Twenty Nine Million Unemployed or Underemployed, Stagnating Real Wages, Collapse of United States Dynamism of Income Growth and Employment Creation and World Financial Turbulence and Economic Slowdown with Global Recession Risk
Carlos M. Pelaez
© Carlos M. Pelaez, 2010, 2011, 2012
Executive Summary
I Twenty Nine 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
IIA Stagnating Real Wages
IIB Collapse of United States Dynamism of Income Growth and Employment Creation
III World Financial Turbulence
IIIA Financial Risks
IIIE Appendix Euro Zone Survival Risk
IIIF Appendix on Sovereign Bond Valuation
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
IIIGA Monetary Policy with Deficit Financing of Economic Growth
IIIGB Adjustment during the Debt Crisis of the 1980s
Executive Summary
ESI Twenty Nine Million Unemployed or Underemployed. Table ESI-1 consists of data and additional calculations using the BLS household survey, illustrating the possibility that the actual rate of unemployment could be 11.0 percent and the number of people in job stress could be around 28.7 million, which is 17.8 percent of the labor force. The first column provides for 2006 the yearly average population (POP), labor force (LF), participation rate or labor force as percent of population (PART %), employment (EMP), employment population ratio (EMP/POP %), unemployment (UEM), the unemployment rate as percent of labor force (UEM/LF Rate %) and the number of people not in the labor force (NLF). All data are unadjusted or not-seasonally-adjusted (NSA). The numbers in column 2006 are averages in millions while the monthly numbers for Sep 2011, Aug 2012 and Sep 2012 are in thousands, not seasonally adjusted. The average yearly participation rate of the population in the labor force was in the range of 66.0 percent minimum to 67.1 percent maximum between 2000 and 2006 with the average of 66.4 percent (ftp://ftp.bls.gov/pub/special.requests/lf/aa2006/pdf/cpsaat1.pdf). Table ESI-2 provides the yearly labor force participation rate from 1979 to 2012. The objective of Table ESI-1 is to assess how many people could have left the labor force because they do not think they can find another job. Row “LF PART 66.2 %” applies the participation rate of 2006, almost equal to the rates for 2000 to 2006, to the noninstitutional civilian population in Aug and Sep 2012 and Sep 2011 to obtain what would be the labor force of the US if the participation rate had not changed. In fact, the participation rate fell to 64.2 percent by Sep 2011 and was 63.7 percent in Aug 2012 and 63.6 percent in Sep 2012, suggesting that many people simply gave up on finding another job. Row “∆ NLF UEM” calculates the number of people not counted in the labor force because they could have given up on finding another job by subtracting from the labor force with participation rate of 66.2 percent (row “LF PART 66.2%”) the labor force estimated in the household survey (row “LF”). Total unemployed (row “Total UEM”) is obtained by adding unemployed in row “∆NLF UEM” to the unemployed of the household survey in row “UEM.” The row “Total UEM%” is the effective total unemployed “Total UEM” as percent of the effective labor force in row “LF PART 66.2%.” The results are that: (1) there are an estimated 6.302 million unemployed in Sep 2012 who are not counted because they left the labor force on their belief they could not find another job (∆NLF UEM); (2) the total number of unemployed is effectively 18.044 million (Total UEM) and not 11.742 million (UEM) of whom many have been unemployed long term; (3) the rate of unemployment is 11.2 percent (Total UEM%) and not 7.6 percent, not seasonally adjusted, or 7.8 percent seasonally adjusted; and (4) the number of people in job stress is close to 28.7 million by adding the 6.302 million leaving the labor force because they believe they could not find another job. The row “In Job Stress” in Table ESI-1 provides the number of people in job stress not seasonally adjusted at 28.7 million in Sep 2012, adding the total number of unemployed (“Total UEM”), plus those involuntarily in part-time jobs because they cannot find anything else (“Part Time Economic Reasons”) and the marginally attached to the labor force (“Marginally attached to LF”). The final row of Table ESI-1 shows that the number of people in job stress is equivalent to 17.8 percent of the labor force in Sep 2012. The employment population ratio “EMP/POP %” dropped from 62.9 percent on average in 2006 to 58.5 percent in Sep 2011, 58.5 percent in Aug 2012 and 58.8 percent in Sep 2012; the number employed (EMP) dropped from 144 million in 2006 to 143.333 million in Sep 2012 while population increased from 229.420 million in Sep 2006 to 243.772 million in Sep 2012 or by 14.352 million. What really matters for labor input in production and wellbeing is the number of people with jobs or the employment/population ratio, which has declined and does not show signs of increasing. There are several million fewer people working in 2012 than in 2006 and the number employed is not increasing while population increased 14.352 million. The number of hiring relative to the number unemployed measures the chances of becoming employed. The number of hiring in the US economy has declined by 17 million and does not show signs of increasing in an unusual recovery without hiring (http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html).
Table ESI-1, US, Population, Labor Force and Unemployment, NSA
| 2006 | Sep 2011 | Aug 2012 | Sep 2012 | |
| POP | 229 | 240,071 | 243,566 | 243,772 |
| LF | 151 | 154,022 | 155,255 | 155,075 |
| PART% | 66.2 | 64.2 | 63.7 | 63.6 |
| EMP | 144 | 140,502 | 142,558 | 143,333 |
| EMP/POP% | 62.9 | 58.5 | 58.5 | 58.8 |
| UEM | 7 | 13,520 | 12,696 | 11,742 |
| UEM/LF Rate% | 4.6 | 8.8 | 8.2 | 7.6 |
| NLF | 77 | 86,049 | 88,311 | 88,697 |
| LF PART 66.2% | 158,927 | 161,241 | 161,377 | |
| ∆NLF UEM | 4,905 | 5,986 | 6,302 | |
| Total UEM | 18,425 | 18,682 | 18,044 | |
| Total UEM% | 11.6 | 11.6 | 11.2 | |
| Part Time Economic Reasons | 8,541 | 7,842 | 8,110 | |
| Marginally Attached to LF | 2,511 | 2,561 | 2,517 | |
| In Job Stress | 29,477 | 28,085 | 28,671 | |
| People in Job Stress as % Labor Force | 18.6 | 17.4 | 17.8 |
Pop: population; LF: labor force; PART: participation; EMP: employed; UEM: unemployed; NLF: not in labor force; ∆NLF UEM: additional unemployed; Total UEM is UEM + ∆NLF UEM; Total UEM% is Total UEM as percent of LF PART 66.2%; In Job Stress = Total UEM + Part Time Economic Reasons + Marginally Attached to LF
Note: the first column for 2006 is in average millions; the remaining columns are in thousands; NSA: not seasonally adjusted
The labor force participation rate of 66.2% in 2006 is applied to current population to obtain LF PART 66.2%; ∆NLF UEM is obtained by subtracting the labor force with participation of 66.2 percent from the household survey labor force LF; Total UEM is household data unemployment plus ∆NLF UEM; and total UEM% is total UEM divided by LF PART 66.2%
Sources: US Bureau of Labor Statistics http://www.bls.gov/data/
In revealing research, Edward P. Lazear and James R. Spletzer (2012JHJul22) use the wealth of data in the valuable database and resources of the Bureau of Labor Statistics (http://www.bls.gov/data/) in providing clear thought on the nature of the current labor market of the United States. The critical issue of analysis and policy currently is whether unemployment is structural or cyclical. Structural unemployment could occur because of (1) industrial and demographic shifts; and (2) mismatches of skills and job vacancies in industries and locations. Consider the aggregate unemployment rate, Y, expressed in terms of share si of a demographic group in an industry i and unemployment rate yi of that demographic group (Lazear and Spletzer 2012JHJul22, 5-6):
Y = ∑isiyi (1)
This equation can be decomposed for analysis as (Lazear and Spletzer 2012JHJul22, 6):
∆Y = ∑i∆siy*i + ∑i∆yis*i (2)
The first term in (2) captures changes in the demographic and industrial composition of the economy ∆si multiplied by the average rate of unemployment y*i , or structural factors. The second term in (2) captures changes in the unemployment rate specific to a group, or ∆yi, multiplied by the average share of the group s*i, or cyclical factors. There are also mismatches in skills and locations relative to available job vacancies. A simple observation by Lazear and Spletzer (2012JHJul22) casts intuitive doubt on structural factors: the rate of unemployment jumped from 4.4 percent in the spring of 2007 to 10 percent in October 2009. By nature, structural factors should be permanent or occur over relative long periods. The revealing result of the exhaustive research of Lazear and Spletzer (2012JHJul22) is:
“The analysis in this paper and in others that we review do not provides any compelling evidence that there have been changes in the structure of the labor market that are capable of explaining the pattern of persistently high unemployment rates. The evidence points to primarily cyclic factors.”
Table ESI-1 and Chart ESI-1 provide the US labor force participation rate or percentage of the labor force in population. It is not likely that simple demographic trends caused the sharp decline during the global recession and failure to recover earlier levels. The civilian labor force participation rate dropped from the peak of 66.9 percent in Jul 2006 to 63.7 percent in Aug 2012 and even 63.4 percent in Jan and Apr 2012 and 63.6 percent in Sep 2012. The civilian labor force participation rate was 63.7 percent on an annual basis in 1979 and 63.7 percent in Nov 1980, reaching even 62.9 percent in both Apr and May 1979. The civilian labor force participation rate jumped with the recovery to 64.8 percent on an annual basis in 1985 and 65.9 percent in Jul 1985. Structural factors cannot explain these sudden changes vividly shown visually in the final segment of Chart ESI-1. Seniors would like to delay their retiring especially because of the adversities of financial repression on their savings. Labor force statistics are capturing the disillusion of potential workers of their chances in finding a job in what Lazear and Spletzer (2012JHJul22) characterize as accentuated cyclical factors.
