2. RakipBebo
Course Paper
ECO 306
ProfessorBerdell
6/4/2015
Since 2014, the economy in the United States has been steadily improving with the
percent change in GDP rising up to 4.6% in Quarter 3 and 5% in Quarter 4. Not only that, we
have seen a steady decline in the unemployment rate from 6.6% to 5.7%. However, in the first
quarter of 2015 the percentage change in GDP underperformed expectations. A few reasons for
this is due to seasonal factors such as bad weather as well as the recently resolved strike in West
Coast harbors (Northern Trust). When discussing the second quarter of 2015, we see a more
positive outlook with expected GDP rising by around 2.8% with Quarter 3 and Quarter 4 looking
positive as well. After looking into multiple sources such as the Wall Street Journal, Dismal
Scientist, BMO Capital Markets, as well as Northern Trust, I have come up with my own
prediction for Quarter 3 and Quarter 4 based on these sources.
Looking at the table down below, I could say with enough confidence that the expected
GDP in Quarter 3 will increase by 3% while quarter 4 will increase by 2.8%. Obviously, this is
very good news, especially when you look back at the years after the great recession, plus it is
refreshing to see the economy finally expanding. One big factor is the decreasing unemployment
rate in 2014, which indicates that more people are finally starting to get back into the workforce.
I expect the unemployment rate to drop to 5.3% for both Quarter 3 and Quarter 4, which is a
good number to aim for. Another factor is that the CPI is not expected to increase drastically so
inflation won’t become an issue in 2015, which means that wages can potentially grow. There
also does not seem to be a turning point anytime soon this year, and there is a very low
probability of recession shown in the Wall Street Journal. However, despite the fact that the
economy seems to be on the right track, it is not at its optimal level due to participation and
productivity being rather sluggish compared to other aspects in the economy.
3. RakipBebo
Course Paper
ECO 306
ProfessorBerdell
6/4/2015
*Chart showing economic forecasts for 2015 from multiple sources:
As mentioned in the previous paragraph, one major area that is improving immensely is
the unemployment rate. In a recent article published by the Bureau of Labor Statistics (BLS),
they state how twenty-three states had unemployment rate decreases from March. Also the BLS
mentioned that in April 2015, nonfarm payroll employment increased in 40 states with
California, Pennsylvania, and Florida having the highest increase. Not only that, the Midwest is
experiencing the lowest regional unemployment rate at 5% while the West had the highest with
unemployment at 5.8%. This is very good news considering that no region in the United States
has had a statistically significant change (upward) in the unemployment rate.
4. RakipBebo
Course Paper
ECO 306
ProfessorBerdell
6/4/2015
The Dismal Scientist also goes into great detail about employment, but mentioned that
the payrolls in March didn’t reach expectations, which was revised down from 126,000 to 85,000
payroll jobs. The reason for this is because of low energy prices as well as the appreciating
dollar because they create a drag on the energy and manufacturing payrolls. Still, even with an
underwhelming March, April did stop fears of further slowdown with payrolls rebounding
somewhat during that month. Even with low unemployment, wage growth has yet to really
materialize, which is unusual since wage growth usually begins when the unemployment rate
falls below 6%. Reasons for this could be the fact that wage pressures are declining due to an
aging workforce and higher educational attainment by younger Americans.
While low unemployment is a good thing, some people still have a negative outlook of
the economy, especially when it comes to productivity/participation in the workforce. Some
people believe that the reason why unemployment is so low is because more people are getting
discouraged and dropping out of the workforce completely. In an article by CNN, they mention
that participation in the workforce is now at its lowest point since 1978 at 62.7%. Even the
Bureau of Labor Statistics stated how “nonfarm business sector labor productivity decreased at a
1.9 percent annual rate during the first quarter of 2015.” Not only that, the BLS also stated that
“this decline in productivity follows a decline of the 2.1% in the fourth quarter of 2014,” which
might indicate that the slow rate of productivity may still continue in the future.
The Dismal Scientist describes how labor force participation has been on the decline even
before the recession. The reason for this has been demographically driven, and that the
retirement of baby boomers will effect participation in the coming years. The Dismal Scientist
also mentions that there are “about 800,000 more workers are on the margins of the labor market
5. RakipBebo
Course Paper
ECO 306
ProfessorBerdell
6/4/2015
than before the recession.” However, the Dismal Scientist also states that workers with low
educational attainment and skill levels as well as older workers would not be likely to return to
the labor market. Lastly, participation could potentially increase for younger workers who have
stayed out of the workforce in order to gain more schooling. By looking at the persistent decline
in workers ages 20 to 24 while there is an increase in participation in workers ages 25 to 34
proves this trend of young Americans not participating in the workforce. Competition among the
youth is believed to keep a downward pressure on wages, but only for entry-level positions.
This trend of participation among the youth also relates to a bigger problem regarding
wage growth. The Wall Street Journal mentions how hourly earnings in December of 2014
barely rose over inflation at 1.7%. This prevents U.S. households from elevating above their
living standards, which means that the market is not operating from its full capacity. While a
small increase in wage growth does keep inflation in check, it also limits consumer spending.
