Year in Review Economic Briefing

Council of Economic Advisers

December 19, 2013

I. Labor Market II. GDP III. Housing IV. Energy V. Health VI. Fiscal Situation

2

Table of Contents

3 Source: Bureau of Labor Statistics.

Businesses Have Added 8.1 Million Jobs Over the Last 45 Months

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-800

-600

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-200

0

200

400

-1000

-800

-600

-400

-200

0

200

400

Jan-07 Jan-09 Jan-11 Jan-13

Monthly Change in Private Payroll Employment Thousands, Seasonally Adjusted

Nov-13

12-monthmoving average

I. Labor Market

4 Source: Bureau of Labor Statistics.

0

1

2

3

4

5

6

7

8

Jan-90 Jan-95 Jan-00 Jan-05 Jan-10

Unemployment Rate by DurationPercent of Civilian Labor Force

Nov-13

Unemployed for 26 Weeks or Less

Unemployed for 27 Weeks & Over

2001-07 Average

2001-07 Average

The Unemployment Rate Has Fallen Steadily—But the Long-Term Unemployment Rate Remains Significantly Elevated

I. Labor Market

5 Source: Bureau of Labor Statistics.

Recent Months of Real Wage Growth Have Been Strongest Since 2009...

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-2

-1

0

1

2

3

4

5

6

-3

-2

-1

0

1

2

3

4

5

6

2007 2008 2009 2010 2011 2012 2013 2014

Growth in Real Average Hourly Earnings for Production and Nonsupervisory Workers

12-Month Percent Change

Nov-2013

I. Labor Market

6

…But Wage Inequality Continued its Decades-Long Increase

2.1

2.2

2.3

2.4

2.5

2.6

2.7

2.8

2.9

3.0

3.6

3.8

4.0

4.2

4.4

4.6

4.8

5.0

5.2

5.4

2000:Q1 2003:Q1 2006:Q1 2009:Q1 2012:Q1

Usual Weekly Earnings for Full-Time Wage & Salary Workers, by Percentile

Ratio

Ratio of 90th Percentile to 10th Percentile

(Left Axis)

Ratio of 90th Percentile to Median

(Right Axis)

TEST

TEST

2013:Q3

Source: Bureau of Labor Statistics.

I. Labor Market

7 Source: Bureau of Economic Analysis.

Real GDP Growth in Q3 Was the Strongest in Over a Year

0.3

3.12.7

1.5

-2.7

2.0

-2.0

-8.3

-5.4

-0.4

1.3

3.9

1.6

3.9

2.8 2.8

-1.3

3.2

1.4

4.9

3.7

1.2

2.8

0.11.1

2.5

3.6

-10

-8

-6

-4

-2

0

2

4

6

8

-10

-8

-6

-4

-2

0

2

4

6

8

2007:Q1 2008:Q1 2009:Q1 2010:Q1 2011:Q1 2012:Q1 2013:Q1

Real Gross Domestic Product GrowthAnnualized Quarterly Percent Change

2013:Q3

II. GDP

8 Source: Federal Reserve Board.

89

10111213141516171819202122

Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14

Car and Light Truck SalesMil lions of Units, Seasonally Adjusted Annual Rate

Nov-13

Vehicle Sales Rose to a 5-Year High in November

II. GDP

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-20

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0

10

20

30

40

-40

-30

-20

-10

0

10

20

30

40

2007:Q1 2009:Q1 2011:Q1 2013:Q1

Real Residential Investment: Quarterly Percent Change

Percent, Annual Rate

2013:Q3

9 Source: Bureau of Economic Analysis.

Residential Investment Has Contributed to Growth For 12 Straight Quarters…

II. GDP

10 Source: Bureau of Economic Analysis.

…But Business Fixed Investment Has Grown More Slowly

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-25

-20

-15

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-5

0

5

10

15

20

-30

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-15

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0

5

10

15

20

2007:Q1 2009:Q1 2011:Q1 2013:Q1

Real Business Fixed Investment: Quarterly Percent Change

Percent, Annual Rate

2013:Q3

II. GDP

11

The Trade Deficit Is Narrower than Pre-Crisis Years, Helped by a Falling Deficit in Petroleum Products—And the Current Account Deficit is the Lowest As a Share of the Economy Since 1998

*2013 based on merchandise trade data through October and average current account through Q3. Source: Census Bureau; Bureau of Economic Analysis.

