[Economic Report of the President (2012)]
[Administration of Barack H. Obama]
[Online through the Government Printing Office, www.gpo.gov]


 
CONTENTS
Page

CHAPTER 1. TO RECOVER, REBALANCE, AND REBUILD ..................... 21
RECOVERING FROM THE GREAT RECESSION ............................. 23
REBALANCING AT HOME AND BROAD ................................... 29
Restoring Fiscal Responsibility .............................. 30

REBUILDING A STRONGER ECONOMY ................................... 30
Jobs and Income: Today and Tomorrow .......................... 31
Preserving and Modernizing the Safety Net .................... 32
Improving the Quality of Life through Smart Regulation,
Innovation, Clean Energy, and Public Investment .............. 33

CONCLUSION ........................................................ 34


CHAPTER 2. THE YEAR IN REVIEW AND THE YEARS AHEAD ................. 37
AN ECONOMY IN RECOVERY: KEY EVENTS OF 2011 .......................38
AN ECONOMY IN RECOVERY: THE LINGERING EFFECTS OF
FINANCIAL CRISES ................................................ 42
DEVELOPMENTS IN 2011 AND THE NEAR-TERM OUTLOOK .................. 46
Consumption and Saving ....................................... 46
Developments in Housing Markets .............................. 51
Business Fixed Investment .................................... 53
Manufacturing Output ......................................... 54
Business Inventories ......................................... 57
Government Outlays, Consumption, and Investment .............. 57
State and Local Governments .................................. 59
Real Exports and Imports ..................................... 60
Labor Market Trends .......................................... 61
Wages, Labor Productivity, and Prices ........................ 63
Financial Markets ............................................ 66
Small Businesses and the Recovery ............................ 67

THE LONG-TERM OUTLOOK ........................................... 74
Growth in GDP over the Long Term ............................. 76

CONCLUSION ...................................................... 79


CHAPTER 3. RESTORING FISCAL RESPONSIBILITY ........................ 81
DETERMINANTS OF CURRENT DEFICITS ................................ 82
Falling Effective Tax Rates on Upper-Income Taxpayers ........ 85
Heterogeneity in Effective Tax Rates among
High-Income Taxpayers ....................................... 86
Addressing the Role Of Exclusions and Deductions in
Effective Tax Burdens ....................................... 87
THE FISCAL OUTLOOK .............................................. 88
Medium-Term Budget Projections ............................... 89
The Vital Role of Economic Growth in Future Fiscal Outcomes .. 91
Improvement in Long-Run Budget Projections ................... 92

THE IMPORTANCE OF RESTORING FISCAL SUSTAINABILITY ............... 93
THE PRESIDENT'S BALANCED APPROACH TO DEFICIT
REDUCTION ...................................................... 95


CHAPTER 4. STABILIZING AND HEALING THE
HOUSING MARKET .................................................... 99
THE HOUSING CRISIS AND THE INITIAL POLICY RESPONSES ............ 101
Initial Policy Responses to the Crisis ...................... 103
Negative Equity: An Unprecedented and Pervasive Problem ..... 105

MACROECONOMIC EFFECTS OF HOUSING MARKET WEAKNESS ............... 107
Consumption Effects ......................................... 110
Residential Construction and Home Ownership Patterns ........ 114

STRUCTURAL PROBLEMS IN HOUSING MARKET .......................... 117
Adjudicating Legal Disputes ................................. 118
Incentive Conflicts ......................................... 119

POLICY ACTIONS ................................................. 120
Building on the Experience of Existing Programs ............. 121
New Levers in Housing Policy ................................ 124
CONCLUSION ..................................................... 126


CHAPTER 5. INTERNATIONAL TRADE AND FINANCE ....................... 129

THE EURO-AREA CRISIS AND ITS IMPLICATIONS
FOR THE UNITED STATES  ......................................... 131
Outlook for Europe and Implications for the U.S. Economy .... 137
International Cooperation in Resolving Crises ............... 138