Table ESI-1, US, Labor Force Participation Rate, Percent of Labor Force in Population, NSA, 1979-2012
| Year | Jul | Aug | Sep | Oct | Nov | Dec | Annual |
| 1979 | 64.9 | 64.5 | 63.8 | 64.0 | 63.8 | 63.8 | 63.7 |
| 1980 | 65.1 | 64.5 | 63.6 | 63.9 | 63.7 | 63.4 | 63.8 |
| 1981 | 65.0 | 64.6 | 63.5 | 64.0 | 63.8 | 63.4 | 63.9 |
| 1982 | 65.3 | 64.9 | 64.0 | 64.1 | 64.1 | 63.8 | 64.0 |
| 1983 | 65.4 | 65.1 | 64.3 | 64.1 | 64.1 | 63.8 | 64.0 |
| 1984 | 65.9 | 65.2 | 64.4 | 64.6 | 64.4 | 64.3 | 64.4 |
| 1985 | 65.9 | 65.4 | 64.9 | 65.1 | 64.9 | 64.6 | 64.8 |
| 1986 | 66.6 | 66.1 | 65.3 | 65.5 | 65.4 | 65.0 | 65.3 |
| 1987 | 66.8 | 66.5 | 65.5 | 65.9 | 65.7 | 65.5 | 65.6 |
| 1988 | 67.1 | 66.8 | 65.9 | 66.1 | 66.2 | 65.9 | 65.9 |
| 1989 | 67.7 | 67.2 | 66.3 | 66.6 | 66.7 | 66.3 | 66.5 |
| 1990 | 67.7 | 67.1 | 66.4 | 66.5 | 66.3 | 66.1 | 66.5 |
| 1991 | 67.3 | 66.6 | 66.1 | 66.1 | 66.0 | 65.8 | 66.2 |
| 1992 | 67.9 | 67.2 | 66.3 | 66.2 | 66.2 | 66.1 | 66.4 |
| 1993 | 67.5 | 67.0 | 66.1 | 66.4 | 66.3 | 66.2 | 66.3 |
| 1994 | 67.5 | 67.2 | 66.5 | 66.8 | 66.7 | 66.5 | 66.6 |
| 1995 | 67.7 | 67.1 | 66.5 | 66.7 | 66.5 | 66.2 | 66.6 |
| 1996 | 67.9 | 67.2 | 66.8 | 67.1 | 67.0 | 66.7 | 66.8 |
| 1997 | 68.1 | 67.6 | 67.0 | 67.1 | 67.1 | 67.0 | 67.1 |
| 1998 | 67.9 | 67.3 | 67.0 | 67.1 | 67.1 | 67.0 | 67.1 |
| 1999 | 67.9 | 67.3 | 66.8 | 67.0 | 67.0 | 67.0 | 67.1 |
| 2000 | 67.6 | 67.2 | 66.7 | 66.9 | 66.9 | 67.0 | 67.1 |
| 2001 | 67.4 | 66.8 | 66.6 | 66.7 | 66.6 | 66.6 | 66.8 |
| 2002 | 67.2 | 66.8 | 66.6 | 66.6 | 66.3 | 66.2 | 66.6 |
| 2003 | 66.8 | 66.3 | 65.9 | 66.1 | 66.1 | 65.8 | 66.2 |
| 2004 | 66.8 | 66.2 | 65.7 | 66.0 | 66.1 | 65.8 | 66.0 |
| 2005 | 66.8 | 66.5 | 66.1 | 66.2 | 66.1 | 65.9 | 66.0 |
| 2006 | 66.9 | 66.5 | 66.1 | 66.4 | 66.4 | 66.3 | 66.2 |
| 2007 | 66.8 | 66.1 | 66.0 | 66.0 | 66.1 | 65.9 | 66.0 |
| 2008 | 66.8 | 66.4 | 65.9 | 66.1 | 65.8 | 65.7 | 66.0 |
| 2009 | 66.2 | 65.6 | 65.0 | 64.9 | 64.9 | 64.4 | 65.4 |
| 2010 | 65.3 | 65.0 | 64.6 | 64.4 | 64.4 | 64.1 | 64.7 |
| 2011 | 64.6 | 64.3 | 64.2 | 64.1 | 63.9 | 63.8 | 64.1 |
| 2012 | 64.3 | 63.7 | 63.6 |
Sources: US Bureau of Labor Statistics http://www.bls.gov/data/
Chart ESI-1, US, Labor Force Participation Rate, Percent of Labor Force in Population, NSA, 1979-2011
Source: Bureau of Labor Statistics
ESII Recovery without Job Creation. Total nonfarm payroll employment seasonally adjusted (SA) increased 114,000 in Sep 2012 and private payroll employment rose 104,000. The number of nonfarm jobs and private jobs created has been declining in the first nine months of 2012 from 275,000 in Jan to 45,000 in Jun and 114,000 in Sep for total nonfarm jobs and from 277,000 in Jan to 63,000 in Jun and 104,000 in Sep for private jobs. Average new nonfarm jobs in the quarter Dec 2011 to Feb 2012 were 252,000 per month, declining to average 114,249 per month in the seven months from Mar to Sep 2012. Average new private jobs in the quarter Dec 2011 to Feb 2012 were 255,000 per month, declining to average 110,714 per month in the seven months from Mar 2012 to Sep 2012. The US labor force stood at 154.812 million in Jul 2011 and at 156.526 million in Jul 2012, not seasonally adjusted, for increase of 1.714 million, or 142,833 per month. The average increase of 114,249 new nonfarm jobs per month in the US from Mar to Sep 2012 is insufficient even to absorb 142,833 new entrants per month into the labor force. There is not sufficient job creation to merely absorb new entrants in the labor force, worsening the stock of unemployed or underemployed in involuntary part-time jobs. Table ESII-1 provides the monthly change in jobs seasonally adjusted in the prior strong contraction of 1981-1982 and the recovery in 1983 into 1984 and in the contraction of 2008-2009 and in the recovery in 2009 to 2012. All revisions have been incorporated in Table ESII-1. The data in the recovery periods are in relief to facilitate comparison. There is significant bias in the comparison. The average yearly civilian noninstitutional population was 174.2 million in 1983 and the civilian labor force 111.6 million, growing by 2009 to an average yearly civilian noninstitutional population of 235.8 million and civilian labor force of 154.1 million, that is, increasing by 35.4 percent and 38.1 percent, respectively (http://www.bls.gov/data/). Total nonfarm payroll jobs in 1983 were 90.280 million, jumping to 94.530 million in 1984 while total nonfarm jobs in 2010 were 129.874 million declining from 130.807 million in 2009 (http://www.bls.gov/data/). What is striking about the data in Table ESII-1 is that the numbers of monthly increases in jobs in 1983 and 1984 are several times higher than in 2010 to 2011 even with population higher by 35.4 percent and labor force higher by 38.1 percent in 2009 relative to 1983 nearly three decades ago and total number of jobs in payrolls rose by 39.5 million in 2010 relative to 1983 or by 43.8 percent. Growth at 2.2 percent has been mediocre in the twelve quarters of expansion beginning in IIIQ2009 in comparison with 6.2 percent in earlier expansions (http://cmpassocregulationblog.blogspot.com/2012/09/historically-sharper-recoveries-from.html) and also in terms of what is required to reduce the job stress of at around 24 million persons but likely close to 30 million. Some of the job growth and contraction in 2010 in Table ESII-1 is caused by the hiring and subsequent layoff of temporary workers for the 2010 census.
Table ESII-1, US, Monthly Change in Jobs, Number SA
| Month | 1981 | 1982 | 1983 | 2008 | 2009 | 2010 | Private |
| Jan | 95 | -327 | 225 | 41 | -818 | -40 | -40 |
| Feb | 67 | -6 | -78 | -84 | -724 | -35 | -27 |
| Mar | 104 | -129 | 173 | -95 | -799 | 189 | 141 |
| Apr | 74 | -281 | 276 | -208 | -692 | 239 | 193 |
| May | 10 | -45 | 277 | -190 | -361 | 516 | 84 |
| Jun | 196 | -243 | 378 | -198 | -482 | -167 | 92 |
| Jul | 112 | -343 | 418 | -210 | -339 | -58 | 92 |
| Aug | -36 | -158 | -308 | -274 | -231 | -51 | 128 |
| Sep | -87 | -181 | 1114 | -432 | -199 | -27 | 115 |
| Oct | -100 | -277 | 271 | -489 | -202 | 220 | 196 |
| Nov | -209 | -124 | 352 | -803 | -42 | 121 | 134 |
| Dec | -278 | -14 | 356 | -661 | -171 | 120 | 140 |
| 1984 | 2011 | Private | |||||
| Jan | 447 | 110 | 119 | ||||
| Feb | 479 | 220 | 257 | ||||
| Mar | 275 | 246 | 261 | ||||
| Apr | 363 | 251 | 264 | ||||
| May | 308 | 54 | 108 | ||||
| Jun | 379 | 84 | 102 | ||||
| Jul | 312 | 96 | 175 | ||||
| Aug | 241 | 85 | 52 | ||||
| Sep | 311 | 202 | 216 | ||||
| Oct | 286 | 112 | 139 | ||||
| Nov | 349 | 157 | 178 | ||||
| Dec | 127 | 223 | 234 | ||||
| 1985 | 2012 | Private | |||||
| Jan | 266 | 275 | 277 | ||||
| Feb | 124 | 259 | 254 | ||||
| Mar | 346 | 143 | 147 | ||||
| Apr | 195 | 68 | 85 | ||||
| May | 274 | 87 | 116 | ||||
| Jun | 145 | 45 | 63 | ||||
| Jul | 189 | 181 | 163 | ||||
| Aug | 193 | 142 | 97 | ||||
| Sep | 204 | 114 | 104 | ||||
| Oct | 187 | ||||||
| Nov | 209 | ||||||
| Dec | 168 |
Source: US Bureau of Labor Statistics http://www.bls.gov/data/
ESIII Manufacturing and Services Jobs. Manufacturing jobs fell by 16,000 in Sep 2012 relative to Aug 2012, seasonally adjusted, and fell 40,000 in Sep 2012 relative to Aug 2012, not seasonally adjusted, as shown in Table I-10 in the text, because of the weaker economy and international trade. In the six months ending in Aug, United States national industrial production accumulated decline of 0.4 percent at the annual equivalent rate of decline of 0.8 percent, which is substantially lower than 2.8 percent growth in 12 months. Capacity utilization for total industry in the United States fell 1.0 percentage point in Aug to 78.2 percent, which is 2.1 percentage points lower than the long-run average from 1972 to 2011. Manufacturing decreased 0.7 percent in Aug seasonally adjusted, increasing 4.1 percent not seasonally adjusted in 12 months, and fell 0.5 percent in the six months ending in Aug or at the annual equivalent rate of 1.0 percent (http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation_16.html). Table ESIII-1 provides national income by industry without capital consumption adjustment (WCCA). “Private industries” or economic activities have share of 86.5 percent in US national income in IQ2012 and 86.3 percent in IIQ2012. Most of US national income is in the form of services. In Sep 2012, there were 133.797 million nonfarm jobs NSA in the US, according to estimates of the establishment survey of the Bureau of Labor Statistics (BLS) (http://www.bls.gov/news.release/empsit.nr0.htm Table B-1). Total private jobs of 111.989 million NSA in Sep 2012 accounted for 83.7 percent of total nonfarm jobs of 133.797 million, of which 12.028 million, or 10.7 percent of total private jobs and 9.0 percent of total nonfarm jobs, were in manufacturing. Private service-producing jobs were 93.334 million NSA in Sep 2012, or 69.8 percent of total nonfarm jobs and 83.3 percent of total private-sector jobs. Manufacturing has share of 11.0 percent in US national income in IIQ2011, as shown in Table ESIII-1. Most income in the US originates in services. Subsidies and similar measures designed to increase manufacturing jobs will not increase economic growth and employment and may actually reduce growth by diverting resources away from currently employment-creating activities because of the drain of taxation.