One big reason for slow wage growth would be the fact that while lower paying positions in
retail and hospitality have seen some of the strongest job growth, construction and manufacturing
sectors have been rather slow in terms of gains. Economists believe this is due to a growing gap
between skilled and unskilled workers in the U.S.
Underemployment is also a major issue in the U.S. economy, especially when it comes to
college graduates. An article written by the Economic Policy Institute talks about how the
unemployment rate for college graduates is currently at 7.2% compared to 5.5% in 2007. Also,
the underemployment rate for college graduates is at 14.9% compared with 9.6% in 2007. Even
with a weak level of employment among college graduates, it is much worse for high school
graduates, with the unemployment rate at 19.5% and underemployment at 37%. Not only that,
6. RakipBebo
Course Paper
ECO 306
ProfessorBerdell
6/4/2015
wages of young college and high school graduates are rather low with real wages for young high
school graduates being 5.5% and college graduates being 2.5% lower in 2015 than in 2000. This
information is important considering the fact that education attainment for United Sates has
increased over the years. Even though wages have started to pick up over the past year, the road
getting there was slow and this could be a problem in the near future.
Higher wages are usually related to growth, so it is rather strange to see the economy
doing so well, yet see productivity and growth increase at a very sluggish pace. The Bureau of
Labor Statistics shows a graph of unit labor costs for the nonfarm business sector and you can
see how volatile the graph is with a huge dip in 2009 and after that moving up or down until
finally we see an uphill tend halfway through 2014. Even with a recent uphill trend wage growth
is still rather stagnant with the average hourly earnings rising up 2% year-on year in February of
2015 (Economist). One major reason for sluggish growth in wages would be underemployment
since the number of workers in the United States that work part-time, but would rather be full-
time is much higher than it was before the recession occurred. Even the “Federal Reserve Bank
of Chicago has found that even after accounting for other measures of unemployment, the
number of workers counted as “part-time for economic reasons” exerts a very strong effect on
wage growth (That is because such workers would rather push their employees for more hours
than for higher pay).” However, just recently The Dismal Scientist mentioned how wage growth
is starting to get back on track with a strong gain in compensation in the first quarter of 2015.
7. RakipBebo
Course Paper
ECO 306
ProfessorBerdell
6/4/2015
*BLS Unit Labor Costs graph:
In conclusion, I can safely say that the economy is in a good state and is currently
expanding. We can see that expected GDP is rising much higher than in previous years, and that
the unemployment rate is expected to decrease as well. Unemployment is expected to be at 5.3%
in 2015 and that nonfarm payroll jobs have increased in 40 states during April. However, this
does not mean that the economy is completely optimized, especially when you start to look at
labor productivity and participation. In terms of the participation, it hasn’t been this low since
1978, which leads some economists to believe that the unemployment rate is low because more
people are just leaving the workforce completely rather than finding work. Not only that, the
unemployment rate for many young Americans is still higher than the rest of the population at
7.2%. Underemployment is also an issue to consider with college graduates having an
8. RakipBebo
Course Paper
ECO 306
ProfessorBerdell
6/4/2015
underemployment rate of 14.9%. Underemployment is also a problem for not just the individual,
but for wage growth as well. We see wages increasing at a very sluggish pace due to factors such
as an aging workforce and more people being employed part-time rather than full-time. Still, our
economy is expanding, which is a very good thing, but we must also take into account work
participation/productivity if we really want our economy to truly experience growth.
*FRED graph on real GDP.
9. RakipBebo
Course Paper
ECO 306
ProfessorBerdell
6/4/2015
References:
"EconomicForecastingSurvey." TheWall Street Journal.N.p.,n.d. Web.03 June 2015.
"UnitedStatesEconomicOutlook."(2015):n. page. BMO CapitalMarkets.Web.
Dismal ScientistEconomicForecast: https://www-economy-
com.ezproxy.depaul.edu/dismal/data/forecast
Koropeckyj,Sophia."U.S.EmploymentOutlook:Onthe Mend."Dismal Scientist.N.p.,26 May 2015.
Web.
"Clusters,Pathways,andBLS:ConnectingCareerInformation:CareerOutlook:U.S.Bureauof Labor
Statistics."U.S.Bureau of LaborStatistics.U.S.Bureauof Labor Statistics,Mar. 2015. Web.”
"UnemploymentRate Fallsbelow6%forFirst Time since 2008." CNNMoney.Cable NewsNetwork,3
Oct. 2014. Web.
Sparshott,Jeffrey."HiringBooms,butSoftWagesLinger." WSJ.N.p.,9 Jan.2015. Web.
CW. "Why AmericanWage GrowthIs soLousy." The Economist.The EconomistNewspaper,13Apr.
2015. Web.
"Real Earnings."U.S.Bureau of LaborStatistics.U.S. Bureauof Labor Statistics,Apr.2015. Web.
Sparshott,Jeffrey."U.S.ProductivityFalls1.9% inFirstQuarter." WSJ.N.p.,6 May. 2015. Web.
Davis,Alyssa."The Classof 2015: Despite anImprovingEconomy,YoungGradsStill Face an Uphill
Climb."EconomicPolicy Institute.N.p.,27 May 2015. Web.
"Databases,Tables&CalculatorsbySubject." Bureau of LaborStatisticsData.N.p.,n.d.Web.04 June
2015.
