Sunday, December 10, 2017

Twenty-One Million Unemployed or Underemployed in the Lost Economic Cycle of the Global Recession with Economic Growth Underperforming below Trend Worldwide, Job Creation, Cyclically Stagnating Real Wages, Cyclically Stagnating Real Disposable Income, Financial Repression, United States International Trade, World Cyclical Slow Growth and Global Recession Risk: Part VII

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Twenty-One Million Unemployed or Underemployed in the Lost Economic Cycle of the Global Recession with Economic Growth Underperforming below Trend Worldwide, Job Creation, Cyclically Stagnating Real Wages, Cyclically Stagnating Real Disposable Income, Financial Repression, United States International Trade, World Cyclical Slow Growth and Global Recession Risk

© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017

I Twenty-One Million Unemployed or Underemployed

IA1 Summary of the Employment Situation

IA2 Number of People in Job Stress

IA3 Long-term and Cyclical Comparison of Employment

IA4 Job Creation

IB Stagnating Real Wages

II Stagnating Real Disposable Income and Consumption Expenditures

IB1 Stagnating Real Disposable Income and Consumption Expenditures

IB2 Financial Repression

IIB United States International Trade

III World Financial Turbulence

IIIA Financial Risks

IIIE Appendix Euro Zone Survival Risk

IIIF Appendix on Sovereign Bond Valuation

IV Global Inflation

V World Economic Slowdown

VA United States

VB Japan

VC China

VD Euro Area

VE Germany

VF France

VG Italy

VH United Kingdom

VI Valuation of Risk Financial Assets

VII Economic Indicators

VIII Interest Rates

IX Conclusion

References

Appendixes

Appendix I The Great Inflation

IIIB Appendix on Safe Haven Currencies

IIIC Appendix on Fiscal Compact

IIID Appendix on European Central Bank Large Scale Lender of Last Resort

IIIG Appendix on Deficit Financing of Growth and the Debt Crisis

IX Conclusion. The departing theoretical framework of Bordo and Haubrich (2012DR) is the plucking model of Friedman (1964, 1988). Friedman (1988, 1) recalls, “I was led to the model in the course of investigating the direction of influence between money and income. Did the common cyclical fluctuation in money and income reflect primarily the influence of money on income or of income on money?” Friedman (1964, 1988) finds useful for this purpose to analyze the relation between expansions and contractions. Analyzing the business cycle in the United States between 1870 and 1961, Friedman (1964, 15) found that “a large contraction in output tends to be followed on the average by a large business expansion; a mild contraction, by a mild expansion.” The depth of the contraction opens up more room in the movement toward full employment (Friedman 1964, 17):

“Output is viewed as bumping along the ceiling of maximum feasible output except that every now and then it is plucked down by a cyclical contraction. Given institutional rigidities and prices, the contraction takes in considerable measure the form of a decline in output. Since there is no physical limit to the decline short of zero output, the size of the decline in output can vary widely. When subsequent recovery sets in, it tends to return output to the ceiling; it cannot go beyond, so there is an upper limit to output and the amplitude of the expansion tends to be correlated with the amplitude of the contraction.”

Kim and Nelson (1999) test the asymmetric plucking model of Friedman (1964, 1988) relative to a symmetric model using reference cycles of the NBER and find evidence supporting the Friedman model. Bordo and Haubrich (2012DR) analyze 27 cycles beginning in 1872, using various measures of financial crises while considering different regulatory and monetary regimes. The revealing conclusion of Bordo and Haubrich (2012DR, 2) is that:

“Our analysis of the data shows that steep expansions tend to follow deep contractions, though this depends heavily on when the recovery is measured. In contrast to much conventional wisdom, the stylized fact that deep contractions breed strong recoveries is particularly true when there is a financial crisis. In fact, on average, it is cycles without a financial crisis that show the weakest relation between contraction depth and recovery strength. For many configurations, the evidence for a robust bounce-back is stronger for cycles with financial crises than those without.”

The average rate of growth of real GDP in expansions after recessions with financial crises was 8 percent but only 6.9 percent on average for recessions without financial crises (Bordo 2012Sep27). Real GDP declined 12 percent in the Panic of 1907 and increased 13 percent in the recovery, consistent with the plucking model of Friedman (Bordo 2012Sep27). Bordo (2012Sep27) finds two probable explanations for the weak recovery during the current economic cycle: (1) collapse of United States housing; and (2) uncertainty originating in fiscal policy, regulation and structural changes. There are serious doubts if monetary policy is adequate to recover the economy under these conditions.

Lucas (2011May) estimates US economic growth in the long-term at 3 percent per year and about 2 percent per year in per capita terms. There are displacements from this trend caused by events such as wars and recessions but the economy grows much faster during the expansion, compensating for the contraction and maintaining trend growth over the entire cycle. Historical US GDP data exhibit remarkable growth: Lucas (2011May) estimates an increase of US real income per person by a factor of 12 in the period from 1870 to 2010. The explanation by Lucas (2011May) of this remarkable growth experience is that government provided stability and education while elements of “free-market capitalism” were an important driver of long-term growth and prosperity. Lucas sharpens this analysis by comparison with the long-term growth experience of G7 countries (US, UK, France, Germany, Canada, Italy and Japan) and Spain from 1870 to 2010. Countries benefitted from “common civilization” and “technology” to “catch up” with the early growth leaders of the US and UK, eventually growing at a faster rate. Significant part of this catch up occurred after World War II. Lucas (2011May) finds that the catch up stalled in the 1970s. The analysis of Lucas (2011May) is that the 20-40 percent gap that developed originated in differences in relative taxation and regulation that discouraged savings and work incentives in comparison with the US. A larger welfare and regulatory state, according to Lucas (2011May), could be the cause of the 20-40 percent gap. Cobet and Wilson (2002) provide estimates of output per hour and unit labor costs in national currency and US dollars for the US, Japan and Germany from 1950 to 2000 (see Pelaez and Pelaez, The Global Recession Risk (2007), 137-44). The average yearly rate of productivity change from 1950 to 2000 was 2.9 percent in the US, 6.3 percent for Japan and 4.7 percent for Germany while unit labor costs in USD increased at 2.6 percent in the US, 4.7 percent in Japan and 4.3 percent in Germany. From 1995 to 2000, output per hour increased at the average yearly rate of 4.6 percent in the US, 3.9 percent in Japan and 2.6 percent in Germany while unit labor costs in USD fell at minus 0.7 percent in the US, 4.3 percent in Japan and 7.5 percent in Germany. There was increase in productivity growth in Japan and France within the G7 in the second half of the 1990s but significantly lower than the acceleration of 1.3 percentage points per year in the US. The key indicator of growth of real income per capita, which is what a person earns after inflation, measures long-term economic growth and prosperity. A refined concept would include real disposable income per capita, which is what a person earns after inflation and taxes.

Table IB-1 provides the data required for broader comparison of long-term and cyclical performance of the United States economy. Revisions and enhancements of United States GDP and personal income accounts by the Bureau of Economic Analysis (BEA) (http://bea.gov/iTable/index_nipa.cfm) provide valuable information on long-term growth and cyclical behavior. First, Long-term performance. Using annual data, US GDP grew at the average rate of 3.2 percent per year from 1929 to 2016 and at 3.2 percent per year from 1947 to 2016. Real disposable income grew at the average yearly rate of 3.2 percent from 1929 to 2016 and at 3.7 percent from 1947 to 1999. Real disposable income per capita grew at the average yearly rate of 2.0 percent from 1929 to 2016 and at 2.3 percent from 1947 to 1999. US economic growth was much faster during expansions, compensating contractions in maintaining trend growth for whole cycles. Using annual data, US real disposable income grew at the average yearly rate of 3.5 percent from 1980 to 1989 and real disposable income per capita at 2.6 percent. The US economy has lost its dynamism in the current cycle: real disposable income grew at the yearly average rate of 1.8 percent from 2006 to 2016 and real disposable income per capita at 1.0 percent. Real disposable income grew at the average rate of 1.7 percent from 2007 to 2016 and real disposable income per capita at 0.9 percent. Table IB-1 illustrates the contradiction of long-term growth with the proposition of secular stagnation (Hansen 1938, 1938, 1941 with early critique by Simons (1942). Secular stagnation would occur over long periods. Table IB-1 also provides the corresponding rates of population growth that is only marginally lower at 0.8 to 0.9 percent recently from 1.1 percent over the long-term. GDP growth fell abruptly from 2.6 percent on average from 2000 to 2006 to 1.4 percent from 2006 to 2016 and 1.3 percent from 2007 to 2017 and real disposable income growth fell from 2.9 percent on average from 2000 to 2006 to 1.8 percent from 2006 to 2016. The decline of growth of real per capita disposable income is even sharper from average 2.0 percent from 2000 to 2006 to 1.0 percent from 2006 to 2016 and 0.9 percent from 2007 to 2016 while population growth was 0.8 percent on average. Lazear and Spletzer (2012JHJul122) provide theory and measurements showing that cyclic factors explain currently depressed labor markets. This is also the case of the overall economy. Second, first four quarters of expansion. Growth in the first four quarters of expansion is critical in recovering loss of output and employment occurring during the contraction. In the first four quarters of expansion from IQ1983 to IVQ1983: GDP increased 7.8 percent, real disposable personal income 5.3 percent and real disposable income per capita 4.4 percent. In the first four quarters of expansion from IIIQ2009 to IIQ2010: GDP increased 2.7 percent, real disposable personal income 0.2 percent and real disposable income per capita decreased 0.7 percent. Third, first 33 quarters of expansion. In the expansion from IQ1983 to IQ1991: GDP grew 36.5 percent at the annual equivalent rate of 3.8 percent; real disposable income grew 31.8 percent at the annual equivalent rate of 3.4 percent; and real disposable income per capita grew 21.8 percent at the annual equivalent rate of 2.4 percent. The National Bureau of Economic Research (NBER) dates a contraction of the US from IQ1990 (Jul) to IQ1991 (Mar) (http://www.nber.org/cycles.html). The expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP contracted 1.3 percent from the pre-recession peak of $8983.9 billion of chained 2009 dollars in IIIQ1990 to the trough of $8865.6 billion in IQ1991 (http://www.bea.gov/iTable/index_nipa.cfm).

