The economy is growing steadily, unemployment is low and material wellbeing is high
Sustaining growth needs productivity and bringing people back into employment
The legacy of the great recession, as well as globalisation and automation shocks, remains visible across the country
OECD Economic Surveys: United States 2018
OECD Economic Surveys: United States
Executive summary
Abstract
The economy is growing steadily, unemployment is low and material wellbeing is high
The current expansion is now one of the longest on record. Economic growth since the financial crisis has also been amongst the strongest in the OECD. However, similar to other countries, productivity growth has been sluggish and below the growth rates recorded during previous expansions. As a result, the expansion has also been one of the weakest over the past half century. In part, weak investment growth - also by State and local governments - has contributed to this outcome.
The expansion has been one of the longest on record
Source: OECD Analytical Database.
Robust job growth has helped bring people back into employment and has reduced the unemployment rate. Employment growth above the rates needed to account for new entrants into the labour force has reduced unemployment to historically-low levels, which has resulted in tight labour markets for fast-growing locations and occupations. Together with stronger wage gains, these trends have helped partially reverse the decline in real median household income since the recession. However, employment as a share of the population has still not fully recovered from the crisis.
Unemployment is now very low
Source: OECD Analytical Database.
Material wellbeing is high and Americans are doing well on average in comparison with residents of other OECD counties. The United States performs favourably in comparison to the rest of the OECD, particularly for measures of disposable income and household wealth, long-term unemployment and housing conditions. And the recovery from the crisis has led to marked gains in consumer confidence. On the other hand, gains in life expectancy since the 1960s have been moderate in comparison with other OECD countries and attaining a good work-life balance appears a particular issue for American workers.
Consumer confidence is high
Source: Surveys of consumers, University of Michigan.
The near-term outlook is strong. Private consumption remains solid, buttressed by the strong labour market, wealth gains and high levels of consumer confidence. In the business sector, confidence is also robust, and business fixed investment is picking up. Business investment will be further boosted by tax reforms, which will contribute to a substantial fiscal loosening. Inflation has moved toward the Fed’s target and monetary policy has been removing accommodation.
Risks to the outlook remain sizeable. The projected pick-up of investment may support even stronger productivity growth going forward. On the other hand, there are also a number of financial market risks, notably elevated leverage ratios in the corporate sector. Rising trade tensions represent another potential threat to the outlook. In the longer term, increases in government spending and accompanying rising debt levels pose a risk. The United States should take advantage of the strong economy to align spending and revenues.
Economic growth is set to increase
Note: annual growth rates, with the exception of the unemployment rate, which is % of the labour force.
Source: OECD Economic Outlook 103 database.
Sustaining growth needs productivity and bringing people back into employment
Improving the business environment would help sustain growth, reanimating firm creation and growth. In comparison with other OECD economies the restrictiveness of business regulations is around average, while restrictions on trade in services are more marked. Weaker competition tends to undermine innovative activity and action may be needed to strengthen anti-trust enforcement. Occupational licensing, affecting one quarter of employees, is another feature hindering competition. The recent tax reforms that cut corporate income tax rates and temporarily include full expensing of capital outlays will likely give a substantial boost to investment activity. Investing in infrastructure to remove bottlenecks would further enhance the business environment.
Business regulation restrictiveness is on a par with the OECD
Source: OECD Product Market Regulation database.
Participation rates have declined since the crisis and are only recently beginning to recover for prime-age workers. As the labour market has tightened, the participation of women has increased, but males have remained out of the labour force. This is especially the case for young men with no more than high school education. In some regions, participation rates are very low indeed, falling to just 53% in West Virginia. Such areas also tend to be places where disability rates are high. Reducing the disincentives for people receiving disability benefits to work and providing tax credits for lower skilled workers might help bring these groups into the labour force. The United States provides less support to workers to find new employment opportunities than other OECD countries.
Many Americans appear to have dropped out of the labour force
Note: OECD refers to a simple average.
Source: OECD Employment and Labour Market Statistics.
The legacy of the great recession, as well as globalisation and automation shocks, remains visible across the country
Job losses have become more persistent in areas hit by structural shocks, contributing to the decline in participation. Globalisation and automation have displaced workers, especially in the industrial heartland, and many of these workers have experienced difficulties in finding new employment. As the economy adjusts to these supply shocks, this has led to the development of areas of high unemployment, non-participation and poverty. The inter-State migration response to employment shocks appears to have diminished during the past decade relative to earlier decades. Furthermore, these migration patterns show less of a trend shift of the population to urban agglomerations then elsewhere in the OECD.
Inter-State migration has slowed
Source: U.S. Census Bureau, Current Population Survey.
Changing jobs has become more difficult over time. One of the constraints on inter-State migration has been the availability of affordable housing, particularly in booming areas. Housing costs are an important part of poorer households' spending. Restrictive zoning policies appear to be hindering the provision of more affordable housing, limiting employment opportunities and ultimately undermining growth. Sprawling cities can also make accessing jobs by public transport very difficult. Improving mass transit systems where appropriate would help improve accessibility and federal spending could be used to encourage States and localities to move towards mixed-use planning permissions to address housing affordability concerns.
Affordable housing is hard to come by
Source: OECD Affordable Housing Database.
Opioid addiction costs many lives, harms livelihoods, depresses labour market participation, and entails significant public healthcare spending. Death rates have surged in the past decade, particularly as (illicit) synthetic opioids have become more available around the country. The correlation with non-participation in areas most beset by opioid addiction suggests that addiction ultimately impairs participation. This contributes to costs to the economy of lost wages and productivity, as well as fiscal costs from foregone revenue and spending on emergency care and the treatment of addiction. Expanding support to prevent deaths and provide treatment for addiction will need to be complemented by actions to re-integrate former drug abusers into employment.
Drug-overdoses have become a major cause of death
Source: National Center for Health Statistics.