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price inflation and a measure of economic slack. Estimating this model through 2007, then simulating it using the actual unemployment rate post-2007, but not using prices during that period (a method referred to as a dynamic simulation), permits judging whether the actual inflation path accords with what would have been predicted based on historical experience. As the Figure below shows, when the dynamic simulation is conducted using the total unemployment rate, the historical relationship would have predicted substantially more disinflation than actually occurred. In contrast, there is no missing disinflation when the measure of economic slack is the short-term unemployment rate. The wage-price Phillips curve in the figure above, and the dynamic price Phillips curve forecasts in the figure below, suggest that the short-term unemployment rate might be a better measure of effective economic slack than the longterm unemployment rate. Core Consumer Price Inflation: Actual vs. Predicted, 2006‒2013 4-quarter change 3.0 2013:Q4 2.5 2.0 Predicted using short-term unemployment rate 1.5 Actual 1.0 0.5 Predicted using official unemployment rate 0.0 2006 2007 2008 2009 2010 2011 2012 2013 Note: Dynamic simulation of price-price Phillips Curve. Core consumer price inflation is measured by the price index for consumer spending excluding food and energy in the National Income Accounts. Shading denotes recession. Source: Bureau of Labor Statistics, Current Population Survey; Bureau of Economic Analysis, National Income and Product Accounts; CEA calculations. who have been unemployed for more than six months. While the relationship between the overall unemployment rate and inflation in recent years is puzzling, the relationship between short-term unemployment and inflation is less so, as discussed in Box 2-4. The Year In Review And The Years Ahead | 83
The Long-Term Outlook The 11-Year Forecast Although real GDP has grown at a roughly 2 percent rate for each of the past three years, a foundation is in place for faster growth during 2014, as most components of demand point to faster growth while the supply side does not appear constraining. Although fiscal policy has generally increased the level of output, it has been a drag on GDP growth in the last several years and especially in 2013. The rate of decline in the deficit-to-GDP ratio will likely moderate in 2014 under the President’s Budget policy as well as under current law, as noted earlier in this chapter. Consumer spending likely has adjusted by now to the expiration of the payroll tax cut, but it probably has not adjusted to the gains in housing and stock market wealth. End-of-2013 indicators suggest that growth among our European trading partners is looking up, suggesting stronger exports in 2014 than in 2013. While not much growth can be expected from real State and local spending, the latest quarterly data suggest that it will no longer be a substantial drag on overall growth. As discussed earlier in the chapter, firms appear ready to step up business investment if consumer spending picks up. Business investment will grow if everything else does. With the unemployment rate in January 2014 at 6.6 percent and the capacity utilization rate in manufacturing at about 77 percent, the economy has room to grow. The Administration’s economic forecast, as finalized on November 21, 2013 is presented in Table 2.1, and is the forecast that underpins the President’s FY 2015 Budget. The Administration expects real GDP to accelerate from a 2.3 rate during the four quarters of 2013 to 3.3 percent during 2014. (Data released after the forecast was finalized show a slightly fasterthan expected growth rate during 2013, 2.5 percent rather than 2.3 percent.) These projections, as is standard for the Administration’s budget forecast, assume enactment of the President’s Budget—including the Opportunity, Growth and Security initiative. The forecast assumed that the unemployment rate would fall 0.5 percentage point in the four quarters of 2014. Since the forecast was finalized in November the unemployment rate has fallen from 7.3 percent (as first published for October) to 6.6 percent in January 2014, considerably faster than the pace forecasted by the Administration or by the consensus of private sector forecasters. As a result, the Administration’s budget forecast of an unemployment rate averaging 6.9 percent in 2014 does not reflect the latest information and an updated projection would forecast a continued decline in the unemployment rate over the course of the year. A revised 84 | Chapter 2
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ECONOMIC REPORT OF THE PRESIDENT To
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C O N T E N T S ECONOMIC REPORT OF
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economic report of the president To
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year-old. In the meantime, I’m go
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the annual report of the council of
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C O N T E N T S CHAPTER 1. PROMOTIN
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APPENDIX 1: COMPONENTS OF THE RECOV
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THE OBAMA ADMINISTRATION’S RECORD
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2.15. Housing Starts, 1960-2013....