In the expansion from IIIQ2009 to IIIQ2017: GDP grew 19.5 percent at the annual equivalent rate of 2.2 percent; real disposable income grew 16.1 percent at the annual equivalent rate of 1.8 percent; and real disposable personal income per capita grew 9.3 percent at the annual equivalent rate of 1.1 percent. Fourth, entire quarterly cycle. In the entire cycle combining contraction and expansion from IQ1980 to IQ1991: GDP grew 36.3 percent at the annual equivalent rate of 2.7 percent; real disposable personal income grew 39.5 percent at the annual equivalent rate of 2.9 percent; and real disposable personal income per capita 25.0 percent at the annual equivalent rate of 2.0 percent. The National Bureau of Economic Research (NBER) dates a contraction of the US from IQ1990 (Jul) to IQ1991 (Mar) (https://www.nber.org/cycles.html). The expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP contracted 1.3 percent from the pre-recession peak of $8983.9 billion of chained 2009 dollars in IIIQ1990 to the trough of $8865.6 billion in IQ1991 (http://www.bea.gov/iTable/index_nipa.cfm). In the entire cycle combining contraction and expansion from IVQ2007 to IIIQ2017: GDP grew 14.4 percent at the annual equivalent rate of 1.4 percent; real disposable personal income increased 18.0 percent at the annual equivalent rate of 1.7 percent; and real disposable personal income per capita grew 9.7 percent at the annual equivalent rate of 1.0 percent. The United States grew during its history at high rates of per capita income that made its economy the largest in the world. That dynamism is disappearing. Bordo (2012 Sep27) and Bordo and Haubrich (2012DR) provide convincing evidence that recoveries have been faster after deeper recessions and recessions with financial crises, casting serious doubts on the conventional explanation of weak growth during the current expansion allegedly because of the depth of the contraction of 4.2 percent from IVQ2007 to IIQ2009 and the financial crisis. The proposition of secular stagnation should explain a long-term process of decay and not the actual abrupt collapse of the economy and labor markets currently.

Table IB-1, US, GDP, Real Disposable Personal Income, Real Disposable Income per Capita and Population Long-term and in 1983-89 and 2007-2016, %

