in high-demand areas may also be one factor holding back new residential construction. Still, residential investment has further room to grow in future quarters, presenting upside potential for domestic demand in the near-to-medium term. 

5. Trends in real State and local government purchases have differed sharply from prior business cycles, with meaningful contractions amid budgetary cuts. Although in a typical recovery State and local spending tends to grow quickly and at a similar pace as in the pre-recession period, State and local spending contracted sharply in the current business cycle and, after seven years, has still not rebounded to its pre-crisis levels. During the four quarters of 2010, State and local purchases subtracted 0.5 percentage point from GDP growth and then subtracted about another 0.3 percentage point in both 2011 and 2012. Spending in this sector stabilized in 2013, added modestly to GDP growth during the four quarters of 2014 and 2015, and had a negligible impact on GDP during the first three quarters of 2016. Real State and local government purchases, as well as State and local government employment, remain below their respective pre-crisis levels. If State and local government purchases had increased at the average rate of expansions excluding the current cycle (as shown in the chart below), real GDP growth would have been approximately 0.4 percentage point faster per year on average in the current recovery. Due in part to contractions in State and local government spending, total real government purchases are below their level at the business cycle peak in 2007; in other words, all of the growth in real GDP in the current business cycle is attributable to the private sector.

6. Growth in U.S. exports closely tracks global demand, with slowing global growth creating key headwinds to U.S. growth in recent years. The volume of U.S. exports to foreign countries is sensitive to foreign GDP growth, and, as shown in the chart below, four-quarter foreign GDP growth—when weighting countries by their relative importance to U.S. trade—explains much of the variance in U.S. export growth. Over the last five years, global growth has consistently underperformed relative to forecasts, and in its October World Economic Outlook, the International Monetary Fund (IMF) revised down its forecast of global growth for the four quarters of 2016. Still, the IMF currently forecasts global growth to pick up in 2017, suggesting less downward pressure on U.S. export growth—and on the manufacturing sector, which tends to be more export-oriented than other industries—from weak foreign demand going forward.

7. The aging of the U.S. population, a trend that will continue in the coming years, has placed constraints on growth in potential real GDP. The growth of the working-age (15-64) population in the United States has slowed notably in recent decades, putting downward pressure on labor force participation and real GDP growth. The working-age population grew 1.4 percent at an annual rate in the 1960s through the 1980s, but just 0.6 percent during the current business cycle. (The rate of growth of the prime-age [25-54] population has declined even more steeply, and the prime-age population even contracted between 2012 and 2015.) The decline in the growth rate of the working-age population is expected to continue through 2028, suggesting continued demographic headwinds to overall growth for at least the next decade. As noted in Chapter 2 of the 2017 Economic Report of the President, research has found that demographic shifts towards an older workforce may have also reduced productivity growth in recent years, though projections of the composition of the labor force suggest that the drag on productivity from demographics may soon abate. Still, slowing productivity growth remains a key structural challenge that the United States shares with all other major advanced economies.

As the Administration stresses every quarter, GDP figures can be volatile and are subject to substantial revision. Therefore, it is important not to read too much into any single report, and it is informative to consider each report in the context of other data as they become available.

This morning, the Council of Economic Advisers released the 71st annual Economic Report of the President. This year’s Report reviews the economic record of the Obama Administration, focusing both on how successful policies have promoted economic growth that is robust and widely shared and on the work that remains in the years ahead.

As discussed in Chapter 1 of the Report, the robust response to the crisis in 2008 and 2009 helped avert a second Great Depression. After eight years of recovery, it is easy to forget how close the U.S. economy came to another depression during the crisis. In fact, by a number of macroeconomic measures—including household wealth, employment, and trade flows—the first year of the Great Recession saw declines that were as large as or even substantially larger than at the outset of the Great Depression in 1929-30. However, the forceful policy response by the Obama Administration and partners across the Federal Government—including the American Recovery and Reinvestment Act (ARRA) and subsequent fiscal actions, the auto industry rescue, a robust monetary policy response, and actions to stabilize the financial sector—combined with the resilience of American businesses and families to help stave off a second Great Depression. As a result, the unemployment rate has been cut from a peak of 10.0 percent in the wake of the crisis to 4.6 percent in November, falling further and faster than expected.

The U.S. economy has made strong progress in the eight years since the crisis across a broad range of macroeconomic measures, as discussed in Chapter 2 of the Report. As of the third quarter of 2016, the U.S. economy was 11.5 percent larger than its peak before the crisis. The economy has added 14.8 million jobs over 74 months, the longest streak of total job growth on record. Since early 2010, U.S. businesses have added 15.6 million jobs. Real wage growth has been faster in the current business cycle than in any since the early 1970s, and wage growth has accelerated in recent years. The combination of strong employment and wage growth has led to rising incomes for American families. From 2014 to 2015, real median household income grew by 5.2 percent, the fastest annual growth on record, and the United States saw its largest one-year drop in the poverty rate since the 1960s. 

The response to the crisis averted a sharper downturn and put the economy back on a path to sustainable, shared growth. Even so, a number of decades-long trends that preceded the crisis still remained, preventing middle-class Americans from seeing gains in their incomes and standards of living. Addressing these barriers to inclusive growth has been the cornerstone of the Administration’s economic policy:

The tax and health care policies President Obama fought for and signed into law represent a historic accomplishment in reducing inequality, as discussed in Chapter 3 of the Report. Together, changes in tax policy and the coverage provisions of the Affordable Care Act (ACA) will increase the share of after-tax income received by the bottom quintile of households in 2017 by 18 percent—equivalent to more than a decade of average income gains—and the share received by the second quintile by 6 percent. At the same time, these actions will reduce the share received by the top 1 percent by 7 percent. Tax changes enacted since 2009 have boosted the share of after-tax income received by the bottom 99 percent of families by more than the tax changes of any previous administration since at least 1960, and President Obama has overseen the largest increase in Federal investment to reduce inequality since the Great Society programs of the Johnson Administration.

As discussed in Chapter 4 of the Report, the Administration has made extraordinary progress in ensuring that all Americans have access to affordable, high-quality health care. Because of the ACA, approximately 20 million additional adults now have health insurance, and the uninsured rate stands at its lowest level ever. Evidence demonstrates that broader insurance coverage is improving access to care, health, and financial security for the newly insured, while reducing the burden of uncompensated care for the health care system as a whole. The ACA has also provided key consumer protections and improvements for those who already had health insurance. Meanwhile, prices of health care goods and services have grown at a slower rate under the ACA than during any comparable period since these data began in 1959, and recent years have also seen exceptionally slow growth in per-enrollee spending in both public programs and private insurance.

President Obama has overseen significant new investments and reforms in higher education, as noted in Chapter 5 of the Report. To help expand college opportunity, the President doubled investments in higher education affordability through Pell Grants and the American Opportunity Tax Credit (AOTC). To help more students choose a college that provides a solid investment, the Administration provided the most comprehensive and accessible information about college costs and outcomes through the College Scorecard, simplified the Free Application for Federal Student Aid (FAFSA), and protected students from low-quality schools through a package of important consumer protection regulations, including the landmark Gainful Employment regulations. To help borrowers manage debt after college, income-driven repayment options like the President’s Pay as You Earn (PAYE) plan have allowed borrowers to cap their monthly student loan payments at as little as 10 percent of discretionary income and have expanded repayment periods, better aligning the timing of student loan payments with the timing of earnings benefits from attending college (which are typically realized over a longer time horizon). CEA analysis finds that the Pell Grant expansions since 2008-09 enabled at least 250,000 students to access or complete a college degree in 2014-15, leading to an additional $20 billion in aggregate earnings, a nearly two-to-one return on investment.

Reforms to the financial system, reviewed in Chapter 6 of the Report, have made the sector more resilient and curtailed the risky behavior that set off the crisis. Financial reforms under the Obama Administration have helped make the financial system more secure by requiring financial firms to hold more liquid assets, increase capital levels, and reduce risk-taking. The Dodd-Frank Wall Street Reform Act reshaped the regulatory landscape, bringing shadow banking institutions under the regulatory umbrella, creating a body charged with a holistic view of systemic risk, and creating a new agency charged with protecting consumers in their financial interactions. The recovering economy and implementation of financial reform have been accompanied by strong performance of a wide variety of financial market indicators. Banks are healthier and stronger; regulators are better able to monitor for systemic risk; once-opaque derivatives markets are safer and more transparent; credit ratings agencies are subject to more effective oversight and increased transparency; and investor protections have been strengthened. Banks and other financial institutions now abide by rules designed to make them safer and end the threat of “too-big-to-fail.”

Finally, the Administration has provided global leadership in fighting climate change through a diverse set of policy approaches, as noted in Chapter 7 of the Report. In early 2009, the President signed into law a historic investment of more than $90 billion in clean energy through ARRA, helping to spur both a dramatic increase in clean energy capacity and advances in clean energy technology. The President’s 2013 Climate Action Plan mapped out a new framework for the transition to a more energy-efficient economy with lower greenhouse gas emissions. Other steps included the first-ever Federal greenhouse gas pollution standards for power plants, light-duty cars and trucks, and commercial trucks, buses, and vans; investments in research and development to support innovative clean energy technologies; enhanced incentives for renewable energy and improvements in the energy efficiency of homes and appliances; and stronger international cooperation, including via the historic Paris Agreement. The Administration has used rigorous regulatory impact analysis to ensure that environmental regulations are undertaken in an efficient and cost-effective manner. There are already signs of progress: while the U.S. economy has continued to grow, it is becoming less energy- and carbon-intensive as both our fossil fuel mix becomes cleaner (due to rising natural gas use) and renewable energy takes an increasingly large role in U.S. energy generation. U.S. carbon dioxide emissions from the energy sector fell by 9.5 percent from 2008 to 2015, and in the first half of 2016 were at their lowest level in 25 years.

While the Administration has taken great strides in promoting stronger and more widely shared growth, much work remains in the years ahead. Productivity growth—an important determinant of increases in living standards—has slowed across advanced economies, including the United States (though U.S. productivity growth has still been faster than that of any other G-7 economy). The United States has seen a faster increase in inequality in recent decades than any of the major advanced economies, and despite the historic progress made over the last eight years, the level of U.S. inequality remains high. Labor force participation faces headwinds both from the aging of the U.S. population and from the long-run challenge of declining participation by Americans in their prime working years. And more work remains to ensure that economic growth is sustainable and does not come at the expense of future prosperity by taking steps to protect against future recessions and by addressing both the short- and long-run effects of climate change.

The actions undertaken by the Obama Administration in the midst of the crisis not only helped prevent a second Great Depression, they set the U.S. economy on a path to becoming stronger, more resilient, and better positioned for the 21st century. In the years ahead, promoting inclusive, sustainable growth will remain the key objective. While much work remains, the experience of the past eight years shows that, by acting decisively and by choosing the right policies for working Americans, the United States can build a stronger and more prosperous economy for generations to come.

Sandra Black and Jay Shambaugh are Members of the Council of Economic Advisers. Matt Fiedler is Chief Economist at the Council of Economic Advisers.

FIVE KEY POINTS ON THE LABOR MARKET IN NOVEMBER 2016

1. U.S. businesses have now added 15.6 million jobs since private-sector job growth turned positive in early 2010. Today, we learned that private employment rose by 156,000 jobs in November. Total nonfarm employment rose by 178,000 jobs, in line with the monthly average for 2016 so far and substantially higher than the pace of about 80,000 jobs per month that CEA estimates is necessary to maintain a low and stable unemployment rate given the impact of demographic trends on labor force participation. 

In November, the unemployment rate fell to 4.6 percent, its lowest level since August 2007. The labor force participation rate ticked down, though it is largely unchanged over the last three years (see point 3 below). The U-6 rate, the broadest official measure of labor underutilization fell 0.2 percentage point for the second month in a row in part due to a reduction in the number of employees working part-time for economic reasons. (The U-6 rate is the only official measure of underutilization that has not already fallen below its pre-recession average.) So far in 2016, nominal hourly earnings for private-sector workers have increased at an annual rate of 2.7 percent, faster than the pace of inflation (1.6 percent as of October, the most recent data available).

2. New CEA analysis finds that State minimum wage increases since 2013 contributed to substantial wage increases for workers in low-wage jobs, with no discernible impact on employment. In his 2013 State of the Union address, President Obama called on Congress to raise the Federal minimum wage, which has remained at $7.25 an hour since 2009. Even as Congress has failed to act, 18 States and the District of Columbia—along with dozens of local government jurisdictions—have answered the President’s call to action and have raised their minimum wages. (In addition to the States that have already raised their minimum wages, voters in four States approved measures to raise the minimum wage in November.) To assess the impact of minimum wage increases implemented by States in recent years, CEA analyzed data from the payroll survey for workers in the leisure and hospitality industry—a group who tend to earn lower wages than those in other major industry groups and thus are most likely to be affected by changes in the minimum wage. As the chart below shows, hourly earnings grew substantially faster for leisure and hospitality workers in States that raised their minimum wages than in States that did not. By comparing trends in wage growth for the two groups, CEA estimates that increases in the minimum wage led to an increase of roughly 6.6 percent in average wages for these workers. At the same time—consistent with a large body of economic research that has tended to find little or no impact of past minimum wage increases on employment—leisure and hospitality employment followed virtually identical trends in States that did and did not raise their minimum wage since 2013. (See here for more details on CEA’s analysis.)

3. The strengthening labor market is drawing individuals into the labor force, offsetting downward pressure on employment growth from the aging of the population. Employment growth depends on three factors: population growth, the rate at which the population participates in the labor force, and the share of the labor force that is employed. The chart below decomposes employment growth (from the household survey) into contributions from each of these factors for each year of the current recovery. It further decomposes labor force participation into shifts attributable to demographics (such as the aging of the U.S. population) and shifts attributable to other factors (such as the business cycle). Throughout the recovery, demographic changes in labor force participation—primarily driven by a large increase in retirement by baby boomers that began in 2008—have consistently weighed on employment growth. In recent years, however, non-demographic changes in labor force participation have supported employment growth, as the strengthening of the labor market and increasing real wages have drawn more individuals into the labor force. The entry (or reentry) of workers into the labor force has helped employment growth maintain its recent solid pace even as the unemployment rate has fallen more slowly. These two shifts in labor force participation—demographic and non-demographic—have largely offset one another in recent months, and as a result the overall labor force participation rate has remained broadly stable since the end of 2013.

4. The number of unemployed workers per job opening, an indicator of labor market slack, is near its lowest level prior to the recession. Using data from the household survey and the Job Openings and Labor Turnover Survey, the chart below plots the ratio of unemployed workers to total job openings. In the recession, unemployment rose rapidly while job openings plummeted, sending the ratio of unemployed workers to job openings to a record peak of 6.6 in July 2009. As the unemployment rate has decreased over the course of the recovery, and as job openings have climbed to record highs this year, the ratio of unemployed workers to openings has fallen steeply, standing at 1.4 as of September (the most recent data available for openings). This is close to the ratio’s lowest level in the 2000s expansion, another indicator—in addition to recent increases in real wages—of a strengthening labor market.

5. The distribution of job growth across industries in November diverged from the pattern over the past year. Above-average gains relative to the past year were seen in professional and business services (+49,000, excluding temporary help services), while mining and logging (which includes oil extraction) posted a gain (+2,000) for the second time in recent months amid moderation in oil prices. On the other hand, retail trade (-8,000), information services (-10,000), and financial activities (+6,000) all saw weaker-than-average growth. Slow global growth has continued to weigh on the manufacturing sector, which is more export-oriented than other industries and which posted a loss of 4,000 jobs in November. Across the 17 industries shown below, the correlation between the most recent one-month percent change and the average percent change over the last twelve months was -0.06, the lowest level since September 2012.

As the Administration stresses every month, the monthly employment and unemployment figures can be volatile, and payroll employment estimates can be subject to substantial revision. Therefore, it is important not to read too much into any one monthly report, and it is informative to consider each report in the context of other data as they become available.

FIVE KEY POINTS IN TODAY'S REPORT FROM THE BUREAU OF ECONOMIC ANALYSIS (BEA)

1. Real gross domestic product (GDP) increased 3.2 percent at an annual rate in the third quarter of 2016, according to BEA’s second estimate. Real consumer spending grew a solid 2.8 percent in the third quarter following its strong second-quarter growth of 4.3 percent, with robust growth in durable goods spending and a small contraction in nondurable goods spending. Inventory investment—one of the most volatile components of GDP—added 0.5 percentage point to GDP growth in the third quarter after subtracting 1.2 percentage point in the second quarter. Residential investment declined for the second quarter in a row, though at a slower pace in the third quarter than in the second. Notably, exports grew 10.1 percent at an annual rate in the third quarter, its fastest quarterly growth since late 2013, boosted by a jump in agricultural exports (see point 4 below).

