Category Archives: Economy

Economic Trends and Indicators in Post Recession America

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By Bikna Huang

Since 2001, the American economy has been in and out of recessions.  In 2008, the latest and most severe economic downturn began. The economy today is objectively much better than it was in 2008 when the effects of the Great Recession first hit. For example, looking at the tax revenue comparing the years 2007 to 2011 shows that tax revenue is returning to 2007 levels.  Specifically, as the chart below shows, tax revenue from individual and corporation income taxes has increased from $898,549 (millions) in 2010 to $1,091,473 (millions) in 2011. What does this increase in tax revenue mean for the American economy? Does this mean the economy is making a turn in the right direction?

 

Looking at the graph, the amount of tax revenues was lowest in 2009 and 2010 when the recession hit America the hardest. However, in 2011, the revenues show an increase and a possible indication of the American economy moving in the right direction. It has been reported that tax collections (including all forms of taxation) has been growing for eight straight quarters now. On a more local level, some states have been more successful than others in tax collections in 2011. The Nelson A. Rockefeller Institute of Government reported that in 17 states the tax collections from the last quarter in 2011 had been lower than they had been four years ago, in 2008.

Nonetheless, tax collections in all 50 states have reported increases in 2011 compared to the tax collections from 2010. North Dakota, Illinois, Arizona, and Indiana have the highest reported tax collection increases from 2011. These states have profited from the oil and gas industries in the area in terms of tax collections. In California, tax collections grew by 11.3% than the previous year. The increases in tax collections indicates a more stabilizing American economy, but states like California will still face economic hardship even with an increase in tax collections.

It is still too early to tell whether the economy is actually improving, in fact, many people have mixed signals. Federal Reserve Chairman Ben S. Bernanke, is taking a “wait and see approach” with mixed signals regarding changes to inflation rates and interest rates. Bernanke and the Federal Reserve are looking into solutions that will help spur the economy without “undermining the credibility of the central bank as a bulwark against inflation.” The Federal Reserve estimates that the economy will grow 2.4 to 2.9 percent this year, and estimates that the unemployment rate could be as low as 7.8 to 8 percent by the end of the year.

The current unemployment rate is at 8.2 percent (March 2012), a 1.7 percent decrease from January 2010. The unemployment rate in January of 2010 was 9.9 percent, and the highest unemployment rate dated in American history was 10.80 percent which occurred in November of 1982.  In March 2012, 120,000 jobs were added to the job market, almost half the job gains in February.  Critics fear the results in April might not show similar results with the current economy growth because it may not be able to support thousands of new jobs.

Bikna Huang is an intern with TheFactFile.com who studies at CalPoly in San Luis Obispo, California.

 

The costs of an undergraduate education in the U.S.

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In last Wednesday’s post, we discussed the recent introduction in the House of Representatives of the Student Loan Forgiveness Act of 2012 by Hansen Clarke (D-MI); a bill that, if enacted, would provide student loan forgiveness, caps on interest rates on Federal student loans, and refinancing opportunities for private borrowers. To provide some background on where this bill came from and why student loan forgiveness should be considered despite the current fiscal environment, we wanted to use today’s post to look at the historical data showing the growing cost of an undergraduate education in the United States.

According to the U.S. Department of Education’s Digest of Education Statistics, the annual cost in 2008-2009 (including tuition, room and board) was $12,804 at public institutions and $32,184 at private institutions. In comparison, in 1980-81, a full-time undergraduate student paid on average (and adjusted to current dollars) $2,372 at public institutions and $5,470 at private institutions. And as the following chart makes clear, the cost of an undergraduate education has increased in every year in between, with no sign of letting up:

This significant rise in the costs of education wouldn’t be such a big problem if median incomes were also rising. But as we showed in a previous post, income levels have been remarkably stable since 1967, with the exception of the richest quintile of the population (see the charts below). For many college grads (e.g., the majority who do not end up in this richest quintile), this means that they exit college facing significant student loan debt and, for those lucky enough to find a job (let alone one in their field or requiring an advanced degree), a low median starting salary that makes it challenging to pay this debt back. (According to a 2011 study by the John J. Heldrich Center for Workforce Development at Rutgers University, median starting salaries for students graduating from four year universities fell from $30,000 in the period 2006-2008 to $27,000 in 2009-2010).

