ECONOMIC REPORT OF THE PRESIDENT

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Figure 2-19 National House Price Indexes, 2000–2015 Index, Jan-2012=100 160 150 140 130 120 110 Standard & Poor's/ Case-Shiller (Nov-2015) Zillow (Dec-2015) CoreLogic (Dec-2015) 100 90 80 Federal Housing Finance Agency (Nov-2015) 70 2000 2002 2004 2006 2008 2010 2012 2014 2016 Note: Shading denotes recession. The Standard & Poor's/Case-Shiller, Federal Housing Finance Agency, and CoreLogic indexes all adjust for the quality of homes sold but only cover homes that are bought or sold, whereas Zillow reflects prices for all homes on the market. Source: Zillow; CoreLogic; Federal Housing Finance Agency; Standard & Poor's/Case-Shiller. (measured relative to the general rise in consumer prices), house prices still remain roughly 20 percent below their pre-recession peak. Continued house price increases improved owners’ equity relative to the debt they owe on their houses. Homeowners’ equity as of December 2015 equaled slightly more than half of the total value of household real estate (57 percent), 20 percentage points higher than the recessionary trough and near the average of 60 percent in the two decades prior to the Great Recession. As of 2015:Q3, rising home prices since 2012:Q4 helped lift more than 7 million households out of a negative equity position (Gudell 2015). The overall share of single-family homeowners with an underwater mortgage (when mortgage debt exceeds the value of their house) was 13.4 percent in 2015:Q3, down from a high of 31.4 percent in 2012. In addition, the number of delinquent home mortgages (when the homeowner misses at least one monthly payment) has fallen to its lowest level since 2006, though the share of mortgages that are seriously delinquent (payment more than 90 days overdue with the bank considering the mortgages to be in danger of default) remains somewhat elevated. This improvement supports overall economic growth because homeowners with underwater or delinquent mortgages are less likely to spend or relocate in search of better-paying jobs. Single-family homes remained more affordable in 2015 than the historical average, as rising incomes and low and steady mortgage rates partially The Year in Review and the Years Ahead | 85
Index* 220 Figure 2-20 Housing Affordability Index, 1990–2015 200 180 160 140 Nov-2015 120 100 1990 1995 2000 2005 2010 2015 * Index is 100 when the median income family can exactly qualify for a mortgage on a median-priced home. An index over 100 means that the median income family has more than enough income to qualify for a mortgage on a median-priced home. Note: Dashed line represents average over 1990–2015. Source: National Association of Realtors. offset the effect of rising house prices on the cost of homeownership (Figure 2-20). Nevertheless, affordability decreased somewhat in the past two years because median home prices grew faster than median family incomes. Box 2-6 covers an additional threat to affordability—housing supply constraints. Despite the affordability of housing, national homeownership was 63.7 percent in the fourth quarter of 2015, much lower than the historical average due to a variety of trends in the housing market. The decline has been particularly concentrated among young households. The homeownership rate of those under the age of 35 was nearly 35 percent at the end of 2015, roughly 10-percentage points lower than its all-time high in 2004. A number of factors contributed to this decline. Most importantly, young adults are waiting longer to get married or form households. First-time home buyers are about three years older, on average, than the previous generation of homebuyers. Second, credit availability remains tight for borrowers with credit scores below 620. Third, it can be difficult for households, especially those living in urban areas, to save for a down payment. In response, the Administration has pursued policies to improve access to credit and expand homeownership. In January 2015, the President announced a reduction in the annual mortgage insurance premium on Federal Housing Administration (FHA) loans. The lower premium saved the typical new homeowner $900 in 2015, and existing homeowners who refinanced realized similar savings. In addition, FHA’s new guidance for lenders of single-family loans took effect in 86 | 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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when a hardworking American loses h
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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 INCLUSIVE
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CHAPTER 5 TECHNOLOGY AND INNOVATION
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APPENDIXES A. Report to the Preside
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3.4. Percent Gap Between Actual and
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6.6. Relationship between Output Gr
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C H A P T E R 1 INCLUSIVE GROWTH IN
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To promote inclusive growth, both c
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Percent 20 15 Figure 1-1 Share of I
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Table 1-1 Increase in Income Share
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Figure 1-3 Distribution of Househol
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narrows the pool of human capital t
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over the past several decades has b
Page 40 and 41: Figure 1-6a The "Great Gatsby Curve
Page 42 and 43: Figure 1-7 Change in Employment by
Page 44 and 45: and sellers—consumer and producer
Page 46 and 47: Percent 15 10 Figure 1-9 Corporate
Page 48 and 49: Percent 30 Figure 1-11 Share of Wor
Page 50 and 51: Figure 1-12 Real Construction Costs
Page 52 and 53: promoting equality of opportunity;
Page 54 and 55: the division of rents, they can red
Page 56 and 57: C H A P T E R 2 THE YEAR IN REVIEW
Page 58 and 59: cold weather.1 The economy rebounde
Page 60 and 61: Box 2-1: Impact of Oil Price Declin
Page 62 and 63: Roughly speaking, the decline in th
Page 64 and 65: Percent of GDP 10 Figure 2-3 Federa
Page 66 and 67: Figure 2-5 Government Purchases as
Page 68 and 69: 13 percent of GDP. Until 1990, Stat
Page 70 and 71: of new purchases.2 The increase in
Page 72 and 73: Figure 2-8 Actual and Consensus For
Page 74 and 75: Figure 2-10 Rates of Part-Time Work
Page 76 and 77: less than a tenth of the overall de
Page 78 and 79: Business fixed investment grew 3.1
Page 80 and 81: Percent 10 Figure 2-14 Personal Sav
Page 82 and 83: BEA revises the official statistics
Page 84 and 85: Index* 100 Figure 2-16 Real Income
Page 86 and 87: Box 2-5: Are Official Estimates of
Page 88 and 89: of consumer surplus, which should,
Page 92 and 93: Box 2-6: Constraints on Housing Sup
Page 94 and 95: and also was estimated in recent re
