America What Happened?: Five Key Indicators of an Economy Gone Awry

By Lawrence Mishel and Ross Eisenbrey, Economic Policy Institute

What's wrong with the economy? Let us count the ways . . .

1. Profits are up, but the wages and incomes of average Americans are down.

•  Inflation-adjusted hourly and weekly wages are below where they were at the start of the recovery in November 2001. Yet productivity — the growth of the economic pie — is up by 14.7%.

•  Wage growth has been shortchanged because 46% of the growth of total income in the corporate sector has been distributed as corporate profits, far more than the 20% in previous periods.

•  Consequently, median household income (inflation-adjusted) has fallen five years in a row and was 4% lower in 2004 than in 1999, falling from $46,129 to $44,389.

2. More and more people are deeper and deeper in debt.

•  The indebtedness of U.S. households, after adjusting for inflation, has risen 42% over the last five years.

•  The level of debt as a percentage of after-tax income is the highest ever measured in our history. Mortgage and consumer debt is now 120% of after-tax income, more than twice the level of 30 years ago.

•  The debt-to-service ratio (the percent of after-tax income that goes to pay off debts) is at an all-time high of 13.9%.

•  The personal savings rate is negative for the first time since the Depression.

3. Job creation has not kept up with population growth, and the employment rate has fallen sharply.

•  The United States has only 1.9% more jobs today than in March 2001 (the start of the last recession). Private sector jobs are up only 1.5%. At this stage of previous business cycles, jobs had grown by an average of 8.8% and never less than 6%.

•  The unemployment rate is relatively low at 4.6%. But the percent of the population that has a job has never recovered since the recession and is still 1.3% lower than in March 2001. If the employment rate had returned to pre-recession levels, almost 4 million more people would be employed.

•  More than 3 million manufacturing jobs have been lost since 2000.

4. Poverty is on the rise.

•  The poverty rate rose from 11.3% in 2000 to 12.7% in 2004.

•  The number of people living in poverty has increased by 5.4 million since 2000.

•  More children are living in poverty: the child poverty rate increased from 16.2% in 2000 to 17.8% in 2004.

5. Rising health care costs are eroding families' already declining incomes.

•  Households are spending more on health care. Family health costs rose 43%-45% between 2000 and 2003 for married couples with children, single mothers and young singles.

•  Employers are cutting back on health insurance. Last year, the percentage of people with employer-provided health insurance fell for the fourth year in a row. Nearly 3.7 million fewer people had employer-provided insurance in 2004 than in 2000. Taking population growth into account, 11 million more people would have had employer-provided health insurance in 2004 if the coverage rate had remained at the 2000 level.

Mishel is president and Eisenbrey is policy director of EPI, a non-profit, non-partisan think tank in Washington, D.C., that conducts "research for broadly shared prosperity." Its various studies and analyses, including the comprehensive "The State of Working America, 2006-2007," may be seen at www.epinet.org.