Table ESIII-1, US, National Income without Capital Consumption Adjustment by Industry, Seasonally Adjusted Annual Rates, Billions of Dollars, % of Total
| SAAR IQ2012 | % Total | SAAR | % Total | |
| National Income WCCA | 13,788.3 | 100.0 | 13,867.8 | 100.0 |
| Domestic Industries | 13,573.4 | 98.4 | 13,620.5 | 98.2 |
| Private Industries | 11,922.7 | 86.5 | 11,967.5 | 86.3 |
| Agriculture | 134.0 | 1.0 | 132.8 | 0.9 |
| Mining | 211.0 | 1.5 | 208.7 | 1.5 |
| Utilities | 211.9 | 1.5 | 214.7 | 1.6 |
| Construction | 585.6 | 4.3 | 585.8 | 4.2 |
| Manufacturing | 1521.9 | 11.0 | 1530.4 | 11.0 |
| Durable Goods | 865.2 | 6.3 | 877.3 | 6.3 |
| Nondurable Goods | 656.6 | 4.8 | 653.1 | 4.7 |
| Wholesale Trade | 831.6 | 6.0 | 852.8 | 6.2 |
| Retail Trade | 947.5 | 6.9 | 947.2 | 6.8 |
| Transportation & WH | 416.5 | 3.0 | 417.7 | 3.0 |
| Information | 486.7 | 3.5 | 497.0 | 3.6 |
| Finance, insurance, RE | 2301.3 | 16.7 | 2271.1 | 16.4 |
| Professional, BS | 1955.0 | 14.2 | 1983.5 | 14.3 |
| Education, Health Care | 1380.8 | 10.0 | 1832.7 | 13.2 |
| Arts, Entertainment | 541.1 | 3.9 | 542.7 | 3.9 |
| Other Services | 397.9 | 2.9 | 400.3 | 2.9 |
| Government | 1650.7 | 12.0 | 1653.0 | 11.9 |
| Rest of the World | 214.9 | 1.6 | 247.3 | 1.8 |
Notes: SSAR: Seasonally-Adjusted Annual Rate; WCCA: Without Capital Consumption Adjustment by Industry; WH: Warehousing; RE, includes rental and leasing: Real Estate; Art, Entertainment includes recreation, accommodation and food services; BS: business services
Source: US Bureau of Economic Analysis http://www.bea.gov/iTable/index_nipa.cfm
ESIV Stagnating and Fluctuating Real Wages. Calculations using BLS data of inflation-adjusted average hourly earnings are shown in Table ESIV-1. The final column of Table ESIV-1 (“12 Month Real ∆%”) provides inflation-adjusted average hourly earnings of all employees in the US. Average hourly earnings rose above inflation throughout the first nine months of 2007 just before the global recession that began in the final quarter of 2007 when average hourly earnings lost to inflation. In contrast, average hourly earnings of all US workers have risen less than inflation in four months in 2010 and in all but the first month in 2011 and the loss accelerated at 1.8 percent in Sep 2011, declining to a real loss of 1.1 percent in Feb 2012 and 0.6 percent in Mar 2012. There was a gain of 0.5 percent in Apr 2012 in inflation-adjusted average hourly earnings but another fall of 0.6 percent in May 2012 followed by increases of 0.3 percent in Jun and 0.9 percent in Jul 2012. Real hourly earnings stagnated in the 12 months ending in Aug 2012 with increase of only 0.1 percent. Real hourly earnings are oscillating in part because of world inflation waves caused by carry trades from zero interest rates to commodity futures (http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html) and in part because of the collapse of hiring (http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html).
Table ESIV-1, US, Average Hourly Earnings Nominal and Inflation Adjusted, Dollars and % NSA
| AHE ALL | 12 Month | ∆% 12 Month CPI | 12 Month | |
| 2007 | ||||
| Jan* | $20.70* | 4.2* | 2.1 | 2.1* |
| Feb* | $20.79* | 4.1* | 2.4 | 1.7* |
| Mar | $20.82 | 3.7 | 2.8 | 0.9 |
| Apr | $21.05 | 3.3 | 2.6 | 0.7 |
| May | $20.83 | 3.7 | 2.7 | 1.0 |
| Jun | $20.82 | 3.8 | 2.7 | 1.1 |
| Jul | $20.99 | 3.4 | 2.4 | 1.0 |
| Aug | $20.85 | 3.5 | 2.0 | 1.5 |
| Sep | $21.18 | 4.0 | 2.8 | 1.2 |
| Oct | $21.07 | 2.7 | 3.5 | -0.8 |
| Nov | $21.13 | 3.3 | 4.3 | -0.9 |
| Dec | $21.37 | 3.7 | 4.1 | -0.4 |
| 2010 | ||||
| Jan | $22.55 | 2.0 | 2.6 | -0.6 |
| Feb | $22.61 | 1.4 | 2.1 | -0.7 |
| Mar | $22.51 | 1.2 | 2.3 | -1.1 |
| Apr | $22.56 | 1.8 | 2.2 | -0.4 |
| May | $22.63 | 2.5 | 2.0 | 0.5 |
| Jun | $22.37 | 1.7 | 1.1 | 0.6 |
| Jul | $22.44 | 1.8 | 1.2 | 0.6 |
| Aug | $22.58 | 1.7 | 1.1 | 0.6 |
| Sep | $22.63 | 1.8 | 1.1 | 0.7 |
| Oct | $22.73 | 1.9 | 1.2 | 0.7 |
| Nov | $22.72 | 1.1 | 1.1 | 0.0 |
| Dec | $22.79 | 1.7 | 1.5 | 0.2 |
| 2011 | ||||
| Jan | $23.20 | 2.9 | 1.6 | 1.3 |
| Feb | $23.03 | 1.9 | 2.1 | -0.2 |
| Mar | $22.93 | 1.9 | 2.7 | -0.8 |
| Apr | $23.00 | 2.0 | 3.2 | -1.2 |
| May | $23.09 | 2.0 | 3.6 | -1.5 |
| Jun | $22.85 | 2.1 | 3.6 | -1.4 |
| Jul | $22.98 | 2.4 | 3.6 | -1.2 |
| Aug | $22.88 | 1.3 | 3.8 | -2.4 |
| Sep | $23.09 | 2.0 | 3.9 | -1.8 |
| Oct | $23.34 | 2.7 | 3.5 | -0.8 |
| Nov | $23.19 | 2.1 | 3.4 | -1.3 |
| Dec | $23.26 | 2.1 | 3.0 | -0.9 |
| 2012 | ||||
| Jan | $23.61 | 1.8 | 2.9 | -1.1 |
| Feb | $23.45 | 1.8 | 2.9 | -1.1 |
| Mar | $23.41 | 2.1 | 2.7 | -0.6 |
| Apr | $23.64 | 2.8 | 2.3 | 0.5 |
| May | $23.35 | 1.1 | 1.7 | -0.6 |
| Jun | $23.30 | 2.0 | 1.7 | 0.3 |
| Jul | $23.52 | 2.3 | 1.4 | 0.9 |
| Aug | $23.29 | 1.8 | 1.7 | 0.1 |
| Sep | $23.67 | 2.5 |
Note: AHE ALL: average hourly earnings of all employees; CPI: consumer price index; Real: adjusted by CPI inflation; NA: not available
*AHE of production and nonsupervisory employees because of unavailability of data for all employees
Source: US Bureau of Labor Statistics http://www.bls.gov/data/
Average hourly earnings of all US employees in the US in constant dollars of 1982-1984 from the dataset of the US Bureau of Labor Statistics (BLS) are provided in Table ESIV-2. Average hourly earnings fell 0.5 percent after adjusting for inflation in the 12 months ending in Mar 2012 and gained 0.4 percent in the 12 months ending in Apr 2011 but then lost 0.6 percent in the 12 months ending in May 2012 with a gain of 0.3 percent in the 12 months ending in Jun 2012 and 1.0 percent in Jul 2012 followed by 0.1 percent in Sep 2012. Table ESIV-2 confirms the trend of deterioration of purchasing power of average hourly earnings in 2011 and into 2012 with 12-month percentage declines in four of the first four months of 2012, increase in three and stagnation in one. Those who still work bring back home a paycheck that buys fewer goods than a year earlier and savings in bank deposits do not pay anything because of financial repression (Section IB3 http://cmpassocregulationblog.blogspot.com/2012/09/historically-sharper-recoveries-from.html).
Table ESIV-2, US, Average Hourly Earnings of All Employees NSA in Constant Dollars of 1982-1984
| Year | Jan | Feb | Mar | Apr | May | Jun | Jul | Aug |
| 2006 | 10.05 | 10.11 | 9.92 | 9.88 | 9.97 | 9.88 | ||
| 2007 | 10.23 | 10.22 | 10.14 | 10.18 | 10.02 | 9.99 | 10.08 | 10.03 |
| 2008 | 10.11 | 10.12 | 10.11 | 10.00 | 9.91 | 9.84 | 9.77 | 9.83 |
| 2009 | 10.47 | 10.50 | 10.46 | 10.39 | 10.32 | 10.20 | 10.23 | 10.29 |
| 2010 | 10.41 | 10.43 | 10.34 | 10.35 | 10.37 | 10.26 | 10.29 | 10.34 |
| 2011 | 10.53 | 10.41 | 10.26 | 10.23 | 10.22 | 10.12 | 10.17 | 10.10 |
| 2012 | 10.42 | 10.30 | 10.21 | 10.27 | 10.16 | 10.15 | 10.27 | 10.11 |
| ∆% 12 Months | -1.0 | -1.1 | -0.5 | 0.4 | -0.6 | 0.3 | 1.0 | 0.1 |
Source: US Bureau of Labor Statistics
The deterioration of purchasing power of average hourly earnings of US workers is shown by Chart ESIV-1 of the US Bureau of Labor Statistics. Chart ESIV-1 plots average hourly earnings of all US employees in constant 1982-1984 dollars with evident decline from 2010 to 2012.
Chart ESIV-1, US, Average Hourly Earnings of All Employees in Constant Dollars of 1982-1984, SA 2006-2012
Source: US Bureau of Labor Statistics
Chart ESIV-2 provides 12-month percentage changes of average hourly earnings of all employees in constant dollars of 1982-1984, that is, adjusted for inflation. There was sharp contraction of inflation-adjusted average hourly earnings of US employees during parts of 2007 and 2008. Rates of change in 12 months became positive in parts of 2009 and 2010 but then became negative again in 2011 and now into 2012 with temporary increase in Apr 2012 that was reversed in May with another gain in Jun and Jul 2012 followed by stagnation in Aug 2012.
Chart ESIV-2, Average Hourly Earnings of All Employees NSA 12-Month Percent Change, 1982-1984 Dollars, NSA 2007-2012
Source: US Bureau of Labor Statistics
Average weekly earnings of all US employees in the US in constant dollars of 1982-1984 from the dataset of the US Bureau of Labor Statistics (BLS) are provided in Table ESIV-3. Average weekly earnings fell 0.9 percent after adjusting for inflation in the 12 months ending in Sep 2011, increased 0.9 percent in the 12 months ending in Oct, fell 0.7 percent in the 12 months ending in Nov and 0.3 in the 12 months ending in Dec, declining 0.3 percent in the 12 months ending in Jan 2012 and 0.4 percent in the 12 months ending in Feb 2012. Average weekly earnings in constant dollars were flat in Mar 2012 relative to Mar 2011, increasing 0.04 percent. Average weekly earnings in constant dollars increased 1.6 percent in Apr 2012 relative to Apr 2011 but fell 1.4 percent in May 2012 relative to May 2011, increasing 0.3 percent in the 12 months ending in Jun and 2.1 percent in Jul 2012. Real weekly earnings increased 0.4 percent in the 12 months ending in Aug 2012. Table ESIV-3 confirms the trend of deterioration of purchasing power of average weekly earnings in 2011 and into 2012 with oscillations according to carry trades causing world inflation waves (http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html). Those who still work bring back home a paycheck that buys fewer goods than a year earlier. The fractured US job market does not provide an opportunity for advancement as in past booms following recessions.
Table ESIV-3, US, Average Weekly Earnings of All Employees in Constant Dollars of 1982-1984, NSA 2007-2012
| Year | Feb | Mar | Apr | May | Jun | Jul | Aug |
| 2006 | 343.71 | 349.78 | 340.12 | 341.91 | 347.97 | 341.76 | |
| 2007 | 349.40 | 347.76 | 353.41 | 344.58 | 346.74 | 351.68 | 347.98 |
| 2008 | 346.21 | 351.70 | 344.13 | 340.77 | 343.40 | 337.06 | 340.18 |
| 2009 | 359.26 | 355.65 | 349.17 | 347.79 | 344.59 | 345.92 | 352.80 |
| 2010 | 350.51 | 349.60 | 351.84 | 356.80 | 349.97 | 352.02 | 358.90 |
| 2011 | 353.81 | 349.90 | 350.77 | 353.56 | 348.23 | 349.90 | 347.42 |
| 2012 | 352.27 | 350.04 | 356.52 | 348.50 | 349.28 | 357.26 | 348.78 |
| ∆% 12 M | -0.4 | 0.0 | 1.6 | -1.4 | 0.3 | 2.1 | 0.4 |
Source: US Bureau of Labor Statistics
Chart ESIV-3 provides average weekly earnings of all employees in constant dollars of 1982-1984. The same pattern emerges of sharp decline during the contraction, followed by recovery in the expansion and continuing fall from 2010 to 2011 and into 2012.