Page 96 and 97: market. Nevertheless, the construct
Page 98 and 99: Figure 2-23 Net Investment as a Sha
Page 100 and 101: Percent 80 Figure 2-25 Total Payout
Page 102 and 103: Figure 2-28 Foreign Real GDP and U.
Page 104 and 105: Figure 2-30 Sources of Productivity
Page 106 and 107: Figure 2-32 Nominal Wage Growth Ove
Page 108 and 109: Figure 2-35 Long-Term Inflation Exp
Page 110 and 111: Percent 18 Figure 2-36 Nominal 10-Y
Page 112 and 113: Table 2-1 Selected Interest Rates,
Page 114 and 115: are close to those projected by the
Page 116 and 117: International Economics (Petri and
Page 118 and 119: History Forecast 1953:Q2 to 2015:Q3
Page 120 and 121: inflation up to 2007 and then expec
Page 122: Upside and Downside Forecast Risks.
Page 125 and 126: earlier forecasts. Figure 3-1 shows
Page 127 and 128: Real GDP/WAP Growth 2011-2014 Figur
Page 129 and 130: economists would expect capital dee
Page 131 and 132: Figure 3-i Actual and Forecasted Wo
Page 133 and 134: affected the demographic trajectory
Page 135 and 136: over the first three quarters of 20
Page 137 and 138: Percentage Points 35 30 Figure 3-7
Page 139 and 140: the President for a discussion of t
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Box 3-2: Market Volatility in the S
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potential for rapid spillovers betw
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absorb unexpectedly high losses. In
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Box 3-3: Commodity Prices and Infla
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In November 2015, the IMF voted to
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Billions of U.S. Dollars 250 200 15
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U.S. exports are 12.5 percent of th
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Box 3-4: The Importance of the Tran
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The challenging environment for U.S
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child’s environment. Despite the
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and Rossin-Slater 2015).5 These adv
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Figure 4-2 Official Poverty Rate fo
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Figure 4-3 Likelihood of Scoring Ve
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Percent 100 90 80 70 60 50 40 30 20
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Figure 4-7 Achievement Gap is Large
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Hours per Week 24 22 20 Figure 4-9
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Percent 65 Figure 4-11 Preschool En
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Box 4-1: Gender Differences in Earl
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Card and Rothstein 2007; Dickerson
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depend on how parents choose to inv
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y many factors, which makes it diff
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Box 4-3: Federal Early Childhood Pr
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program served over 45 million Amer
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Reauthorization Act of 2015, signed
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document that desegregation of hosp
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to alleviate hunger by supplementin
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adulthood (Hoynes, Schanzenbach, an
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of preschoolers support their child
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program and up to 15 years after co
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a longer period than is true of mos
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to be higher today than in the past
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Figure 4-18 Most Early Childhood Pr
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the preschool programs in Georgia a
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test scores by 6 to 9 percent of a
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Figure 4-20 Increase in Probability
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increased earnings by 31 percent (F
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Figure 5-1 Labor Productivity Growt
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Competition and Dynamism Play a Cri
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adopts pre-existing technology or k
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Figure 5-2 Quantity and Volume of V
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Box 5-2: Occupational Licensing One
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in consumer welfare as they erode t
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Finally, some workers may acquire s
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Box 5-3: Major Research Initiatives
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Figure 5-5 Federal and Nonfederal R
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Figure 5-7 Federal Research and Dev
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Figure 5-10 Percent of Patent Appli
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percent of all cases in 2009 to ove
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(Bloom, Sadun, and Van Reenen 2012)
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Figure 5-12 Estimated Annual Shipme
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was relatively flat through the 200
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In contrast, recent papers by Autor
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services, such as 4G LTE. At the sa
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Box 5-5: The On-Demand Economy “O
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vision of services that may not hav
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Figure 5-17 Household Income and Ho
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about half since ConnectED was laun
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C H A P T E R 6 THE ECONOMIC BENEFI
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enefits to a wide set of consumers
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Figure 6-1 Composition of Public Sp
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Age, Years 29 27 Figure 6-3 Average
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Type CAN FRA DEU ITA JPN GBR USA 20
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Box 6-1: Clean Energy and Transport
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Industry Government Investment Dire
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infrastructure investment is crucia
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Box 6-2: Elasticity of Output to Pu