Real gross domestic income (GDI)—an alternative measure of output—increased 5.2 percent at an annual rate in the third quarter. (In theory, GDP and GDI should be equal, but in practice they usually differ because they use different data sources and methods.) The average of real GDP and real GDI, which CEA refers to as real gross domestic output (GDO), increased 4.2 percent at an annual rate in the third quarter. CEA research suggests that GDO is a better measure of economic activity than GDP (though not typically stronger or weaker).

2. Third-quarter real GDP growth was revised up 0.3 percentage point at an annual rate. The upward revision to GDP growth was more than fully accounted for by upward revisions to consumer spending and structures investment, with smaller offsetting revisions in equipment investment, intellectual property investment, and inventory investment. The overall contour of third-quarter growth was little changed from last month’s advance estimate, though the 0.5-percentage-point upward revision to private domestic final purchases (the sum of consumption and fixed investment, see point 5 below) suggests greater momentum for growth in the fourth quarter of 2016.

In addition to reporting its first estimate of third-quarter GDI and GDO in today’s release, BEA also revised up its estimate of real GDI growth in the second quarter of 2016 from -0.2 percent to 0.7 percent due to an upward revision to wages and salaries. This boosted second-quarter real GDO growth to 1.1 percent, a stronger pace than the previously reported 0.6 percent.

3. Strong consumer spending growth in recent quarters has been supported in part by improvements in household balance sheets, with household debt service as a share of disposable income at a historically low level. Consumer spending contributed 1.9 percentage points to total real GDP growth in the third quarter, with 0.8 percentage point attributable to durable goods spending. In recent years, durable goods spending has contributed disproportionately to consumer spending growth: although durable goods spending makes up only about one-tenth of total consumer spending, it has been responsible for about one-quarter of the growth in consumer spending since the beginning of 2014. This strength in part reflects improvements in household balance sheets since the recession, as spending on durables tends to be more sensitive to financial conditions than other types of consumer expenditures. As the chart below shows, household debt service—the fraction of disposable income that households must spend on interest and principal payments for their outstanding debt—has fallen sharply in recent years, driven both by low interest rates and by sharp reductions in the level of outstanding household debt, and is now close to its lowest level on record (with data going back to 1980). This improvement in balance sheets has left households with more disposable income available for consumer purchases, and—along with increases in real incomes—has helped to support strong consumer spending growth.

4. In part due to transitory factors, real exports contributed 1.2 percentage point to overall real GDP growth—their largest quarterly contribution since 2013—with goods exports providing the majority of the contribution. Exports of goods contributed 1.1 percentage point to overall real GDP growth in the third quarter, in part due to an unusually large increase in agricultural exports. Goods exports make up about two-thirds of total U.S. exports (with agricultural exports comprising around 5 percent of total exports) and the United States is the second-largest exporter of goods in the world according to data from the World Trade Organization (WTO). Although services exports have contributed less to overall GDP growth than goods exports in recent years, the level of U.S. services exports is high: according to WTO data, the United States is the world’s largest exporter of services, and the International Trade Administration (ITA) estimates that U.S. services exports support 4.8 million American jobs. Additionally, the division of exports into goods and services in today’s BEA release is based on final sales, and does not account for the value added by the services sector in each stage of the production process for export goods. ITA analysis finds that nearly half of the 6.8 million jobs supported by goods exports in 2014 were in the services sector. 

5. Real private domestic final purchases (PDFP)—the sum of consumption and fixed investment—rose 2.1 percent at an annual rate in the third quarter. PDFP—which excludes more volatile components of GDP like net exports and inventory investment, as well as government spending—is generally a more reliable indicator of next-quarter GDP growth than current GDP. In the third quarter, the divergence between overall real GDP growth and the relatively weaker contribution of PDFP to growth was largely accounted for by the large positive contributions of inventory investment and exports to real GDP growth. Overall, PDFP rose 2.0 percent over the past four quarters; this is above the pace of real GDP growth over the same period, as inventory investment has subtracted 0.4 percentage point from growth over the past four quarters.

As the Administration stresses every quarter, GDP figures can be volatile and are subject to substantial revision. Therefore, it is important not to read too much into any single report, and it is informative to consider each report in the context of other data as they become available.

FIVE KEY POINTS ON THE LABOR MARKET IN OCTOBER 2016

1. U.S. businesses have now added 15.5 million jobs since private-sector job growth turned positive in early 2010. Today, we learned that private employment rose by 142,000 jobs in October. Total nonfarm employment rose by 161,000 jobs, slightly below the monthly average for 2016 so far but substantially higher than the pace of about 80,000 jobs per month that CEA estimates is necessary to maintain a low and stable unemployment rate given the impact of demographic trends on labor force participation. Total job growth for August and September was revised up by a combined 44,000 jobs.

The unemployment rate ticked down to 4.9 percent in October, while the labor force participation rate ticked down to 62.8 percent—the same rate as in October 2013 despite downward pressure on participation from demographic trends. The U-6 rate, the broadest official measure of labor underutilization (and the only one still elevated relative to its pre-recession average) fell 0.2 percentage point in October. So far in 2016, nominal earnings for private-sector workers have increased at an annual rate of 3.1 percent, much faster than the pace of inflation (1.7 percent as of September, the most recent data available).

2. Average hourly earnings for all private workers increased 2.8 percent over the past year, the fastest twelve-month pace since the end of the recession. As the chart below shows, nominal wage growth has trended up over the course of the recovery as the labor market has continued to strengthen amid robust job growth. While inflation has picked up in recent months, nominal earnings have also continued to grow considerably faster than inflation, translating into sustained real wage gains for American workers. Real hourly wages have grown faster over the current business cycle than in any cycle since the early 1970s. Since the end of 2012, real wages have grown around 20 times faster than their pace of growth between the business cycle peak in 1980 and the business cycle peak in 2007, a sign of the considerable progress made by American families in the current recovery.

3. Amid rising real wages, the share of income going to labor has increased since 2014, though recent gains have not fully reversed a longer-run downward trend that may be partly due to decreased bargaining power for workers. The labor share of income reflects the portion of total economic output that is remitted to workers in the form of compensation. Changes in the labor share thus reflect changes in the relationship between workers’ productivity (the average real output produced by a worker in an hour) and their real hourly compensation. Recent increases in real wages have led to real compensation growth in excess of productivity growth, which has slowed across all major advanced economies in recent years. From the fourth quarter of 2012 to the third quarter of 2016, labor productivity in the nonfarm business sector has increased at a 0.7-percent annual rate, compared to an average annual increase of 1.0 percent in real compensation over the same period. Instead of coming fully out of additional output, this increase in real compensation has come partly out of profits, and, in part as a result, the share of income accruing to labor has been rising since mid-2014. Nevertheless, the labor share of income remains appreciably lower today than in 2000. While there are likely a number of reasons for this decline, a recent CEA issue brief discusses one possible cause: a general shift in bargaining power away from workers towards firms and an increase in employers exercising monopsony power (or market power sufficient for a buyer to set its own price) in the labor market.

4. Over the course of the recovery, unemployment rates for veterans have fallen dramatically, but post-9/11 veterans still face particular challenges. Since its peak, the unemployment rate for veterans has been cut by more than half; however, this rate masks substantial variation in labor market experiences depending on veterans’ period of service. Veterans who served after September 11, 2001 saw much larger (and more sustained) increases in unemployment during the recession than other veterans, but have seen their unemployment rate fall by more than half over the course of the recovery. In October, the twelve-month moving average of the unemployment rate for post-9/11 veterans was just slightly higher than the twelve-month moving average of the unemployment rate for nonveterans. However, because veterans and nonveterans tend to differ substantially across demographic characteristics that may affect their likelihood of employment (such as age and educational attainment), it is important to compare unemployment rates for veterans and nonveterans who are demographically similar. As the chart below shows, while the unemployment rate for post-9/11 veterans has decreased more quickly than for comparable nonveterans, it remains somewhat higher, reflecting the particular challenges that post-9/11 veterans have faced.

A key part of the Administration’s success in reducing veteran unemployment has been to protect the benefits earned by service members and veterans with programs like the Tuition Assistance Program and the Post-9/11 GI Bill. In 2011, First Lady Michelle Obama and Dr. Jill Biden launched Joining Forces, a nationwide initiative to support service members, veterans, and their families. Through Joining Forces, more than 50 companies have pledged to hire more than 110,000 veterans and military spouses over the next five years. As Veterans Day approaches on November 11, the Administration will take further steps to make sure veterans can get the most out of the education benefits that they have earned and to help veterans gain the skills and training that they need to succeed in the civilian workforce.

5. The distribution of job growth across industries in October was broadly consistent with the pattern over the past year. Above-average gains relative to the past year were seen in Federal government employment (+12,000), while mining and logging (which includes oil extraction) posted a smaller loss (-2,000) than in recent months amid moderation in oil prices. On the other hand, retail trade (-1,000) saw weaker-than-average growth. Slow global growth has continued to weigh on the manufacturing sector, which is more export-oriented than other industries and which posted a loss of 9,000 jobs in October. Across the 17 industries shown below, the correlation between the most recent one-month percent change and the average percent change over the last twelve months was 0.75, similar to the average correlation over the last two years.

As the Administration stresses every month, the monthly employment and unemployment figures can be volatile, and payroll employment estimates can be subject to substantial revision. Therefore, it is important not to read too much into any one monthly report, and it is informative to consider each report in the context of other data as they become available.

FIVE KEY POINTS IN TODAY'S REPORT FROM THE BUREAU OF ECONOMIC ANALYSIS (BEA)

1. Real Gross Domestic Product (GDP) increased 2.9 percent at an annual rate in the third quarter of 2016, according to BEA’s advance estimate. Consumer spending grew 2.1 percent in the third quarter following its strong second-quarter growth of 4.3 percent, with continued solid growth in durable goods spending and a contraction in nondurable goods spending. Inventory investment—one of the most volatile components of GDP—added 0.6 percentage point to GDP growth in the third quarter after subtracting 1.2 percentage point in the second quarter. Nonresidential fixed investment contributed positively to GDP growth for the second quarter in a row, due in large part to a pickup in structures investment growth (see point 4 below). Residential investment declined for the second quarter in a row, albeit at a slower pace in the third quarter than in the second quarter. Notably, exports grew 10.0 percent at an annual rate in the third quarter, its fastest quarterly growth since late 2013, despite continued headwinds from slow growth abroad (see point 3 below).

2. The pace of third-quarter real GDP growth was noticeably faster than its pace in the first half of 2016. Real GDP growth averaged 1.1 percent at an annual rate in the first half of 2016. The pickup in growth in the third quarter can be attributed largely to two components of GDP: inventory investment and exports. In the first half of the year, these components contributed -0.8 percentage point and 0.1 percentage point, respectively, to overall real GDP growth. Both components saw substantial pickups in growth in the third quarter relative to the first half of the year: inventory investment contributed 0.6 percentage point to GDP growth, while exports contributed 1.2 percentage point, their second-largest quarterly contribution to growth since 2010. Other components of GDP, including both structures and equipment investment and government purchases, also saw faster growth or smaller contractions in the third quarter. These were partly offset by smaller positive contributions from consumer spending and intellectual property products investment and a larger negative contribution from residential investment.

3. Real exports grew 10.0 percent in the third quarter, their fastest quarterly growth since 2013. In recent years, slowing global demand has been a key headwind to U.S. growth, as the volume of U.S. exports to foreign countries is sensitive to GDP growth abroad. In its October World Economic Outlook, the International Monetary Fund (IMF) revised down its forecast of global growth for the four quarters of 2016, removing an expected pickup in growth from 2015 to 2016. The IMF currently forecasts global growth to pick up in 2017, suggesting less downward pressure on export growth going forward. Nevertheless, real export growth in the third quarter was substantially faster than in recent quarters, due in part to a large increase in agricultural exports. (As shown in the chart below, real export growth had slowed even faster in recent quarters than the slowdown in world growth would have implied, potentially explaining some of the bounce-back in the third quarter.) The sensitivity of U.S. exports to foreign demand and the large contribution of exports to overall growth in the third quarter underscore both the importance of opening foreign markets to U.S. exports by passing the high-standards Trans-Pacific Partnership and the agreement’s potential to strengthen the U.S. economy as a whole.

4. As oil prices have risen slightly in recent months, contractions in oil-related investment have weighed somewhat less on overall growth. The price of Brent crude oil was $31 per barrel in January 2016, nearly three-quarters lower than its recent peak in June 2014. While the decline in oil prices has benefitted consumers and the economy overall, it has weighed heavily on both mining and logging employment and on investment in mining exploration, shafts, and wells—which includes petroleum drilling structures—which declined by nearly two-thirds from the fourth quarter of 2014 through the second quarter of 2016. Partly as a result, overall structures investment subtracted an average of 0.2 percentage point from quarterly real GDP growth over this period. From its trough in January, however, the monthly price of Brent crude oil increased to $47 per barrel as of September, and the number of oil and natural gas rigs in operation (which reflects the rate of drilling for new oil and natural gas) has risen for five consecutive months. Consistent with the increase in oil prices, investment in mining exploration, shafts, and wells contracted more slowly in the third quarter of 2016 than in earlier quarters, and overall structures investment added 0.1 percentage point to GDP growth. Since both oil-related investment and employment tend to lag prices by several months, the recent moderation in oil prices may translate into a slowdown in the pace of employment losses and further slowing in the rate of contraction in mining exploration, shafts, and wells investment in future quarters.   

5. Real private domestic final purchases (PDFP)—the sum of consumption and fixed investment—rose 1.6 percent at an annual rate in the third quarter, a somewhat slower pace than in recent quarters. PDFP—which excludes more volatile components of GDP like net exports and inventory investment, as well as government spending—is generally a more reliable indicator of next-quarter GDP growth than current GDP. In the third quarter, the divergence between overall real GDP growth and the relatively weaker contribution of PDFP to growth was largely accounted for by the large positive contributions of inventory investment and exports to real GDP growth. Overall, PDFP rose 1.9 percent over the past four quarters, above the pace of GDP growth over the same period.   

As the Administration stresses every quarter, GDP figures can be volatile and are subject to substantial revision. Therefore, it is important not to read too much into any single report, and it is informative to consider each report in the context of other data as they become available.  

FIVE KEY POINTS ON THE LABOR MARKET IN SEPTEMBER 2016

1. U.S. businesses have now added 15.3 million jobs since private-sector job growth turned positive in early 2010. Today, we learned that private employment rose by 167,000 jobs in September. Total nonfarm employment rose by 156,000 jobs, slightly below the monthly average for 2016 so far but substantially higher than the pace of about 80,000 jobs per month that CEA estimates is necessary to maintain a low and stable unemployment rate given the impact of demographic trends on labor force participation. The unemployment rate ticked up to 5.0 percent in September, while the labor force participation rate rose to 62.9 percent, the same rate as in the fourth quarter of 2013 despite downward pressure on participation from demographic trends. The share of the labor force working part-time for economic reasons (those working part-time but who would prefer full-time employment) ticked down in September to 3.7 percent, though it remains above its pre-recession average (3.0 percent).

2. For more than three and a half years, American workers have seen sustained real wage gains, as hourly earnings have grown faster than inflation. So far in 2016, nominal earnings for private-sector workers have increased at an annual rate of 2.8 percent, well above the pace of inflation (1.4 percent as of August, the latest data available). As the chart below shows, nominal wage growth has trended up over the course of the recovery as the labor market continues to strengthen amid robust job growth. At the same time, consumer price inflation fell sharply in 2014 and 2015 due to steep declines in energy prices. While inflation has picked up slightly in recent months as energy price declines have moderated, nominal earnings growth has continued its pickup, translating into continued real wage gains for American workers—a key component of rising standards of living.

3. Real hourly wages have grown faster over the current business cycle than in any cycle since the early 1970s. The chart below plots the average annual growth of real hourly earnings for private production and nonsupervisory workers over each business cycle, including both recessions and recoveries. (Economists prefer comparing across entire business cycles, as they generally represent economically comparable periods.) Since the beginning of the current business cycle in December 2007, real wages have grown at a rate of 0.9 percent a year, faster than in any other cycle since 1973. In fact, since the end of 2012, real wages for non-managerial workers have grown 5.7 percent in total, exceeding the 2.1-percent total real wage growth from the business cycle peak in 1980 to the business cycle peak in 2007—a sign of the remarkable progress made by American families in the current recovery.