In short, it is this interplay between growing annual costs for college education and stagnant income growth that has led to the numerous proposals in Congress for some form of student loan forgiveness. And for the growing number of recent grads who are behind in debt and unable to do much about it as a result of on low starting salaries, it is certainly an idea that should be given serious consideration.

The Student Loan Forgiveness Act of 2012

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The Student Loan Forgiveness of 2012

The Student Loan Forgiveness Act of 2012 was introduced in the House of Representatives by Representative Hansen Clarke (D-MI) on March 8, 2012 and referred to the Committees on Education and the Workforce , Foreign Affairs and Armed Services. Each of these committees will be holding public hearings and their contact information is available at the end of this post for those interested in obtaining more information directly from them.

The stated purpose of The Student Loan Forgiveness Act of 2012 is “to increase purchasing power, strengthen economic recovery, and restore fairness in financing higher education in the United States through student loan forgiveness, caps on interest rates on Federal student loans, and refinancing opportunities for private borrowers, and for other purposes.” There are several provisions of this act and below, we give an overview of those provisions along with examples of how they would work.

The 10/10 Loan Repayment Plan

This provision, which would be open to all eligible borrowers, creates a new income-sensitive repayment plan that sets annual payment limits at 10% of the amount by which a person’s income exceeds 150 percent of the poverty level. For example, using the federal poverty guidelines for the 48 contiguous states and the District of Columbia, the annual payment limit for a single person with adjusted gross income (AGI) of $35,000 would be calculated as follows:

$35,000 (AGI) – ($11,170 (the poverty level) x 150% (poverty level multiplier)) = $18,245 (the amount by which AGI exceeds 150% of the poverty level). That amount, $18,245, is then multiplied by 10% and divided by 12 to get to the monthly payment, which in this case would be $152.04.

To be eligible for this program, a borrower would have to be willing to allow the holder of the loan to review their income annually and agree to have payments automatically debited from a bank account.

Loan Forgiveness under the 10/10 and Other Repayment Plans

A second provision of The Student Loan Forgiveness Act of 2012 provides for three different forgiveness options, which we describe in more detail below by class of borrower.

Existing Borrowers

Existing borrowers who have already made 120 payments that meet the minimum requirements of the 10/10 Repayment Plan during the ten years prior to the enactment of The Student Loan Forgiveness Act of 2012 would have their entire remaining balance cancelled (this is similar to existing rules for federal employees—although that program lacks the retroactive portion).

Existing borrowers who have less than 120 payments credited to their account meeting the minimum requirements of the 10/10 Repayment Plan would have their outstanding loan balance forgiven once those 120 payments are made.

New Borrowers

For new borrowers, which the Act defines as those who take a new Federal Direct Loan after the enactment of The Student Loan Forgiveness Act of 2012, the 10/10 Repayment Plan will be available; however, the amount of forgiveness cannot exceed $45,520. Although there is a cap on forgiveness for new borrowers, interest rates on these loans are also capped at 3.4%.

Other Provisions

The existing repayment time for public service employees (mentioned above) is reduced to 60 months from the current 120 months, and public service employees are granted the same retroactive rights as other borrowers under The Student Loan Forgiveness Act of 2012. That means that existing public service employees who have made 60 payments that comply with the 10/10 repayment plan will have their outstanding loan balances forgiven.

Additionally, borrowers with private education loans would be able to refinance many of those loans as new Federal Direct Loans and thus be eligible to participate in the provisions of The Student Loan Forgiveness Act of 2012 as “new borrowers.”

In a previous post, we discussed the two sides of this debate and, while we do not usually come down on one side or the other, we do think that Representative Clarke has constructed a bill that will accomplish the goals it sets out to meet while addressing critics of outright forgiveness like Justin Wolfers. The Student Loan Forgiveness Act of 2012 requires borrowers to make the same number of payments required since the inception of the Student Loan program: 120 payments over ten years. Thus, there is a level of responsibility for the borrower. Under this plan, some people, such as those with low debt, high income, or a combination of the two, will easily pay off their entire loan in those ten years. Others with higher debt or lower incomes will not. However, no matter what the case may be, either immediately for those who have already paid or within ten years of graduation for others, they will know that their student loans will be paid in full and the money previously dedicated to those payments can be used as the act states to “start businesses, invest, or buy homes.”