Chart ESIV-3, US, Average Weekly Earnings of All Employees in Constant Dollars of 1982-1984, SA 2006-2012
Source: US Bureau of Labor Statistics
Chart ESIV-4 provides 12-month percentage changes of average weekly earnings of all employees in the US in constant dollars of 1982-1984. There is the same pattern of contraction during the global recession in 2008 and then again trend of deterioration in the recovery without hiring and inflation waves in 2011 and 2012 (http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html http://cmpassocregulationblog.blogspot.com/2012_09_01_archive.html http://cmpassocregulationblog.blogspot.com/2012/07/world-inflation-waves-financial.html http://cmpassocregulationblog.blogspot.com/2012/06/destruction-of-three-trillion-dollars.html http://cmpassocregulationblog.blogspot.com/2012/05/world-inflation-waves-monetary-policy.html http://cmpassocregulationblog.blogspot.com/2012/06/recovery-without-hiring-continuance-of.html http://cmpassocregulationblog.blogspot.com/2012/04/fractured-labor-market-with-hiring.html http://cmpassocregulationblog.blogspot.com/2012/03/global-financial-and-economic-risk.html http://cmpassocregulationblog.blogspot.com/2012/02/world-inflation-waves-united-states.html http://cmpassocregulationblog.blogspot.com/2012/01/world-inflation-waves-united-states.html http://cmpassocregulationblog.blogspot.com/2012/01/recovery-without-hiring-united-states.html).
Chart ESIV-4, US, Average Weekly Earnings of All Employees NSA in Constant Dollars of 1982-1984 12-Month Percent Change, NSA 2007-2011
Source: US Bureau of Labor Statistics
ESV Collapse of United States Dynamism of Income Growth and Employment Creation. This blog has analyzed systematically the weakness of the United States recovery in the current business cycle from IIIQ2009 to the present in comparison with the recovery from the recessions in the 1980s from IQ1983 to IVQ1985. The United States has grown on average at 2.2 percent annual equivalent in the 12 quarters of expansion since IIIQ2009 while growth was 6.2 percent on average in recoveries after World War II and 5.7 percent from IQ1983 to IVQ1985. The conventional explanation is that the recession from IVQ2007 (Dec) to IIQ2009 (Jun) was so profound that it caused subsequent weak recovery and that historically growth after recessions with financial crises has been weaker. Michael D. Bordo (2012Sep27) and Bordo and Haubrich (2012DR) provide evidence contradicting the conventional explanation: recovery is much stronger on average after profound contractions and also much stronger after recessions with financial crises than after recessions without financial crises. Insistence on the conventional explanation prevents finding policies that can accelerate growth, employment and prosperity.
A monumental effort of data gathering, calculation and analysis by Carmen M. Reinhart and Kenneth Rogoff is highly relevant to banking crises, financial crash, debt crises and economic growth (Reinhart 2010CB; Reinhart and Rogoff 2011AF, 2011Jul14, 2011EJ, 2011CEPR, 2010FCDC, 2010GTD, 2009TD, 2009AFC, 2008TDPV; see also Reinhart and Reinhart 2011Feb, 2010AF and Reinhart and Sbrancia 2011). See http://cmpassocregulationblog.blogspot.com/2011/07/debt-and-financial-risk-aversion-and.html The dataset of Reinhart and Rogoff (2010GTD, 1) is quite unique in breadth of countries and over time periods:
“Our results incorporate data on 44 countries spanning about 200 years. Taken together, the data incorporate over 3,700 annual observations covering a wide range of political systems, institutions, exchange rate and monetary arrangements and historic circumstances. We also employ more recent data on external debt, including debt owed by government and by private entities.”
Reinhart and Rogoff (2010GTD, 2011CEPR) classify the dataset of 2317 observations into 20 advanced economies and 24 emerging market economies. In each of the advanced and emerging categories, the data for countries is divided into buckets according to the ratio of gross central government debt to GDP: below 30, 30 to 60, 60 to 90 and higher than 90 (Reinhart and Rogoff 2010GTD, Table 1, 4). Median and average yearly percentage growth rates of GDP are calculated for each of the buckets for advanced economies. There does not appear to be any relation for debt/GDP ratios below 90. The highest growth rates are for debt/GDP ratios below 30: 3.7 percent for the average and 3.9 for the median. Growth is significantly lower for debt/GDP ratios above 90: 1.7 for the average and 1.9 percent for the median. GDP growth rates for the intermediate buckets are in a range around 3 percent: the highest 3.4 percent average is for the bucket 60 to 90 and 3.1 percent median for 30 to 60. There is even sharper contrast for the United States: 4.0 percent growth for debt/GDP ratio below 30; 3.4 percent growth for debt/GDP ratio of 30 to 60; 3.3 percent growth for debt/GDP ratio of 60 to 90; and minus 1.8 percent, contraction, of GDP for debt/GDP ratio above 90.
For the five countries with systemic financial crises—Iceland, Ireland, UK, Spain and the US—real average debt levels have increased by 75 percent between 2007 and 2009 (Reinhart and Rogoff 2010GTD, Figure 1). The cumulative increase in public debt in the three years after systemic banking crisis in a group of episodes after World War II is 86 percent (Reinhart and Rogoff 2011CEPR, Figure 2, 10).
An important concept is “this time is different syndrome,” which “is rooted in the firmly-held belief that financial crises are something that happens to other people in other countries at other times; crises do not happen here and now to us” (Reinhart and Rogoff 2010FCDC, 9). There is both an arrogance and ignorance in “this time is different” syndrome, as explained by Reinhart and Rogoff (2010FCDC, 34):
“The ignorance, of course, stems from the belief that financial crises happen to other people at other time in other places. Outside a small number of experts, few people fully appreciate the universality of financial crises. The arrogance is of those who believe they have figured out how to do things better and smarter so that the boom can long continue without a crisis.”
There is sober warning by Reinhart and Rogoff (2011CEPR, 42) on the basis of the momentous effort of their scholarly data gathering, calculation and analysis:
“Despite considerable deleveraging by the private financial sector, total debt remains near its historic high in 2008. Total public sector debt during the first quarter of 2010 is 117 percent of GDP. It has only been higher during a one-year sting at 119 percent in 1945. Perhaps soaring US debt levels will not prove to be a drag on growth in the decades to come. However, if history is any guide, that is a risky proposition and over-reliance on US exceptionalism may only be one more example of the “This Time is Different” syndrome.”
As both sides of the Atlantic economy maneuver around defaults the experience on debt and growth deserves significant emphasis in research and policy. The world economy is slowing with high levels of unemployment in advanced economies. Countries do not grow themselves out of unsustainable debts but rather through de facto defaults by means of financial repression and in some cases through inflation. This time is not different.
Professor Michael D. Bordo (2012Sep27), at Rutgers University, is providing clear thought on the correct comparison of the current business cycles in the United States with those in United States history. There are two issues raised by Professor Bordo: (1) incomplete conclusions by lumping together countries with different institutions, economic policies and financial systems; and (2) the erroneous contention that growth is mediocre after financial crises and deep recessions, which is repeated daily in the media, but that Bordo and Haubrich (2012DR) persuasively demonstrate to be inconsistent with United States experience.
Depriving economic history of institutions is perilous as is illustrated by the economic history of Brazil. Douglass C. North (1994) emphasized the key role of institutions in explaining economic history. Rondo E. Cameron (1961, 1967, 1972) applied institutional analysis to banking history. Friedman and Schwartz (1963) analyzed the relation of money, income and prices in the business cycle and related the monetary policy of an important institution, the Federal Reserve System, to the Great Depression. Bordo, Choudhri and Schwartz (1995) analyze the counterfactual of what would have been economic performance if the Fed had used during the Great Depression the Friedman (1960) monetary policy rule of constant growth of money(for analysis of the Great Depression see Pelaez and Pelaez, Regulation of Banks and Finance (2009b), 198-217). Alan Meltzer (2004, 2010a,b) analyzed the Federal Reserve System over its history. The reader would be intrigued by Figure 5 in Reinhart and Rogoff (2010FCDC, 15) in which Brazil is classified in external default for seven years between 1828 and 1834 but not again until 64 years later in 1989, above the 50 years of incidence for serial default. This void has been filled in scholarly research on nineteenth-century Brazil by William R. Summerhill, Jr. (2007SC, 2007IR). There are important conclusions by Summerhill on the exceptional sample of institutional change or actually lack of change, public finance and financial repression in Brazil between 1822 an 1899, combining tools of economics, political science and history. During seven continuous decades, Brazil did not miss a single interest payment with government borrowing without repudiation of debt or default. What is really surprising is that Brazil borrowed by means of long-term bonds and even more surprising interest rates fell over time. The external debt of Brazil in 1870 was ₤41,275,961 and the domestic debt in the internal market was ₤25,708,711, or 62.3 percent of the total (Summerhill 2007IR, 73).
The experience of Brazil differed from that of Latin America (Summerhill 2007IR). During the six decades when Brazil borrowed without difficulty, Latin American countries becoming independent after 1820 engaged in total defaults, suffering hardship in borrowing abroad. The countries that borrowed again fell again in default during the nineteenth century. Venezuela defaulted in four occasions. Mexico defaulted in 1827, rescheduling its debt eight different times and servicing the debt sporadically. About 44 percent of Latin America’s sovereign debt was in default in 1855 and approximately 86 percent of total government loans defaulted in London originated in Spanish American borrowing countries.
External economies of commitment to secure private rights in sovereign credit would encourage development of private financial institutions, as postulated in classic work by North and Weingast (1989), Summerhill 2007IR, 22). This is how banking institutions critical to the Industrial Revolution were developed in England (Cameron 1972). The obstacle in Brazil found by Summerhill (2007IR) is that sovereign debt credibility was combined with financial repression. There was a break in Brazil of the chain of effects from protecting public borrowing, as in North and Weingast (1989), to development of private financial institutions. According to Pelaez 1976, 283) following Cameron:
“The banking law of 1860 placed severe restrictions on two basic modern economic institutions—the corporation and the commercial bank. The growth of the volume of bank credit was one of the most significant factors of financial intermediation and economic growth in the major trading countries of the gold standard group. But Brazil placed strong restrictions on the development of banking and intermediation functions, preventing the channeling of coffee savings into domestic industry at an earlier date.”
Brazil actually abandoned the gold standard during multiple financial crises in the nineteenth century, as it should have to protect domestic economic activity. Pelaez (1975, 447) finds similar experience in the first half of nineteenth-century Brazil:
“Brazil’s experience is particularly interesting in that in the period 1808-1851 there were three types of monetary systems. Between 1808 and 1829, there was only one government-related Bank of Brazil, enjoying a perfect monopoly of banking services. No new banks were established in the 1830s after the liquidation of the Bank of Brazil in 1829. During the coffee boom in the late 1830s and 1840s, a system of banks of issue, patterned after similar institutions in the industrial countries, supplied the financial services required in the first stage of modernization of the export economy.”
Financial crises in the advanced economies were transmitted to nineteenth-century Brazil by the arrival of a ship (Pelaez and Suzigan 1981). The explanation of those crises and the economy of Brazil requires knowledge and roles of institutions, economic policies and the financial system chosen by Brazil, in agreement with Bordo (2012Sep27).