Long-term Average ∆% per Year

GDP

Population

1929-2016

3.2

1.1

1947-2016

3.2

1.2

1947-1999

3.6

1.3

1980-1989

3.5

0.9

2000-2016

1.8

0.9

2000-2006

2.6

0.9

2006-2016

1.4

0.8

2007-2016

1.3

0.8

Long-term

Average ∆% per Year

Real Disposable Income

Real Disposable Income per Capita

Population

1929-2016

3.2

2.0

1.1

1947-1999

3.7

2.3

1.3

2000-2016

2.2

1.3

0.9

2000-2006

2.9

2.0

0.9

2006-2016

1.8

1.0

0.8

2007-2016

1.7

0.9

0.8

Whole Cycles

Average ∆% per Year

1980-1989

3.5

2.6

0.9

2006-2016

1.8

1.0

0.8

2007-2016

1.7

0.9

0.8

Comparison of Cycles

# Quarters

∆%

∆% Annual Equivalent

GDP

I83 to IV83

I83 to IQ87

I83 to II87

I83 to III87

I83 to IV87

I83 to I88

I83 to II88

I83 to III88

I83 to IV88

I83 to I89

I83 to II89

I83 to III89

I83 to IV89

I83 to I90

I83 to II90

I83 to III90

I83 to IV90

I83 to I91

4

17

18

19

20

21

22

23

24

25

26

27

28

29

30

31

32

33

7.8

23.1

24.5

25.6

27.7

28.4

30.1

30.9

32.6

34.0

35.0

36.0

36.3

37.8

38.3

38.4

37.2

36.5

7.8

5.0

5.0

4.9

5.0

4.9

4.9

4.8

4.8

4.8

4.7

4.7

4.5

4.5

4.4

4.3

4.0

3.8

RDPI

I83 to IV83

I83 to I87

I83 to III87

I83 to IV87

I83 to I88

I83 to II88

I83 to III88

I83 to IV88

I83 to I89

I83 to II89

I83 to III89

I83 to IV89

I83 to I90

I83 to II90

I83 to III90

I83 to IV90

I83 to I91

4

17

19

20

21

22

23

24

25

26

27

28

29

30

31

32

33

5.3

19.5

20.5

22.1

23.8

25.1

26.3

27.5

29.1

28.7

29.6

30.7

31.8

32.5

32.6

31.5

31.8

5.3

4.3

4.0

4.1

4.2

4.2

4.1

4.1

4.2

4.0

3.9

3.9

3.9

3.8

3.7

3.5

3.4

RDPI Per Capita

I83 to IV83

I83 to I87

I83 to III87

I83 to IV87

I83 to I88

I83 to II88

I83 to III88

I83 to IV88

I83 to I89

I83 to II89

I83 to III89

I83 to IV89

I83 to I90

I83 to II90

I83 to III90

I83 to IV90

I83 to I91

4

17

19

20

21

22

23

24

25

26

27

28

29

30

31

32

33

4.4

15.1

15.5

16.7

18.2

19.2

20.0

20.9

22.1

21.5

22.0

22.6

23.4

23.7

23.3

21.9

21.8

4.4

3.4

3.1

3.1

3.2

3.2

3.2

3.2

3.2

3.0

3.0

3.0

2.9

2.9

2.7

2.5

2.4

Whole Cycle IQ1980 to IQ1991

GDP

46

36.3

2.7

RDPI

46

39.5

2.9

RDPI per Capita

46

25.0

2.0

Population

46

11.6

1.0

GDP

III09 to II10

III09 to III17

4

33

2.7

19.5

2.7

2.2

RDPI

III09 to II10

III09 to I1I7

4

33

0.2

16.1

0.2

1.8

RDPI per Capita

III09 to II10

III09 to III17

4

33

-0.7

9.3

-0.7

1.1

Population

III09 to II10

III09 to III17

4

33

0.8

6.2

0.8

0.7

IVQ2007 to IIIQ2017

39

GDP

39

14.4

1.4

RDPI

39

18.0

1.7

RDPI per Capita

39

9.7

1.0

Population

39

7.6

0.8

RDPI: Real Disposable Personal Income

Source: US Bureau of Economic Analysis http://www.bea.gov/iTable/index_nipa.cfm

There are references to adverse periods as “lost decades.” There is a more prolonged and adverse period in Table V-3A: the lost economic cycle of the Global Recession with economic growth underperforming below trend worldwide. Economic contractions were relatively high but not comparable to the decline of GDP during the Great Depression. In fact, during the Great Depression in the four years of 1930 to 1933, US GDP in constant dollars fell 26.4 percent cumulatively and fell 45.3 percent in current dollars (Pelaez and Pelaez, Financial Regulation after the Global Recession (2009a), 150-2, Pelaez and Pelaez, Globalization and the State, Vol. II (2009b), 205-7 and revisions in http://bea.gov/iTable/index_nipa.cfm). Data are available for the 1930s only on a yearly basis. The contraction of GDP in the current cycle of the Global Recession was much lower, 4.2 percent (https://cmpassocregulationblog.blogspot.com/2017/10/dollar-revaluation-and-increase-of.html and earlier https://cmpassocregulationblog.blogspot.com/2017/10/destruction-of-household-nonfinancial.html). Contractions were deeper in Japan, 8.7 percent, the euro area (19 members), 5.8 percent, Germany, 6.9 percent and the UK 6.1 percent. The contraction in France was 4.0 percent. There is adversity in low rates of growth during the expansion that did not compensate for the contraction such that for the whole cycle performance is disappointingly low. As a result, GDP is substantially below what it would have been in trend growth in all countries and regions in the world. Long-term economic performance in the United States consisted of trend growth of GDP at 3 percent per year and of per capita GDP at 2 percent per year as measured for 1870 to 2010 by Robert E Lucas (2011May). The economy returned to trend growth after adverse events such as wars and recessions. The key characteristic of adversities such as recessions was much higher rates of growth in expansion periods that permitted the economy to recover output, income and employment losses that occurred during the contractions. Over the business cycle, the economy compensated the losses of contractions with higher growth in expansions to maintain trend growth of GDP of 3 percent and of GDP per capita of 2 percent. The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. US economic growth has been at only 2.2 percent on average in the cyclical expansion in the 33 quarters from IIIQ2009 to IIIQ2017. Boskin (2010Sep) measures that the US economy grew at 6.2 percent in the first four quarters and 4.5 percent in the first 12 quarters after the trough in the second quarter of 1975; and at 7.7 percent in the first four quarters and 5.8 percent in the first 12 quarters after the trough in the first quarter of 1983 (Professor Michael J. Boskin, Summer of Discontent, Wall Street Journal, Sep 2, 2010 http://professional.wsj.com/article/SB10001424052748703882304575465462926649950.html). There are new calculations using the revision of US GDP and personal income data since 1929 by the Bureau of Economic Analysis (BEA) (http://bea.gov/iTable/index_nipa.cfm) and the first estimate of GDP for IIIQ2017 (https://www.bea.gov/newsreleases/national/gdp/2017/pdf/gdp3q17_adv.pdf). The average of 7.7 percent in the first four quarters of major cyclical expansions is in contrast with the rate of growth in the first four quarters of the expansion from IIIQ2009 to IIQ2010 of only 2.7 percent obtained by dividing GDP of $14,745.9 billion in IIQ2010 by GDP of $14,355.6 billion in IIQ2009 {[($14,745.9/$14,355.6) -1]100 = 2.7%], or accumulating the quarter on quarter growth rates (https://cmpassocregulationblog.blogspot.com/2017/10/dollar-revaluation-and-increase-of.html). The expansion from IQ1983 to IVQ1985 was at the average annual growth rate of 5.9 percent, 5.4 percent from IQ1983 to IIIQ1986, 5.2 percent from IQ1983 to IVQ1986, 5.0 percent from IQ1983 to IQ1987, 5.0 percent from IQ1983 to IIQ1987, 4.9 percent from IQ1983 to IIIQ1987, 5.0 percent from IQ1983 to IVQ1987, 4.9 percent from IQ1983 to IIQ1988, 4.8 percent from IQ1983 to IIIQ1988, 4.8 percent from IQ1983 to IVQ1988, 4.8 percent from IQ1983 to IQ1989, 4.7 percent from IQ1983 to IIQ1989, 4.7 percent from IQ1983 to IIIQ1989, 4.5 percent from IQ1983 to IVQ1989. 4.5 percent from IQ1983 to IQ1990, 4.4 percent from IQ1983 to IIQ1990, 4.3 percent from IQ1983 to IIIQ1990, 4.0 percent from IQ1983 to IVQ1990, 3.8 percent from IQ1983 to IQ1991 and at 7.8 percent from IQ1983 to IVQ1983 (https://cmpassocregulationblog.blogspot.com/2017/10/dollar-revaluation-and-increase-of.html). The National Bureau of Economic Research (NBER) dates a contraction of the US from IQ1990 (Jul) to IQ1991 (Mar) (http://www.nber.org/cycles.html). The expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP contracted 1.3 percent from the pre-recession peak of $8983.9 billion of chained 2009 dollars in IIIQ1990 to the trough of $8865.6 billion in IQ1991 (http://www.bea.gov/iTable/index_nipa.cfm). The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. Growth at trend in the entire cycle from IVQ2007 to IIIQ2017 would have accumulated to 33.4 percent. GDP in IIIQ2017 would be $19,999.1 billion (in constant dollars of 2009) if the US had grown at trend, which is higher by $2842.2 billion than actual $17,156.9 billion. There are about two trillion dollars of GDP less than at trend, explaining the 21.2 million unemployed or underemployed equivalent to actual unemployment/underemployment of 12.5 percent of the effective labor force (https://cmpassocregulationblog.blogspot.com/2017/11/unchanged-fomc-policy-rate-gradual.html and earlier https://cmpassocregulationblog.blogspot.com/2017/10/twenty-one-million-unemployed-or.html). US GDP in IIIQ2017 is 14.2 percent lower than at trend. US GDP grew from $14,991.8 billion in IVQ2007 in constant dollars to $17,156.9 billion in IIIQ2017 or 14.4 percent at the average annual equivalent rate of 1.4 percent. Professor John H. Cochrane (2014Jul2) estimates US GDP at more than 10 percent below trend. Cochrane (2016May02) measures GDP growth in the US at average 3.5 percent per year from 1950 to 2000 and only at 1.76 percent per year from 2000 to 2015 with only at 2.0 percent annual equivalent in the current expansion. Cochrane (2016May02) proposes drastic changes in regulation and legal obstacles to private economic activity. The US missed the opportunity to grow at higher rates during the expansion and it is difficult to catch up because growth rates in the final periods of expansions tend to decline. The US missed the opportunity for recovery of output and employment always afforded in the first four quarters of expansion from recessions. Zero interest rates and quantitative easing were not required or present in successful cyclical expansions and in secular economic growth at 3.0 percent per year and 2.0 percent per capita as measured by Lucas (2011May). There is cyclical uncommonly slow growth in the US instead of allegations of secular stagnation. There is similar behavior in manufacturing. There is classic research on analyzing deviations of output from trend (see for example Schumpeter 1939, Hicks 1950, Lucas 1975, Sargent and Sims 1977). The long-term trend is growth of manufacturing at average 3.1 percent per year from Oct 1919 to Oct 2017. Growth at 3.1 percent per year would raise the NSA index of manufacturing output from 108.2393 in Dec 2007 to 146.1374 in Oct 2017. The actual index NSA in Oct 2017 is 106.1414, which is 27.4 percent below trend. Manufacturing output grew at average 2.1 percent between Dec 1986 and Oct 2017. Using trend growth of 2.1 percent per year, the index would increase to 132.7816 in Oct 2017. The output of manufacturing at 106.1414 in Oct 2017 is 20.1 percent below trend under this alternative calculation.

Table V-3A, Cycle 2007-2017, Percentage Contraction, Average Growth Rate in Expansion, Average Growth Rate in Whole Cycle and GDP Percent Below Trend

Contraction ∆%

Expansion AV ∆%

Whole Cycle AV ∆%

Below Trend Percent

USA

4.2

2.2

1.4

14.2

Japan

8.7

1.6

0.5

NA

Euro Area (19)

5.8

1.3

0.5

15.6

France

4.0

1.2

0.7

10.4

Germany

6.9

2.1

1.1

NA

UK

6.1

2.0

1.0

14.8

Note: AV: Average. Expansion and Whole Cycle AV ∆% calculated with quarterly growth, seasonally adjusted and quarterly adjusted when applicable, rates and converted into annual equivalent.

Data reported periodically in this blog.

Source: Country Statistical Agencies http://www.census.gov/aboutus/stat_int.html

There are seven basic facts illustrating the current economic disaster of the United States:

  • GDP maintained trend growth in the entire business cycle from IQ1980 to IQ1991, including contractions and expansions. The National Bureau of Economic Research (NBER) dates a contraction of the US from IQ1990 (Jul) to IQ1991 (Mar) (http://www.nber.org/cycles.html). The expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP contracted 1.3 percent from the pre-recession peak of $8983.9 billion of chained 2009 dollars in IIIQ1990 to the trough of $8865.6 billion in IQ1991 (http://www.bea.gov/iTable/index_nipa.cfm). GDP is well below trend in the entire business cycle from IVQ2007 to IIIQ2017, including contractions and expansions
  • Per capita real disposable income exceeded trend growth in the 1980s but is substantially below trend in IIIQ2017
  • Level of employed persons increased in the 1980s but declined/stagnated cyclically into IIIQ2017
  • Level of full-time employed persons increased in the 1980s but declined/stagnated cyclically into IIIQ2017
  • Level unemployed, unemployment rate and employed part-time for economic reasons fell in the recovery from the recessions in the 1980s but not substantially in relative cyclical terms in the recovery since IIQ2009
  • Wealth of households and nonprofit organizations soared in the 1980s but stagnated in historically-relative real terms into IIQ2017
  • Gross private domestic investment increased sharply from IQ1980 to IQ1991 but gross private domestic investment stagnated and private fixed investment stagnated in relative cyclical terms from IVQ2007 into IIIQ2017

There is a critical issue of the United States economy will be able in the future to attain again the level of activity and prosperity of projected trend growth. Growth at trend during the entire business cycles built the largest economy in the world but there may be an adverse, permanent weakness in United States economic performance and prosperity. Table IB-2 provides data for analysis of these seven basic facts. The seven blocks of Table IB-2 are separated initially after individual discussion of each one followed by the full Table IB-2.