 

The Committee on Education and the Workforce

Phone: 202-225-4527 Fax: 202-225-9571

 

The Committee on Foreign Affairs

Phone: 202-225-5021 Fax: 202-226-7629

 

The Committee on Armed Services

Phone: 202-225-4151 Fax: 202-225-0858

Blast(s) from the Past: The Fact File and the Primary Concerns of American Investors

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In a post published on Gallup.com earlier this week, Dennis Jacobe (Chief Economist at Gallup) discussed the most recent findings from the Wells Fargo/Gallup Investor and Retirement Optimism Index survey; a survey conducted quarterly among investors to get a gauge of the political and economic “situations” of most concern to investors. The survey asks investors about a series of possible situations in the U.S. and whether they are helping or hurting the investment climate in the United States, using a scale that ranges from “hurting a lot” to “helping a lot.” (The survey points were September 2011 and February 2012 and the full report can be viewed here).

Given that we have looked at many of these same issues in the past few months, we thought it would benefit our newer readers to link to these analyses (as they have the tendency of getting lost in the mix). Below are some of the key results from the Gallop survey, along with these links to our reporting on each issue. Generally, you will notice that issues we have identified as serious have remained of high concern with investors, while those issues we have generally viewed as creations of media hype have diminished.

Percent of respondents in the Wells Fargo/Gallup Investor and Retirement Optimism Index survey who said that the issue was hurting he investment climate a lot, with links to our reporting

September 2011

February 2012
A politically divided federal government

74%

73%
The unemployment rate

83%

62%
Price of energy, including gas and oil

62%

53%
European debt crisis

48%

48%
Are there issues that we’ve missed that you want us to look at? If so, let us know in below in the comments or by sending us a message directly.

January 2012 Unemployment Down in 45 States–Has the Long Anticipated Recovery Begun?

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In an economic news release published earlier today, the Bureau of Labor Statistics reported that unemployment fell in 45 states in January 2012.  In January, unemployment was down again in California—10.9% in January compared to 11.1% in December 2011 and 12.1% in January 2011. This marks the sixth straight month that unemployment has fallen in the state; a promising sign after years of economic stagnation. In an earlier post we noted how important the California economy is to the United States on the whole.  As we explained in that post, the reason we focus on California is that California is responsible for a full 12% of the country’s Gross Domestic product, the largest contributor of all the states and what happens in California gives economists a good idea where the country is headed as a whole.

Last month, we saw positive signs in California’s unemployment rate and this month, as we anticipated, the positive news has spread to 44 other states.  Perhaps the best news in this report is that there are signs of improvement in states where the employment situation had been abysmal through much of the recession.  For example, in Nevada unemployment was down to 12.7% in January 2012 from 13% in December 2011 and down from 13.8% in January 2012; Mississippi down to 9.9% from 10.4% the month before and 10.5% in January 2012; and, finally, Michigan, the poster child for the recession, was down 0.3% from December 2011 landing at 9% in January 2011 down nearly 2% from January 2011’s 10.9% rate. Taken together, these numbers show that the recovery that is underway is not a regional phenomenon, but truly occurring across the country.

It’s Not Obama’s Fault That Crude Oil Prices Have Increased

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by Peter Van Doren and Jerry Taylor

Editors Note:   TheFactFile.com was in the midst of researching for a possible post on U.S. Oil Production when we came across the following piece by  Peter Van Doren and Jerry Taylor that captures the facts and the arguments perfectly.  Rather than re-inventing the wheel, we asked for permission to repost the following and the authors graciously agreed.  The original appeared in U.S. News and World Report (available here) and was also posted by the Cato Institute (available here).

Peter Van Doren and Jerry Taylor are senior fellows at the Cato Institute.

Added to cato.org on March 2, 2012

This article appeared in U.S. News & World Report on March 2, 2012.

Is President Obama responsible for spiraling price of gasoline? Republicans say yes, but the facts say no.

Why have gasoline prices increased since the start of the year? The simplest explanation is that the price of crude oil has increased. Specifically, the spot price for Brent (North Sea) crude has increased $16 a barrel since January. Given that there are 42 gallons to a barrel, that works out to a 38 cent increase in the price of a gallon of oil. Spot prices for gasoline trade in New York have increased about 41 cents per gallon over the same time frame. So there you go.