4. Rising real wages, combined with continued strong employment growth, have translated into increased incomes for American families, and data from 2016 so far point to continued gains. In September, the Census Bureau reported that real median household income increased by $2,800, or 5.2 percent, the largest annual increase on record. As shown in the chart below, median household income growth tends to track growth in aggregate weekly earnings, the total amount earned by private-sector workers. (Since both income and aggregate earnings reflect the influence of rising employment as well as rising wages, aggregate earnings are conceptually linked more closely to household income than to wages.) The historically large increase in median household income from 2014 to 2015 was far above what would have been predicted based on its historical relationship with aggregate earnings growth, but even aggregate earnings would have predicted strong gains in median income. In 2014 the situation was reversed, with the Census Bureau reporting income gains that fell short of what would have been predicted based on wage data from the Bureau of Labor Statistics. Growth in both real wages and employment so far in 2016 point to continued gains in real income for the typical American household when the data become available from the Census Bureau next year. 

5. The distribution of job growth across industries in September diverged somewhat from the pattern over the past year. Above-average gains relative to the past year were seen in wholesale trade (+10,000) and other services (+15,000), while mining and logging (which includes oil extraction) showed no change in September after a number of months of job losses. On the other hand, several industries, including financial activities (+6,000), health care and social assistance (+22,000), State and local government (-15,000), and transportation and warehousing (-9,000) saw weaker-than-average growth. Slow global growth has continued to weigh on the manufacturing sector, which is more export-oriented than other industries and which posted a loss of 13,000 jobs in September. Across the 17 industries shown below, the correlation between the most recent one-month percent change and the average percent change over the last twelve months was 0.28, well below the average correlation over the last three years.

As the Administration stresses every month, the monthly employment and unemployment figures can be volatile, and payroll employment estimates can be subject to substantial revision. Therefore, it is important not to read too much into any one monthly report, and it is informative to consider each report in the context of other data as they become available.

FIVE KEY POINTS IN TODAY'S REPORT FROM THE BUREAU OF ECONOMIC ANALYSIS (BEA)

1. Real Gross Domestic Product (GDP) increased 1.4 percent at an annual rate in the second quarter of 2016, according to BEA’s third estimate. Consumer spending grew 4.3 percent, well above its pace over the prior four quarters, with faster growth in both durable and nondurable goods spending. In addition, export growth was positive in the second quarter, and net exports contributed positively to GDP growth. Nonresidential fixed investment increased modestly in the second quarter, with strong growth in intellectual property products investment (see point 4 below) offset by continued weakness in both structures and equipment investment. Inventory investment—one of the most volatile components of GDP—subtracted 1.2 percentage points from GDP growth. Residential investment contracted following eight straight quarters of increases.

Real Gross Domestic Income (GDI)—an alternative measure of output—decreased 0.2 percent at an annual rate in the second quarter. (In theory, GDP and GDI should be equal, but in practice they usually differ because they use different data sources and methods.) The average of real GDP and real GDI, which CEA refers to as real Gross Domestic Output (GDO), increased 0.6 percent at an annual rate in the second quarter. CEA research suggests that GDO is a better measure of economic activity than GDP (though not typically stronger or weaker).

2. Second-quarter real GDP growth was revised up 0.3 percentage point, though the overall pattern of growth remained largely unchanged following revisions. Revisions in the third estimate included an upward revision to nonresidential fixed investment (which now is estimated to have made a positive contribution to GDP growth), reflecting a smaller contraction in structures investment than originally estimated. Smaller upward revisions to exports and inventory investment were partly offset by a small downward revision to the services component of consumer spending.

In today’s release, BEA revised down its estimate of real GDI growth in the second quarter from an increase of 0.2 percent to a decrease of 0.2 percent due to a downward revision to State-level data on indirect business taxes.

3. Real personal consumption expenditures, which account for over two-thirds of GDP, grew 4.3 percent at an annual rate in the second quarter, supported by rising real incomes. The second quarter of 2016 ranked as the second-strongest quarter for consumer spending growth since 2006. Consumer spending contributed 2.9 percentage points to GDP growth in the second quarter, reflecting improved economic conditions for many households. This month, the Census Bureau reported that real median household income increased 5.2 percent from 2014 to 2015, the fastest annual growth on record. Data from 2016—including a continued solid pace of job growth and a noticeable pickup in real hourly earnings—point to further strong gains in household incomes. The chart below shows four-quarter percent changes in real consumer spending and in aggregate real wages and salaries paid by domestic employers. The two series tend to move closely together, though the correlation between the two fell during the 2000s business cycle, as growth in consumer spending far outpaced growth in real aggregate wages and salaries. This was likely due to the rapid accumulation of household debt during this period, which sustained the faster growth in consumption. Deleveraging by households over the recession and the recovery has sharply increased the correlation of growth in wages and consumer spending in the current business cycle, such that recent gains in real incomes are likely to support continued strength in consumer spending growth in future quarters.

4. Real private investment in research and development (R&D) made a larger contribution to GDP growth in the second quarter than in any previous quarter on record. Private R&D investment contributed 0.28 percentage point to overall GDP growth, accounting for most of the 9.0-percent growth in intellectual property products (IPP) investment and offsetting weakness in other components of business fixed investment. Private R&D investment grew at a 17.0-percent annual rate in the second quarter, the second-fastest quarterly growth since 1960. Private R&D investment has reached an all-time high as a share of overall output. Although this share (1.8 percent) is still relatively small, increased investment in R&D can help boost productivity growth in the future, which will be needed to help reverse the slowdown across advanced economies in the last decade.

5. Real private domestic final purchases (PDFP)—the sum of consumption and fixed investment—rose 3.2 percent at an annual rate in the second quarter, noticeably faster than overall GDP growth. PDFP—which excludes more volatile components of GDP like net exports and inventory investment, as well as government spending—is generally a more reliable indicator of next-quarter GDP growth than current GDP. In the second quarter, the divergence between the strong contribution of PDFP to growth and the relatively slower growth of overall real GDP was largely accounted for by the large negative contribution of inventory investment. Overall, PDFP rose 2.3 percent over the past four quarters, above the pace of GDP growth over the same period.

As the Administration stresses every quarter, GDP figures can be volatile and are subject to substantial revision. Therefore, it is important not to read too much into any single report, and it is informative to consider each report in the context of other data as they become available.

Watch as President Obama discusses the remarkable progress today's Census report laid out with the Chairman of his Council of Economic Advisers, Jason Furman. 

Today’s report from the Census Bureau shows the remarkable progress that American families have made as the recovery continues to strengthen. Real median household income grew 5.2 percent from 2014 to 2015, the fastest annual growth on record. Income grew for households across the income distribution, with the fastest growth among lower- and middle-income households. The number of people in poverty fell by 3.5 million, leading the poverty rate to fall from 14.8 percent to 13.5 percent, the largest one-year drop since 1968, with even larger improvements for African Americans, Hispanic Americans, and children. Meanwhile, the ratio of earnings for women working full-time, full-year to earnings for men working full-time, full-year increased to 80 percent in 2015, the highest on record. Every State has seen declines in its uninsured rate since 2013 as the major coverage provisions of the Affordable Care Act have taken effect. Solid employment growth and robust real wage growth so far this year suggest that incomes are continuing to rise in 2016, and, building on the progress shown in today’s Census report, the President will continue to call on Congress to take steps to invest in job creation, wage growth, and equal pay for equal work.

SIX KEY POINTS IN TODAY’S REPORT FROM THE CENSUS BUREAU

1. Real median household income rose by 5.2 percent in 2015, the fastest growth on record. Median household income grew $2,798 to $56,516 in 2015, the first time that annual real income growth exceeded 5 percent since the Census Bureau began reporting data on household income in 1967. Data from 2016 so far point to further strong gains in real household incomes, which depend on employment, nominal wages, and inflation. As of August, total nonfarm job growth has averaged a solid 182,000 jobs a month so far in 2016, and hourly earnings for private-sector workers have increased at an annual rate of 2.8 percent, much faster than the pace of inflation (1.3 percent as of July, the latest data available).

2. The total number of Americans below the poverty line fell by 3.5 million from 2014 to 2015, and the official poverty rate fell to 13.5 percent due to the largest one-year drop since 1968. The poverty rate for children under age 18 fell by 1.4 percentage point (p.p.) from 2014 to 2015, equivalent to more than 1 million children lifted out of poverty. Meanwhile, the poverty rate for those ages 18 to 64 saw its largest one-year decline on record (-1.1 p.p.), and poverty fell 1.1 p.p. for those ages 65 and older. As noted below (see point 5), the official poverty rate does not reflect the full effect of antipoverty policies because it includes only pre-tax income and excludes the direct effect of key policies like the Supplemental Nutrition Assistance Program (SNAP) and the Earned Income Tax Credit (EITC). The Supplemental Poverty Measure, which is designed to include the effects of these programs but also takes into the cost of basic needs when setting the poverty threshold, decreased 1.0 percentage point in 2015, from 15.3 percent to 14.3 percent.

3. Households at all income percentiles reported by the Census Bureau saw gains in income, with the largest gains among households at the bottom of the income distribution. While real median household income increased 5.2 percent, gains were even larger in the lower half of the income distribution, ranging from an increase of 5.5 percent for households at the 40th percentile to an increase of nearly 8 percent for households at the 10th percentile. While households at the top half of the income distribution also saw increases, their gains were smaller, with an increase of 2.9 percent in the 90th percentile of household income. 2015 marked the first time real household income grew at all percentiles reported by the Census Bureau since 2006, and real income growth in 2015 was the fastest since 1969 for the 10th, 20th, 40th, 50th, and 60th percentiles. Although the level of income inequality remains high, multiple measures of inequality—including the Gini coefficient, the ratio of the 90th percentile of income to the 10th percentile, and the share of income going to households at the top of the income distribution—fell modestly in 2015 as a result of this pattern of income growth.

4. All racial and ethnic groups saw increases in household incomes and decreases in poverty in 2015. As shown in the chart below, all racial and ethnic groups saw gains in real median household income and reductions in their respective poverty rates. Hispanic Americans saw both the largest gains in median income (6.1 percent), while Black Americans and Hispanic Americans saw the largest reductions in poverty (-2.1 p.p. and -2.2 p.p., respectively). The Supplemental Poverty Measure (SPM), which includes the effects of a number of important antipoverty programs (see point 5 below), shows a similar pattern, with all racial and ethnic groups seeing reductions in poverty.

5. In 2015, refundable tax credits like the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC) lifted 4.8 million children out of poverty. The Supplemental Poverty Measure (SPM), which includes the effects of a large number of antipoverty programs, is widely acknowledged to measure poverty more accurately than the official measure. Unlike the official poverty measure, the SPM measures post-tax and post-transfer resources, combining earnings with assistance from government programs—including in-kind transfers like food assistance—minus net tax liabilities and necessary expenditures on work, child care, and health care. The measure also bases the poverty line on the cost of meeting basic expenses. Together, in 2015, 9.2 million Americans, including 4.8 million children, were lifted above the poverty line by refundable tax credits, including the EITC and the CTC, illustrating their critical importance to the social safety net. Additionally, research has shown that helping low-income working families through the EITC and CTC not only reduces poverty, but also has positive longer-term effects on children, including improved health, educational outcomes, and labor force participation and earnings in adulthood. Expansions to the EITC and CTC signed into law by President Obama as part of the American Recovery and Reinvestment Act of 2009 lifted 1.0 million children out of poverty in 2013 according to the Center on Budget and Policy Priorities; these provisions were made permanent under the bipartisan agreement at the end of 2015. The President’s Fiscal Year 2017 Budget includes a number of provisions to further strengthen tax credits for working families, including an expansion of the EITC to workers without qualifying children. (Note that some of these estimates rely on survey data, which research has shown tend to underreport household use of certain programs like the Supplemental Nutrition Assistance Program, leading to underestimates of the poverty-reducing effects of these programs.)

6. In 2015, the share of people without health insurance declined in almost every State, and all States have seen gains since 2013, reflecting continued progress under the Affordable Care Act (ACA). Today’s new data from the American Community Survey (ACS) show that 49 States and the District of Columbia saw their uninsured rates decline in 2015. The uninsured rate has fallen in every State (as well as in the District of Columbia) since 2013. While the ACS is not the first survey to report estimates of State-level insurance coverage in 2015, the survey’s extremely large sample size allows it to provide particularly reliable estimates.

While all States have seen increases in insurance coverage since the ACA’s major coverage provisions took effect in the beginning of 2014, the extent of those gains have varied widely by State. Notably, States that have expanded Medicaid under the ACA have seen larger coverage gains on average, particularly if they started with a larger uninsured population. If Medicaid non-expansion States had seen coverage gains comparable to those seen by Medicaid expansion states with similar uninsured rates, the uninsured rate in these states would have been nearly 3 percentage points lower in 2015, increasing the magnitude of these states’ coverage gains since 2013 by almost two-thirds.

Today’s Census release also included an estimate of the national change in the uninsured rate based on the Current Population Survey (CPS). According to the CPS, the national uninsured rate dropped by 1.3 percentage points from 10.4 percent in 2014 to 9.1 percent in 2015, bringing the cumulative gain since 2013 to 4.3 percentage points. The new data from the CPS are broadly consistent with evidence from other Federal and private surveys showing that coverage gains continued during 2015; those surveys show that gains have continued into early 2016. The cumulative coverage gains since 2013 have put the uninsured rate at its lowest level ever.

Sandra Black is a Member of the Council of Economic Advisers.
Matt Fiedler is Chief Economist of the Council of Economic Advisers.

“[the American response] should be part of a globally coordinated effort with our partners in the G-20. This is a worldwide issue, and while the United States can and will lead in stabilizing the credit markets, we should ask other nations, who share in this crisis, to be part of the solution as well.”

Then-Senator Barack Obama, 2008

Within months of taking office, in April 2009, the President joined the second-ever summit meeting of the G-20 Leaders. Members committed to an aggressive policy response aimed at restoring growth and jobs, strengthening global financial oversight, and resisting protectionism. They mobilized trillions of dollars in fiscal stimulus and billions to the IMF and other Multilateral Development Banks. They created a Financial Stability Board and pledged to reshape national institutions, thereby supporting international authorities in their efforts to oversee domestic financial markets. They agreed to refrain from competitive devaluation of currencies and to take actions against tax havens. And now, as the President embarks for the final G-20 meeting of his presidency, both the U.S. and global economies are substantially stronger than they were almost 8 years ago—although more work remains to be done.

At the time of President Obama’s first G-20 Leaders’ Summit in April 2009, U.S. businesses were cutting hundreds of thousands of jobs a month, the U.S. economy had been in recession for over a year, and the unemployment rate had risen to 9 percent on its way to a peak of 10 percent. The global economy was shrinking for the first time in half a century as the world dealt with a financial crisis and its aftershocks. By some measures, the global economy was on a worse trajectory than was observed in 1929 at the outset of the Great Depression. Industrial production was contracting sharply, global trade slowing even faster than at the start of the Depression, and millions of workers were suddenly without jobs. 

Today, U.S. output is more than 10 percent above its pre-crisis peak, and the global economy is in its seventh consecutive year of expansion. While the G-20 economies contracted during 2008, they are on more solid footing today and have grown during every four-quarter period since the third quarter of 2009, despite a range of unexpected challenges that arose over the intervening years. Since the crisis, the G-20 has confronted slowdowns in Emerging Markets, large up and then downswings in commodity markets, continued banking stress in many member nations, and financial crisis in parts of Europe. Still, despite these coming on the heels of the worst global economic shock in generations, economies around the world have returned to growth and have strengthened their foundations for long-term stability and prosperity.

Since employment growth began in early 2010, U.S. businesses have added 15 million jobs, and the unemployment rate has fallen to half its peak and below its pre-crisis average. The unemployment rate repeatedly fell faster than independent economists expected, as the United States posted the longest streak of positive job growth in history. Unemployment in other countries has fallen meaningfully as well, though much more must still be done to strengthen labor markets in countries around the world.

At the upcoming G-20 Leaders’ Summit in Hangzhou, President Obama will emphasize the need to continue building on the progress made since 2009 in advancing strong, sustainable, balanced, and inclusive global economic growth.  While today there is no one-size-fits-all prescription for the G-20, it is clear that all countries must craft domestic policy approaches that follow through on the G-20 commitment to use all policy tools – including fiscal policy – to strengthen the global economic recovery.  For some members, there is considerable scope for greater investment in infrastructure, while many countries have opportunities to take steps to lift wages or support household incomes. The global economy is growing and, through hard work and resilience, has moved beyond the financial crisis, but greater ambitions of further strengthening growth and ensuring that its benefits are broadly shared are still needed.