1. Trend Growth.

i. As shown in Table IB-2, actual GDP grew cumulatively 35.9 percent from IQ1980 to IQ1991, which is relatively close to what trend growth would have been at 40.5 percent. Real GDP grew 36.3 percent from IVQ1979 to IQ1991. Rapid growth at the average annual rate of 3.8 percent per quarter during the expansion from IQ1983 to IQ1991 erased the loss of GDP of 4.7 percent during the contractions and maintained relatively close trend growth at 2.7 percent for GDP and 2.9 percent for real disposable personal income over the entire cycle. The National Bureau of Economic Research (NBER) dates a contraction of the US from IQ1990 (Jul) to IQ1991 (Mar) (http://www.nber.org/cycles.html). The expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP contracted 1.3 percent from the pre-recession peak of $8983.9 billion of chained 2009 dollars in IIIQ1990 to the trough of $8865.6 billion in IQ1991 (https://www.bea.gov/iTable/index_nipa.cfm).

ii. In contrast, cumulative growth from IVQ2007 to IIIQ2017 was 14.4 percent while trend growth would have been 33.4 percent. The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. US economic growth has been at only 2.2 percent on average in the cyclical expansion in the 33 quarters from IIIQ2009 to IIIQ2017. Boskin (2010Sep) measures that the US economy grew at 6.2 percent in the first four quarters and 4.5 percent in the first 12 quarters after the trough in the second quarter of 1975; and at 7.7 percent in the first four quarters and 5.8 percent in the first 12 quarters after the trough in the first quarter of 1983 (Professor Michael J. Boskin, Summer of Discontent, Wall Street Journal, Sep 2, 2010 http://professional.wsj.com/article/SB10001424052748703882304575465462926649950.html). There are new calculations using the revision of US GDP and personal income data since 1929 by the Bureau of Economic Analysis (BEA) (http://bea.gov/iTable/index_nipa.cfm) and the first estimate of GDP for IIIQ2017 (https://www.bea.gov/newsreleases/national/gdp/2017/pdf/gdp3q17_adv.pdf). The average of 7.7 percent in the first four quarters of major cyclical expansions is in contrast with the rate of growth in the first four quarters of the expansion from IIIQ2009 to IIQ2010 of only 2.7 percent obtained by dividing GDP of $14,745.9 billion in IIQ2010 by GDP of $14,355.6 billion in IIQ2009 {[($14,745.9/$14,355.6) -1]100 = 2.7%], or accumulating the quarter on quarter growth rates (https://cmpassocregulationblog.blogspot.com/2017/10/dollar-revaluation-and-increase-of.html). The expansion from IQ1983 to IVQ1985 was at the average annual growth rate of 5.9 percent, 5.4 percent from IQ1983 to IIIQ1986, 5.2 percent from IQ1983 to IVQ1986, 5.0 percent from IQ1983 to IQ1987, 5.0 percent from IQ1983 to IIQ1987, 4.9 percent from IQ1983 to IIIQ1987, 5.0 percent from IQ1983 to IVQ1987, 4.9 percent from IQ1983 to IIQ1988, 4.8 percent from IQ1983 to IIIQ1988, 4.8 percent from IQ1983 to IVQ1988, 4.8 percent from IQ1983 to IQ1989, 4.7 percent from IQ1983 to IIQ1989, 4.7 percent from IQ1983 to IIIQ1989, 4.5 percent from IQ1983 to IVQ1989. 4.5 percent from IQ1983 to IQ1990, 4.4 percent from IQ1983 to IIQ1990, 4.3 percent from IQ1983 to IIIQ1990, 4.0 percent from IQ1983 to IVQ1990, 3.8 percent from IQ1983 to IQ1991 and at 7.8 percent from IQ1983 to IVQ1983 (https://cmpassocregulationblog.blogspot.com/2017/10/dollar-revaluation-and-increase-of.html). The National Bureau of Economic Research (NBER) dates a contraction of the US from IQ1990 (Jul) to IQ1991 (Mar) (http://www.nber.org/cycles.html). The expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP contracted 1.3 percent from the pre-recession peak of $8983.9 billion of chained 2009 dollars in IIIQ1990 to the trough of $8865.6 billion in IQ1991 (http://www.bea.gov/iTable/index_nipa.cfm). The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. Growth at trend in the entire cycle from IVQ2007 to IIIQ2017 would have accumulated to 33.4 percent. GDP in IIIQ2017 would be $19,999.1 billion (in constant dollars of 2009) if the US had grown at trend, which is higher by $2842.2 billion than actual $17,156.9 billion. There are about two trillion dollars of GDP less than at trend, explaining the 21.2 million unemployed or underemployed equivalent to actual unemployment/underemployment of 12.5 percent of the effective labor force (https://cmpassocregulationblog.blogspot.com/2017/11/unchanged-fomc-policy-rate-gradual.html and earlier https://cmpassocregulationblog.blogspot.com/2017/10/twenty-one-million-unemployed-or.html). US GDP in IIIQ2017 is 14.2 percent lower than at trend. US GDP grew from $14,991.8 billion in IVQ2007 in constant dollars to $17,156.9 billion in IIIQ2017 or 14.4 percent at the average annual equivalent rate of 1.4 percent. Professor John H. Cochrane (2014Jul2) estimates US GDP at more than 10 percent below trend. Cochrane (2016May02) measures GDP growth in the US at average 3.5 percent per year from 1950 to 2000 and only at 1.76 percent per year from 2000 to 2015 with only at 2.0 percent annual equivalent in the current expansion. Cochrane (2016May02) proposes drastic changes in regulation and legal obstacles to private economic activity. The US missed the opportunity to grow at higher rates during the expansion and it is difficult to catch up because growth rates in the final periods of expansions tend to decline. The US missed the opportunity for recovery of output and employment always afforded in the first four quarters of expansion from recessions. Zero interest rates and quantitative easing were not required or present in successful cyclical expansions and in secular economic growth at 3.0 percent per year and 2.0 percent per capita as measured by Lucas (2011May). There is cyclical uncommonly slow growth in the US instead of allegations of secular stagnation. There is similar behavior in manufacturing. There is classic research on analyzing deviations of output from trend (see for example Schumpeter 1939, Hicks 1950, Lucas 1975, Sargent and Sims 1977). The long-term trend is growth of manufacturing at average 3.1 percent per year from Sep 1919 to Sep 2017. Growth at 3.1 percent per year would raise the NSA index of manufacturing output from 108.2393 in Dec 2007 to 145.7662 in Sep 2017. The actual index NSA in Sep 2017 is 104.2863, which is 28.5 percent below trend. Manufacturing output grew at average 2.0 percent between Dec 1986 and Sep 2017. Using trend growth of 2.0 percent per year, the index would increase to 131.2915 in Sep 2017. The output of manufacturing at 104.2863 in Sep 2017 is 20.6 percent below trend under this alternative calculation.

Period IQ1980 to IQ1991

GDP SAAR USD Billions

    IQ1980

6,524.9

    IQ1991

8,865.6

∆% IQ1980 to

IQ1991 (36.3 percent from IVQ1979 $6503.9 billion)

35.9

∆% Trend Growth IQ1980 to IQ1991

40.5

Period IVQ2007 to IIIQ2017

GDP SAAR USD Billions

    IVQ2007

14,991.8

    IIIQ2017

17,156.9

∆% IVQ2007 to IIIQ2017

14.4

∆% IVQ2007 to IIIQ2017 Trend Growth

33.4

2. Real Disposable Income

i. In the entire business cycle from IQ1980 to IQ1991, as shown in Table IB-2, per capita real disposable income, or what is left per person after inflation and taxes, grew cumulatively 24.9 percent, which is close to what would have been trend growth of 25.6 percent. The National Bureau of Economic Research (NBER) dates a contraction of the US from IQ1990 (Jul) to IQ1991 (Mar) (http://www.nber.org/cycles.html). The expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP contracted 1.3 percent from the pre-recession peak of $8983.9 billion of chained 2009 dollars in IIIQ1990 to the trough of $8865.6 billion in IQ1991 (http://www.bea.gov/iTable/index_nipa.cfm).

ii. In contrast, in the entire business cycle from IVQ2007 to IIIQ2017, per capita real disposable income increased 9.7 percent while trend growth would have been 21.3 percent. Income available after inflation and taxes is about the same as before the contraction after 32 consecutive quarters of GDP growth at mediocre rates relative to those prevailing during historical cyclical expansions. Growth of personal income during the expansion has been tepid even with the new revisions. In IVQ2014, personal income grew at 6.1 percent in nominal terms while nominal disposable income grew at 5.7 percent in nominal terms and at 5.9 percent in real terms (Table 14 at https://www.bea.gov/newsreleases/national/pi/2017/pdf/pi0617.pdf). In IQ2015, nominal personal income grew at 4.1 percent while nominal disposable income grew at 2.6 percent and at 4.3 percent in real terms (Table 14 at https://www.bea.gov/newsreleases/national/pi/2017/pdf/pi0617.pdf). In IIQ2015, nominal personal income grew at 5.7 percent while nominal disposable income grew at 5.6 percent and real disposable income grew at 3.8 percent (Table 14 at https://www.bea.gov/newsreleases/national/pi/2017/pdf/pi0617.pdf). In IIIQ2015, nominal personal income grew at 2.9 percent while nominal disposable income grew at 3.2 percent and real disposable income grew at 1.8 percent (Table 14 at https://www.bea.gov/newsreleases/national/pi/2017/pdf/pi0617.pdf). In IVQ2015, nominal personal income grew at 3.7 percent while nominal disposable income grew at 3.1 percent and real disposable income at 2.9 percent (Table 14 at https://www.bea.gov/newsreleases/national/pi/2017/pdf/pi0617.pdf). In IQ2016, personal income fell at 0.5 percent and fell at 2.1 percent excluding transfer receipts while nominal disposable income grew at 0.9 percent and real disposable income grew at 0.2 percent (Table 6 at https://www.bea.gov/newsreleases/national/pi/2017/pdf/pi0817.pdf). In IIQ2016, personal income grew at 4.1 percent and at 2.2 percent excluding transfer receipts while nominal disposable income grew at 4.0 percent and real disposable income grew at 1.9 percent (Table 6 at https://www.bea.gov/newsreleases/national/pi/2017/pdf/pi0917.pdf). In IIIQ2016, personal income grew at 3.0 percent and at 1.3 percent excluding transfer receipts while nominal disposable income grew at 2.5 percent and real disposable income grew at 0.7 percent (Table 6 at https://www.bea.gov/newsreleases/national/pi/2017/pdf/pi0917.pdf). In IVQ2016, nominal personal income fell at 0.1 percent, decreasing at 2.6 percent excluding current transfers while disposable income grew at 0.1 percent and real disposable income decreased at 1.8 percent (Table 6 at https://www.bea.gov/newsreleases/national/pi/2017/pdf/pi0917.pdf). In IQ2017, nominal personal income grew at 5.6 percent and 3.4 percent excluding transfer receipts while nominal disposable income grew at 5.2 percent and real disposable income at 2.9 percent (Table 6 at https://www.bea.gov/newsreleases/national/pi/2017/pdf/pi0917.pdf). In IIQ2017, nominal personal income grew at 3.0 percent and 3.2 percent excluding transfer receipts while nominal disposable income grew at 3.6 percent and real disposable income at 3.3 percent (Table 6 at https://www.bea.gov/newsreleases/national/pi/2017/pdf/pi0917.pdf). In IIIQ2017, nominal personal income grew at 2.8 percent and at 1.4 percent excluding transfer receipts while nominal disposable income grew at 2.1 percent and real disposable personal income grew at 0.6 percent (Table 6 at https://www.bea.gov/newsreleases/national/pi/2017/pdf/pi0917.pdf).