Why is the price of North Sea oil relevant to the price of gasoline in the United States? Well, we import gasoline refined in Europe from North Sea crude. Even though these imports constitute less than 10 percent of U.S. gasoline consumption, they are necessary to satisfy domestic demand and their price sets the market price for all gasoline regardless of whether other cheaper crude sources are used to refine most of our gasoline.

Why is the price of North Sea crude rising? One possibility is that supply is down. North Sea (British) production has been decreasing for some time. During the first quarter of 2007, it was 1.7 million barrels a day, or mbd. By the end of 2011, it was down to 1.1 mbd. Norwegian crude oil production has likewise decreased from 2.7 mbd in the first quarter of 2007 to 2.1 mbd at the end of 2011. And global demand is bidding up the price of crude oil from the North Sea and elsewhere.

Ironically, during the same time period, U.S. crude oil production has marched upward for the first time since 1971. Since the start of 2007, U.S. production has increased by 2.1 mbd. Sure, more domestic oil creates the possibility of fewer refined imports tied to the price of Brent crude, but given that the price of Brent sets the price for crude generally, the result would be more profit for domestic crude producers rather than significantly lower gasoline prices for Americans (not that there’s anything wrong with that).

So despite the popular perception of President Obama as anti-oil, domestic oil production is increasing for the first time since the Johnson administration. Alas, little of this has to do with the president. Prices increased from $22 in 2002 to just under $100 a barrel average in 2008 and supply has responded. President Obama is no more responsible for production increases than other presidents were responsible for production declines. Unfortunately, presidents get blamed for world market changes that occur during their time in office… but generally, they do not cause them.

Peter Van Doren and Jerry Taylor are senior fellows at the Cato Institute.

(See some related TheFactFile.com charts here)

Recent trends in United States Domestic Crude Production and Gas Prices

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Infographic showing recent trends in United States Domestic Crude Production and Gas Prices.

For a related post by by  Peter Van Doren and Jerry Taylor click here.

 

Source: US Energy Information Administration

 

Source: U.S. Energy Information Administration

February 2012 Unemployment 8.3%

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This morning, the Bureau of Labor Statistics released its report on the U.S. employment situation for February 2012, confirming the positive signs shown in ADP’s payroll figures released earlier this week.  As the chart below shows, while the unemployment rate stalled at 8.3% in February; 0.5% higher than January 2009 when President Obama was sworn in, but at the same as rate as his first full month in the presidency (February 2009) the economy added a significant number of jobs. (The chart is color coded red for months that President Bush was in office, and blue for President Obama).

In February, total nonfarm payroll increased by 227,000 jobs. Job growth was widespread throughout the entire private sector, with large increases in professional and business services (+82,000 jobs), health care and social assistance (+61,000 jobs), and manufacturing (+31,000 jobs). Government employment, however, continues to stagnate: in the past 12 months, the sector has lost 22,000 jobs.  Additionally, the change in total nonfarm payroll employment for December was revised from +203,000 to +223,000, and the change for January was revised from +243,000 to +284,000.
On the less positive front, the number of long-term unemployed (e.g., those who are unemployed for 27 weeks or longer) remained high in February at 5.4 million, accounting for 42.6% of the unemployed. However, that was down from 5.5 million in January.

In short, as with the recent upwardly revised numbers on GDP growth for the 4th quarter of 2010, the economy continues to trend in the right direction, nevertheless, it would appear that higher growth and more jobs are still needed to reverse the massive decline brought on by the Great Recession.

We would like to hear from you.  How does the employment situation look in your hometown?

 

Soaring Student Loan Defaults—What if Anything Can be Done?

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Recent news reports indicate that student loan delinquencies have reached more than $85 billion, with about 14 percent of all student loan holders being delinquent on their debt. The remaining 86 percent are either “paying as agreed,” in deferment, forbearance, or still in school.

Student loan debt is a persistent issue and was one of the clarion calls for the Occupy Wall Street movement. Thie increasing debt load of college students also spawned a national petition sponsored by Robert Applebaum that elicited a response from the Obama Administration last fall and more recently an official student loan complaint site from the Consumer Financial Protection Bureau.