FOREIGN DIRECT INVESTMENT, INTERNATIONAL TRADE,
AND THE U.S. ECONOMY  ......................................... 139
Investment in the United States by Foreign Companies ........ 140
The National Export Initiative .............................. 143
The Role of Services in Export Growth and America's
Current Account Balance .................................... 148
Policy Initiatives to Support Export Growth in
Goods and Services ......................................... 153

CONCLUSION ..................................................... 161


CHAPTER 6. JOBS AND INCOME: TODAY AND TOMORROW ................... 163
JOBS AND EMPLOYMENT ............................................ 164
THE DYNAMICS OF LABOR MARKET TRENDS............................. 167
Job Dynamics ................................................ 167
Worker Flows ................................................ 172
Earnings and Income Mobility over the Career and
between Generations ........................................ 174
Overall Trends in Income and Rising Inequality............... 178
Long-Term Unemployment ...................................... 181

PREPARING FOR TOMORROW'S LABOR MARKET ........................... 183
Education and the Workers of Tomorrow ....................... 183
Increasing Educational Attainment ........................... 189
Federally Supported Job Training ............................ 192

CONCLUSION ..................................................... 195


CHAPTER 7. PRESERVING AND MODERNIZING THE SAFETY NET ............. 197
UNEMPLOYMENT INSURANCE ......................................... 200
The Economics of Unemployment Insurance ..................... 201
Recent Trends in UI Receipt and Its Effect on
Household Income ........................................... 202
Policy Innovations .......................................... 203

OTHER SAFETY NET PROGRAMS ...................................... 206
HEALTH INSURANCE ............................................... 209
The Economics of Employer-Sponsored Health Insurance......... 209
Medicaid and CHIP: A Health Care Safety Net
for Children ............................................... 211
Expanding Health Care Coverage: The Affordable Care Act ..... 214
Provisions of the Affordable Care Act Now in Place .......... 215
The Economic Benefits of Expanding Insurance Coverage ....... 217
The Affordable Care Act and Medicare ........................ 219

RETIREMENT SECURITY ............................................ 220
Declining Retirement Preparedness ........................... 221
Challenges to the Retirement Safety Net ..................... 222
Policies to Address Retirement Saving Challenges ............ 228

CONCLUSION ..................................................... 229


CHAPTER 8. IMPROVING THE QUALITY OF LIFE THROUGH
SMART REGULATION, INNOVATION, CLEAN ENERGY, AND PUBLIC
INVESTMENT ....................................................... 231
A SMART APPROACH TO REGULATIONS ................................ 232
Designing Smart Regulations ................................. 233
Smart Regulations in Practice ............................... 234
Retrospective Analysis ........................... .......... 238
``Look-Back'' Initiative .................................... 240
Improvements in Everyday Life ............................... 242

INNOVATION ..................................................... 243
Measuring Innovation ........................................ 245
Intellectual Property Rights and Patent Reform .............. 246
Private and Public Investments in R&D ....................... 247
Commercialization ........................................... 250
Wireless Broadband and Spectrum Policy....................... 251

CLEAN & SECURE ENERGY .......................................... 252
Enhancing Energy Security ................................... 252
Reducing Demand ............................................. 253
Increasing Domestic Energy Supplies ......................... 253
Reducing Emissions .......................................... 254
Supporting Clean Energy R&D and Infrastructure............... 255

INFRASTRUCTURE ................................................. 259
The State of the Nation's Infrastructure .................... 259
Government and Private Sector Roles in Infrastructure ....... 261
Financing Infrastructure Investments ........................ 262
Recent and Current Federal Infrastructure Initiatives ............ 264

CONCLUSION ..................................................... 266


REFERENCES ....................................................... 267



APPENDIXES

A.  Report to the President on the Activities of the Council of
Economic Advisers During 2011 ............................... 293
B.  Statistical Tables Relating to Income, Employment, and
Production .................................................. 307



