10 March 2014

Everything You Needed To Know About the President's Economic Report in 6 Simple Graphs

President Obama and his economic advisers have just released their annual report. It offers good news for this year and sobering news about the reality of household income at the start of this century. Also, there are a couple of curious facts that might surprise you.

Obama is predicting GDP growth of 3.3% for 2014, a big gain on 2013's 2.3%. Here are the reasons for his optimism.

Household debt

Household debt service is the lowest it has been since they began collecting data in 1980. As you can see in this graph, there has been a sharp downturn in both debt owed and current loan payments on debt. As consumers become more confident, this trend will likely reverse, driving up consumer spending (which makes up nearly 70% of GDP).

Household wealth
Household wealth rose sharply in 2013. Stocks were up 31% and house prices up 11%. This suggests that the ratio of net worth to income rose about 50%. Add that to a drop in debt and it suggests that households will spend more this year.

Government Job Creation
After shedding 700,000 jobs in the wake of the recession, state and local governments actually added 32,000 jobs during 2013. (This austerity has been a major drag on the recovery compared to past recoveries.) State and local governments will likely increase jobs again this year, adding to private sector gains.

Additionally, the federal government has stabilized. Congress has already agreed to budgets for this year that will stabilize spending rather than  cut it as last year's sequester did. (The CBO estimates that last year's budget deals slowed GDP growth by 0.6 percentage points and cost the equivalent of 750,000 full-time jobs.)

The deficit has contracted sharply during this recovery. In no four year period since WWII has the deficit shrunk so rapidly. In 2013 alone, the deficit shrunk by 2.7% of GDP. That won't happen in 2014, which will make it easier for the economy to grow.

All this means that the public sector will no longer be putting its foot on the brake even as the private sector tries to accelerate.

Europe and Japan are Recovering
At the close of 2013, the 28-country European Union experienced its first 3 consecutive quarters of GDP growth since 2011.

Japan's GDP grew 2.7% in 2013 after a 0.4% decline in 2012.

As our trading and investment partners' economies improve, it will help ours. Japan's prolonged recession and Europe's continuing woes have been a huge drag on our recovery.

Household Income Is Stagnating

A recovery is much better than a recession, and that is what 2014 promises to enhance. But while a recovery will define how many people are working, it is long-term issues that define their standard of living.  The president's report also highlights some bad news about the gains so far this century.

Median family income is lower than it was at the start of the century.

Finally, there are a couple of curious facts that seemed worth reporting.

One, health spending per capita is growing at its lowest rate since the 1960s. That's good news for businesses, entrepreneurs and households but of course it is bad news for the healthcare sector.

Two, for all the talk of solar, it is wind energy that has grown most rapidly this century. Couple that with increases in oil and gas production and domestic energy production is finally greater than the value of our imports.

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