Since 2009, the G-20 has also established itself as an invaluable forum, allowing leaders of the world’s major economies to work together to lift growth in mutually-supportive ways and reform the global financial system to help prevent future crises. Beyond the immediate economic crisis in the spring of 2009 and the recovery over the following years, the G-20 has taken steps to build a framework for strong, sustainable, balanced and inclusive growth in the long term. This has included policy coordination and consultation, as well as commitments to allow market determination of exchange rates, phase out fossil fuel subsidies, and implement strategies to create jobs and boost investment.  These efforts are strengthening the global economy today and will continue to do so in the future. 

The G-20 has also played a crucial role in areas where international cooperation is the only way to make solid progress.  For example, the G-20 worked to strengthen the international financial regulatory system, including better coordination across countries. This major accomplishment has made the global economy better able to weather financial shocks and to prevent them from causing broader economic damage on Main Street and across borders. The G-20 has worked to combat the use of tax havens and profit shifting, which has required a joint effort across the major economies. The G-20 has also improved financial transparency and made significant progress to address corruption around the world.

Finally, the G-20 has advanced the goal of more representative and inclusive global economic governance.  At the Pittsburgh Summit in 2009, President Obama and his counterparts made the decision to elevate the G-20 as the premier forum for international economic cooperation, ensuring that major emerging economies would have a seat at the table for the world’s key economic policy decisions. The G-20 has in turn worked to modernize and strengthen the international financial architecture, including a historic recapitalization and reform across multilateral development banks, reforming the quota and governance system of the IMF, and ensuring that the heads of international financial institutions will be appointed through open, merit-based processes.  Taken together, these steps reinforce U.S. leadership in the rules-based global economic system that has prevailed since the end of World War II.

In 2009, the global economy faced a historic crisis and a turning point. The decisions of economic policymakers during this time would reverberate for years, and the course they charted had to navigate many pitfalls. Confronted with a once-in-a-generation challenge, the G-20 provided a forum for productive and open dialogue, enabling important progress on growth and issues of global economic governance that have left the world economy in a fundamentally better place than leaders found it when they surveyed the globe in April 2009. We still face many challenges to provide the sustainable, inclusive growth that our citizens depend on, but the G-20 puts us in a better position to meet those challenges together.

FIVE KEY POINTS ON THE LABOR MARKET IN AUGUST 2016

1. U.S. businesses have now added 15.1 million jobs since private-sector job growth turned positive in early 2010. Today, we learned that private employment rose by 126,000 jobs in August, following a robust average gain of 232,000 jobs in June and July. Total nonfarm employment rose by 151,000 jobs in August, below the monthly average for 2016 so far but substantially higher than the pace of about 80,000 jobs per month that CEA estimates is necessary to maintain a low and stable unemployment rate given the impact of demographic trends on labor force participation. The unemployment rate held steady at 4.9 percent in August. The labor force participation rate remained at 62.8 percent, the same rate as in October 2013 despite downward pressure from demographic trends. So far in 2016, nominal earnings for private-sector workers have increased at an annual rate of 2.8 percent, well above the pace of inflation (1.3 percent as of July, the latest data available).

2. As the labor market has strengthened, the share of employees quitting their jobs has recovered to roughly its pre-recession average. The quits rate tends to fall in recessions and rise in recoveries, since workers are generally more likely to choose to leave a job if there are job opportunities available elsewhere. As such, a higher quits rate is a sign of a stronger labor market. The chart below plots data from the Job Openings and Labor Turnover Survey (JOLTS) on both quits (voluntary separations) and layoffs and discharges (involuntary separations). The quits rate plummeted in the Great Recession as the layoffs and discharges rate rose sharply. Since then, as the labor market has recovered, the layoffs and discharges rate has fallen well below its pre-recession average, and the quits rate was near its pre-recession average as of June 2016 (the most recent data available). Nevertheless, the quits rate is still below its level in the early 2000s, part of a broader, decades-long trend of declining labor market fluidity whose causes and consequences continue to be debated by economists.

3. Workers in nearly all private industries have seen their unemployment rates recover and fall below their pre-recession averages. The headline unemployment rate recovered to its pre-recession average of 5.3 percent in June 2015 and has since fallen even further, holding steady at 4.9 percent in August 2016. As shown in the chart below, the impact of the Great Recession varied across industries, with mining, quarrying, and oil and gas extraction workers, manufacturing workers, and construction workers in particular seeing large increases in their unemployment rates. As of August, however, unemployment rates for workers in 9 of the 11 major private industries have fallen below their respective pre-recession averages. The two exceptions are education and health services workers, whose unemployment rate has essentially recovered to its pre-recession average of 3.3 percent, and mining, quarrying, and oil and gas extraction workers, whose unemployment rate nearly recovered before increasing since mid-2014 amid falling oil prices and production (see point 4 below).

4. Employment in the mining and logging industry, which includes oil and gas extraction, has fallen sharply in recent months amid low oil prices. While the decline in oil prices has benefitted consumers and the economy overall, it has weighed heavily on mining and logging employment, which has fallen by 25 percent since September 2014. Oil and gas workers make up more than half of the mining and logging industry; however, this sector represents just 0.5 percent of total U.S. nonfarm employment. The level of mining and logging employment is closely correlated with the price of oil, with shifts in employment usually following price changes, as the chart below shows. Since 2000, mining and logging employment has been most closely correlated with the price of oil eight months before, suggesting that the recent slight moderation in oil prices since the beginning of 2016 may translate into a slowdown in the pace of employment losses in the months ahead.

5. The distribution of job growth across industries in August was broadly consistent with the pattern over the past year, though some industries saw below-trend growth. Above-average gains relative to the past year were seen in transportation and warehousing (+15,000) and State and local government (+24,000), while mining and logging (which includes oil extraction) posted a smaller loss (-4,000) than in recent months. On the other hand, several industries, including professional and business services (+25,000, excluding temporary help services), health care and social assistance (+36,000), private educational services (+2,000), and utilities (-1,000) saw weaker-than-average growth. Slow global growth has weighed on the manufacturing sector, which is more export-oriented than other industries and which posted a loss of 14,000 jobs in August. Across the 17 industries shown below, the correlation between the most recent one-month percent change and the average percent change over the last twelve months was 0.82, in line with the average correlation over the last year.

As the Administration stresses every month, the monthly employment and unemployment figures can be volatile, and payroll employment estimates can be subject to substantial revision. Therefore, it is important not to read too much into any one monthly report, and it is informative to consider each report in the context of other data as they become available.

FIVE KEY POINTS IN TODAY'S REPORT FROM THE BUREAU OF ECONOMIC ANALYSIS (BEA)

1. Real Gross Domestic Product (GDP) increased 1.1 percent at an annual rate in the second quarter of 2016, according to BEA’s second estimate. Consumer spending grew 4.4 percent, well above its pace over the prior four quarters, with faster growth in both durable and nondurable goods spending (see point 3 below). In addition, export growth was positive in the second quarter, and net exports contributed positively to GDP growth. However, inventory investment—one of the most volatile components of GDP—subtracted 1.3 percentage points from GDP growth. Fixed investment declined, weighed down by contractions in both equipment and structures investment as well as by a decline in residential investment following eight straight quarters of increases.

Real Gross Domestic Income (GDI)—an alternative measure of output—grew 0.2 percent at an annual rate in the second quarter, below the pace of real GDP growth. (In theory, these two measures should be equal, but in practice they usually differ because they use different data sources and methods.) The average of real GDP and real GDI, which CEA refers to as real Gross Domestic Output (GDO), increased 0.6 percent at an annual rate in the second quarter. CEA research suggests that GDO is a better measure of economic activity than GDP (though not typically stronger or weaker).

2. Second-quarter real GDP growth was revised down slightly (0.1 percentage point), though the overall pattern of growth remained unchanged following revisions. Revisions in the second estimate included small upward revisions to consumer spending and to business fixed investment, partly reflecting more spending on research and development than originally estimated. These upward revisions were more than offset by downward revisions to inventory investment and State and local government spending and upward revisions to imports (which, in the accounting framework used by BEA, subtract from GDP growth).

In today’s release, BEA also revised down its estimate of real GDI growth in the first quarter from 0.9 percent to 0.8 percent—matching the growth rate of GDP in the first quarter—due to a downward revision to wages and salaries.

3. A disproportionate share of the pickup in consumer spending in the second quarter was due to spending on goods, especially durable goods. Real consumer spending, which accounts for over two-thirds of GDP, grew 4.4 percent at an annual rate in the second quarter, well above its average growth of 2.4 percent over the prior four quarters. The second quarter of 2016 ranked as the second-strongest quarter for consumer spending growth since 2006. In recent months, improved economic conditions for many households have led to higher consumer sentiment, supporting consumption growth. As the chart below shows, the second-quarter pickup in consumer spending growth came disproportionately from spending on durable goods: while durables account for only about one-tenth of total nominal consumer spending, they were responsible for nearly one-third of the pickup in growth in the second quarter relative to the prior four quarters. This strength in part reflects an especially fast pace of purchases of big-ticket items like motor vehicles (which were revised up in the second estimate), and is consistent with current high levels of consumer confidence. The other components of consumer spending, nondurable goods and services, also saw a pickup in growth in the second quarter.

4. Slower productivity growth across many advanced economies over the past ten years can be traced in part to weak investment. According to the latest estimate—which does not account for the revisions to GDP growth in today’s report—overall labor productivity (real output per hour) in the nonfarm business sector decreased 0.4 percent over the last four quarters, reflecting faster growth in total hours worked than in output. Low productivity growth in recent years has been a global phenomenon, affecting nearly all advanced economies (though the United States has had the strongest productivity growth of any G-7 economy in the last decade). Labor productivity depends on three factors. The first, total factor productivity (TFP), measures how much output can be produced from a given combination of labor and capital, with increases largely representing advancements in technology. The second, labor composition, measures the quality, education, and training of workers. The third is the amount of productive capital available to each worker, with increases in this ratio, known as “capital deepening,” making each worker more productive. As shown in the chart below, all of the G-7 countries except Canada saw appreciably slower capital deepening from 2004 to 2014 than from 1994 to 2004, with this slowdown even larger than the slowdown in the combination of TFP growth and changes in labor composition in Germany, Japan, the United Kingdom, and the United States. 

In part, the slowdown in capital deepening—which has been the largest contributor to the slowdown in labor productivity growth in the United States—can be traced to a shortfall in investment. This, too, has been a global phenomenon: in the advanced economies, investment was still roughly 20 percent below its pre-crisis trend in 2014, and weak growth abroad has likely weighed on investment in the United States. In the face of these headwinds, faster growth in investment (in addition to faster TFP growth) will be needed to boost productivity growth, the most important factor for raising living standards in the long run. Greater investment in infrastructure in particular can play an important role in boosting productivity and economic growth.

5. Real private domestic final purchases (PDFP)—the sum of consumption and fixed investment—rose 3.0 percent at an annual rate in the second quarter, noticeably faster than overall GDP growth. PDFP—which excludes more volatile components of GDP like net exports and inventory investment, as well as government spending—is generally a more reliable indicator of next-quarter GDP growth than current GDP. In the second quarter, the divergence between the strong contribution of PDFP to growth and the relatively slower growth of overall real GDP was almost entirely accounted for by the large negative contribution of inventory investment. Overall, PDFP rose 2.3 percent over the past four quarters, above the pace of GDP growth over the same period, as both inventory investment and net exports weighed on growth over the past four quarters.

As the Administration stresses every quarter, GDP figures can be volatile and are subject to substantial revision. Therefore, it is important not to read too much into any single report, and it is informative to consider each report in the context of other data as they become available.

FIVE KEY POINTS ON THE LABOR MARKET IN JULY 2016

1. U.S. businesses have now added 15.0 million jobs since private-sector job growth turned positive in early 2010. Today, we learned that private employment rose by 217,000 jobs in July, following a similarly robust gain of 259,000 jobs in June. Total nonfarm employment rose by 255,000 jobs in July, above the pace of recent months and substantially higher than the pace of about 80,000 jobs per month that CEA estimates is necessary to maintain a low and stable unemployment rate given the impact of demographic trends on labor force participation. Total job growth for May and June was revised up by a combined 18,000 jobs. The unemployment rate held steady at 4.9 percent in July, and the labor force participation rate ticked up to 62.8 percent—the same rate as in October 2013 despite the aging of the U.S. population putting downward pressure on the participation rate. So far in 2016, nominal earnings for private-sector workers have increased at an annual rate of 2.9 percent, and wage growth over the past year is tied for the fastest twelve-month pace since the start of the recovery.

2. Nominal hourly earnings for private-sector workers have risen at an annual rate of 2.9 percent so far in 2016, well above the pace of inflation. Over the past twelve months, nominal hourly earnings for all private-sector workers have increased 2.6 percent, while consumer prices have risen just 1.0 percent over the past year (through June, the most recent data available). As the chart below shows, nominal hourly earnings have grown faster than consumer prices each year since 2012, translating into real wage gains for American workers. While nominal wage growth has been faster so far in 2016 than in 2015, consumer price inflation has picked up slightly as energy prices have moderated somewhat after falling sharply in 2014 and 2015. Nevertheless, real wage growth—a key component of rising living standards—has broadly picked up over the last three years as the recovery in the U.S. labor market has strengthened.

3. Broader measures of labor underutilization have steadily improved, and most are below pre-recession averages, although the broadest measure remains slightly elevated. The headline unemployment rate, the U-3 rate—which includes unemployed persons who have looked for work in the last month—has fallen from a peak of 10.0 percent in 2009 to 4.9 percent in July, below its pre-recession average. Broader measures of labor underutilization tell a similar story. These measures each include a progressively broader group of individuals: U-4 counts discouraged workers in addition to the unemployed, U-5 adds in others who are marginally attached to the labor force, and U-6 also includes people working part-time who would prefer a full-time job (“part-time for economic reasons”). All of these measures also saw large increases during the recession, with the U-6 rate in particular reaching a record high. However, U-3, U-4, and U-5 all recovered fully to their respective pre-recession averages in the summer of 2015 and have fallen further since. The U-6 rate—which ticked up to 9.7 percent in July—is now the only broader measure of labor underutilization that remains above its pre-recession average. This remaining elevation is entirely attributable to the fact that, despite steady improvement, the large increase in people working part-time for economic reasons in the recession has not been fully reversed.

4. The college earnings premium—the ratio of earnings for those with a college degree to earnings for those with a high school degree—has risen over the last four decades, highlighting the continued importance of investing in higher education. As discussed in a recent CEA report, the college earnings premium has reached historical highs in recent years, reflecting a trend over several decades of increasing relative demand for skilled workers. In 2014, the median full-time, full-year worker over age 25 with a bachelor’s degree earned nearly 70 percent more than a similar worker with just a high school degree. Moreover, those with a college degree are more likely to be employed: in July 2016, Americans with a bachelor’s degree or higher were 18 percentage points more likely to be employed than high school graduates. As a result, higher education may be the single most important investment that young Americans can make in their futures. While these data suggest that the overall return to a college education is near historic highs, there is meaningful variation across individuals, largely related to the schools students attend and the programs they select. In particular, evidence suggests that the relatively low returns at for-profit colleges are increasingly becoming a cause for concern, especially given the high rates of borrowing by students at those schools. The rise in student loan debt in recent years has created challenges for some borrowers, and the Administration has taken steps—including creating options like the Pay as You Earn (PAYE) plan, which caps monthly student loan payments at 10 percent of discretionary income—to help borrowers manage debt after college.

5. The distribution of job growth across industries in July was consistent with recent trends. Above-average gains relative to the past year were seen in industries such as financial activities (+18,000), professional and business services (+53,000, excluding temporary help services), and State and local government (+35,000). Most other industries grew in July at roughly the same pace as in the last twelve months, though private educational services (-14,000) and wholesale trade (+2,000) saw weaker-than-average growth. Manufacturing still faces global headwinds, but showed somewhat better growth in July (+9,000) compared to the past year, and mining and logging (which includes oil extraction) posted a smaller loss (-7,000) than in recent months. Across the 17 industries shown below, the correlation between the most recent one-month percent change and the average percent change over the last twelve months was 0.84, somewhat above the average correlation over the last two years.

As the Administration stresses every month, the monthly employment and unemployment figures can be volatile, and payroll employment estimates can be subject to substantial revision. Therefore, it is important not to read too much into any one monthly report, and it is informative to consider each report in the context of other data as they become available.