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, finding 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). The comparison of recovery from IQ1983 to IVQ1985 is appropriate even when considering financial crises. There was significant financial turmoil during the 1980s. Benston and Kaufman (1997, 139) find that there was failure of 1150 US commercial and savings banks between 1983 and 1990, or about 8 percent of the industry in 1980, which is nearly twice more than between the establishment of the Federal Deposit Insurance Corporation in 1934 through 1983. More than 900 savings and loans associations, representing 25 percent of the industry, were closed, merged or placed in conservatorships (see Pelaez and Pelaez, Regulation of Banks and Finance (2008b), 74-7). The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) created the Resolution Trust Corporation (RTC) and the Savings Association Insurance Fund (SAIF) that received $150 billion of taxpayer funds to resolve insolvent savings and loans. The GDP of the US in 1989 was $5482.1 billion (http://www.bea.gov/iTable/index_nipa.cfm), such that the partial cost to taxpayers of that bailout was around 2.74 percent of GDP in a year. US GDP in 2011 is estimated at $15,075.7 billion, such that the bailout would be equivalent to cost to taxpayers of about $412.5 billion in current GDP terms. A major difference with the Troubled Asset Relief Program (TARP) for private-sector banks is that most of the costs were recovered with interest gains whereas in the case of savings and loans there was no recovery. Money center banks were under extraordinary pressure from the default of sovereign debt by various emerging nations that represented a large share of their net worth (see Pelaez 1986).
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 then returns to trend. 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. The analysis is sharpened 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. Long-term economic growth and prosperity are measured by the key indicators of growth of real income per capita, or what is earned per person after inflation. A refined concept would include real disposable income per capita, or what is earned per person after inflation and taxes.
Table ESV-1 provides the data required for broader comparison of the cyclical expansions of IQ1983 to IVQ1985 and the current one from 2009 to 2012. First, in the 13 quarters from IQ1983 to IVQ1985, GDP increased 19.6 percent at the annual equivalent rate of 5.7 percent; real disposable personal income (RDPI) increased 14.5 percent at the annual equivalent rate of 4.3 percent; RDPI per capita increased 11.5 percent at the annual equivalent rate of 3.4 percent; and population increased 2.7 percent at the annual equivalent rate of 0.8 percent. Second, in the 12 quarters of the current cyclical expansion from IIIQ2009 to IIQ2012, GDP increased 6.7 percent at the annual equivalent rate of 2.2 percent; real disposable personal income (RDPI) increased 3.8 percent at the annual equivalent rate of 1.3 percent; RDPI per capita increased 1.4 percent at the annual equivalent rate of 0.5 percent; and population increased 2.3 percent at the annual equivalent rate of 0.8 percent. Third, since the beginning of the recession in IVQ2007 to IIQ2012, GDP increased 1.7 percent, or barely above the level before the recession; real disposable personal income increased 3.5 percent; population increased 3.7 percent; and real disposable personal income per capita is 0.2 percent lower than the level before the recession. Real disposable personal income is the actual take home pay after inflation and taxes and real disposable income per capita is what is left per inhabitant. The current cyclical expansion is the worst in the period after World War II in terms of growth of economic activity and income. 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 strong 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 from IVQ2007 to IIQ2009 of 4.7 percent and the financial crisis.
Table ESV-1, US, GDP, Real Disposable Personal Income, Real Disposable Income per Capita and Population in 1983-85 and 2007-2011, %
| # Quarters | ∆% | ∆% Annual Equivalent | |
| IQ1983 to IVQ1985 | 13 | ||
| GDP | 19.6 | 5.7 | |
| RDPI | 14.5 | 4.3 | |
| RDPI Per Capita | 11.5 | 3.4 | |
| Population | 2.7 | 0.8 | |
| IIIQ2009 to IIQ2012 | 12 | ||
| GDP | 6.7 | 2.2 | |
| RDPI | 3.8 | 1.3 | |
| RDPI per Capita | 1.4 | 0.5 | |
| Population | 2.3 | 0.8 | |
| IVQ2007 to IIQ2012 | 19 | ||
| GDP | 1.7 | 0.4 | |
| RDPI | 3.5 | 0.7 | |
| RDPI per Capita | -0.2 | ||
| Population | 3.7 | 0.8 |
RDPI: Real Disposable Personal Income
Source: US Bureau of Economic Analysis http://www.bea.gov/iTable/index_nipa.cfm
There are six basic facts illustrating the current economic disaster of the United States: (1) GDP maintained trend growth in the entire business cycle from IQ1980 to IV1985, including contractions and expansions, but is well below trend in the entire business cycle from IVQ2007 to IIQ2012, including contractions and expansions; (2) per capita real disposable income exceeded trend growth in the 1980s but is substantially below trend in IIQ2012; (3) the number of employed persons increased in the 1980s but declined into IIQ2012; (4) the number of full-time employed persons increased in the 1980s but declined into IIQ2012; (5) the number unemployed, unemployment rate and number employed part-time for economic reasons fell in the recovery from the recessions of the 1980s but not substantially in the recovery after IIQ2009; and (6) wealth of households and nonprofit organizations soared in the 1980s but declined into IIQ2012. There is a critical issue of whether 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 ESV-2 provides data for analysis of these five basic facts. The six blocks of Table ESV-2 are separated initially after individual discussion of each one followed by the full Table ESV-2.
1. Trend Growth.
i. As shown in Table ESV-2, actual GDP grew cumulatively 17.7 percent from IQ1980 to IVQ1985, which is relatively close to what trend growth would have been at 18.5 percent. Rapid growth at 5.7 percent annual rate on average per quarter during the expansion from IQ1983 to IVQ1985 erased the loss of GDP of 4.8 percent during the contraction and maintained trend growth at 3 percent over the entire cycle.
ii. In contrast, cumulative growth from IVQ2007 to IIQ2012 was 1.7 percent while trend growth would have been 14.2 percent. GDP in IIQ2012 at seasonally adjusted annual rate is estimated at $13,548.5 percent by the Bureau of Economic Analysis (BEA) (http://www.bea.gov/iTable/index_nipa.cfm) and would have been $15,218.3 billion, or $1,669 billion higher, had the economy grown at trend over the entire business cycle as it happened during the 1980s and throughout most of US history. There is $1.7 trillion of foregone GDP that would have been created as it occurred during past cyclical expansions, which explains why employment has not rebounded to even higher than before. There would not be recovery of full employment even with growth of 3 percent per year beginning immediately because the opportunity was lost to grow faster during the expansion from IIIQ2009 to IIQ2012 after the recession from IVQ2007 to IIQ2009. The United States has acquired a heavy social burden of unemployment and underemployment of 28.7 million people or 17.8 percent of the effective labor force (Table ESI-1) that will not be significantly diminished even with return to growth of GDP of 3 percent per year because of growth of the labor force by new entrants. The US labor force grew from 142.583 million in 2000 to 153.124 million in 2007 or by 7.4 percent at the average yearly rate of 1.0 percent per year. The civilian noninstitutional population increased from 212.577 million in 2000 to 231.867 million in 2007 or 9.1 percent at the average yearly rate of 1.3 percent per year (data from http://www.bls.gov/data/). Data for the past five years cloud accuracy because of the number of people discouraged from seeking employment. The noninstitutional population of the United States increased from 231.867 million in 2007 to 239.618 million in 2011 or by 3.3 percent while the labor force increased from 153.124 million in 2007 to 153.617 million in 2011 or by 0.3 percent (data from http://www.bls.gov/data/). People ceased to seek jobs because they do not believe that there is a job available for them (Section I in the text).
| Period IQ1980 to IVQ1985 | |
| GDP SAAR USD Billions | |
| IQ1980 | 5,903.4 |
| IVQ1985 | 6,950.0 |
| ∆% IQ1980 to IVQ1985 | 17.7 |
| ∆% Trend Growth IQ1980 to IVQ1985 | 18.5 |
| Period IVQ2007 to IIQ2012 | |
| GDP SAAR USD Billions | |
| IVQ2007 | 13,326.0 |
| IIQ2012 | 13,548.5 |
| ∆% IVQ2007 to IIQ2012 Actual | 1.7 |
| ∆% IVQ2007 to IIQ2012 Trend | 14.2 |
2. Decline of Per Capita Real Disposable Income
i. In the entire business cycle from IQ1980 to IVQ1985, as shown in Table ESV-2 trend growth of per capita real disposable income, or what is left per person after inflation and taxes, grew cumulatively 14.5 percent, which is close to what would have been trend growth of 12.1 percent.
ii. In contrast, in the entire business cycle from IVQ2007 to IIQ2012, per capita real disposable income fell 0.2 percent while trend growth would have been 9.3 percent. Income available after inflation and taxes is lower than before the contraction after 12 consecutive quarters of GDP growth at mediocre rates relative to those prevailing during historical cyclical expansions.
| Period IQ1980 to IVQ1985 |
| Real Disposable Personal Income per Capita IQ1980 Chained 2005 USD | 18,938 |
| Real Disposable Personal Income per Capita IVQ1985 Chained 2005 USD | 21,687 |
| ∆% IQ1980 to IVQ1985 | 14.5 |
| ∆% Trend Growth | 12.1 |
| Period IVQ2007 to IIQ2012 |
| Real Disposable Personal Income per Capita IVQ2007 Chained 2005USD | 32,837 |
| Real Disposable Personal Income per Capita IIQ2012 Chained 2005 USD | 32,779 |
| ∆% IVQ2007 to IIQ2012 | -0.2 |
| ∆% Trend Growth | 9.3 |
3. Number of Employed Persons
i. As shown in Table ESV-2, the number of employed persons increased over the entire business cycle from 98.527 million not seasonally adjusted (NSA) in IQ1980 to 107.819 million NSA in IVQ1985 or by 9.4 percent.
ii. In contrast, during the entire business cycle the number employed fell from 146.334 million in IVQ2007 to 143.202 million in IIQ2012 or by 2.1 percent. There are 28.7 million persons unemployed or underemployed, which is 17.8 percent of the effective labor force (Table ESI-1).
| Period IQ1980 to IVQ1985 |
| Employed Millions IQ1980 NSA End of Quarter | 98.527 |
| Employed Millions IV1985 NSA End of Quarter | 107.819 |
| ∆% Employed IQ1980 to IV1985 | 9.4 |
| Period IVQ2007 to IIQ2012 |
| Employed Millions IVQ2007 NSA End of Quarter | 146.334 |
| Employed Millions IIQ2012 NSA End of Quarter | 143.202 |
| ∆% Employed IVQ2007 to IIQ2012 | -2.1 |
4. Number of Full-Time Employed Persons
i. As shown in Table ESV-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 88.757 million NSA in IVQ1985 or 9.2 percent.
ii. In contrast, during the entire current business cycle, including contraction and expansion, the number of persons employed full-time fell from 121.042 million in IVQ2007 to 116.024 million in IIQ2012 or by minus 4.1 percent.
| Period IQ1980 to IVQ1985 |
| Employed Full-time Millions IQ1980 NSA End of Quarter | 81.280 |
| Employed Full-time Millions IV1985 NSA End of Quarter | 88.757 |
| ∆% Full-time Employed IQ1980 to IV1985 | 9.2 |
| Period IVQ2007 to IIQ2012 |
| Employed Full-time Millions IVQ2007 NSA End of Quarter | 121.042 |
| Employed Full-time Millions IIQ2012 NSA End of Quarter | 116.024 |
| ∆% Full-time Employed IVQ2007 to IIQ2012 | -4.1 |
5. Unemployed, Unemployment Rate and Employed Part-time for Economic Reasons.
i. As shown in Table ESV-2 and in the following block, in the cycle from IQ1980 to IVQ1985: (a) the rate of unemployment was virtually the same at 6.7 percent in IQ1985 relative to 6.6 percent in IQ1980; (b) the number unemployed increased from 6.983 million in IQ1980 to 7.717 million in IVQ1985 or 10.5 percent; and (c) the number employed part-time for economic reasons increased 49.1 percent from 3.624 million in IQ1980 to 5.402 million in IVQ1985.