Period IQ1980 to IQ1991

Real Disposable Personal Income per Capita IQ1980 Chained 2009 USD

20,241

Real Disposable Personal Income per Capita IQ1991 Chained 2009 USD

25,290

∆% IQ1980 to IQ1991 (25.0 percent from IVQ1979 $20,230 billion)

24.9

∆% Trend Growth

25.6

Period IVQ2007 to IIIQ2017

Real Disposable Personal Income per Capita IVQ2007 Chained 2009 USD

35,819

Real Disposable Personal Income per Capita IIIQ2017 Chained 2009 USD

39,280

∆% IVQ2007 to IIIQ2017

9.7

∆% Trend Growth

21.3

3. Number of Employed Persons

i. As shown in Table IB-2, the number of employed persons increased over the entire business cycle from 98.527 million not seasonally adjusted (NSA) in IQ1980 to 116.440 million NSA in IQ1991 or by 18.2 percent. The National Bureau of Economic Research (NBER) dates a contraction of the US from IQ1990 (Jul) to IQ1991 (Mar) (http://www.nber.org/cycles.html). The expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP contracted 1.3 percent from the pre-recession peak of $8983.9 billion of chained 2009 dollars in IIIQ1990 to the trough of $8865.6 billion in IQ1991 (http://www.bea.gov/iTable/index_nipa.cfm).

ii. In contrast, during the entire business cycle the number employed nearly stagnated from 146.334 million in IVQ2007 to 154.494 million in IIIQ2017 or by 5.6 percent higher. There are 21.2 million unemployed or underemployed equivalent to actual unemployment/underemployment of 12.1 percent of the effective labor force (https://cmpassocregulationblog.blogspot.com/2017/11/unchanged-fomc-policy-rate-gradual.html and earlier https://cmpassocregulationblog.blogspot.com/2017/10/twenty-one-million-unemployed-or.html). The number employed in Oct 2017 was 154.223 million (NSA) or 6.908 million more people with jobs relative to the peak of 147.315 million in Jul 2007 while the civilian noninstitutional population of ages 16 years and over increased from 231.958 million in Jul 2007 to 255.766 million in Oct 2017 or by 23.808 million. The number employed increased 4.7 percent from Jul 2007 to Oct 2017 while the noninstitutional civilian population of ages of 16 years and over, or those available for work, increased 10.3 percent. The ratio of employment to population in Jul 2007 was 63.5 percent (147.315 million employed as percent of population of 231.958 million). The same ratio in Oct 2017 would result in 162.411 million jobs (0.635 multiplied by noninstitutional civilian population of 255.766 million). There are effectively 8.188 million fewer jobs in Oct 2017 than in Jul 2007, or 162.411 million minus 154.223 million. There is actually not sufficient job creation in merely absorbing new entrants in the labor force because of those dropping from job searches, worsening the stock of unemployed or underemployed in involuntary part-time jobs.

Period IQ1980 to IQ1991

Employed Millions IQ1980 NSA End of Quarter

98.527

Employed Millions IQ1991 NSA End of Quarter

116.440

∆% Employed IQ1980 to IQ1991

18.2

Period IVQ2007 to IIIQ2017

Employed Millions IVQ2007 NSA End of Quarter

146.334

Employed Millions IIIQ2017 NSA End of Quarter

154.494

∆% Employed IVQ2007 to IIIQ2017

5.6

4. Number of Full-Time Employed Persons

i. As shown in Table IB-2, during the entire business cycle in the 1980s, including contractions and expansion, the number of employed full-time rose from 81.280 million NSA in IQ1980 to 95.443 million NSA in IQ1991 or 17.4 percent. The National Bureau of Economic Research (NBER) dates a contraction of the US from IQ1990 (Jul) to IQ1991 (Mar) (http://www.nber.org/cycles.html). The expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP contracted 1.3 percent from the pre-recession peak of $8983.9 billion of chained 2009 dollars in IIIQ1990 to the trough of $8865.6 billion in IQ1991 (http://www.bea.gov/iTable/index_nipa.cfm).

ii. In contrast, during the entire current business cycle, including contraction and expansion, the number of persons employed full-time increased from 121.042 million in IVQ2007 to 127.235 million in IIIQ2017 or 5.1 percent. The magnitude of the stress in US labor markets is magnified by the increase in the civilian noninstitutional population of the United States from 231.958 million in Jul 2007 to 255.766 million in Oct 2017 or by 23.808 million (http://www.bls.gov/data/). The number with full-time jobs in Oct 2017 is 127.055 million, which is higher by 3.836 million relative to the peak of 123.219 million in Jul 2007. The ratio of full-time jobs of 123.219 million in Jul 2007 to civilian noninstitutional population of 231.958 million was 53.1 percent. If that ratio had remained the same, there would be 135.812 million full-time jobs with population of 255.766 million in Oct 2017 (0.531 x 255.766) or 8.757 million fewer full-time jobs relative to actual 127.055 million. There appear to be around 10 million fewer full-time jobs in the US than before the global recession while population increased around 20 million. Mediocre GDP growth is the main culprit of the fractured US labor market.

Period IQ1980 to IQ1991

Employed Full-time Millions IQ1980 NSA End of Quarter

81.280

Employed Full-time Millions IVQ1990 NSA End of Quarter

95.443

∆% Full-time Employed IQ1980 to IQ1991

17.4

Period IVQ2007 to IIIQ2017

Employed Full-time Millions IVQ2007 NSA End of Quarter

121.042

Employed Full-time Millions IIIQ2017 NSA End of Quarter

127.235

∆% Full-time Employed IVQ2007 to IIIQ2017

5.1

5. Unemployed, Unemployment Rate and Employed Part-time for Economic Reasons.

i. As shown in Table IB-2 and in the following block, in the cycle from IQ1980 to IQ1991: (a) The rate of unemployment was higher at 7.2 percent in IQ1991 relative to 6.6 percent in IQ1980. (b) The number unemployed increased from 6.983 million in IQ1980 to 9.121 million in IQ1991 or 30.6 percent. (c) The number employed part-time for economic reasons increased 68.7 percent from 3.624 million in IQ1980 to 6.114 million in IQ1991. The National Bureau of Economic Research (NBER) dates a contraction of the US from IQ1990 (Jul) to IQ1991 (Mar) (http://www.nber.org/cycles.html). The expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP contracted 1.3 percent from the pre-recession peak of $8983.9 billion of chained 2009 dollars in IIIQ1990 to the trough of $8865.6 billion in IQ1991 (http://www.bea.gov/iTable/index_nipa.cfm).

ii. In contrast, in the economic cycle from IVQ2007 to IIIQ2017: (a) The rate of unemployment decreased from 4.8 percent in IVQ2007 to 4.1 percent in IIIQ2017. (b) The number unemployed decreased 11.1 percent from 7.371 million in IVQ2007 to 6.656 million in IIIQ2017. (c) The number employed part-time for economic reasons because they could not find any other job increased 1.4 percent from 4.750 million in IVQ2007 to 4.818 million in IIIQ2017. (d) U6 Total Unemployed plus all marginally attached workers plus total employed part time for economic reasons as percent of all civilian labor force plus all marginally attached workers NSA increased from 8.7 percent in IVQ2007 to 8.0 percent in IIIQ2017.