FIVE KEY POINTS IN TODAY'S REPORT FROM THE BUREAU OF ECONOMIC ANALYSIS (BEA)

1. Real Gross Domestic Product (GDP) increased 1.2 percent at an annual rate in the second quarter of 2016, according to BEA’s advance estimate. Consumer spending grew 4.2 percent, well above its pace over the prior four quarters, with pickups in growth in both durable and nondurable goods spending (see point 2 below). In addition, export growth was positive in the second quarter, and net exports contributed positively to GDP growth. However, inventory investment—one of the most volatile of the major components of GDP (see point 3 below)—subtracted 1.2 percentage point from GDP growth. Fixed investment declined, weighed down by contractions in investment in both equipment and structures amid low oil prices as well as a notable decline in residential investment following eight straight quarters of increases. Real GDP growth in the first quarter was revised down by 0.3 percentage point to 0.8 percent at an annual rate.

2. Real personal consumption expenditures, which account for over two-thirds of GDP, grew 4.2 percent at an annual rate in the second quarter. This ranks among the three strongest quarters for consumer spending growth since 2006. Consumer spending contributed 2.8 percentage points to GDP growth in the second quarter, reflecting improved economic conditions for many households. Over the last year, nominal wages have grown at the fastest pace since the financial crisis, the economy has continued to add jobs, and the University of Michigan index of consumer sentiment remains near its highest levels in over a decade. In line with improved sentiment, consumption growth in the second quarter was broad-based. Durable goods spending saw a noticeable pickup in growth from the first quarter, while the recent solid pace of services spending growth persisted and nondurable goods spending saw its fastest quarterly growth since 2006.

3. Changes in inventory investment, including the second-quarter decline, contain little information about underlying trends in economic growth. The change in inventory investment is an especially volatile component of economic output, and frequently adds or subtracts a full percentage point or more from annualized GDP growth in a given quarter—as it did in the second quarter, when it subtracted 1.2 percentage point from GDP growth. Over longer periods of time, however, quarterly fluctuations in inventory investment tend to be offsetting and have little impact on long-term growth, as shown in the chart below. The level of inventory investment in the second quarter was negative, which is not sustainable over time and suggests inventory investment will likely make a positive contribution to growth at some point in the coming quarters.

4. Revisions to historical GDP figures for 2013, 2014, and 2015 in today’s release left average annual growth unchanged but shifted the seasonal pattern of growth. Overall, average annual GDP growth from the fourth quarter of 2012 to the fourth quarter of 2015 remained unchanged at 2.3 percent. However, the pattern of growth within each of these years changed noticeably with the revisions released today, as the BEA took steps to reduce “residual seasonality”—a regular pattern of slower growth in the first quarter of each year despite seasonal adjustment of GDP growth. Average first-quarter growth in 2013, 2014, and 2015 was revised up from 0.5 percent at an annual rate to 1.2 percent at an annual rate; this upward revision was mirrored by a downward revision of similar magnitude for second-quarter growth, from 3.2 percent to 2.5 percent. Average third- and fourth-quarter growth saw smaller revisions. BEA has announced that it will make more thorough changes to its methodology in 2018 to further address residual seasonality and to revise data for earlier years.

5. Real private domestic final purchases (PDFP)—the sum of consumption and fixed investment—rose 2.7 percent at an annual rate in the second quarter, noticeably faster than overall GDP growth. PDFP—which excludes more volatile components of GDP like net exports and inventory investment, as well as government spending—is generally a more reliable indicator of next-quarter GDP growth than current GDP. In recent quarters, weaker foreign demand has dampened business investment, and low oil prices have weighed on energy-related investment, both of which have typically led to slower PDFP growth. In the second quarter, though, these drags on growth were offset by strong consumer spending, resulting in a solid pace of PDFP growth. The gap between PDFP and GDP growth this quarter is more than accounted for by movements in inventory investment. Overall, PDFP rose 2.2 percent over the past four quarters, above the 1.2-percent growth in GDP over the same period.

As the Administration stresses every quarter, GDP figures can be volatile and are subject to substantial revision. Therefore, it is important not to read too much into any single report, and it is informative to consider each report in the context of other data as they become available.

Benjamin Franklin. Thomas Edison. George Washington Carver. Samuel Morse. America is a nation of inventors, and invention has spurred American growth since its inception, to the benefit of all Americans.

That same spirit of invention continues today, and this Administration has worked tirelessly over the past seven years to promote pro-innovation policies to help the U.S. prosper and grow. One area the President has focused on has been spectrum —the airwaves over which our wireless communications travel. By focusing both on making more spectrum available for mobile broadband and supporting research and innovation into better spectrum usage, the President has helped satisfy ever-increasing demand for fast, high-capacity telecommunications that are critical to our economic future.

Today, the Administration continues to build on this history of innovation by announcing new wireless research efforts that will improve testing and research of advanced wireless technologies. This effort will help spur innovation in many ways, from pushing the frontiers of tele-medicine through robot-assisted remote surgeries, to testing of autonomous vehicles that talk to each other to keep us safe, to the roll-out of smart manufacturing equipment in factories, to providing more connectivity for more people. Each one of these innovations has the potential to support increased productivity growth that can put more money in the pocket of American families.

And it comes on the heels of seven remarkable years on broadband growth in the United States, where the average American has seen the speed of wireless broadband multiply up to tenfold, and the tripling of even higher-bandwidth home broadband. This effort began in the first days of this Administration when the President signed the Recovery Act, which funded almost $7 billion in broadband investments, resulting in the deployment of more than 115,000 miles of new or improved broadband infrastructure.

The President also launched initiatives like ConnectED which is on track to connect 99% of students to fast broadband and wireless in their classrooms and libraries by 2018, and ConnectALL, his initiative to get 20 million more Americans to adopt broadband by 2020.

The President’s efforts on wireless kicked into high gear in 2010, when he issued a Presidential Memorandum directing the Department of Commerce through the National Telecommunication and Information Administration (NTIA) to collaborate with the Federal Communications Commission (FCC) to make available 500 MHz of spectrum for commercial broadband use by 2020. We are halfway to this goal, thanks to hard work from nearly two dozen Federal agencies to free up spectrum for auction and innovative new plans to share the airwaves.

The FCC’s 2015 spectrum auction was its most successful ever, raising more than $40 billion in revenue for the Federal government while spurring the deployment of faster wireless broadband. And this year, the FCC launched an innovative “incentive” auction that will make available substantial additional spectrum in a win-win-win fashion: broadcast stations can voluntarily sell their spectrum if that makes them better off, wireless providers can voluntarily purchase the spectrum if that will support their consumers, all while raising revenue for the Treasury.

Thanks in large part to these forward-thinking spectrum policy initiatives, the United States has become a world leader in wireless, achieving the goal the President set in the 2011 State of the Union that more than 98 percent of Americans should have access to fast 4G/LTE mobile broadband, which operates at speeds up to ten times faster than eight years ago. These policies also help to ensure that the United States is ahead of the curve in working to avoid a spectrum crunch, where the fixed amount of spectrum available would limit new development.

Why has this Administration worked so hard to free up spectrum, to get people connected, and to create wireless laboratories for businesses, entrepreneurs and local governments to experiment with new wireless applications?

The answer is simple: to grow the economy. Innovation is a key driver of productivity growth, and productivity growth will help to raise living standards and wages. These policies are designed to enable Americans of all backgrounds to participate—and innovate—in our increasingly digital economy, both driving productivity growth and sharing in its benefits. A recent CEA report describes the many benefits to connectivity.

But we have more work ahead of us to ensure that the benefits of these innovations—higher standards of living, real wages, etc.—are accessible to all Americans. That is why, in addition to traditional pro-growth policies, this Administration has also pursued initiatives that help everyone get connected, and maximize the impacts when people do get online, so that all Americans can take part in the new economic opportunities that come as a result of new innovations.

Today, for example, marks the one-year anniversary of ConnectHome, an initiative led by HUD to extend affordable broadband access to families living in HUD-assisted housing in 28 pilot communities, increase digital literacy, and provide access to low-cost devices. With new commitment from internet service provider partners like Comcast and Cox, both of whom are extending their low-cost offers to HUD-assisted households within their footprint, ConnectHome will now reach over 2 million Americans. That can be a game-changer for Americans like Stacie B., a single mother in Little Rock, Arkansas, who through this program received digital literacy training, a tablet, and low-cost Internet—all of which helped her gain new job skills, and her daughter apply for college and financial aid.

That sort of change at the community level will go even further when the Federal Reserve Bank releases new guidance next week on Community Reinvestment Act (CRA) funding. “Closing the Digital Divide: A Framework for Meeting CRA Obligations,” will outline how banks can apply more of the $100 billion in CRA funding nationwide to support broadband in underserved communities.

Whether they’re helping Americans get online at home or on the go, where they learn or where they work, these efforts are making a difference for our economy—allowing American families, businesses, and entrepreneurs to innovate and benefit from innovations, and helping continue to drive America’s productivity growth in the same way that our great inventors have done for years.

FIVE KEY POINTS ON THE LABOR MARKET IN JUNE 2016

1. U.S. businesses have now added 14.8 million jobs since private-sector job growth turned positive in early 2010. Today, we learned that private employment rose by 265,000 jobs in June. Total nonfarm employment rose by 287,000 jobs in June, above the pace of recent months and well above the pace of about 80,000 jobs per month that CEA estimates is necessary to maintain a low and stable unemployment rate given the impact of the aging of the population on labor force participation. A small portion of the pickup in job growth in June was due to the end of a strike of 35,100 workers in the telecommunications industry that temporarily lowered job growth in May. 

The unemployment rate increased to 4.9 percent in June, undoing part of May’s large decline, while the labor force participation rate ticked up and the broadest measure of labor underutilization, the U-6 rate, ticked down. Wage growth has picked up in recent months: over the last twelve months, average hourly earnings increased 2.6 percent (tied for the fastest twelve-month pace since the start of the recovery), and have grown at an annual rate of 2.8 percent so far in 2016.

2. In recent years, estimates of monthly job growth have been less volatile than at any point on record, though an increase in volatility in recent months is a reminder of the importance of averaging over longer periods and looking at a range of data sources. The chart below shows a rolling 36-month standard deviation for the monthly change in payroll employment, a measure of volatility that shows how much the monthly values diverge from the average over the same period. Volatility in job growth is due to a combination of fluctuations in the underlying economy, as well as the imprecision of measuring monthly job changes, with the standard deviation of job growth tending to rise near turning points in the business cycle. In recent years, monthly job growth has been remarkably steady, with the standard deviation of monthly changes falling well below its level in any expansion period on record—part of a broader reduction in the volatility of high-frequency macroeconomic data. However, increased volatility in the last two months is a clear reminder of the importance of looking at data over longer periods—with May well below the recent pace of job growth, June well above the recent pace of job growth, and the longer-run average likely a more accurate reflection of continued strength in the U.S. economy.

3. The labor force participation rate for men in their prime working years, which ticked up in June, has been roughly stable since 2012 but has been declining over the last six decades. As discussed in a recent CEA report, the labor force participation rate for prime-age men—those between the ages of 25 and 54—peaked at 98 percent in the 1950s, and has been falling for more than sixty years. This long-run decline has largely been concentrated among those with less education: while all groups of prime-age men have seen their labor force participation fall, the sharpest drop has been for those with a high school degree or less. As the chart below shows, participation rates by educational attainment, previously quite similar, have diverged since the 1960s. In 1964, 98 percent of prime-age men with a college degree or more participated in the workforce, compared to 97 percent of men with a high school degree or less. In 2015, the rate for college-educated men had fallen slightly to 94 percent, while the rate for men with a high school degree or less had plummeted to 83 percent. 

CEA research suggests that decreased labor force participation among prime-age men is largely due to reductions in the demand for lower-skilled labor (rather than to reductions in its supply), since declining workforce participation for lower-skilled workers has coincided with a fall in their wages relative to higher-skilled workers. Moreover, the magnitude of the decline in the United States compared to other countries with similar demand shocks suggests that U.S. labor market institutions and policies have also played an important role. A number of policies detailed in the CEA report—including supporting aggregate demand in the economy, making labor markets more supportive of participation, and reforming the tax system to increase the returns to participation—would all help to boost prime-age male participation.

4. Gains in real average hourly earnings over the past three-and-a-half years have benefited workers across all major private industries. Over the past twelve months, nominal hourly earnings for all private-sector workers have increased 2.6 percent, while consumer prices have risen just 1.0 percent over the twelve months ending in May. Nominal hourly wages have generally been rising faster than inflation since mid-2012, translating into real wage gains for American workers. Between 2012 and the first half of 2016, real wages for all private workers grew at an average rate of 1.2 percent a year. However, this average masks considerable variation in real wage growth among workers in different industries. Among major industry groups, workers in information services have seen the fastest growth, with real earnings increasing at an average rate of 2.5 percent a year between 2012 and the first half of 2016. At the other end of the distribution, workers in the transportation and warehousing industry have seen the slowest real wage growth (0.3 percent a year). Nevertheless, as the chart below shows, workers in all major industries have seen real increases in their hourly earnings, though more work remains to promote faster wage growth for all Americans. 

5. The distribution of job growth across industries in June was consistent with recent trends, though some sectors that have struggled recently saw better performance. Industries such as leisure and hospitality (+59,000) and utilities (+3,000) had their largest gains in the last twelve months in June. Information services did so as well, with an increase of 44,000 jobs due in part to the bounce-back from May’s strike in the telecommunications industry. On the other hand, several industries, including professional and business services (+23,000, excluding temporary help services), transportation and warehousing (-9,000), private educational services (+400), and construction (0) saw weaker-than-average growth. Manufacturing still faces global headwinds, but showed somewhat better growth in June (+14,000) compared to the past year, and mining and logging (which includes oil extraction) posted a smaller loss (-5,000) than in recent months. Across the 17 industries shown below, the correlation between the most recent one-month percent change and the average percent change over the last twelve months was 0.50, below the average correlation over the last two years.

As the Administration stresses every month, the monthly employment and unemployment figures can be volatile, and payroll employment estimates can be subject to substantial revision. Therefore, it is important not to read too much into any one monthly report, and it is informative to consider each report in the context of other data as they become available.

This work complements another set of initiatives on reducing methane and black carbon emissions, and further advancing clean transportation.  Notably, all three countries are also taking important cross-cuttings steps, including aligning methods for estimating the social cost of carbon and completing comprehensive Midcentury Strategies for driving down greenhouse gas emissions.

These efforts will not only reduce the impacts of climate change and help all three countries meet their commitments under the Paris agreement, but they will also provide important benefits for the economy as a whole and support hundreds of thousands of jobs.

Real Economic Benefits from the 50 Percent Clean Energy Target

A starting point for thinking about the economic benefits is to consider what would happen if we do not take action to reduce carbon emissions. 

The White House Council of Economic Advisers has estimated that if a delay in cutting carbon emissions causes the mean global temperature to stabilize at 3 degrees Celsius above preindustrial levels instead of 2 degrees, that delay will induce annual additional economic damages of approximately 0.9 percent of global output and impose dangerous economic and security risks that are hard to fully quantify. Now, 0.9 percent of output in the United States alone in 2015 was over $160 billion. And these costs would not just happen once—they would be faced year after year. 

But looking at the costs of inaction is only the beginning of considering the benefits. A quickly growing clean energy sector will bring additional benefits by spurring innovation and growing employment in these industries.

In fact, we project that jobs supported by the clean energy (hydro and non-hydro renewables and nuclear), energy efficiency, and new transmission sectors of the economy will continue to rapidly grow: from under 700,000 today to over one million jobs supported on average through 2025.

Relevant Trends in Clean Energy Making the Target Possible

A dramatic transformation of our energy system is underway, which will help all three countries meet the new clean energy target. Deployment of clean energy is growing at an unprecedented pace and the cost of new technologies is plummeting. The share of the share of non-hydropower renewables has increased from roughly 3 percent in 2008 to 7.3 percent in 2015. Wind and solar energy alone currently make up over 5 percent of generation and were less than 1.5 percent in 2008. This growth is expected to continue apace, with the U.S. Energy Information Administration (EIA) projecting wind and solar generation to nearly double by 2025 under business as usual.

But wind and solar are only part of the story. With nuclear and hydro and non-hydro renewable energy, clean energy is already providing roughly 35 percent of electricity generation, and by 2025 EIA projects 43 percent clean power generation under their reference case. Energy efficiency is growing as well, reducing our demand for energy. Since 2008, utility spending on energy efficiency, which saves households money by cutting energy use, has grown from just over $5 billion to over $8 billion in 2015. Reducing energy demand will make it easier for clean energy to provide a larger share of our energy needs.

These large increases in deployment come amid notable cost declines. Since 2008 the cost of onshore wind has declined over 30 percent and solar over 70 percent. LED lighting has seen a nearly 90 percent decrease in cost per kilo lumen since 2008. The cost of Li-ion battery packs for electric vehicles have fallen from above $1,000/kWh in 2007 to under $410/kWh in 2014, with some estimates coming in as low as $300/kWh. A recent report by the White House Council of Economic Advisers has shown that innovations in energy storage—and smart markets that allow for electricity demand to respond to energy prices—provide an opportunity to ease the integration onto the electric grid of increasing quantities of renewable energy resources. These innovations can complement greater transmission interconnection to provide a more resilient grid that can incorporate geographically dispersed clean energy generation across North America.