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3.1. Forecasted and Actual Real GDP
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C H A P T E R 1 PROMOTING OPPORTUNI
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Opportunity, Growth, and Security i
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crisis—continue to rebound and co
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Figure 1-4 Real GDP Per Working-Age
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Figure 1-6 Change in Poverty Rate F
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Figure 1-7 Domestic Crude Oil Produ
Page 38 and 39: Figure 1-8 Growth in Real Per Capit
Page 40 and 41: Figure 1-9 Unemployment Rate by Dur
Page 42 and 43: e needed to make up for a decades-l
Page 44 and 45: Annual percent change 2.50 15-year
Page 46 and 47: Figure 1-14 Share of National Incom
Page 48: Along with steps that create jobs,
Page 51 and 52: corner, with purchases increasing d
Page 53 and 54: the four quarters of 2013, or enoug
Page 55 and 56: Percent of GDP 12 10 8 6 4 2 0 -2 -
Page 57 and 58: Percent 5.0 4.0 3.0 2.0 Figure 2-3
Page 59 and 60: In the euro area, the unemployment
Page 61 and 62: Figure 2-6 Cumulative Flows into Mu
Page 63 and 64: Figure 2-7 Household Deleveraging,
Page 65 and 66: Box 2-1: The 2013 Comprehensive Rev
Page 67 and 68: Percent 25 20 15 10 5 0 -5 Figure 2
Page 69 and 70: Figure 2-11 State and Local Pension
Page 71 and 72: Percent of GDP 2 1 0 Figure 2-14 Cu
Page 73 and 74: Box 2-2. Administration Trade Polic
Page 75 and 76: Upon completion, the TPP and T-TIP
Page 77 and 78: percent of households report that i
Page 79 and 80: Figure 2-18 Petroleum Net Imports,
Page 81 and 82: Figure 2-21 U.S. Per Capita Consump
Page 83 and 84: Percent 11 Figure 2-22 Unemployment
Page 85 and 86: Figure 2-25 Predicted vs. Actual Ma
Page 87: Box 2-4: Unemployment Duration and
Page 91 and 92: Growth in GDP over the Long Term As
Page 93 and 94: Box 2-5: Immigration Reform and Pot
Page 95 and 96: Even with this growth, however, the
Page 97 and 98: families. The other half was for in
Page 99 and 100: ecause of rapidly declining stock a
Page 101 and 102: Obama Administration and the 111th
Page 103 and 104: Figure 3-1 Recovery Act Programs by
Page 105 and 106: other cases, new measures expanded
Page 107 and 108: Figure 3-2 Recovery Act and Subsequ
Page 109 and 110: Box 3-1: Other Administration Polic
Page 111 and 112: challenges, and how economists have
Page 113 and 114: Table 3-5 Estimated Output Multipli
Page 115 and 116: Figure 3-7 Quarterly Effect of the
Page 117 and 118: Table 3-6 Estimates of the Effects
Page 119 and 120: International Comparison The 2008 c
Page 121 and 122: Box 3-2: The U.S. Recovery in Compa
Page 123 and 124: Table 3-7 Tax Relief and Income Sup
Page 125 and 126: traditionally been jointly financed
Page 127 and 128: downturn in the economy. Even thoug
Page 129 and 130: Figure 3-11 Recovery Act Cumulative
Page 131 and 132: The Recovery Act also invested in r
Page 133 and 134: helped individuals who chose to ret
Page 135 and 136: the period, even though total power
Page 137 and 138: average—then the resulting increa
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Alternative Minimum Tax relief, bus
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Through the end of a Individual Tax
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y Poterba (1994), states and locali
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Table 3-11 Fiscal Support for the E
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spells. Because the resulting unemp
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literature uses two different appro
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Table 3-12 Summary of Cross-Section
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the CMS projections show real per-c
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will accrue to workers as higher wa
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Box 4-1: Two Measures of Growth in
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Figure 4-1 Growth in Real Per Capit
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in particular may not exactly track
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find that even those seniors who di
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the slowdown in real (that is, infl
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health care costs for an individual
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estimate for the ACA found that its
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Figure 4-4 Medicare 30-Day, All-Con
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agreements among the providers them
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payment for physician services, the
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Box 4-3: The Cost Slowdown and ACA
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2010a; 2011; 2012c; 2013a; 2014), w
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Figure 4-6 Recent CBO Projections o
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Conclusion The evidence is clear th
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facilitated this private-sector tec
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esulting gap between the actual gro
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Table 5-1 Sources of Productivity I
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Table 5-2 Nonfarm Private Business
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of the productivity improvement res
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Figure 5-3 Growth in Productivity a
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improving and college completion ra
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Box 5-2: Does Inequality Affect Pro
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Percent 3.5 Figure 5-5 Composition
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• Just two of the largest U.S. te
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Box 5-3: Just-in-Time Manufacturing
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Figure 5-7 Exclusive and Shared All
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Box 5-4: Spectrum Investment Polici
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To stimulate investment in more adv
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Because current uses of technology
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Box 5-5: Electronic Health Records
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about the array of services and sup
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and, in such cases, provides partie
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Box 5-6: The Leahy-Smith America In
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Box 5-7: Pay-For-Delay Settlements
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C H A P T E R 6 THE WAR ON POVERTY
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Measuring Poverty: Who is Poor in A