ii. In contrast, in the economic cycle from IVQ2007 to IIQ2012: (a) the rate of unemployment increased from 4.8 percent in IVQ2007 to 8.4 percent in IIQ2012; (b) the number unemployed increased 78.9 percent from 7.371 million in IVQ2007 to 13.184 million in IIQ2012; and (c) the number employed part-time for economic reasons increased 76.7 percent from 4.750 in IVQ2007 to 8.394 million in IIQ2012.
| Period IQ1980 to IVQ1985 |
| Unemployment Rate IQ1980 NSA End of Quarter | 6.6 |
| Unemployment Rate IV1985 NSA End of Quarter | 6.7 |
| Unemployed IQ1980 Millions End of Quarter | 6.983 |
| Unemployed IV 1985 Millions End of Quarter | 7.717 |
| Employed Part-time Economic Reasons Millions IQ1980 End of Quarter | 3.624 |
| Employed Part-time Economic Reasons Millions IVQ1985 End of Quarter | 5.402 |
| ∆% | 49.1 |
| Period IVQ2007 to IIQ2012 |
| Unemployment Rate IVQ2007 NSA End of Quarter | 4.8 |
| Unemployment Rate IIQ2012 NSA End of Quarter | 8.4 |
| Unemployed IVQ2007 Millions End of Quarter | 7.371 |
| Unemployed IIQ2009 Millions End of Quarter | 13.184 |
| ∆% | 78.9 |
| Employed Part-time Economic Reasons IVQ2007 Millions End of Quarter | 4.750 |
| Employed Part-time Economic Reasons Millions IIQ2009 End of Quarter | 8.394 |
| ∆% | 76.7 |
6. Wealth of Households and Nonprofit Organizations.
i. The comparison of net worth of households and nonprofit organizations in the entire economic cycle from IQ1980 (and also from IVQ1979) to IVQ1985 and from IVQ2007 to IIQ2012 is provided in the following block and in Table ESV-2. Net worth of households and nonprofit organizations increased from $8,326.4 billion in IVQ1979 to $14,395.2 billion in IVQ1985 or 72.9 percent or 69.3 percent from $8,502.9 billion in IQ1980. The starting quarter does not bias the results. The US consumer price index not seasonally adjusted increased from 76.7 in Dec 1979 to 109.3 in Dec 1985 or 42.5 percent or 36.5 percent from 80.1 in Mar 1980 (using consumer price index data from the US Bureau of Labor Statistics at http://www.bls.gov/cpi/data.htm). In terms of purchasing power measured by the consumer price index, real wealth of households and nonprofit organizations increased 21.3 percent in constant purchasing power from IVQ1979 to IVQ1985 or 24.0 percent from IQ1980.
ii. In contrast, as shown in the following block and in Table ESV-2, net worth of households and nonprofit organizations fell from $66,057.1 billion in IVQ2007 to $62,668.4 billion in IIQ2012 by $3,388.7 billion or 5.1 percent. The US consumer price index was 210.036 in Dec 2007 and 229.478 in Jun 2012 for increase of 9.3 percent. In purchasing power of Dec 2007, wealth of households and nonprofit organizations is lower by 13.2 percent in Jun 2012 after 12 consecutive quarters of expansion from IIIQ2009 to IIQ2012 relative to IVQ2012 when the recession began. 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. The average growth rate from IIIQ2009 to IIQ2012 has been 2.2 percent, which is substantially lower than the average of 6.2 percent in cyclical expansions after World War II and 5.7 percent in the expansion from IQ1983 to IVQ1985 (see Table I-5 http://cmpassocregulationblog.blogspot.com/2012/09/historically-sharper-recoveries-from.html). The US missed the opportunity of high growth rates that has been available in past cyclical expansions.
| Period IQ1980 to IVQ1985 | |
| Net Worth of Households and Nonprofit Organizations USD Billions | |
| IVQ1979 | 8,326.4 |
| IVQ1985 | 14,395.2 |
| ∆ USD Billions | +6,068.8 |
| Period IVQ2007 to IIQ2012 | |
| Net Worth of Households and Nonprofit Organizations USD Billions | |
| IVQ2007 | 66,057.1 |
| IIQ2012 | 62,668.4 |
| ∆ USD Billions | -3,388.7 |
Table ESV-2, US, GDP and Real Disposable Personal Income per Capita Actual and Trend Growth and Employment, 1980-1985 and 2007-2012, SAAR USD Billions, Millions of Persons and ∆%
| Period IQ1980 to IVQ1985 | |
| GDP SAAR USD Billions | |
| IQ1980 | 5,903.4 |
| IVQ1985 | 6,950.0 |
| ∆% IQ1980 to IVQ1985 | 17.7 |
| ∆% Trend Growth IQ1980 to IVQ1985 | 18.5 |
| Real Disposable Personal Income per Capita IQ1980 Chained 2005 USD | 18,938 |
| Real Disposable Personal Income per Capita IVQ1985 Chained 2005 USD | 21,687 |
| ∆% IQ1980 to IVQ1985 | 14.5 |
| ∆% Trend Growth | 12.1 |
| Employed Millions IQ1980 NSA End of Quarter | 98.527 |
| Employed Millions IV1985 NSA End of Quarter | 107.819 |
| ∆% Employed IQ1980 to IV1985 | 9.4 |
| Employed Full-time Millions IQ1980 NSA End of Quarter | 81.280 |
| Employed Full-time Millions IV1985 NSA End of Quarter | 88.757 |
| ∆% Full-time Employed IQ1980 to IV1985 | 9.2 |
| Unemployment Rate IQ1980 NSA End of Quarter | 6.6 |
| Unemployment Rate IV1985 NSA End of Quarter | 6.7 |
| Unemployed IQ1980 Millions NSA End of Quarter | 6.983 |
| Unemployed IV 1985 Millions NSA End of Quarter | 7.717 |
| ∆% | 11.9 |
| Employed Part-time Economic Reasons IVQ2007 Millions NSA End of Quarter | 4.750 |
| Employed Part-time Economic Reasons Millions IIQ2009 NSA End of Quarter | 8.394 |
| ∆% | 76.7 |
| Net Worth of Households and Nonprofit Organizations USD Billions | |
| IVQ1979 | 8,326.4 |
| IVQ1985 | 14,395.2 |
| ∆ USD Billions | +6,068.8 |
| Period IVQ2007 to IIQ2012 | |
| GDP SAAR USD Billions | |
| IVQ2007 | 13,326.0 |
| IIQ2012 | 13,548.5 |
| ∆% IVQ2007 to IIQ2012 | 1.7 |
| ∆% IVQ2007 to IIQ2012 Trend Growth | 14.2 |
| Real Disposable Personal Income per Capita IVQ2007 Chained 2005USD | 32,837 |
| Real Disposable Personal Income per Capita IIQ2012 Chained 2005 USD | 32,779 |
| ∆% IVQ2007 to IIQ2012 | -0.2 |
| ∆% Trend Growth | 9.3 |
| Employed Millions IVQ2007 NSA End of Quarter | 146.334 |
| Employed Millions IIQ2012 NSA End of Quarter | 143.202 |
| ∆% Employed IVQ2007 to IIQ2012 | -2.1 |
| Employed Full-time Millions IVQ2007 NSA End of Quarter | 121.042 |
| Employed Full-time Millions IIQ2012 NSA End of Quarter | 116.024 |
| ∆% Full-time Employed IVQ2007 to IIQ2012 | -4.1 |
| Unemployment Rate IVQ2007 NSA End of Quarter | 4.8 |
| Unemployment Rate IIQ2012 NSA End of Quarter | 8.4 |
| Unemployed IVQ2007 Millions NSA End of Quarter | 7.371 |
| Unemployed IIQ2009 Millions NSA End of Quarter | 13.184 |
| ∆% | 78.9 |
| Employed Part-time Economic Reasons IVQ2007 Millions NSA End of Quarter | 4.750 |
| Employed Part-time Economic Reasons Millions IIQ2009 NSA End of Quarter | 8.394 |
| ∆% | 76.7 |
| Net Worth of Households and Nonprofit Organizations USD Billions | |
| IVQ2007 | 66,057.1 |
| IIQ2012 | 62,668.4 |
| ∆ USD Billions | -3,388.7 |
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 US Bureau of Labor Statistics http://www.bls.gov/data/. Board of Governors of the Federal Reserve System. 2012Sep20. Flow of funds accounts of the United States. Washington, DC, Federal Reserve System.
ESVI Global Financial and Economic Risk. The International Monetary Fund (IMF) provides an international safety net for prevention and resolution of international financial crises. The IMF’s Financial Sector Assessment Program (FSAP) provides analysis of the economic and financial sectors of countries (see Pelaez and Pelaez, International Financial Architecture (2005), 101-62, Globalization and the State, Vol. II (2008), 114-23). Relating economic and financial sectors is a challenging task both for theory and measurement. The IMF provides surveillance of the world economy with its Global Economic Outlook (WEO) (http://www.imf.org/external/pubs/ft/weo/2012/update/01/index.htm), of the world financial system with its Global Financial Stability Report (GFSR) (http://www.imf.org/external/pubs/ft/fmu/eng/2012/01/index.htm) and of fiscal affairs with the Fiscal Monitor (http://www.imf.org/external/pubs/ft/fm/2012/update/01/fmindex.htm). There appears to be a moment of transition in global economic and financial variables that may prove of difficult analysis and measurement. It is useful to consider a summary of global economic and financial risks, which are analyzed in detail in the comments of this blog in Section VI Valuation of Risk Financial Assets, Table VI-4.
Economic risks include the following:
1. China’s Economic Growth. China is lowering its growth target to 7.5 percent per year. The growth rate of GDP of China in the second quarter of 2012 of 1.8 percent is equivalent to 7.4 percent per year.
2. United States Economic Growth, Labor Markets and Budget/Debt Quagmire. The US is growing slowly with 28.1 million in job stress, fewer 10 million full-time jobs, high youth unemployment, historically-low hiring and declining real wages.
3. Economic Growth and Labor Markets in Advanced Economies. Advanced economies are growing slowly. There is still high unemployment in advanced economies.
4. World Inflation Waves. Inflation continues in repetitive waves globally (see http://cmpassocregulationblog.blogspot.com/2012/08/world-inflation-waves-loss-of-dynamism.html).
A list of financial uncertainties includes:
1. Euro Area Survival Risk. The resilience of the euro to fiscal and financial doubts on larger member countries is still an unknown risk.
2. Foreign Exchange Wars. Exchange rate struggles continue as zero interest rates in advanced economies induce devaluation of their currencies.
3. Valuation of Risk Financial Assets. Valuations of risk financial assets have reached extremely high levels in markets with lower volumes.
4. Duration Trap of the Zero Bound. The yield of the US 10-year Treasury rose from 2.031 percent on Mar 9, 2012, to 2.294 percent on Mar 16, 2012. Considering a 10-year Treasury with coupon of 2.625 percent and maturity in exactly 10 years, the price would fall from 105.3512 corresponding to yield of 2.031 percent to 102.9428 corresponding to yield of 2.294 percent, for loss in a week of 2.3 percent but far more in a position with leverage of 10:1. Min Zeng, writing on “Treasurys fall, ending brutal quarter,” published on Mar 30, 2012, in the Wall Street Journal (http://professional.wsj.com/article/SB10001424052702303816504577313400029412564.html?mod=WSJ_hps_sections_markets), informs that Treasury bonds maturing in more than 20 years lost 5.52 percent in the first quarter of 2012.