FIGURES

1-1.    Median Household Income, 1979-2010 ........................ 22
1-2.    Change in Nonfarm Payrolls, 2007-2011 ..................... 27
1-3.    Unemployment Rate Increases in Recessions Associated with
Financial Crises ......................................... 28
1-4.    Earnings Ratio: College Degree or More to High School Degree,
1963-2010 .................................................33
2-1.    Real GDP Growth by Quarter, 2007-2011 ......................39
2-2.    Real GDP During Recoveries ................................ 43
2-3.    Real GDP in Recessions Associated with Financial Crises ... 45
2-4.    Unemployment Rate Increases in Recessions Associated with
Financial Crises ......................................... 45
2-5.    Consumption and Wealth Relative to Disposable Personal
Income (DPI), 1952-2011 .................................. 47
2-6.    Business Fixed Investment and Cash Flow, 1990-2011 ........ 55
2-7.    Weekly Initial Unemployment Insurance Claims, 2004-2012 ... 61
2-8.    Private Nonfarm Employment During Recoveries .............. 62
2-9.    Unemployment Rate, 1979-2011 .............................. 63
2-10.   Consumer Price Inflation, 2004-2011 ....................... 65
2-11. Price Markup over Unit Labor Costs, Nonfarm Business,
1947-2011 ......................................................... 65
2-12. 10-Year Treasury Yields, 2004-2012 .......................... 66
2-13. Private Sector Job Recovery by Firm Size, 2007-2011 ......... 68
2-14. Small Business Commercial and Industrial Loans, 2007-2011 ... 69
2-15. Employment Outlook for Small Businesses, 2003-2012 .......... 73
2-16. Labor Force Participation and Educational Enrollment,
Ages 16-24, 2002-2011 ..................................... 78
3-1. Selected Components of Deficit Projections: 2009-2019 ........ 84
3-2.  Average Tax Rates for Selected Income Groups Under a
Fixed Income Distribution, 1960-2010 ....................... 86
3-3.  Average Individual Income Tax Rates by Income Quintile,
2000 and 2008 .............................................. 87
3-4.  Projected Medium-Term Budget Deficits, 2011-2022............. 89
4- 1. Housing Busts in U.S. History .............................. 102
4-2. Price-to-Rent Ratio and Mortgage Debt ....................... 103
4-3. S&P/Case-Shiller: January 2009 Expectations of Future
House Prices and Actual Price Index ........................ 104
4-4. The Distribution of Underwater Mortgages By State, 2011 ..... 106
4-5. Employment Growth: Nontradable Industries ................... 114
5-1. Real GDP Growth, 2000-2011 .................................. 130
5-2. Economic and Fiscal Indicators for Selected Euro-Area
Countries ................................................. 132
5-3. 10-Year Bond Spreads Relative to Germany, 2010-2012 ......... 134
5-4. Share of Each State's Goods Exports to the European
Union by State, 2010 ....................................... 138
5-5.  Annual FDI Inflows, Selected Countries, 2006-2010 .......... 141
5-6.  Change in Manufacturing Unit Labor Costs, 2002-2010 ........ 146
5-7.  U.S. Current Account Balance and Its Components,
2000-2011 ................................................. 149
5-8.  Contribution to Services Surplus by Service Sector
Category, 2010 ................................................... 151
6-1.  Monthly Change in Private Sector Employment, 1980-2011 ..... 164
6-2.  Unemployment Rate, 1980-2012 ............................... 165
6-3.  BDS Estimates of Annual Gross Job Gain and Loss Rates,
1980-2009 ................................................. 170
6-4.  BED Estimates of Quarterly Gross Job Gain and Loss Rates,
1990-2011 ................................................. 171
6-5.  Hires and Separations, 2001-2011 ........................... 172
6-6.  Flows into and out of Unemployment as Percent of the
Labor Force, 1990-2012 .................................... 173
6-7.  The Great Gatsby Curve: Inequality and Intergenerational
Mobility .................................................. 177
6-8.  Percent of Households with Annual Income within 50 Percent
of the Median ............................................. 178
6-9.  Growth in Real After-Tax Income, 1979 -2007 ................ 179
6-10. Share of Total U.S. Income Earned by Top 1 Percent,
1913-2010 ................................................. 180
6-11. Median Duration of Unemployment and Long-Term
Unemployed as a Percent of Total Unemployed, 1980-2011 .... 182
6-12. Average Annual Earnings by Worker Education Level,
1963-2010 ................................................. 187
6-13. Difference Between Projected Employment Growth Rate by
Education and Average Projected Employment Growth Rate,
2010-2020 ................................................. 188
7-1.  Share of Household Income from Unemployment Insurance
among Recipients in 2010, by Household Type ............... 203
7-2.  Percentage of Private Sector Establishments Offering Health
Insurance by Number of Employees, 1996-2010 ............... 211
7-3.  Percentage of Workers Without Health Insurance and the
Ratio of Per Capita Health Expenditures to Median Income,
1979-2010 ................................................. 212
7-4.  Percentage of Children and Adults Without Health Insurance,
1988-2010 ........................................................ 213
7-5.  Percentage of Young Adults Without Health Insurance,
2010 Q3 and 2011 Q2 ....................................... 216
7-6.  The National Retirement Risk Index, 1983-2009 .............. 223
7-7. Percent of Individuals with Various Shares of Family Income
from Social Security, by Age of Householder, 2010 ......... 225
8-1. Benefits and Costs of Regulations, 2001-2011 ............... 235
8-2.  Economic Growth, Vehicle Safety, and Air Quality,
1980-2010 ........................................................ 244