This all means that we are on a road towards a cleaner energy future, driven in part by initiatives already underway. Cooperation across North America will further accelerate this trend. If we project the current trends to reach the 50 percent North American target, we will see American clean energy growing to nearly 1,900 billion kWh of generation by 2025. Moreover, energy efficiency is also projected to grow, reducing the total generation demanded and contributing to reaching the 50 percent target across the three countries.

The 50 percent clean energy target across North America will bring us closer to our neighbors, help reduce the harmful impacts of climate change, and have clear economic benefits for American households.

FIVE KEY POINTS IN TODAY'S REPORT FROM THE BUREAU OF ECONOMIC ANALYSIS (BEA)

1. Real Gross Domestic Product (GDP) grew 1.1 percent at an annual rate in the first quarter of 2016, according to BEA’s third estimate.  In the first quarter, GDP grew faster than previously estimated, but growth remained modestly slower than the 1.4-percent rate in the fourth quarter of 2015. GDP growth was supported by strength in residential investment, which increased 15.6 percent. Consumer spending grew 1.5 percent, a moderate pace but below its rate over the prior four quarters. Business investment contracted 4.5 percent in the first quarter, reflecting ongoing declines in oil-related structures investment as well as a decline in equipment investment. Slowing global demand continues to remain a key headwind to output growth, though real exports increased 0.3 percent in the first quarter.

However, other indicators provide a stronger picture of first-quarter growth. Real Gross Domestic Income (GDI)—an alternative measure of output—grew 2.9 percent at an annual rate in the first quarter, well above the increase in GDP. (In theory, these two measures should be equal, but in practice often differ because they use different data sources and methods.) The average of GDP and GDI, which CEA refers to as Gross Domestic Output (GDO), increased 2.0 percent at an annual rate in the first quarter. CEA research suggests that GDO is potentially a better measure of economic activity than GDP (though not typically stronger or weaker).

2. First-quarter GDP growth was revised up 0.3 percentage point at an annual rate. The upward revision to GDP growth was largely accounted for by upward revisions to exports and investment in intellectual property products, with a partially offsetting downward revision in consumer spending on services (reflecting the incorporation of new data from the Census Bureau’s Quarterly Services Survey).

In today’s release, BEA also revised up its estimate of real GDI growth in the first quarter from 2.2 percent to 2.9 percent due to an upward revision to corporate profits. As a result, first-quarter GDO growth was revised up to 2.0 percent, a stronger pace than the previously reported 1.5 percent. 

3. While growth in consumer spending slowed somewhat in the first quarter, monthly data through May point to a pickup in the second quarter. Consumer spending increased 1.5 percent at an annual rate in the first quarter, below its 2.7-percent pace over the previous four quarters. The first-quarter slowdown was largely driven by a decline in durable goods spending. However, measures of consumer spending that are reported on a monthly basis—including retail sales and motor vehicle sales—rebounded in April and were solid in May, consistent with a pickup in growth in the second quarter. In addition, growth in real disposable income has outpaced growth in real consumer spending in recent quarters, especially in the first quarter of 2016, providing support in future quarters for further growth in consumer spending.

4. Real State and local government purchases—which had faced challenges earlier in the recovery—increased 3.2 percent at an annual rate in the first quarter. Contraction in State and local government purchases amid budgetary cuts was a meaningful drag on GDP growth earlier in the current recovery, particularly when compared to earlier business cycles. If State and local government purchases had increased at the average rate of the prior four recoveries, real GDP growth would have been 0.4 percentage point faster per year in the first five years of the current recovery. State and local government purchases remain 6 percent below their level at the business-cycle trough, compared with an average 13-percent increase at this point during the four previous business cycles. However, since mid-2014 the State and local government sector has generally added modestly to GDP growth, contributing 0.3 percentage point to growth in the first quarter of 2016.

5. Real private domestic final purchases (PDFP)—the sum of consumption and fixed investment—rose 1.1 percent at an annual rate in the first quarter, a slower pace than in recent quarters. PDFP—which excludes noisier components of GDP like net exports and inventory investment, as well as government spending—is generally a more reliable indicator of next-quarter GDP growth than current GDP. In recent quarters, weaker demand abroad has dampened business investment, and low oil prices have weighed on energy-related investment, both of which have led to slower PDFP growth. Overall, PDFP rose 2.5 percent over the past four quarters, above the 2.1-percent growth in GDP over the same period.

As the Administration stresses every quarter, GDP figures can be volatile and are subject to substantial revision. Therefore, it is important not to read too much into any single report, and it is informative to consider each report in the context of other data as they become available.

FIVE KEY POINTS ON THE LABOR MARKET IN MAY 2016

1. U.S. businesses have now added 14.5 million jobs over 75 straight months, extending the longest streak on record. Today we learned that private employment rose by 25,000 jobs in May, with the temporary effects of a strike in the telecommunications industry (see point 2 below) being one factor among many that resulted in this disappointing figure, which was well below the pace of recent months. Total nonfarm employment rose by 38,000 jobs in May, also below the pace of recent months; nevertheless, the average pace of job gains so far in 2016 (150,000 jobs a month) remains well above the monthly pace necessary to maintain a low and stable unemployment rate given longstanding demographic trends affecting labor force participation.

2. A portion of the slowdown in job growth in May was due to temporary effects of a strike in the telecommunications industry that are likely to reverse in June. Monthly job growth figures are derived from the establishment survey, which asks employers how many workers received pay during the survey’s reference pay period. As such, workers who are on strike during the survey’s reference period will not be counted as part of their establishment’s payrolls, creating an apparent drop in employment compared to the previous month. In May, BLS estimates that 35,100 workers in the telecommunications industry were on strike during the establishment survey reference period —the second-largest strike to occur during a reference period since 2004. The decline of 37,200 jobs in the telecommunications industry in May in part reflects the effects of this strike. In the past, strikes in this industry coinciding with the survey reference period had a noticeable negative effect on monthly estimates of changes in industry employment, as can be seen in the chart below. However, these downturns reversed once the strikes were resolved, leading to a jump in employment that almost perfectly offset the apparent job loss. Since telecommunications workers on strike in May 2016 returned to work on June 1 following a resolution of the strike, we may see such a reversal in next month’s report, putting upward pressure on overall payroll growth.

3. Actual wage growth for continuously employed workers is even higher than growth in reported average wages, which also include newer, lower-paid entrants to the workforce. In any given month, new entrants are usually paid less than both continuously employed workers and those exiting employment, in part because they typically tend to be younger and less experienced. In the recession, net entry of workers fell as more employees were laid off and fewer were hired. This had the perverse effect of boosting growth in reported average wages, since the overall composition of the employed workforce shifted towards higher-paid incumbent workers. For the last five years, the opposite has been the case: a strengthening economy has brought more lower-paid entrants into the employed labor force, which is a positive development even though it lowers reported average wage growth.

Nominal average hourly earnings for private-sector employees rose 2.5 percent over the past year, and have risen 3.2 percent at an annual rate so far in 2016. Since entrants are paid less than exiters on average and the workforce has been expanding at a solid pace in recent years, this factor means that wage growth trends may be somewhat stronger than they appear. CEA analysis suggests that even with typical net entry into employment (as a share of the labor force), annual real wage growth among the continuously employed would be roughly 1.5 percentage points higher than overall wage growth. In recent months, this difference has been about 2 percentage points, indicating that the net entry of individuals into the employed workforce is subtracting more from reported real wage growth than in the long-run steady state—the opposite of the case during the recession and the early phase of the recovery. However, this effect has declined somewhat since around 2013, and with the unemployment rate coming closer to its long-run value, this drag should continue to attenuate.

4. In May, the long-term unemployment rate—the share of the labor force out of work for 27 weeks or more and actively searching for a job—fell to 1.2 percent, its lowest level since August 2008, but both mean and median unemployment duration remain elevated. During the Great Recession, the long-term unemployment rate reached a record high of 4.4 percent in April 2010. At the same time, the distribution of unemployment duration shifted dramatically, with historically large increases in both the mean and median duration of unemployment. Both the mean and the median have decreased over the course of the recovery as the long-term unemployment rate has fallen faster than the overall unemployment rate: over the last year, falling long-term unemployment accounted for about half of the decline in the overall unemployment rate, even though the long-term unemployed currently make up only about one-quarter of unemployed workers.

Nevertheless, the mean and median duration of unemployment are still elevated relative to their historical averages. Moreover, the gap between the two is also elevated, in part due to the relatively large remaining “tail” of individuals who have been out of work for periods much longer than 27 weeks. As can be seen in the chart below, the share of the unemployed who have been out of work for 99 weeks or more remains noticeably elevated relative to its historical trend. This remaining elevation is part of why President Obama has proposed a number of reforms to strengthen the Unemployment Insurance system, including providing wage insurance to protect against lost income and help unemployed workers transition more quickly back into employment.

5. Job growth in a majority of industries fell below recent trends in May. Compared to the range of monthly changes over the past twelve months, May was an especially weak month for construction (-15,000), wholesale trade (-10,000), and utilities (-1,000). Information services saw a decline of 34,000 jobs, in part due to the strike in the telecommunications industry. Employment in manufacturing (-10,000) and mining and logging (-11,000)—which have seen cutbacks in recent months as a result of slow growth abroad and the decline in oil prices—both decreased in May. Across the 17 industries shown below, the correlation between the most recent one-month percent change and the average percent change over the last twelve months was 0.74, somewhat below the average correlation over the last year.

As the Administration stresses every month, the monthly employment and unemployment figures can be volatile, and payroll employment estimates can be subject to substantial revision. Therefore, it is important not to read too much into any one monthly report, and it is informative to consider each report in the context of other data as they become available.

FIVE KEY POINTS IN TODAY'S REPORT FROM THE BUREAU OF ECONOMIC ANALYSIS (BEA)

1. Real Gross Domestic Product (GDP) rose 0.8 percent at an annual rate in the first quarter of 2016, according to BEA’s second estimate.  In the first quarter, GDP grew faster than originally estimated, but growth remained slower than the 1.4-percent rate in the fourth quarter of 2015. GDP growth was supported by strength in residential investment, which increased 17.1 percent (see point 3 below). Consumer spending grew 1.9 percent, a moderate pace but below its rate over the prior four quarters. Business fixed investment contracted 6.2 percent in the first quarter, reflecting ongoing declines in investment in oil-related structures as well as a decline in equipment investment. Inventory investment subtracted 0.2 percentage point from GDP growth. Slowing global demand continues to remain a key drag on real GDP growth, with real exports falling 2.0 percent and subtracting 0.2 percentage point from growth.

However, other indicators provide a somewhat stronger picture of first-quarter growth. Real Gross Domestic Income (GDI)—an alternative measure of output—grew 2.2 percent at an annual rate in the first quarter, well above the 0.8-percent increase in GDP. (In theory, these two measures should be equal, but in practice often differ because they use different data sources and methods.) The average of GDP and GDI, which CEA refers to as Gross Domestic Output (GDO), increased 1.5 percent at an annual rate in the first quarter. CEA research suggests that GDO is potentially a better measure of economic activity than GDP (though not typically stronger or weaker).

2. First-quarter GDP growth was revised up 0.3 percentage point at an annual rate. The upward revision to overall GDP growth was due to upward revisions in private inventory investment, residential fixed investment, and net exports, which each added about one-tenth of a percentage point to GDP growth relative to the advance estimate. Revisions to other components were generally small and offsetting, with the overall contour of first-quarter growth little changed from last month’s advance estimate.

In today’s release, BEA also revised up its estimate of real GDI growth in the fourth quarter of 2015 from 0.9 percent to 1.9 percent due to an upward revision to wages and salaries. This boosted fourth-quarter GDO growth to 1.7 percent, a stronger pace than the previously reported 1.1 percent. 

3. Growth in residential investment continued to far outpace GDP growth, rising 11.1 percent over the past four quarters. Residential investment has grown by more than 8 percent for six straight quarters, highlighting the solid, steady recovery in the housing sector, which has been supported by strong job growth and low mortgage rates. Looking at the components of residential investment, investment in single-family structures (about one-third of total residential investment) has driven much of the variation in residential investment growth during the recovery and has picked up since mid-2014. Investment in multi-family structures (less than 10 percent of the total) has been a steadier, but smaller contributor to growth. The rest of residential investment, which includes brokers’ commissions on existing home sales and improvements on homes, has also risen solidly in recent years after declining in 2013 and 2014. The housing market has improved substantially, but potential for further expansion remains. While real investment in multi-family structures has recovered fully to its pre-recession level, real investment in single-family structures has not, indicating room for further growth in future quarters.

4. Slower productivity growth remains a key challenge facing the United States and other advanced economies. Although productivity growth began to slow around 2004, this shift has become more pronounced in recent years, as robust growth in employment has coincided with slower growth in output. In the first quarter, aggregate hours for the total private economy rose 1.8 percent as real GDP grew 0.8 percent—pointing to a decline in overall labor productivity (real output per hour). Some of the recent slowdown has been due to slower growth in total factor productivity (TFP), a measure of how much output can be produced from a given combination of labor and capital that in part represents advancements in technology. However, in recent years the largest contributor to low productivity growth has been a lack of capital deepening. Due to a shortfall in investment, capital services per worker hour decreased over the last five-years. 

Low productivity growth in recent years has been a global phenomenon, with nearly all advanced economies seeing lower growth rates than in earlier decades; likewise, capital deepening has slowed considerably in nearly all major advanced economies. Overall, productivity growth slowed in 30 of 31 advanced economies between 1995-2005 and 2005-2015, though the United States had the strongest productivity growth of any of the G-7 economies over the last 10 years.  While some of the slowdown the United States may be due to shifts in the composition of workers and sectors in the economy, faster growth in both innovation and investment will be needed to lift productivity growth—the most important factor for raising living standards in the long run. Steps in this direction include greater investment in infrastructure and in research and development (R&D), as well as commonsense reforms to the patent system and the business tax code to encourage innovation. 

5. Real private domestic final purchases (PDFP)—the sum of consumption and fixed investment—rose 1.2 percent at an annual rate in the first quarter, a faster pace than GDP but a slower pace than in recent quarters. Real PDFP—which excludes noisier components like net exports, inventories, and government spending—is generally a more reliable indicator of next-quarter GDP growth than current GDP. The effects of weaker foreign growth, however, have consistently offset some of the strength in domestic demand over the past few years. Overall, PDFP rose 2.6 percent over the past four quarters, compared with 2.0-percent GDP growth over the same period.  

As the Administration stresses every quarter, GDP figures can be volatile and are subject to substantial revision. Therefore, it is important not to read too much into any single report, and it is informative to consider each report in the context of other data as they become available.

FIVE KEY POINTS ON THE LABOR MARKET IN APRIL 2016

1. U.S. businesses have now added 14.6 million jobs over 74 straight months, extending the longest streak on record. Today we learned that private employment rose by 171,000 jobs in April. Total nonfarm employment rose by 160,000 jobs in April, somewhat below the pace of recent months but well above the pace of 80,000 jobs a month necessary to maintain a low and stable unemployment rate given longstanding demographic trends in labor force participation. The unemployment rate held steady at 5.0 percent in April, though the labor force participation rate decreased. Average hourly earnings for private employees increased 0.3 percent in April, while wage growth in previous months was revised upward, eliminating a drop seen in earlier estimates. Wage growth has accelerated in recent months: over the last twelve months, average hourly earnings increased 2.5 percent, and have grown at 3.2 percent at an annual rate so far in 2016.

2. As the labor market continues to recover, the distribution of unemployment has shifted towards individuals who have recently entered the workforce or have chosen to leave a job and away from those who have lost a job. In recessions, the distribution of unemployment shifts more heavily towards those who are unemployed due to involuntary job loss, while the share of the unemployed who have either newly entered or reentered the labor force or left a job voluntarily decreases. In the current business cycle, the share of unemployment attributable to those who lost their jobs rose to an all-time high of 65 percent in September 2009. Over the course of the recovery, however, this share has fallen steadily and has been below its pre-recession average for the past two years, standing at 49 percent in April 2016. With the continuing improvement in the labor market, the share of unemployed workers who recently entered the labor force has increased, and has been noticeably above its pre-recession average in recent months. Moreover, the share of unemployment due to individuals voluntarily leaving their jobs has increased steadily as Americans feel more secure about their prospects in the labor market, reaching its pre-recession average of 11 percent in April for the first time since 2008.