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6

7

8

0

10

20

30

40

50

60

70

80

00 01 02 03 04 05 06 07 08 09 10 11 12 13*

All other goods

Petroleum

U.S. Merchandise Trade and Current Account DeficitsAvg. Monthly Goods Trade Deficit, Bil. Chn. 09$ Current Account Deficit Percent of GDP

II. GDP

12 Source: Census Bureau.

Housing Has Been Recovering and There Is Still Upside Potential

400

800

1200

1600

2000

2400

2800

400

800

1200

1600

2000

2400

2800

'60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15

New Residential Construction: Building PermitsThousands, Annual Rate

Nov-13

Estimate of Current Average Annual

Demand

III. Housing

13 Source: National Association of Realtors.

Despite the Run-Up in Mortgage Rates, Home Prices Remain Affordable…

60

80

100

120

140

160

180

200

220

60

80

100

120

140

160

180

200

220

Jan-71 Jan-81 Jan-91 Jan-01 Jan-11

Composite Housing Affordability IndexIndex (Median Income = Qualifying Income = 100)

Oct-13

More Affordable

Less Affordable

III. Housing

14 Source: Mortgage Bankers Association; Freddie Mac.

…But Higher Rates Have Dampened Refinancing Activity

0

1000

2000

3000

4000

5000

6000

7000

8000

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

Jan-07 Jan-09 Jan-11 Jan-13

Mortgage Rates and Refinancing ApplicationsPercent Index (3/16/90=100)

Refinancing Applications(Right Scale)

30-Year Fixed Rate Mortgage

(Left Scale)

Dec. 12-13

III. Housing

15

Household Debt Service Payments are At Lowest on Record

8

9

10

11

12

13

14

15

1980:Q1 1990:Q1 2000:Q1 2010:Q1

Household Debt Service RatioPercent of Disposable Income

2013:Q3

Note: Reflects estimated payments on mortgage and consumer debt. Source: Federal Reserve Board.

III. Housing

16

The U.S. is Now Projected to Produce More Natural Gas and Total Liquid Fuels than Russia and Saudi Arabia

0

10

20

30

40

50

2008 2009 2010 2011 2012 2013

U.S., Russia, and Saudi Arabia Liquid Fuelsand Natural Gas Production, 2008-2013 (est.)

Quadrillion British Thermal Units

Liquid Fuels

Natural Gas

U.S.

Russia

Saudi Arabia

Source: Energy Information Administration.

IV. Energy

17 Source: Energy Information Administration.

3

4

5

6

7

8

9

10

11

2000 2002 2004 2006 2008 2010 2012 2014

Imports (4-Week Moving Average)

Domestic Production(4-Week Moving Average)

Week Ended12/13/2013

Crude Oil Production & ImportsMil lions ofBarrels Per Day

Domestic Oil Production Has Exceeded Imports For First Time Since 1995

IV. Energy

18

Recent Years of Health Care Cost Growth Are Lowest On Record

0

1

2

3

4

5

6

7

8

1961 1971 1981 1991 2001 2011

Real Per Capita Growth in National Health ExpendituresPercent

2013*

*Data for 2012 and 2013 are projections. Source: CEA calculations based on data from the Centers for Medicare and Medicaid Services and the Bureau of Economic Analysis. V. Health Care

*Data for 2012 and 2013 are projections. Source: CEA calculations based on data from the Centers for Medicare and Medicaid Services and the Bureau of Economic Analysis.

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0

1

2

3

4

5

6

Private Insurance Medicare Medicaid

2000-20072007-20102010-2013

Real Per Enrollee Growth in Health Spending by PayerAverage Annual Growth Rate

19

Health Care Cost Slowdown is Broad-Based

V. Health Care

20 Source: Office of Management and Budget; Congressional Budget Office.

The Budget Deficit Has Fallen Rapidly – the President’s Proposals Would Stabilize Debt as a Percentage of GDP Over The Next 10 Years

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1011

2000 2003 2006 2009 2012 2015 2018 2021 2024

Federal Budget DeficitPercent of GDP (Fiscal Year)

CBO's Current Law Baseline(May 2013)

CBO's Estimate of Administration's FY 2014 Budget (May 2013)

Actual

VI. Fiscal Situation

21 Source: Office of Management and Budget; Congressional Budget Office.

The Decline in the Deficit Since FY2009 Represents the Largest Four-Year Improvement Since the Demobilization from WWII

5.7

3.73.2

2.7

0

1

2

3

4

5

6

7

2009-2013 1996-2000 1992-1996 1983-1987

Largest Post-War Four-Year Deficit ReductionsPercent of GDP (Fiscal Year)

VI. Fiscal Situation

22

Slowing Cost Growth Has Contributed to Lower Cost Estimates for Medicare and Medicaid

4.5

4.8

5.0

5.3

5.5

5.8

6.0

6.3

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Percent of GDPRecent CBO Projections of Medicare and Medicaid Outlays

Aug-10 Aug-11

Aug-12

May-13

Source: Congressional Budget Office.

VI. Fiscal Situation