TABLES

2-1.  Administration Economic Forecast ............................ 74
2-2.  Alternative Labor Market Forecasts, as of February 2012 ..... 75
2-3.  Components of Actual and Potential Real GDP Growth,
1952-2022 .................................................. 77
3-1. Distribution of Average Federal Tax Rates .................... 88
5-1. Growth in U.S. Goods Exports, by Product .................... 145
5-2. Dissection of U.S. Goods Export Growth, by Market............ 148
5-3. Cross-Border Services Exports by Type and Country, 2010...... 154
5-4. Cross-Border Services Imports by Type and Country, 2010...... 154
7-1. Number of Participants and Total Federal Expenditures
for Safety Net Programs, 2010 ...............................207
7-2. Distribution of Wealth Components for Households
Aged 65-69, 2008 ............................................225


BOXES

Box 2-1: SBA's Role in Financing Small Firms During the Recovery .. 70
Box 6-1: Work-Life Balance ....................................... 184
Box 8-1 Developing Domestic Energy: Shale Gas and Shale Oil....... 256


DATA WATCH

Data Watch 1-1: Innovation in Measurement ......................... 24
Data Watch 1-2: Revisions to Estimates of the Gross Domestic
Product .......................................... 26
Data Watch 2-1: The Data Implications of the Transition to a
Services-Based Economy ........................... 52
Data Watch 2-2: Investment in Intangibles ......................... 56
Data Watch 3-1: Data from the IRS Statistics of Income Division.... 92
Data Watch 3-2: Measuring Government Debt across Countries......... 96
Data Watch 4-1: Need for a Comprehensive Source of Data on
Mortgage Debt and Performance ................... 111
Data Watch 4-2: Need for a Comprehensive Source of Data
on Home Sales ................................... 116
Data Watch 5-1: The Role of the New Office of Financial Research in
Combating Global Financial Risks ................................. 136
Data Watch 6-1: Measurement of Startups ...........................169
Data Watch 6-2: Intergenerational Mobility ........................176
Data Watch 7-1: The Census Bureau's Supplemental Poverty Measure .. 198
Data Watch 7-2: Health Data for Policy ............................ 218
Data Watch 8-1: The Value of Information_the PACE Survey .......... 240


ECONOMICS APPLICATIONS

Economic Application Box 3-1: Measuring Progressivity
in the Tax Code ...................................... 90
Economics Application Box 4-1: Making a Decision about
Refinancing a Mortgage .............................. 108
Economics Application Box 6-1: Calculating the Cost of College ....193
Economics Application Box 7-1: Financial Literacy and
Common Mistakes Made by Retirement Savers ........... 226
Economics Application Box 8-1: Comparing Benefits and Costs ...... 236