3. Two-thirds of States have seen their unemployment rates fall below their pre-recession averages. In April, the overall U.S. unemployment rate stood at 5.0 percent, half its Great Recession peak and below its pre-recession average of 5.3 percent. As shown in the chart below, there was extremely wide variation in the effect of the Great Recession on unemployment across States and the District of Columbia, with increases ranging from nearly 200 percent (Nevada) to just 13 percent (Alaska) of their respective 2001-2007 averages. As of March 2016, however, 34 States have seen their unemployment rates recover fully, with a number of States seeing unemployment rates substantially below their pre-recession averages (including Colorado, Michigan, New Hampshire, and Oregon). The seventeen States (and the District of Columbia) that still have elevated unemployment rates include the six States that saw the largest percentage increases in unemployment in the recession (Nevada, Florida, Alabama, Arizona, Delaware, and Rhode Island) and several energy-producing States (Wyoming, Montana, West Virginia, and Louisiana), where low energy prices have weighed on job growth in recent months. (Data on State-level employment and unemployment for each month are released by the Bureau of Labor Statistics several weeks after the release of data at the national level.)

4. The “Beveridge curve”—the relationship between job vacancies and the unemployment rate—appears to have shifted outward in the recovery. Named for the British economist William Beveridge, the Beveridge curve plots the relationship between job vacancies and unemployment. Since higher unemployment is usually associated with a lower level of vacancies (and vice-versa), the curve is downward-sloping. While movements along the Beveridge curve indicate the position of the economy in the business cycle, shifts in the curve itself can be taken as an indicator of structural changes in the process by which workers are matched with jobs, among other trends. The figure below plots the Beveridge curve using data from the BLS Job Openings and Labor Turnover Survey (JOLTS) and the household survey. As can be seen, the Beveridge curve has shifted outwards since the end of the Great Recession, with a higher level of job openings for a given unemployment rate than was the case in the 2000s expansion. Some economists have suggested that this outward shift does not represent a fundamental change in the economy but is due instead to increases in online job search, which have lowered the cost to employers of posting and maintaining job vacancies. Other economists have raised concerns about workers’ ability to find or change jobs, which may have declined due to the rise in occupational licensing or to the potential growth of a skills mismatch between workers and jobs. In any case, the decline in the unemployment rate to below its pre-recession average has provided strong evidence against concerns from earlier in the recovery that the apparent shift out in the Beveridge curve represented a substantial increase in structural unemployment.

5. The distribution of job growth across industries in April was reasonably similar to recent trends, with manufacturing and mining still facing global headwinds but showing somewhat better growth in April compared to the past year. Above-average gains relative to the past year were seen in industries such as financial activities (+20,000), professional and business services (+56,000, excluding temporary help services), and private educational services (+16,000). On the other hand, several industries, including construction (+1,000), leisure and hospitality (+22,000), and retail trade (-3,000) saw noticeably weaker-than-average growth. Manufacturing posted a small increase in April (+4,000), while employment in mining and logging, which includes oil extraction, continued to decline (-8,000), though at a slower pace than in recent months. Both industries have seen cutbacks in recent months as a result of slow growth abroad and the decline in oil prices. Across the 17 industries shown below, the correlation between the most recent one-month percent change and the average percent change over the last twelve months was 0.89, in line with the average correlation over the last year.

As the Administration stresses every month, the monthly employment and unemployment figures can be volatile, and payroll employment estimates can be subject to substantial revision. Therefore, it is important not to read too much into any one monthly report, and it is informative to consider each report in the context of other data as they become available.

FIVE KEY POINTS IN TODAY'S REPORT FROM THE BUREAU OF ECONOMIC ANALYSIS (BEA)

1. Real Gross Domestic Product (GDP) increased 0.5 percent at an annual rate in the first quarter of 2016, according to BEA’s advance estimate. Consumer spending grew 1.9 percent, below its pace over the prior four quarters, as spending on durable goods fell while spending on services and nondurables rose at roughly their recent pace. GDP growth was supported by strength in residential investment, which increased 14.8 percent in the first quarter and which has been a positive contributor in recent years (see point 4 below). However, nonresidential investment fell 5.9 percent, weighed down by a further sharp contraction in investment in equipment and oil-related structures. Slowing global demand continues to remain another key drag on real GDP growth, with real exports falling 2.6 percent and subtracting 0.3 percentage point from growth in the first quarter. 

 2. Incomplete seasonal adjustment may have lowered the estimate of first-quarter GDP growth, though this factor is unlikely to explain the majority of the slowdown in growth this quarter. First-quarter real GDP growth averaged 1.0 percentage point less than growth during the four quarters of the year in 2012 to 2015, with the shortfall made up by higher GDP growth in subsequent quarters. Such a regular quarterly pattern—despite the fact the GDP is seasonally adjusted—is often referred to as “residual seasonality.” In contrast, first-quarter growth in real Gross Domestic Income (GDI) has averaged only 0.2 percentage point less than its growth during the year over the same period. GDP and GDI both measure output but use different data, so more first-quarter weakness in GDP than in GDI suggests that residual seasonality may be depressing estimates of first-quarter GDP growth. Last summer, BEA took steps to reduce residual seasonality in GDP, though these changes do not appear to have fully eliminated the issue, and residual seasonality likely played some role in the latest estimate for GDP growth. Nevertheless, much of the slowdown in first-quarter GDP growth this year was in categories like consumer spending and business investment that do not appear to exhibit substantial residual seasonality. Unusual events in years past—including severe snowstorms and a disruption at West Coast ports—may have also reduced first-quarter growth, but are not relevant to this year. 

3. Business fixed investment declined in the first quarter, driven in large part by oil-related declines, but private investment in research and development (R&D) as a share of GDP rose close to a new high. Real investment in equipment and structures both fell sharply in the first quarter; on the other hand, real investment in intellectual property products (IPP)  showed positive growth, with its private R&D investment component nearly matching its recent all-time high as a share of output. More broadly, investment growth has slowed in recent years, as discussed in Chapter 2 of the 2016 Economic Report of the President. During 2014, all three major categories of business fixed investment—structures, equipment, and IPP—rose, adding a combined 0.7 percentage point to real GDP growth. In 2015, falling oil prices led to a decline in oil drilling and mining structures investment, subtracting from overall growth; on the other hand, the other components of investment remained positive during 2015. Since then, growth in equipment investment has turned negative, due in part to weaker foreign demand and reduced demand from energy producers for equipment. Slow investment growth can weigh on future output growth, since less capital deepening implies lower future productivity growth, but increases in R&D investment would offset some of this change and contribute positively to future productivity growth.

4. Real residential fixed investment rose 14.8 percent at an annual rate in the first quarter, a step up in growth from 2015, with continued potential for strong growth in coming quarters. Residential investment has grown by more than 8 percent for six straight quarters, highlighting the solid, steady recovery in the housing sector, which has been supported by strong job growth and low mortgage rates. Growth in residential investment has substantially outpaced growth in GDP and in the first quarter contributed 0.5 percentage point to growth. 

Even with the solid growth in recent years, there is room for further expansion. Household formation picked up in 2015, but had been low relative to historical trends for several years, indicating potential additional demand for housing construction. Housing starts have risen steadily since 2012 and stood at 1.1 million units at an annual rate in March 2016. Even with this improvement, this value is well below the 1.5-to-1.7 million unit range that would be consistent with long-term demographics and replacement of existing housing stock. Housing construction thus has room to expand further and remains a bright spot in domestic demand.

5. Real private domestic final purchases (PDFP)—the sum of consumption and fixed investment—rose 1.2 percent at an annual rate in the first quarter, a faster pace than GDP but a slower pace than in recent quarters. Real PDFP—which excludes noisier components like net exports, inventories, and government spending—is generally a more reliable indicator of next-quarter GDP growth than current GDP. The effects of weaker foreign growth, however, have consistently offset some of the strength in domestic demand over the past few years. Overall, PDFP rose 2.6 percent over the past four quarters, compared with 2.0-percent GDP growth over the same period.  The slowdown in growth this quarter relative to the past year was mostly due to components of PDFP, with transitory factors making roughly the same contributions to growth in the first quarter as in the previous four quarters.

As the Administration stresses every quarter, GDP figures can be volatile and are subject to substantial revision. Therefore, it is important not to read too much into any single report, and it is informative to consider each report in the context of other data as they become available.

While the average returns to college remain high, substantial variation in outcomes exists, and some students leave College poorly equipped to manage their debt, whether due to limited labor market opportunities or a high debt burden. At the same time, other students still struggle to finance their education, indicating that challenges remain in the higher education sector. As the labor market tumbled during the Great Recession, some acute challenges came to the forefront, particularly in student debt repayment. Over the past seven years, Administration policies and an improving labor market have led to substantial improvement, and recent trends in student loans show signs of progress. The Administration continues to work to improve college quality and reduce costs to ensure that all hardworking students can invest in a high-quality education that prepares them for a career.

1. Cohort default rates have declined among borrowers who recently left school, but rates remain elevated, pointing to the importance of efforts to enroll borrowers in more flexible repayment plans. Every year, the Department of Education releases a cohort default rate (CDR), which measures the fraction of borrowers in a fiscal year cohort of students that have defaulted on federal student loans in the first three years after entering repayment. After rising for several years due to factors that include labor market challenges during the Great Recession, reforms to student loan benefits, and the growth of for-profit institutions, default rates have fallen among recent cohorts. Among borrowers who began repaying their student loans in fiscal year 2012, the three-year default rate was 11.8 percent, down 2.9 percentage points from the peak two years prior. 

2. Delinquencies have also fallen in recent years. Among recipients with Direct Federal Loans who were scheduled to be making payments, the 31+ day delinquency rate, measuring the proportion of borrowers more than 31 days late on payments, in December 2015 was 2.5 percentage points lower than a year earlier. In addition to an improving labor market, Administration initiatives such as the expansion of more flexible repayment plans may have contributed to this decline. 

3. Unemployment and economic hardship deferments have declined dramatically. Deferments allow students with negative economic outcomes to postpone student loan payments. Among Direct Loan recipients, these types of deferments, which suggest borrowers are facing particular struggles in finding a job and repaying their loans, saw a 31 percent year-over-year decline in the first quarter of fiscal year 2016. This means that compared to the first quarter of fiscal year 2015, 170,000 fewer Direct Loan recipients were in either of these hardship-related deferments. This decline occurred even as the number of Direct Loan borrowers increased. 

4. Increased availability and usage of flexible repayment options such as the President’s Pay As You Earn and other income-driven repayment (IDR) plans have helped borrowers make on-time payments. Today, IDR plans allow all student borrowers with federal direct loans to cap their payments at a manageable portion of their income. As of the first quarter of fiscal year 2016, nearly 5 million (roughly 1 in 5) borrowers with federally-managed debt were enrolled in IDR plans. The share of borrowers with federally-managed debt enrolled in IDR has quadrupled over the last four years from 5 percent in the first quarter of fiscal year 2012 to 20 percent at the same point in 2016.

5. Data on recent cohorts show promising repayment trends and improving outcomes over time. Although borrowers in the fiscal year 2009 cohort entered repayment at the peak of the recession, data show that after five years, loan amounts comprising about 70 percent of the cohort’s amounts borrowed prior to entering repayment had been paid off or were in repayment. Borrower-level data show similar trends. After five years, 17 percent of borrowers in the 2009 cohort had paid off all of their debt, and an additional 51 percent had a loan in repayment.

6. Shifts have also occurred in the types of schools that first-time student loan borrowers attend, including a trend away from for-profits. New data show a sharp decline in the number of first-time borrowers enrolled at for-profit colleges. These colleges tend to have higher rates of default and non-repayment than colleges in other sectors, raising potential concerns about the quality of education provided. The Department of Education’s Gainful Employment rule takes steps to help ensure that career programs largely at for-profit colleges are providing a high quality education for their borrowers.

State-by-state statistics are presented below.

Sandra Black is a Member of the Council of Economic Advisers.

Watch @CEAChair break down how competition can get you a better deal on your cable box → https://t.co/adWSeO0qrI https://t.co/FQ4WENEM2y

Building on efforts over the last seven years, the President is launching a new initiative to stoke competition across our economy, so that no corporation can unfairly squeeze their competitors, their workers, or their customers at everyone’s expense. Stronger competition matters because it can deliver lower prices, higher quality, and better customer service for consumers. It gives workers more of a voice and can help strengthen wage growth.  And it’s what entrepreneurs need to get a fair shot at growing their businesses and creating jobs.

Before There Were Cable Boxes

Before getting into the details, a little historical context (and more on a specific action we’re taking today).

Millenials are often defined as the generation born after 1980. But they could also be described as the generation that doesn’t remember what it’s like to be forced to rent a big, overpriced, basic phone from the phone company.

Until the early 1980s, the phone company had a monopoly—not just on the wire to your house but, in many cases, on the phone you plugged into that wire.

And the result wasn’t pretty.

Phones had little variety, evoking the famous Henry Ford quote — "You can have any color, so long as it’s black” — and only the most basic functionality. Worse yet, households had to pay a fee each month to rent these phones that added up over time to many multiples of what they would have paid to purchase a similar (or fancier) phone themselves.

Then, all that changed when the Federal Communications Commission (FCC) and others took action to open up phones to competition. This competition and the technological progress it helped drive, led to a proliferation of digital dialing, built-in answering machines, a panoply of styles, cordless phones, and other innovations.

A similar dynamic has taken hold elsewhere in American homes today: According to a recent study, 99 percent of all cable subscribers lease a set-top box to get their cable and satellite programming.

It sits in the middle of our living rooms, and most of us don’t think twice about it. But that same study found that the average household pays $231 per year to rent these often clunky boxes. And, while the cost of making these boxes is going down, their price to consumers has been rising.

Like the telephones in 1980s, that’s a symptom of a market that is cordoned off from competition. And that’s got to change.

How We're Taking Action To Fix It

That’s why today the President announced that his Administration is calling on the FCC to open up set-top cable boxes to competition. This will allow for companies to create new, innovative, higher-quality, lower-cost products. Instead of spending nearly $1,000 over four years to lease a set of behind-the-times boxes, American families will have options to own a device for much less money that will integrate everything they want — including their cable or satellite content, as well as online streaming apps — in one, easier-to-use gadget.

But we’re not stopping there. In many ways, the set-top box is the mascot for a new initiative we’re launching today. That box is a stand-in for what happens when you don’t have the choice to go elsewhere—for all the parts of our economy where competition could do more.

Across our economy, too many consumers are dealing with inferior or overpriced products, too many workers aren’t getting the wage increases they deserve, too many entrepreneurs and small businesses are getting squeezed out unfairly by their bigger competitors, and overall we are not seeing the level of innovative growth we would like to see. And a big piece of why that happens is anti-competitive behavior—companies stacking the deck against their competitors and their workers. We’ve got to fix that, by doing everything we can to make sure that consumers, middle-class and working families, and entrepreneurs are getting a fair deal.

That’s why today, the President announced a broader new initiative through an Executive Order that calls on departments and agencies to make further progress through specific, pro-competition executive actions that empower and inform consumers, workers, and entrepreneurs. In 60 days, agencies will report back on specific areas where we can make additional progress.

Alongside that announcement, the White House Council of Economic Advisers (CEA) released a new issue brief that describes the many benefits of competition, highlights recent work by the independent antitrust authorities, and argues that consumers, workers, entrepreneurs, and small businesses would benefit from additional policy actions to promote competition within a variety of industries. These new steps will build on pro-competition progress we’ve made—from cell phone unlocking to net neutrality, from cracking down on conflicts of interest in retirement advice to efforts to free up essential technologies so that big incumbent companies can’t crowd out their competitors.

In the coming months, we’ll be doing everything we can across government to build on that progress and deliver on the pro-competition initiative we’re announcing today.

FIVE KEY POINTS ON THE LABOR MARKET IN MARCH 2016

1. U.S. businesses have now added 14.4 million jobs over 73 straight months, extending the longest streak on record. Today we learned that private employment rose by 195,000 jobs in March. Total nonfarm employment rose by 215,000 jobs in March, in line with the pace of recent months and well above the pace necessary to maintain a low and stable unemployment rate given longstanding demographic trends in labor force participation, which CEA estimates at 80,000 jobs per month. The unemployment rate ticked up to 5.0 percent in March, while the labor force participation rate rose to 63.0 percent, reaching the same level as November 2013. Over the past six months, the labor force participation rate has increased by 0.6 percentage point, the largest six-month increase since 1992. Average hourly earnings for private employees increased by 7 cents in March, more than reversing their drop in February, and have grown 2.3 percent over the past year.