5. Credibility and Commitment of Central Bank Policy. There is a credibility issue of the commitment of monetary policy (Sargent and Silber 2012Mar20).
6. Carry Trades. Commodity prices driven by zero interest rates have resumed their increasing path with fluctuations caused by intermittent risk aversion.
It is in this context of economic and financial uncertainties that decisions on portfolio choices of risk financial assets must be made. There is a new carry trade that learned from the losses after the crisis of 2007 or learned from the crisis how to avoid losses. The sharp rise in valuations of risk financial assets shown in Table VI-1 in the text after the first policy round of near zero fed funds and quantitative easing by the equivalent of withdrawing supply with the suspension of the 30-year Treasury auction was on a smooth trend with relatively subdued fluctuations. The credit crisis and global recession have been followed by significant fluctuations originating in sovereign risk issues in Europe, doubts of continuing high growth and accelerating inflation in China now complicated by political developments, events such as in the Middle East and Japan and legislative restructuring, regulation, insufficient growth, falling real wages, depressed hiring and high job stress of unemployment and underemployment in the US now with realization of growth standstill. The “trend is your friend” motto of traders has been replaced with a “hit and realize profit” approach of managing positions to realize profits without sitting on positions. There is a trend of valuation of risk financial assets driven by the carry trade from zero interest rates with fluctuations provoked by events of risk aversion or the “sharp shifts in risk appetite” of Blanchard (2012WEOApr, XIII). Table ESVI-1, which is updated for every comment of this blog, shows the deep contraction of valuations of risk financial assets after the Apr 2010 sovereign risk issues in the fourth column “∆% to Trough.” There was sharp recovery after around Jul 2010 in the last column “∆% Trough to 10/5/12,” which has been recently stalling or reversing amidst bouts of risk aversion. “Let’s twist again” monetary policy during the week of Sep 23 caused deep worldwide risk aversion and selloff of risk financial assets (http://cmpassocregulationblog.blogspot.com/2011/09/imf-view-of-world-economy-and-finance.html http://cmpassocregulationblog.blogspot.com/2011/09/collapse-of-household-income-and-wealth.html). Monetary policy was designed to increase risk appetite but instead suffocated risk exposures. There has been rollercoaster fluctuation in risk aversion and financial risk asset valuations: surge in the week of Dec 2, 2011, mixed performance of markets in the week of Dec 9, renewed risk aversion in the week of Dec 16, end-of-the-year relaxed risk aversion in thin markets in the weeks of Dec 23 and Dec 30, mixed sentiment in the weeks of Jan 6 and Jan 13 2012 and strength in the weeks of Jan 20, Jan 27 and Feb 3 followed by weakness in the week of Feb 10 but strength in the weeks of Feb 17 and 24 followed by uncertainty on financial counterparty risk in the weeks of Mar 2 and Mar 9. All financial values have fluctuated with events such as the surge in the week of Mar 16 on favorable news of Greece’s bailout even with new risk issues arising in the week of Mar 23 but renewed risk appetite in the week of Mar 30 because of the end of the quarter and the increase in the firewall of support of sovereign debts in the euro area. New risks developed in the week of Apr 6 with increase of yields of sovereign bonds of Spain and Italy, doubts on Fed policy and weak employment report. Asia and financial entities are experiencing their own risk environments. Financial markets were under stress in the week of Apr 13 because of the large exposure of Spanish banks to lending by the European Central Bank and the annual equivalent growth rate of China’s GDP of 7.4 percent in IQ2012 [(1.018)4], which was repeated in IIQ2012. There was strength again in the week of Apr 20 because of the enhanced IMF firewall and Spain placement of debt, continuing into the week of Apr 27. Risk aversion returned in the week of May 4 because of the expectation of elections in Europe and the new trend of deterioration of job creation in the US. Europe’s sovereign debt crisis and the fractured US job market continued to influence risk aversion in the week of May 11. Politics in Greece and banking issues in Spain were important factors of sharper risk aversion in the week of May 18. Risk aversion continued during the week of May 25 and exploded in the week of Jun 1. Expectations of stimulus by central banks caused valuation of risk financial assets in the week of Jun 8 and in the week of Jun 15. Expectations of major stimulus were frustrated by minor continuance of maturity extension policy in the week of Jun 22 together with doubts on the silent bank run in highly indebted euro area member countries. There was a major rally of valuations of risk financial assets in the week of Jun 29 with the announcement of new measures on bank resolutions by the European Council. New doubts surfaced in the week of Jul 6, 2012 on the implementation of the bank resolution mechanism and on the outlook for the world economy because of interest rate reductions by the European Central, Bank of England and People’s Bank of China. Risk appetite returned in the week of July 13 in relief that economic data suggests continuing high growth in China but fiscal and banking uncertainties in Spain spread to Italy in the selloff of July 20, 2012. Mario Draghi (2012Jul26), president of the European Central Bank, stated: “But there is another message I want to tell you.
Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.” This statement caused return of risk appetite, driving upward valuations of risk financial assets worldwide. Buiter (2011Oct31) analyzes that the European Financial Stability Fund (EFSF) would need a “bigger bazooka” to bail out euro members in difficulties that could possibly be provided by the ECB. The dimensions of the problem may require more firepower than a bazooka perhaps that of the largest conventional bomb of all times of 44,000 pounds experimentally detonated only once by the US in 1948 (http://www.airpower.au.af.mil/airchronicles/aureview/1967/mar-apr/coker.html). Risk appetite continued in the week of Aug 3, 2012, in expectation of purchases of sovereign bonds by the ECB. Growth of China’s exports by 1.0 percent in the 12 months ending in Jul 2012 released in the week of Aug 10, 2012, together with doubts on the purchases of bonds by the ECB injected a mild dose of risk aversion. There was optimism on the resolution of the European debt crisis on Aug 17, 2012. The week of Aug 24, 2012 had alternating shocks of risk aversion and risk appetite from the uncertainties of success of the Greek adjustment program, the coming decision of the Federal Constitutional Court of Germany on the European Stability Mechanism, disagreements between the Deutsche Bundesbank and the European Central Bank on purchase of sovereign bonds of highly indebted euro area member countries and the exchange of letters between Darrell E. Issa (2012Aug1), Chairman of the House Committee on Oversight and Government Reform, and Chairman Bernanke (2012Aug22) on monetary policy. Bernanke (2012JHAug31) and Draghi (2012Aug29) generated risk enthusiasm in the week of Aug 31, 2012. Risk appetite returned in the week of Sep 7, 2012, with the announcement of the bond-buying program of OMT (Outright Monetary Transactions) on Sep 6, 2012, by the European Central Bank (http://www.ecb.int/press/pr/date/2012/html/pr120906_1.en.html). Valuations of risk financial assets increased sharply after the statement of the FOMC on Sep 13, 2012 with open-ended quantitative easing and self-imposed single-mandate of jobs that would maintain easing monetary policy well after the economy returns to full potential. Risk aversion returned in the week of Sep 21, 2012 on doubts about the success of quantitative easing and weakness in flash purchasing managers’ indices. Risk aversion returned in the week of Sep 28, 2012, because of uncertainty on the consequences of a bailout of Spain and weakness of central banks in controlling financial turbulence but was followed by risk appetite in the week of Oct 5. The highest valuations in column “∆% Trough to 10/5/12” are by US equities indexes: DJIA 40.5 percent and S&P 500 42.9 percent, driven by stronger earnings and economy in the US than in other advanced economies but with doubts on the relation of business revenue to the weakening economy and fractured job market. The DJIA reached 13,697.82 on Sep 21, 2012, which is the highest level in 52 weeks (http://professional.wsj.com/mdc/public/page/marketsdata.html?mod=WSJ_PRO_hps_marketdata). The carry trade from zero interest rates to leveraged positions in risk financial assets had proved strongest for commodity exposures but US equities have regained leadership. Before the current round of risk aversion, almost all assets in the column “∆% Trough to 10/5/12” had double digit gains relative to the trough around Jul 2, 2010 but now some valuations of equity indexes show varying increases: China’s Shanghai Composite is 12.5 percent below the trough; Japan’s Nikkei Average is 0.4 percent above the trough; DJ Asia Pacific TSM is 9.3 percent above the trough; Dow Global is 14.9 percent above the trough; STOXX 50 of 50 blue-chip European equities (http://www.stoxx.com/indices/index_information.html?symbol=sx5E) is 11.7 percent above the trough; and NYSE Financial is 14.9 percent above the trough. DJ UBS Commodities is 19.2 percent above the trough. DAX index of German equities (http://www.bloomberg.com/quote/DAX:IND) is 30.5 percent above the trough. Japan’s Nikkei Average is 0.4 percent above the trough on Aug 31, 2010 and 22.2 percent below the peak on Apr 5, 2010. The Nikkei Average closed at 8863.30 on Fri Oct 5, 2012 (http://professional.wsj.com/mdc/public/page/marketsdata.html?mod=WSJ_PRO_hps_marketdata), which is 13.6 percent lower than 10,254.43 on Mar 11, 2011, on the date of the Tōhoku or Great East Japan Earthquake/tsunami. Global risk aversion erased the earlier gains of the Nikkei. The dollar depreciated by 9.4 percent relative to the euro and even higher before the new bout of sovereign risk issues in Europe. The column “∆% week to 10/5/12” in Table ESVI-1 shows that there were increases of valuations of risk financial assets in the week of Sep 28, 2012 such as 1.9 percent for Dow Global, 2.7 percent for NYSE Financial, 1.9 percent for STOXX 50, 2.5 percent for DAX, 0.1 percent for DJ Asia Pacific TSM. Nikkei Average fell 0.1 percent in the week. DJ UBS Commodities decreased 0.5 percent. China’s Shanghai Composite increased 2.9 percent in the prior week of Sep 28, 2012, but was closed for holidays in the week of Oct 5, 2010. The DJIA increased 1.3 percent and S&P 500 increased 1.4 percent. The USD depreciated 1.4 percent. There are still high uncertainties on European sovereign risks and banking soundness, US and world growth slowdown and China’s growth tradeoffs. Sovereign problems in the “periphery” of Europe and fears of slower growth in Asia and the US cause risk aversion with trading caution instead of more aggressive risk exposures. There is a fundamental change in Table ESVI-1 from the relatively upward trend with oscillations since the sovereign risk event of Apr-Jul 2010. Performance is best assessed in the column “∆% Peak to 10/5/12” that provides the percentage change from the peak in Apr 2010 before the sovereign risk event to Aug 31, 2012. Most risk financial assets had gained not only relative to the trough as shown in column “∆% Trough to 10/5/12” but also relative to the peak in column “∆% Peak to 10/5/12.” There are now only three equity indexes above the peak in Table ESVI-1: DJIA 21.5 percent, S&P 500 20.0 percent and DAX 16.8 percent. There are several indexes below the peak: NYSE Financial Index (http://www.nyse.com/about/listed/nykid.shtml) by 8.5 percent, Nikkei Average by 22.2 percent, Shanghai Composite by 34.1 percent, DJ Asia Pacific by 4.3 percent, STOXX 50 by 5.4 percent and Dow Global by 6.2 percent. DJ UBS Commodities Index is now 1.9 percent above the peak. The US dollar strengthened 13.8 percent relative to the peak. The factors of risk aversion have adversely affected the performance of risk financial assets. The performance relative to the peak in Apr 2010 is more important than the performance relative to the trough around early Jul 2010 because improvement could signal that conditions have returned to normal levels before European sovereign doubts in Apr 2010. An intriguing issue is the difference in performance of valuations of risk financial assets and economic growth and employment. Paul A. Samuelson (http://www.nobelprize.org/nobel_prizes/economics/laureates/1970/samuelson-bio.html) popularized the view of the elusive relation between stock markets and economic activity in an often-quoted phrase “the stock market has predicted nine of the last five recessions.” In the presence of zero interest rates forever, valuations of risk financial assets are likely to differ from the performance of the overall economy. The interrelations of financial and economic variables prove difficult to analyze and measure.