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and output ignore potential inter-t
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Thus, ideas are exchanged, workers
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kilometers of road) in 1983 resulte
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Prospects for Increased Infrastruct
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Figure 6-6 Relationship between Out
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there is a clear demand for an infr
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user fees or shadow tolls.11 Throug
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to transportation facilities caused
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Tax-Exempt Bonds Transportation inf
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Recent Legislation In December 2015
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enefit freight movements. The Act a
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C H A P T E R 7 THE 70 TH ANNIVERSA
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and composition of the labor force,
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it, “[t]he CEA and its chairman h
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jected reductions in the deficit. I
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example, the Environmental Protecti
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Keyserling and the Council particip
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Countercyclical Policy in Other Adm
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In designing the Recovery Act, one
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incorporating risk and discounting
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and Freddie had lots of friends in
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(USEC). USEC was responsible for pr
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can be reported to him as the perce
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By contrast, Keyserling had activel
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goals of the government in their ar
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Gather, Analyze, and Interpret Info
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the unemployment insurance system w
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an informational basis for appropri
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had experience working in governmen
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emained. I joined forces with Budge
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Of course, relying on short-term ac
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Carson, Ann. 2015. “Prisoners in
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Kleiner, Morris M. and Alan B. Krue
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Congressional Budget Office (CBO).
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Kocin, Paul J. and Louis Uccellini.
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Fajgelbaum, Pablo and Amit Khandelw
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World Bank. 2016. “Global Economi
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Belfield, Clive R., Milagros Nores,
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Campbell, Jennifer A., Rebekah J. W
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Council of Economic Advisers. 2014.
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Eissa, Nada and Jeffrey B. Liebman.
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Hastings, Justine S. and Ebonya Was
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Kalil, Ariel, Rebecca Ryan, and Mic
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Maxfield, Michelle. 2013. “The Ef
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Olds, David, John Eckenrode, Charle
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Solon, Gary. 1992. “Intergenerati
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Wherry, Laura R., Sarah Miller, Rob
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Bloom, Nicholas, Mark Schankerman,
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Graham, Stuart JH, Cheryl Grim, Tar
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Melitz, Marc J. 2003. “The Impact
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______. 2015. “Patent Assertions:
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Congressional Budget Office. 2009.
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Peshkin, David G., Todd E. Hoerner,
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______. 2001. Designing U.S. Econom
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Krueger, Alan B. 2000. “Honest Br
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Weidenbaum, Murray L. 1983. “An E
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letter of transmittal Council of Ec
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Council Members and Their Dates of
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The Members of the Council Sandra E
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In May, the Council issued a report
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Nirupama S. Rao . . . . . . . . . .
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Jessica Schumer resigned from her p
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C O N T E N T S GDP, INCOME, PRICES
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General Notes Detail in these table
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Table B-1. Percent changes in real
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Table B-2. Gross domestic product,
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Table B-4. Growth rates in real gro
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Year or quarter Total Table B-6. Co
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Table B-8. New private housing unit
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Table B-10. Changes in consumer pri
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Table B-11. Civilian labor force, 1
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Year or month Table B-13. Unemploym
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Table B-14. Employees on nonagricul
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Year or quarter Table B-16. Product
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Table B-18. Federal receipts, outla
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Table B-20. Federal receipts, outla
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Table B-22. State and local governm
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End of month Table B-24. Estimated
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Table B-25. Bond yields and interes
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