Period IQ1980 to IVQ1990

Unemployment Rate IQ1980 NSA End of Quarter

6.6

Unemployment Rate IQ1991 NSA End of Quarter

7.2

Unemployed IQ1980 Millions NSA End of Quarter

6.983

Unemployed IQ1991 Millions NSA End of Quarter

9.121

∆%

30.6

Employed Part-time Economic Reasons IQ1980 Millions NSA End of Quarter

3.624

Employed Part-time Economic Reasons Millions IQ1991 NSA End of Quarter

6.114

∆%

68.7

Period IVQ2007 to IIIQ2017

Unemployment Rate IVQ2007 NSA End of Quarter

4.8

Unemployment Rate IIIQ2017 NSA End of Quarter

4.1

Unemployed IVQ2007 Millions NSA End of Quarter

7.371

Unemployed IIIQ2017 Millions NSA End of Quarter

6.556

∆%

-11.1

Employed Part-time Economic Reasons IVQ2007 Millions NSA End of Quarter

4.750

Employed Part-time Economic Reasons Millions IIIQ2017 NSA End of Quarter

4.818

∆%

1.4

U6 Total Unemployed plus all marginally attached workers plus total employed part time for economic reasons as percent of all civilian labor force plus all marginally attached workers NSA

IVQ2007

8.7

IIIQ2017

8.0

6. Wealth of Households and Nonprofit Organizations.

The comparison of net worth of households and nonprofit organizations in the entire economic cycle from IQ1980 (and from IVQ1979) to IVQ1990 and from IVQ2007 to IIQ2017 is in Table IIA-5. The data reveal the following facts for the cycles in the 1980s:

  • IVQ1979 to IVQ1990. Net worth increased 144.2 percent from IVQ1979 to IVQ1990, the all items CPI index increased 74.4 percent from 76.7 in Dec 1979 to 133.8 in Dec 1990 and real net worth increased 40.0 percent.
  • IQ1980 to IVQ1985. Net worth increased 65.7 percent, the all items CPI index increased 36.5 percent from 80.1 in Mar 1980 to 109.3 in Dec 1985 and real net worth increased 21.5 percent.
  • IVQ1979 to IVQ1985. Net worth increased 69.2 percent, the all items CPI index increased 42.5 percent from 76.7 in Dec 1979 to 109.3 in Dec 1985 and real net worth increased 18.7 percent.
  • IQ1980 to IQ1989. Net worth increased 118.8 percent, the all items CPI index increased 52.7 percent from 80.1 in Mar 1980 to 122.3 in Mar 1989 and real net worth increased 43.3 percent.
  • IQ1980 to IIQ1989. Net worth increased 123.2 percent, the all items CPI index increased 54.9 percent from 80.1 in Mar 1980 to 124.1 in Jun 1989 and real net worth increased 44.1 percent.
  • IQ1980 to IIIQ1989. Net worth increased 129.2 percent, the all items CPI index increased 56.1 percent from 80.1 in Mar 1980 to 125.0 in Sep 1989 and real net worth increased 46.9 percent.
  • IQ1980 to IVQ1989. Net worth increased 133.2 percent, the all items CPI index increased 57.4 from 80.1 in Mar 1980 to 126.1 in Dec 1989 and real net worth increased 48.1 percent.
  • IQ1980 to IQ1990. Net worth increased 134.4 percent, the all items CPI index increased 60.7 percent from 80.1 in Mar 1980 to 128.7 in Mar 1990 and real net worth increased 45.9 percent.
  • IQ1980 to IIQ1990. Net worth increased 136.9 percent, the all items CPI index increased 62.2 percent from 80.1 in Mar 1980 to 129.9 in Jun 1990 and real net worth increased 46.1 percent
  • IQ1980 to IIIQ1990. Net worth increased 134.3 percent, the all items CPI index increased 65.7 percent from 80.1 in Mar 1980 to 132.7 in Jun 1990 and real net worth increased 41.4 percent.
  • IQ1980 to IVQ1990. Net worth increased 139.2 percent, the all items CPI index increased 67.0 percent from 80.1 in Mar 1980 to 133.8 in Dec 1990 and real net worth increased 43.2 percent. The National Bureau of Economic Research (NBER) dates a contraction of the US from IQ1990 (Jul) to IQ1991 (Mar) (http://www.nber.org/cycles.html). The expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP contracted 1.3 percent from the pre-recession peak of $8983.9 billion of chained 2009 dollars in IIIQ1990 to the trough of $8865.6 billion in IQ1991 (http://www.bea.gov/iTable/index_nipa.cfm). This new cyclical contraction explains the contraction of net worth in IIIQ1990

There is disastrous performance in the current economic cycle:

  • IVQ2007 to IIQ2017. Net worth increased 44.1 percent, the all items CPI increased 16.1 percent from 210.036 in Dec 2007 to 244.955 in Jun 2017 and real or inflation adjusted net worth increased 23.6 percent. Real estate assets adjusted for inflation fell 0.1 percent. Growth of real net worth at the long-term average of 3.1 percent per year from IVQ1945 to IIQ2017 would have accumulated to 33.6 percent in the entire cycle from IVQ2007 to IIQ2017, much higher than actual 23.6 percent.

The explanation is partly in the sharp decline of wealth of households and nonprofit organizations and partly in the mediocre growth rates of the cyclical expansion beginning in IIIQ2009. Long-term economic performance in the United States consisted of trend growth of GDP at 3 percent per year and of per capita GDP at 2 percent per year as measured for 1870 to 2010 by Robert E Lucas (2011May). The economy returned to trend growth after adverse events such as wars and recessions. The key characteristic of adversities such as recessions was much higher rates of growth in expansion periods that permitted the economy to recover output, income and employment losses that occurred during the contractions. Over the business cycle, the economy compensated the losses of contractions with higher growth in expansions to maintain trend growth of GDP of 3 percent and of GDP per capita of 2 percent. The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. US economic growth has been at only 2.2 percent on average in the cyclical expansion in the 33 quarters from IIIQ2009 to IIIQ2017. Boskin (2010Sep) measures that the US economy grew at 6.2 percent in the first four quarters and 4.5 percent in the first 12 quarters after the trough in the second quarter of 1975; and at 7.7 percent in the first four quarters and 5.8 percent in the first 12 quarters after the trough in the first quarter of 1983 (Professor Michael J. Boskin, Summer of Discontent, Wall Street Journal, Sep 2, 2010 http://professional.wsj.com/article/SB10001424052748703882304575465462926649950.html). There are new calculations using the revision of US GDP and personal income data since 1929 by the Bureau of Economic Analysis (BEA) (http://bea.gov/iTable/index_nipa.cfm) and the first estimate of GDP for IIIQ2017 (https://www.bea.gov/newsreleases/national/gdp/2017/pdf/gdp3q17_adv.pdf). The average of 7.7 percent in the first four quarters of major cyclical expansions is in contrast with the rate of growth in the first four quarters of the expansion from IIIQ2009 to IIQ2010 of only 2.7 percent obtained by dividing GDP of $14,745.9 billion in IIQ2010 by GDP of $14,355.6 billion in IIQ2009 {[($14,745.9/$14,355.6) -1]100 = 2.7%], or accumulating the quarter on quarter growth rates (https://cmpassocregulationblog.blogspot.com/2017/10/dollar-revaluation-and-increase-of.html). The expansion from IQ1983 to IVQ1985 was at the average annual growth rate of 5.9 percent, 5.4 percent from IQ1983 to IIIQ1986, 5.2 percent from IQ1983 to IVQ1986, 5.0 percent from IQ1983 to IQ1987, 5.0 percent from IQ1983 to IIQ1987, 4.9 percent from IQ1983 to IIIQ1987, 5.0 percent from IQ1983 to IVQ1987, 4.9 percent from IQ1983 to IIQ1988, 4.8 percent from IQ1983 to IIIQ1988, 4.8 percent from IQ1983 to IVQ1988, 4.8 percent from IQ1983 to IQ1989, 4.7 percent from IQ1983 to IIQ1989, 4.7 percent from IQ1983 to IIIQ1989, 4.5 percent from IQ1983 to IVQ1989. 4.5 percent from IQ1983 to IQ1990, 4.4 percent from IQ1983 to IIQ1990, 4.3 percent from IQ1983 to IIIQ1990, 4.0 percent from IQ1983 to IVQ1990, 3.8 percent from IQ1983 to IQ1991 and at 7.8 percent from IQ1983 to IVQ1983 (https://cmpassocregulationblog.blogspot.com/2017/10/dollar-revaluation-and-increase-of.html). The National Bureau of Economic Research (NBER) dates a contraction of the US from IQ1990 (Jul) to IQ1991 (Mar) (http://www.nber.org/cycles.html). The expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP contracted 1.3 percent from the pre-recession peak of $8983.9 billion of chained 2009 dollars in IIIQ1990 to the trough of $8865.6 billion in IQ1991 (http://www.bea.gov/iTable/index_nipa.cfm). The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. Growth at trend in the entire cycle from IVQ2007 to IIIQ2017 would have accumulated to 33.4 percent. GDP in IIIQ2017 would be $19,999.1 billion (in constant dollars of 2009) if the US had grown at trend, which is higher by $2842.2 billion than actual $17,156.9 billion. There are about two trillion dollars of GDP less than at trend, explaining the 21.2 million unemployed or underemployed equivalent to actual unemployment/underemployment of 12.5 percent of the effective labor force (https://cmpassocregulationblog.blogspot.com/2017/11/unchanged-fomc-policy-rate-gradual.html and earlier https://cmpassocregulationblog.blogspot.com/2017/10/twenty-one-million-unemployed-or.html). US GDP in IIIQ2017 is 14.2 percent lower than at trend. US GDP grew from $14,991.8 billion in IVQ2007 in constant dollars to $17,156.9 billion in IIIQ2017 or 14.4 percent at the average annual equivalent rate of 1.4 percent. Professor John H. Cochrane (2014Jul2) estimates US GDP at more than 10 percent below trend. Cochrane (2016May02) measures GDP growth in the US at average 3.5 percent per year from 1950 to 2000 and only at 1.76 percent per year from 2000 to 2015 with only at 2.0 percent annual equivalent in the current expansion. Cochrane (2016May02) proposes drastic changes in regulation and legal obstacles to private economic activity. The US missed the opportunity to grow at higher rates during the expansion and it is difficult to catch up because growth rates in the final periods of expansions tend to decline. The US missed the opportunity for recovery of output and employment always afforded in the first four quarters of expansion from recessions. Zero interest rates and quantitative easing were not required or present in successful cyclical expansions and in secular economic growth at 3.0 percent per year and 2.0 percent per capita as measured by Lucas (2011May). There is cyclical uncommonly slow growth in the US instead of allegations of secular stagnation. There is similar behavior in manufacturing. There is classic research on analyzing deviations of output from trend (see for example Schumpeter 1939, Hicks 1950, Lucas 1975, Sargent and Sims 1977). The long-term trend is growth of manufacturing at average 3.1 percent per year from Sep 1919 to Sep 2017. Growth at 3.1 percent per year would raise the NSA index of manufacturing output from 108.2393 in Dec 2007 to 145.7662 in Sep 2017. The actual index NSA in Sep 2017 is 104.2863, which is 28.5 percent below trend. Manufacturing output grew at average 2.0 percent between Dec 1986 and Sep 2017. Using trend growth of 2.0 percent per year, the index would increase to 131.2915 in Sep 2017. The output of manufacturing at 104.2863 in Sep 2017 is 20.6 percent below trend under this alternative calculation.