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thresholds ever since. These dollar
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of necessary items, including food,
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Table 6-1 Poverty Rates by Selected
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Box 6-3: Women and Poverty While wo
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However, this reflects smaller decl
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Percent 25 Figure 6-1 Trends in the
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Box 6-4: Social Programs Serve All
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of low- and middle-income workers a
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particularly valuable since they es
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Figure 6-4 Official vs Anchored Sup
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deep market poverty driven by the b
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work: in 2010, for example, unemplo
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out of poverty through job training
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e noted that researchers have found
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2012). Among the children of low-ea
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Education appears to be one of the
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Friedman, and Rockoff (2011) find t
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including an additional $25 a week
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Figure 6-11 Recovery Act and Subseq
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Empowering Every Child with a Quali
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modernize America’s high schools
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low-income Americans and their chil
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C H A P T E R 7 EVALUATION AS A TOO
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program evaluation efforts. For exa
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went to preschool would have had if
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y adopting successful interventions
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Box 7-2: Using Behavioral Economics
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Box 7-3: “Rapid Cycle” Evaluati
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Figure 7-1 Outlays for Grants to St
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performance data, fewer than half o
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Investment Act programs. The PROMIS
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Figure 7-2 Inventory of Beds for Ho
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example, included a nondiscretionar
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Other benefits of considering evalu
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with the treatment effect and thus
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unemployment insurance wage and ben
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hard for researchers to access for
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REFERENCES Chapter 1 Almunia, Migue
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____. 2014. “Press Release: Janua
Page 308 and 309:
and the TPP at the Peterson Institu
Page 310 and 311:
Increase Employment Evidence from t
Page 312 and 313:
___. 2010b. “The Economic Impact
Page 314 and 315:
___. 2012. World Economic Outlook A
Page 316 and 317:
Polak Annual Research Conference. W
Page 318 and 319:
Baicker, Katherine and Amitabh Chan
Page 320 and 321:
Daly, Mary, Bart Hobijn, and Brian
Page 322 and 323:
Nominal Wages,” International Jou
Page 324 and 325:
Learning: A Meta-Analysis and Revie
Page 326 and 327:
Chien, Colleen V. 2012. “Reformin
Page 328 and 329:
GAO (Government Accountability Offi
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Jorgenson, Dale. 2001. “Informati
Page 332 and 333:
Integration in Economic Development
Page 334 and 335:
_____. 2007. “Improving the Safet
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Dahl, Gordon B. and Lance Lochner.
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Heckman, James J. and Dimitriy V. M
Page 340 and 341:
Ludwig, Jens and Douglas Miller. 20
Page 342 and 343:
Sharkey, Patrick. 2009. “Neighbor
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_____. 2013. “Practical Evaluatio
Page 346 and 347:
www.nij.gov/topics/corrections/comm
Page 348:
Stock, James H., and Mark Watson. 2
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letter of transmittal Council of Ec
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Council Members and Their Dates of
Page 357 and 358:
The Members of the Council Betsey S
Page 359 and 360:
Act has had on reducing health care
Page 361 and 362:
Statistical Office The Statistical
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A P P E N D I X B STATISTICAL TABLE
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INTEREST RATES, MONEY STOCK, AND GO
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2013-to-2014 TABLE NUMBER MATCH 201
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Year or quarter Table B-1. Percent
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Table B-2. Gross domestic product,
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Table B-3. Quantity and price index
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Table B-5. Real exports and imports
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Year Total 2 Table B-7. Real farm i
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Table B-9. Median money income (in
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Year or month Civilian noninstituti
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Year or month All civilian workers
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Table B-14. Employees on nonagricul
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Table B-15. Hours and earnings in p
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Year and month Interest Rates, Mone
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Year and month Table B-18. Money st
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Table B-20. Federal receipts, outla
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Table B-22. Federal receipts, outla
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Table B-24. State and local governm
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End of month Table B-26. Estimated
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B-7. Chain-type price indexes for g
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B-28. National income by type of in
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B-48. Employment cost index, privat
Page 409 and 410:
B-65. Producer price indexes by sta
Page 411 and 412:
B-81. Federal receipts, outlays, su
Page 413 and 414:
B-99. Farm output and productivity
Page 415:
B-111. International reserves Inter
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