2. Growth in aggregate weekly earnings has accelerated in the past two years, with rising real wages accounting for nearly all of the pickup. Aggregate weekly earnings are the total wages and salaries paid to all private employees on nonfarm payrolls. Changes in aggregate earnings can be driven by changes in employment, by changes in the length of the average workweek, or by changes in hourly earnings. Aggregate earnings reached a cyclical trough in December 2009. Over the following year-and-a-half, the increase in aggregate earnings was more than accounted for by a combination of rising employment and a longer workweek, as real wages declined. Over the next three years, increased employment accounted for over 80 percent of the growth in aggregate earnings. Conversely, over the past two years real wage growth—due both to rising nominal wages and to slow inflation as oil prices have declined—has been the main contributor to the speed-up in aggregate earnings, accounting for over 40 percent of overall real aggregate earnings growth. Meanwhile, strong employment growth has continued, offset slightly by reductions in hours.

3. To mark Equal Pay Day (April 12), we note the progress that has been made in closing the earnings gap since the Great Recession, as well the work that remains. Since late 2007, women’s usual weekly earnings have grown at a slightly faster pace than those of men, and the weekly earnings gap has narrowed as a result. The ratio of women’s usual weekly earnings to men’s was 80.8 percent at the end of 2015, up from 79.5 percent at the end of 2007. Many factors—including education, experience, occupation, and industry—contribute to the wage gap, but according to recent research by economists Francine Blau and Lawrence Kahn, about 38 percent of the wage gap is still unexplained by these (and other) observable factors. The ratio of women’s usual weekly earnings to men’s is slightly greater than the commonly cited figure of 79 percent, which is the ratio of annual earnings for the typical woman working full-time, full-year compared to those of a typical man. The difference between these two measures—which reflects differences in the number of weeks that men and women work during the year—highlights the challenges that many women face in balancing work and family. Policies like paid family leave and paid sick leave that ensure that workplaces better reflect the needs of working families would build on the progress made since the recession in closing the wage gap.

4. The labor force participation rate rose to 63.0 percent in March, the same level as in November 2013, having risen 0.6 percentage point over the last six months. As this increase shows, the strengthening recovery has led more individuals to decide to enter the workforce and search for a job, which in recent months has more than offset longstanding declines in labor force participation from the aging of the U.S. population and other preexisting trends. Overall changes in the labor force from month to month are the net effects of individuals moving from one labor market state (employed, unemployed, not in the labor force) to another. Thus, the recent increase in labor force participation reflects an increase in the net flow of individuals from “not in the labor force” into either employment or unemployment. As shown in the chart below, net flows into employment from “not in the labor force” have risen faster recently than net flows into unemployment; net flows into employment are above their prerecession average, while net flows into unemployment are below their prerecession average. A number of policies—including increasing investments in training and apprenticeships, providing wage insurance for unemployed workers, and reforming our broken criminal justice system—would help address some of the causes behind longstanding trends in labor force participation.

5. The distribution of job growth across industries in March generally followed recent trends, with global headwinds continuing to restrain job growth in certain industries, especially manufacturing and mining. Above-average gains relative to the past year were seen in industries such as State and local government (+18,000), retail trade (+48,000), and construction (+37,000). Manufacturing (-29,000) had a noticeably weak month in March, while employment in mining and logging, which includes oil extraction, continued to decline (-12,000). Slowing global growth has weighed on job growth in both of these industries, as weaker foreign demand has put pressure on U.S. exports and has contributed to the decline in oil prices. Across the 17 industries shown below, the correlation between the most recent one-month percent change and the average percent change over the last twelve months was 0.98, well above the average correlation over the previous three years.

As the Administration stresses every month, the monthly employment and unemployment figures can be volatile, and payroll employment estimates can be subject to substantial revision. Therefore, it is important not to read too much into any one monthly report, and it is informative to consider each report in the context of other data as they become available.

FIVE KEY POINTS ON THE LABOR MARKET IN FEBRUARY 2016

1. U.S. businesses have now added 14.3 million jobs over six straight years, extending the longest streak on record. Today we learned that private employment rose by 230,000 jobs in February, while private employment growth in December and January was revised up by a combined 32,000 jobs. The unemployment rate held steady at 4.9 percent in February, while the labor force participation rate rose to 62.9 percent, reaching the same level as the end of 2013. Over the past 24 months, the private sector added 5.6 million jobs, the most in any two-year period since 1999.

2. Gains in weekly earnings have benefited workers across the earnings distribution over the past three years. Usual weekly earnings have risen faster than inflation over the past three years, with the largest gains for workers at the 10th percentile and the smallest gains for workers at the 90th percentile. Other data also show gains being shared by a wide range of workers. For example, private production and nonsupervisory employees (a group that roughly represents the bottom 80 percent of workers) have seen real annual growth of 1.3 percent in their average hourly earnings over the past three years. These changes, however, represent only a very partial reversal of the decades-long increase in earnings inequality that continued through the early stages of the current recovery. As discussed in Chapter 1 of the 2016 Economic Report of the President, the President’s agenda for inclusive growth would address this challenge by increasing opportunity and ensuring that competitive markets work more efficiently.

3. The broadest measure of labor underutilization declined 0.2 percentage point to 9.7 percent in February, its lowest level since May 2008. While the headline unemployment rate, the U-3 rate, includes only unemployed persons who have looked for work in the last month, the broadest measure of labor underutilization, the U-6 rate, also includes both those who have looked for work in the past year but not in the past month (“marginally attached to the labor force,” a group that includes discouraged workers) and those employed part-time who would prefer to work full-time (“part-time for economic reasons”). During the recession, the U-6 rate reached a record high of 17.1 percent, driven both by a sharp rise in unemployment and an increase in the share of the labor force working part-time for economic reasons (see point 4 below). Since this peak, however, the U-6 rate has recovered 93 percent of the way to its pre-recession average and over the past year has fallen faster than the headline unemployment rate. The U-6 rate is now the only measure of labor underutilization that remains above its pre-recession average, with discouraged workers and the marginally attached nearly recovered and the overall unemployment rate more than recovered (though tilted more towards long-term unemployment). The remaining elevation in the U-6 rate relative to its pre-recession average is entirely attributable to a still-elevated rate of part-time work for economic reasons.

4. Most of the remaining elevation in the share of employees working part-time for economic reasons is concentrated in service industries. The rate of part-time employment for economic reasons—which rises in recessions as employers cut back their demand for work hours—doubled in the Great Recession from 3.0 percent to 6.0 percent of the labor force, a sharper increase than in earlier downturns. As shown in the chart below, this initial increase was larger in goods industries (such as construction and manufacturing), which tend to be more cyclically responsive than service industries. However, over the course of the recovery the share of goods-industry employees working part-time for economic reasons has fallen steadily, with much of the remaining elevation in the overall rate of part-time work for economic reasons due to elevation of the rate in the service sector. 

5. February was a strong month for employment growth in many sectors, although global headwinds continue to restrain job growth in certain industries. Especially strong gains relative to the past year were seen in industries such as retail trade (+55,000), private educational services (+28,000), and information services (+12,000). Manufacturing (-16,000) had a noticeably weaker-than-average month following a relatively strong gain of 23,000 jobs in January. Mining and logging employment, which includes oil extraction, continued to decline (-18,000). Slowing global growth has weighed on job growth in both of these industries, as weaker foreign demand has put pressure on U.S. exports and has contributed to the decline in oil prices. Across the 17 industries shown below, the correlation between the most recent one-month percent change and the average percent change over the last twelve months was 0.92, above the average correlation over the previous three years.

As the Administration stresses every month, the monthly employment and unemployment figures can be volatile, and payroll employment estimates can be subject to substantial revision. Therefore, it is important not to read too much into any one monthly report, and it is informative to consider each report in the context of other data as they become available.

The unemployment rate reached 4.9 percent in January for the first time since February 2008, and the labor force participation rate has been essentially stable over the past year. Just two years ago, many economists expected the unemployment rate to remain above this level until 2020. Our businesses added 158,000 jobs in January, somewhat below the pace of recent months but well above the pace necessary to maintain a low and stable unemployment rate. Most importantly, wages rose 2.5 percent over the past year, and the 2.9-percent annualized pace over the past six months is the strongest since the recovery began. Nevertheless, more work remains to drive further job creation and faster wage growth, including passing the President’s new proposal for ambitious investments in 21st-century clean infrastructure, opening our exports to new markets with the Trans-Pacific Partnership, and raising the minimum wage.

FIVE KEY POINTS ON THE LABOR MARKET IN JANUARY 2016

1. Businesses have now added 14.0 million jobs over 71 straight months, extending the longest streak on record. Today we learned that private employment rose by 158,000 jobs in January, while private employment growth in November and December was revised up by a combined 15,000 jobs. Total nonfarm employment rose by 151,000 jobs in January, somewhat below the pace of recent months but well above the pace necessary to maintain a low and stable unemployment rate, which CEA estimates at 80,000 per month. The unemployment rate reached 4.9 percent for the first time since February 2008, as the labor force participation rate edged up to 62.7 percent, the same level as in March 2015. Over the last six months, average hourly earnings for all private employees rose 2.9 percent at an annual rate, the fastest pace since the recovery began. Over 2014 and 2015, the private sector added 5.5 million jobs, the most in any two-year period since 1999.

2. Initial estimates job growth and GDP growth have been especially disconnected in the current recovery. In general, stronger quarterly job growth is associated with stronger quarterly GDP growth. This pattern was consistent in expansions from the 1960s until 2001. But the current recovery, initial estimates of quarterly job growth and quarterly GDP growth have been much less closely correlated. This disconnect was especially clear in the fourth quarter of 2015, when GDP growth was 0.7 percent and employment growth was initially estimated to be 2.4 percent. While such discrepancies are in part due to fluctuating productivity growth, measurement error is likely playing a role. This illustrates the importance of focusing on a wide range of indicators – especially labor market data, which tend to be less noisy – in assessing the health of the economy.

3. While the unemployment rate for African Americans has fallen below its pre-recession average, more work remains to close long-standing disparities in the labor market. The unemployment rate for African Americans peaked at 16.8 percent in March 2010, after experiencing a larger percentage-point increase from its pre-recession average to its peak than the overall unemployment rate did. Since then, the African-American unemployment rate has seen a larger percentage-point decline in the recovery, falling almost twice as fast as the overall unemployment rate over the last year. The recovery in the unemployment rate has been particularly strong for African-American teens, though adult men and women have also seen their unemployment rates fall below their pre-recession averages. Nevertheless, the current African-American unemployment rate—8.8 percent as of January 2016—remains too high. That’s why the Administration has proposed a number of initiatives—including the My Brother’s Keeper initiative for young men of color and new investments in skills training and apprenticeships—to ensure that the benefits of our strong labor market are shared among all Americans.

4. While rates of hires and separations have risen in the recovery, a long-run trend of declining labor market “churn” remains. The most recent data from the Job Openings and Labor Turnover Survey (JOLTS) show that the private-sector hires rate—the total number of hires by businesses as a share of total employment—has continued to trend upward since the end of the recession. The private-sector separations rate has shown a similar pattern, as workers are more likely to choose to leave their jobs when the economy is stronger. Despite these recent increases, a number of measures of labor market fluidity, including hires and separations rates, have been on a downward trend for decades. Hires and separations rates both stood at 4.5 percent in late 2000 and each averaged 4.2 percent in the previous expansion period, but stood at 4.0 and 3.8 percent, respectively, as of this past November. This decline in fluidity could reflect greater job stability and better matches between workers and firms. At the same time, reduced churn could limit workers’ ability to realize the wage gains that often come from switching jobs. More research is needed to understand both the causes and consequences of reduced labor market fluidity over the long run. Nevertheless, the increases in both hires and separations rates in the current recovery are yet more indicators of the increasing cyclical strength of the U.S. economy.

5. The distribution of job growth across industries in January diverged sharply from recent trends, with strong growth in sectors including manufacturing but other sectors reporting below-trend changes in employment. Both manufacturing (+29,000) and retail trade (+58,000) saw their strongest growth in the past twelve months, while financial activities (+18,000) and wholesale trade (+9,000) also saw notable above-trend growth. Mining and logging (-7,000) saw a moderation in its decline, though low commodity prices continue to weigh on the sector. At the same time, utilities (-300), transportation and warehousing (-20,000), and private educational services (-39,000) all saw weaker-than-average job growth. Across the 17 industries shown below, the correlation between the most recent one-month percent change and the average percent change over the last twelve months was 0.49, below the average correlation over the previous three years.

As the Administration stresses every month, the monthly employment and unemployment figures can be volatile, and payroll employment estimates can be subject to substantial revision. Therefore, it is important not to read too much into any one monthly report, and it is informative to consider each report in the context of other data as they become available.

Five Key Points in Today's Report from the Bureau of Economic Analysis (BEA)

1. Real Gross Domestic Product (GDP) increased 0.7 percent at an annual rate in the fourth quarter, according to BEA’s advance estimate. The global factors that have weighed on GDP over the past year continued to drag on output in the fourth quarter, including a decline in drilling investment amid very low oil prices and lower exports amid weakening foreign demand. Inventory stocks also remained relatively high heading into the fourth quarter, so a decline in the pace of inventory investment subtracted from GDP as would be expected, and reduced equipment investment also weighed on output. Growth was supported by strong residential investment, which grew 8.1 percent at an annual rate in fourth quarter and has been a positive contributor in recent years. Consumer spending grew at a 2.2 percent annual rate, somewhat below its pace over the prior four quarters, with reduced spending on utilities due to unseasonably warm weather in the fourth quarter subtracting from the total.

2. Labor market data were considerably stronger than output data in the fourth quarter. In the fourth quarter, the initially-estimated outperformance of job growth relative to GDP growth was the largest since at least 1990: employment rose 2.4 percent at an annual rate, compared with GDP growth of 0.7 percent. Economists generally expect indicators of economic output and of labor market performance to show similar patterns. To the degree that GDP and job growth data diverge, the gap can be attributable to noise in any given data point or to variation in productivity growth. The recent divergence of output growth and employment growth therefore illustrates the importance of focusing on a wide range of economic indicators—especially labor market data.

Measuring employment is somewhat more straightforward exercise than measuring real GDP, although employment estimates face measurement challenges as well. The formidable challenges with real GDP estimates—including estimating quality-adjusted price changes, services, and intangible goods—may introduce some measurement error that could help explain the discrepancy. In fact, the correlation between quarterly employment growth and GDP growth has been considerably lower in the last five years than at most times in prior decades.

3. Real disposable personal income has grown more quickly than consumer spending, although the gap has narrowed since the first quarter of 2015. Real disposable personal income rose 3.4 percent over the past four quarters, a rapid pace. At the same time, real consumer spending rose only 2.6 percent. This difference indicates that consumers have tended to save a rising fraction of their income gains over the past year. In addition to current income gains, a number of other factors determine the extent to which consumers spend, including their expectations for future income growth, interest rates, and wealth. In the fourth quarter, especially slow utility spending subtracted from consumption, because the unseasonably warm weather reduced heating demand. The low oil price environment should continue to support real consumer spending growth, although the impact of recent financial market turmoil on household balance sheets would push in the opposite direction.

4. Net exports subtracted 0.6 percentage point from GDP growth over the past four quarters, reflecting the continued headwinds from slowing foreign growth on U.S. exports. The volume of U.S. exports to foreign countries is sensitive to foreign GDP growth. Indeed, year-over-year foreign GDP growth—when weighting countries by the volume of their annual trade with the United States—explains much of the variance in U.S. export growth. To the extent that the global slowdown persists, it will likely continue to weigh on U.S. export growth, as it has over the past year. In the fourth quarter, exports declined 2.5 percent, weighing on overall output growth. The sensitivity of our exports to foreign demand—especially in an environment where foreign demand is slowing—underscores the importance of reducing trade barriers and opening foreign markets to our exports.

5. Real private domestic final purchases (PDFP)—the sum of consumption and fixed investment—rose 1.8 percent at an annual rate in the fourth quarter, a faster pace than GDP but a slower pace than in recent quarters. Real PDFP—which excludes noisier components like net exports, inventories, and government spending—is generally a more reliable indicator of next-quarter GDP growth than current GDP. In the current global environment, however, the drag from net exports has been relatively persistent. Overall, PDFP rose 2.7 percent over the past four quarters, compared with 1.8 percent GDP growth over the same period. The especially large gap between PDFP growth and GDP growth is mostly attributable to net exports, reflecting slowing growth abroad, and in part to more transitory factors like inventory investment.

As the Administration stresses every quarter, GDP figures can be volatile and are subject to substantial revision. Therefore, it is important not to read too much into any single report, and it is informative to consider each report in the context of other data that are becoming available.