Table IIA-5, Net Worth of Households and Nonprofit Organizations in Billions of Dollars, IVQ1979 to IIIQ1990 and IVQ2007 to IQ2017

Period IQ1980 to IVQ1990

Net Worth of Households and Nonprofit Organizations USD Millions

IVQ1979

IQ1980

8,994.9

9,180.9

IVQ1985

IIIQ1986

IVQ1986

IQ1987

IIQ1987

IIIQ1987

IVQ1987

IQ1988

IIQ1988

IIIQ1988

IVQ1988

IQ1989

IIQ1989

IIIQ1989

IVQ1989

IQ1990

IIQ1990

15,215.7

16,227.4

16,778.9

17,438.9

17,726.3

18,142.3

17,991.7

18,466.6

18,868.8

19,160.1

19,644.1

20,084.6

20,491.1

21,042.2

21,406.9

21,521.5

21,752.8

III1990

21,513.7

IV1990

21,963.7

∆ USD Billions IVQ1985

IVQ1979 to IVQ1990

IQ1980-IVQ1985

IQ1980-IIIQ1986

IQ1980-IVQ1986

IQ1980-IQ1987

IQ1980-IIQ1987

IQ1980-IIIQ1987

IQ1980-IVQ1987

IQ1980-IQ1988

IQ1980-IIQ1988

IQ1980-IIIQ1988

IQ1980-IVQ1988

IQ1980-IQ1989

IQ1980-IIQ1989

IQ1980-IIIQ1989

IQ1980-IVQ1989

IQ1980-IQ1990

IQ1980-IIQ1990

+6,220.8 ∆%69.2 R∆18.7

+12,968.8 ∆%144.2 R∆%40.0

+6,034.8 ∆%65.7 R∆%21.5

+7,046.5 ∆%76.8 R∆%28.5

+7,5598.0 ∆%82.8 R∆%32.5

+8,258.0 ∆%89.9 R∆%35.7

+8,545.4 ∆%93.1 R∆%36.3

+8,961.4 ∆%97.6 R∆%37.6

+8810.8 ∆%96.0 R∆%36.0

+9285.7 ∆%101.1 R∆%38.3

+9687.9 ∆%105.5 R∆%39.5

+9979.2 ∆%108.7 R∆%39.5

+10463.2 ∆%114.0 R∆%42.2

+10903.7 ∆%118.8 R∆%43.3

+11,310.2 ∆%123.2 R∆% 44.1

+11,861.3 ∆%129.2 R∆% 46.9

+12,226.0 ∆%133.2 R∆%48.1

+12,340.6 ∆%134.4 R∆%45.9

+12,571.9 ∆%136.9 R∆%46.1

IQ1980-IIIQ1990

+12,332.8 ∆%134.3 R∆%41.4

IQ1980-IVQ1990

+12,782.8 ∆%139.2 R∆%43.2

Period IVQ2007 to IIQ2017

Net Worth of Households and Nonprofit Organizations USD Millions

IVQ2007

66,738.2

IIQ2017

96,195.6

∆ USD Billions

+28,457.4 ∆%44.1 R∆%23.6

Net Worth = Assets – Liabilities. R∆% real percentage change or adjusted for CPI percentage change.

Source: Board of Governors of the Federal Reserve System. 2017. Flow of funds, balance sheets and integrated macroeconomic accounts: second quarter 2017. Washington, DC, Federal Reserve System, Sep 21. https://www.federalreserve.gov/releases/z1/current/default.htm

7. Gross Private Domestic Investment.

i. The comparison of gross private domestic investment in the entire economic cycles from IQ1980 to IQ1991 and from IVQ2007 to IIIQ2017 is in the following block and in Table IB-2. Gross private domestic investment increased from $951.6 billion in IQ1980 to $1,137.1 billion in IQ1991 or by 19.5 percent. The National Bureau of Economic Research (NBER) dates a contraction of the US from IQ1990 (Jul) to IQ1991 (Mar) (http://www.nber.org/cycles.html). The expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP contracted 1.3 percent from the pre-recession peak of $8983.9 billion of chained 2009 dollars in IIIQ1990 to the trough of $8865.6 billion in IQ1991 (http://www.bea.gov/iTable/index_nipa.cfm).

ii In the current cycle, gross private domestic investment increased from $2,605.2 billion in IVQ2007 to $2,967.5 billion in IIIQ2017, or 13.9 percent. Private fixed investment edged from $2,586.3 billion in IVQ2007 to $2,909.4 billion in IIIQ2017, or increase by 12.5 percent.

Period IQ1980-IQ1991

Gross Private Domestic Investment USD 2009 Billions

IQ1980

951.6

IQ1991

1137.1

∆%

19.5

Period IVQ2007 to IIIQ2017

Gross Private Domestic Investment USD Billions

IVQ2007

2,605.2

IIIQ2017

2,967.5

∆%

13.9

Private Fixed Investment USD 2009 Billions

IVQ2007

2,586.3

IIIQ2017

2,909.4

∆%

12.5

Table IB-2, US, GDP and Real Disposable Personal Income Per capita Actual and Trend Growth and Employment, 1980-1990 and 2007-2017, SAAR USD Billions, Millions of Persons and ∆%

Period IQ1980 to IQ1991

GDP SAAR USD Billions

    IQ1980

6,524.9

    IQ1991

8,865.6

∆% IQ1980 to

IQ1991 (36.3 percent from IVQ1979 $6503.9 billion)

35.9

∆% Trend Growth IQ1980 to IQ1991

40.5

Real Disposable Personal Income per Capita IQ1980 Chained 2009 USD

20,241

Real Disposable Personal Income per Capita IQ1991 Chained 2009 USD

25,290

∆% IQ1980 to IQ1991 (25.0 percent from IVQ1979 $20,230 billion)