The advocates in favor of student loan forgiveness argue that the stimulative effect on the economy of forgiving student loans would far outweigh any immediate loss from wiping out the debt. Supporters of this idea include Representative Hansen Clarke (D) of Michigan who has a bill pending in the 112th Congress to forgive student loans as a means of stimulus. Others, like Justin Wolfers, call forgiving student loans “the worst idea ever.” Mr. Wolfers’ argument is that, not only is it a bad idea to forgive student loans, it sets a bad precedent. Wolfers writes: “This is a bunch of kids who don’t want to pay their loans back. And worse: Do this once, and what will happen in the next recession? More lobbying for free money, rather than doing something socially constructive. Moreover, if these guys succeed, others will try, too. And we’ll just get more spending in the least socially productive part of our economy—the lobbying industry.”

The argument in favor of forgiving the debt rests primarily on the notion that freeing students from debt will allow them to become bigger consumers and in an economy that has more than 75% of its activity driven by consumer spending, more and bigger spending is important. There is another argument for proponents of forgiving the debt that would seem to have some support in at least one recent study. That argument is that forgiveness of student loans is akin to a tax rebate for people who actually do something “socially constructive” by putting in the time to get a college education.

That support comes from a recent Organisation for Economic Co-Operation and Development (OECD) country note on the United States that shows that college graduates in the United States “generate more public revenue” than college grads in any other OECD country. The OECD calculates that an average male college graduate in the United States contributes about $190,000 more public revenue than non-college educated men. (For women the figure is $90,000, and both are far above the OECD average of about $55,000 in spite of generally higher tax rates in other OECD countries). Thus, one could argue that forgiveness of up to $190,000 in student loan debt would be akin to a tax rebate for people who put in the time to go to college.

We would like to know what you think? Is forgiving student loans a good stimulus plan or is it just a giveaway to a bunch of would be freeloaders?

Class Warfare versus Income Inequality: Are the Rich Really Getting Richer?

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In his speech described as a 21st century echo of President Theodore Roosevelt’s “New Nationalism” address, President Obama stated that the growing inequality of wealth in the United States is “the defining issue of our time.”  With that speech, President Obama kicked off a flurry of charges of class warfare that is framing the 2012 election to some extent.

President Obama went on to state that, in recent times, “those at the very top grew wealthier from their incomes and investments than ever before.”  This point was, perhaps, inadvertently reinforced and made more political by Mitt Romney’s tax returns and Rick Santorum’s response.

Of course, the notion that the rich are getting richer has also been presented in a recent Census Bureau report on income inequality.  The Occupy Wall Street movement also drew attention to this subject. The question remains, is this just political rhetoric–populist class warfare–or are the rich really getting richer while the poor are getting poorer?

Rather than simply relying on one of the two opposing arguments, we decided to look at the facts using the gold standard in U.S. income measures, the Current Population Survey administered by the US Census Bureau. Using this data, we looked at income disparity.  First, we used a standard technique used by economists and checked the difference between the upper income of lowest fifth of households and the lowest income of the highest fifth of households in the United States; essentially looking at the richest and the poorest. The following chart shows this data in graphical form:

Source: Current Population Survey, US Census Bureau

In short, the data show two divergent trends: when we adjusted incomes for inflation by putting everything into 2010 dollars, we noticed that the highest income of the bottom fifth had not changed since 1967 and had actually been declining for most of the last decade.  In contrast, the lowest income of the top fifth had increased by almost 67 percent over this period.  In 1967, the lowest paid of the top fifth earned about six times the top pay of the bottom fifth.  By 2010, the lowest paid in the top fifth earned about nine times the top pay of the bottom fifth.

In addition, we decided to take a look at the rest of the population to see if only the richest of the rich were prospering or whether the wealth had trickled down, but had not yet reached the bottom fifth.

Source: Current Population Survey, US Census Bureau.

As shown in the chart, we divided the population into quintiles by income (this chart includes the middle three quintiles) and again found the same flat line, with a decade long downward trend through the first three quintiles.  In fact, the second quintile of households saw their incomes increase at a slower pace than the lowest fifth (13.9 percent versus 16.80 percent).  It would appear that the disparity is increasing, especially between the top fifth and all other groups of households.