24.9

∆% Trend Growth

25.6

Employed Millions IQ1980 NSA End of Quarter

98.527

Employed Millions IQ1991 NSA End of Quarter

116.440

∆% Employed IQ1980 to IQ1991

18.2

Employed Full-time Millions IQ1980 NSA End of Quarter

81.280

Employed Full-time Millions IQ1991 NSA End of Quarter

95.443

∆% Full-time Employed IQ1980 to IQ1991

17.4

Unemployment Rate IQ1980 NSA End of Quarter

6.6

Unemployment Rate IQ1991 NSA End of Quarter

7.2

Unemployed IQ1980 Millions NSA End of Quarter

6.983

Unemployed IQ1991 Millions NSA End of Quarter

9.121

∆%

30.6

Employed Part-time Economic Reasons IQ1980 Millions NSA End of Quarter

3.624

Employed Part-time Economic Reasons Millions IQ1991 NSA End of Quarter

6.114

∆%

68.7

Net Worth of Households and Nonprofit Organizations USD Billions

IVQ1979

8,994.9

IVQ1990

21,963.7

∆ USD Billions

+12,968.8

∆% CPI Adjusted

40.0

Gross Private Domestic Investment USD 2009 Billions

IQ1980

951.6

IQ1991

1137.1

∆%

19.5

Period IVQ2007 to IIIQ2017

GDP SAAR USD Billions

    IVQ2007

14,991.8

    IIQ2017

17,156.9

∆% IVQ2007 to IIIQ2017

14.4

∆% IVQ2007 to IIQ2017 Trend Growth

33.4

Real Disposable Personal Income per Capita IVQ2007 Chained 2009 USD

35,819

Real Disposable Personal Income per Capita IIIQ2017 Chained 2009 USD

39,280

∆% IVQ2007 to IIIQ2017

9.7

∆% Trend Growth

21.3

Employed Millions IVQ2007 NSA End of Quarter

146.334

Employed Millions IIIQ2017 NSA End of Quarter

154.494

∆% Employed IVQ2007 to IIIQ2017

5.6

Employed Full-time Millions IVQ2007 NSA End of Quarter

121.042

Employed Full-time Millions IIQ2017 NSA End of Quarter

127.235

∆% Full-time Employed IVQ2007 to IIIQ2017

5.1

Unemployment Rate IVQ2007 NSA End of Quarter

4.8

Unemployment Rate IIIQ2017 NSA End of Quarter

4.1

Unemployed IVQ2007 Millions NSA End of Quarter

7.371

Unemployed IIIQ2017 Millions NSA End of Quarter

6.556

∆%

-11.1

Employed Part-time Economic Reasons IVQ2007 Millions NSA End of Quarter

4.750

Employed Part-time Economic Reasons Millions IIIQ2017 NSA End of Quarter

4.818

∆%

1.4

U6 Total Unemployed plus all marginally attached workers plus total employed part time for economic reasons as percent of all civilian labor force plus all marginally attached workers NSA

IVQ2007

8.7

IIIQ2017

8.0

Net Worth of Households and Nonprofit Organizations USD Billions

IVQ2007

66,738.2

IIQ2017

96,195.6

∆ USD Billions

+28,457.4 ∆%44.1 R∆%23.6

Gross Private Domestic Investment USD Billions

IVQ2007

2,605.2

IIIQ2017

2,967.5

∆%

13.9

Private Fixed Investment USD 2009 Billions

IVQ2007

2,586.3

IIIQ2017

2,909.4

∆%

12.5

Note: GDP trend growth used is 3.0 percent per year and GDP per capita is 2.0 percent per year as estimated by Lucas (2011May) on data from 1870 to 2010.

Source: US Bureau of Economic Analysis http://www.bea.gov/iTable/index_nipa.cfm Source:

Board of Governors of the Federal Reserve System. 2017. Flow of funds, balance sheets and integrated macroeconomic accounts: second quarter 2017. Washington, DC, Federal Reserve System, Sep 21. https://www.federalreserve.gov/releases/z1/current/default.htm

The Congressional Budget Office (CBO 2017Jan24) estimates potential GDP, potential labor force and potential labor productivity provided in Table IB-3. The CBO estimates average rate of growth of potential GDP from 1950 to 2016 at 3.2 percent per year. The projected path is significantly lower at 1.8 percent per year from 2017 to 2027. The legacy of the economic cycle expansion from IIIQ2009 to IIIQ2017 at 2.2 percent on average is in contrast with 3.8 percent on average in the expansion from IQ1983 to IQ1991 (https://cmpassocregulationblog.blogspot.com/2017/10/dollar-revaluation-and-increase-of.html and earlier https://cmpassocregulationblog.blogspot.com/2017/10/destruction-of-household-nonfinancial.html). Subpar economic growth may perpetuate unemployment and underemployment estimated at 21.2 million or 12.1 percent of the effective labor force in Oct 2017 (https://cmpassocregulationblog.blogspot.com/2017/11/unchanged-fomc-policy-rate-gradual.html and earlier https://cmpassocregulationblog.blogspot.com/2017/10/twenty-one-million-unemployed-or.html) with much lower hiring than in the period before the current cycle (https://cmpassocregulationblog.blogspot.com/2017/11/recovery-without-hiring-ten-million.html and earlier https://cmpassocregulationblog.blogspot.com/2017/10/increasing-valuations-of-risk-financial.html).

Table IB-3, US, Congressional Budget Office History and Projections of Potential GDP of US Overall Economy, ∆%

Potential GDP

Potential Labor Force

Potential Labor Productivity*

Average Annual ∆%

1950-1973

4.0

1.6

2.4

1974-1981

3.2

2.5

0.6

1982-1990

3.4

1.7

1.7

1991-2001

3.3

1.2

2.0

2002-2007

2.4

1.0

1.4

2008-2016

1.4

0.5

0.9

Total 1950-2016

3.2

1.4

1.7

Projected Average Annual ∆%

2017-2020

1.7

0.5

1.2

2021-2027

1.9

0.5

1.4

2017-2027

1.8

0.5

1.3

*Ratio of potential GDP to potential labor force

Source: CBO, The budget and economic outlook: 2017-2027. Washington, DC, Jan 24, 2017 https://www.cbo.gov/publication/52370 CBO (2014BEOFeb4), CBO, Key assumptions in projecting potential GDP—February 2014 baseline. Washington, DC, Congressional Budget Office, Feb 4, 2014. CBO, The budget and economic outlook: 2015 to 2025. Washington, DC, Congressional Budget Office, Jan 26, 2015. Aug 2016

Chart IB1-A1 of the Congressional Budget Office provides historical and projected annual growth of United States potential GDP. There is sharp decline of growth of United States potential GDP.

Chart IB-1A1, Congressional Budget Office, Projections of Annual Growth of United States Potential GDP

Source: CBO, The budget and economic outlook: 2017-2027. Washington, DC, Jan 24, 2017 https://www.cbo.gov/publication/52370

https://www.cbo.gov/about/products/budget-economic-data#6

Chart IB-1A of the Congressional Budget Office provides historical and projected potential and actual US GDP. The gap between actual and potential output closes by 2017. Potential output expands at a lower rate than historically. Growth is even weaker relative to trend.

Chart IB-1A, Congressional Budget Office, Estimate of Potential GDP and Gap

Source: Congressional Budget Office

https://www.cbo.gov/publication/49890

Chart IB-1 of the Congressional Budget Office (CBO 2013BEOFeb5) provides actual and potential GDP of the United States from 2000 to 2011 and projected to 2024. Lucas (2011May) estimates trend of United States real GDP of 3.0 percent from 1870 to 2010 and 2.2 percent for per capita GDP. The United States successfully returned to trend growth of GDP by higher rates of growth during cyclical expansion as analyzed by Bordo (2012Sep27, 2012Oct21) and Bordo and Haubrich (2012DR). Growth in expansions following deeper contractions and financial crises was much higher in agreement with the plucking model of Friedman (1964, 1988). The unusual weakness of growth at 2.2 percent on average from IIIQ2009 to IIIQ2017 during the current economic expansion in contrast with 3.8 percent on average in the cyclical expansion from IQ1983 to IQ1991 (https://cmpassocregulationblog.blogspot.com/2017/10/dollar-revaluation-and-increase-of.html and earlier https://cmpassocregulationblog.blogspot.com/2017/10/destruction-of-household-nonfinancial.html) cannot be explained by the contraction of 4.2 percent of GDP from IVQ2007 to IIQ2009 and the financial crisis. Weakness of growth in the expansion is perpetuating unemployment and underemployment of 21.2 million or 12.1 percent of the labor force as estimated for Oct 2017 (https://cmpassocregulationblog.blogspot.com/2017/11/unchanged-fomc-policy-rate-gradual.html and earlier https://cmpassocregulationblog.blogspot.com/2017/10/twenty-one-million-unemployed-or.html). There is no exit from unemployment/underemployment and stagnating real wages because of the collapse of hiring (https://cmpassocregulationblog.blogspot.com/2017/11/recovery-without-hiring-ten-million.html and earlier https://cmpassocregulationblog.blogspot.com/2017/10/increasing-valuations-of-risk-financial.html). The US economy and labor markets collapsed without recovery. Abrupt collapse of economic conditions can be explained only with cyclic factors (Lazear and Spletzer 2012Jul22) and not by secular stagnation (Hansen 1938, 1939, 1941 with early dissent by Simons 1942).

Chart IB-1, US, Congressional Budget Office, Actual and Projections of Potential GDP, 2000-2024, Trillions of Dollars

Source: Congressional Budget Office, CBO (2013BEOFeb5). The last year in common in both projections is 2017. The revision lowers potential output in 2017 by 7.3 percent relative to the projection in 2007.

Chart IB-2 provides differences in the projections of potential output by the CBO in 2007 and more recently on Feb 4, 2014, which the CBO explains in CBO (2014Feb28).

Chart IB-2, Congressional Budget Office, Revisions of Potential GDP

Source: Congressional Budget Office, 2014Feb 28. Revisions to CBO’s Projection of Potential Output since 2007. Washington, DC, CBO, Feb 28, 2014.

Chart IB-3 provides actual and projected potential GDP from 2000 to 2024. The gap between actual and potential GDP disappears at the end of 2017 (CBO2014Feb4). GDP increases in the projection at 2.5 percent per year.

Chart IB-3, Congressional Budget Office, GDP and Potential GDP

Source: CBO (2013BEOFeb5), CBO, Key assumptions in projecting potential GDP—February 2014 baseline. Washington, DC, Congressional Budget Office, Feb 4, 2014.

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