Table ESVI-1, Stock Indexes, Commodities, Dollar and 10-Year Treasury
| Peak | Trough | ∆% to Trough | ∆% Peak to 10/5/ /12 | ∆% Week 10/5/12 | ∆% Trough to 10/5/ 12 | |
| DJIA | 4/26/ | 7/2/10 | -13.6 | 21.5 | 1.3 | 40.5 |
| S&P 500 | 4/23/ | 7/20/ | -16.0 | 20.0 | 1.4 | 42.9 |
| NYSE Finance | 4/15/ | 7/2/10 | -20.3 | -8.5 | 2.7 | 14.9 |
| Dow Global | 4/15/ | 7/2/10 | -18.4 | -6.2 | 1.9 | 14.9 |
| Asia Pacific | 4/15/ | 7/2/10 | -12.5 | -4.3 | 0.1 | 9.3 |
| Japan Nikkei Aver. | 4/05/ | 8/31/ | -22.5 | -22.2 | -0.1 | 0.4 |
| China Shang. | 4/15/ | 7/02 | -24.7 | -34.1 | 2.9 | -12.5 |
| STOXX 50 | 4/15/10 | 7/2/10 | -15.3 | -5.4 | 1.9 | 11.7 |
| DAX | 4/26/ | 5/25/ | -10.5 | 16.8 | 2.5 | 30.5 |
| Dollar | 11/25 2009 | 6/7 | 21.2 | 13.8 | -1.4 | -9.4 |
| DJ UBS Comm. | 1/6/ | 7/2/10 | -14.5 | 1.9 | -0.5 | 19.2 |
| 10-Year T Note | 4/5/ | 4/6/10 | 3.986 | 1.737 |
T: trough; Dollar: positive sign appreciation relative to euro (less dollars paid per euro), negative sign depreciation relative to euro (more dollars paid per euro)
Source: http://professional.wsj.com/mdc/page/marketsdata.html?mod=WSJ_hps_marketdata
I Twenty Nine Million Unemployed or Underemployed. The employment situation report of the Bureau of Labor Statistics (BLS) of the US Department of Labor released in the first Fri of every month is critical in the analysis of social and economic conditions in the US. The objective of this section is to analyze the report released on Oct 5, 2012, for Sep 2012 (http://www.bls.gov/news.release/pdf/empsit.pdf). The analysis of the employment situation of the US is divided into two sections. I Twenty Nine Million Unemployed or Underemployed provides the key data on employment and job creation contained in the BLS report. These data are complemented by the BLS report on hiring, job openings and separations to be released on Tue Oct 10, 2012 (http://www.bls.gov/jlt/), which will be analyzed in this blog’s comment of Aug 14 with the latest report analyzed in the blog comment for Sep 16, 2012 (http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html). II Stagnating Real Wages analyzes wages and hours worked. IA1 Summary of the Employment Situation provides brief analysis of the employment situation. IA2 Number of People in Job Stress provides the calculation of people unemployed or underemployed in the US using the estimates of the BLS. IA3 Long-term and Cyclical Comparison of Employment provides the comparison with long-term and relevant cyclical experience in the US. IA4 Creation of Jobs analyzes the establishment survey of the BLS that provides job creation in nonfarm payrolls. Hourly and weekly earnings and hours worked are analyzed in the following section II Stagnating Real Wages.
IA1 Summary of the Employment Situation. The Bureau of Labor Statistics (BLS) of the US Department of Labor provides both seasonally-adjusted (SA) and not-seasonally adjusted (NSA) or unadjusted data with important uses (Bureau of Labor Statistics 2012Feb3; 2011Feb11):
“Most series published by the Current Employment Statistics program reflect a regularly recurring seasonal movement that can be measured from past experience. By eliminating that part of the change attributable to the normal seasonal variation, it is possible to observe the cyclical and other nonseasonal movements in these series. Seasonally adjusted series are published monthly for selected employment, hours, and earnings estimates.”
Table I-1 provides summary statistics of the employment situation report of the BLS. The first four rows provide the data from the establishment report of creation of nonfarm payroll jobs and remuneration of workers (for analysis of the differences in employment between the establishment report and the household survey see Abraham, Haltiwanger, Sandusky and Spletzer 2009). Total nonfarm payroll employment seasonally adjusted (SA) increased 114,000 in Sep 2012 and private payroll employment rose 104,000. The number of nonfarm jobs and private jobs created has been declining in the first nine months of 2012 from 275,000 in Jan to 45,000 in Jun and 114,000 in Sep for total nonfarm jobs and from 277,000 in Jan to 63,000 in Jun and 104,000 in Sep for private jobs. Average new nonfarm jobs in the quarter Dec 2011 to Feb 2012 were 252,000 per month, declining to average 114,249 per month in the seven months from Mar to Sep 2012. Average new private jobs in the quarter Dec 2011 to Feb 2012 were 255,000 per month, declining to average 110,714 per month in the seven months from Mar 2012 to Sep 2012. The US labor force stood at 154.812 million in Jul 2011 and at 156.526 million in Jul 2012, not seasonally adjusted, for increase of 1.714 million, or 142,833 per month. The average increase of 114,249 new nonfarm jobs per month in the US from Mar to Sep 2012 is insufficient even to absorb 142,833 new entrants per month into the labor force. There is not sufficient job creation to merely absorb new entrants in the labor force, worsening the stock of unemployed or underemployed in involuntary part-time jobs. Subsection IA4 Job Creation analyzes the types of jobs created. Average hourly earnings in Sep 2012 were $23.58 seasonally adjusted (SA), increasing 2.5 percent not seasonally adjusted (NSA) relative to Sep 2011 and increasing 0.3 percent relative to Aug 2012 seasonally adjusted. In Aug 2012, average hourly earnings seasonally adjusted were $23.51, increasing 1.8 percent relative to Aug 2011 not seasonally adjusted and increasing 0.0 percent seasonally adjusted relative to Jul 2012. These are nominal changes in workers’ wages. The following row “average hourly earnings in constant dollars” provides hourly wages in constant dollars calculated by the BLS or what is called “real wages” adjusted for inflation. Data are not available for Sep because the prices indexes of the BLS for Sep will only be released on Oct 16 (http://www.bls.gov/cpi/), which will be covered in this blog’s comment on Sep 21. The second column provides changes in real wages for Aug. Average hourly earnings adjusted for inflation or in constant dollars increased 0.1 percent in Aug 2012 relative to Aug 2011 but have been decreasing during many consecutive months. World inflation waves in bouts of risk aversion (http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html) mask declining trend of real wages. The fractured labor market of the US is characterized by high levels of unemployment and underemployment together with falling real wages or wages adjusted for inflation in a recovery without hiring (http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html). The following section II Stagnating Real Wages provides more detailed analysis. Average weekly hours of US workers not seasonally adjusted remained virtually unchanged at 34.5. Another headline number widely followed is the unemployment rate or number of people unemployed as percent of the labor force. The unemployment rate calculated in the household survey decreased from 8.1 percent in Aug 2012 to 7.8 percent in Sep 2012 but mainly because of the reduction of the US labor force by 180,000 (see Table I-4 below) as people ceased their job searches believing there are no jobs available for them. This blog provides with every employment situation report the number of people in the US in job stress or unemployed plus underemployed calculated without seasonal adjustment (NSA) at 28.7 million in Sep 2012 and 28.1 million in Aug 2012. The final row in Table I-1 provides the number in job stress as percent of the actual labor force calculated at 17.8 percent in Sep 2012 and 17.4 percent in Aug 2012. Almost one in every five workers in the US is unemployed or underemployed. The combination of twenty-nine million people in job stress, falling or stagnating real wages, collapse of hiring (http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html), declining household net worth by three trillion dollars, household median income adjusted for inflation back to 1996 levels and forty-eight million people in poverty and without health insurance (http://cmpassocregulationblog.blogspot.com/2012/09/collapse-of-united-states-creation-of.html) constitutes a socio-economic disaster.
Table I-1, US, Summary of the Employment Situation Report SA
| Sep 2012 | Aug 2012 | |
| New Nonfarm Payroll Jobs | 114,000 | 142,000 |
| New Private Payroll Jobs | 104,000 | 97,000 |
| Average Hourly Earnings | $23.58 SA ∆% Sep 12/Sep 11 NSA: 2.5 ∆% Sep 12/Aug 12 SA: 0.3 | $23.51 SA ∆% Aug 12/Aug 11 NSA: 1.8 ∆% Aug 12/Jul 12 SA: 0.0 |
| Average Hourly Earnings in Constant Dollars | ∆% Aug 2012/Aug 2011: 0.1 | |
| Average Weekly Hours | 34.5 | 34.4 |
| Unemployment Rate Household Survey % of Labor Force SA | 7.8 | 8.1 |
| Number in Job Stress Unemployed and Underemployed Blog Calculation | 28.7 million NSA | 28.1 million NSA |
| In Job Stress as % Labor Force | 17.8 | 17.4 |
Source: US Bureau of Labor Statistics http://www.bls.gov/news.release/empsit.nr0.htm http://www.bls.gov/data/ See Tables I-2, I-3, I-4, I-8, IB-1, IB-3 and IB-4.
IA2 Number of People in Job Stress. There are two approaches to calculating the number of people in job stress. The first approach consists of calculating the number of people in job stress unemployed or underemployed with the raw data of the employment situation report as in Table I-2. The data are seasonally adjusted (SA). The first three rows provide the labor force and unemployed in millions and the unemployment rate of unemployed as percent of the labor force. There is decrease in the number unemployed from 12.749 million in Jul 2012 to 12.544 million in Aug 2012 or decrease of 250,000 and decrease to 12.088 million in Sep 2012 for decrease of 706.000 from Jul to Sep 2012. Thus, the rate of unemployment decreases from 8.3 percent in Jul 2012 to 8.1 percent in Aug, decreasing to 7.8 percent in Sep 2012. The labor force SA decreased from 155.013 million in Jul 2012 to 154.645 million in Aug 2012 or by 368,000 and increased to 155.063 in Sep 2012 for increase of 50,000 relative to Jul 2012. People have been dropping out of the labor force because they believe there are no jobs for them are actually unemployed but not counted as they stopped their job searches. An important aspect of unemployment is its persistence with 5.185 million in Jul who had been unemployed for 27 weeks or more, constituting 40.5 percent of the unemployed, 5.033 million in Aug or 40.1 percent of total unemployed and 4.844 million in Sep or 40.1 percent of total unemployed. The longer the period of unemployment the lower are the chances of finding another job. Another key characteristic of the current labor market is the high number of people trying to subsist with part-time jobs because they cannot find full-time employment or part-time for economic reasons. The BLS explains as follows: “these individuals were working part time because their hours had been cut back or because they were unable to find a full-time job” (http://www.bls.gov/news.release/pdf/empsit.pdf 2). The number of part-time for economic reasons decreased from 8.246 million in Jul 2012 to 8.031 million in Aug 2012 or by 215,000 but increased to 8.613 million in Sep 2012 or 582,000 more people employed part-time in Sep relative to Aug because they cannot find full-time employment. Another category consists of people marginally attached to the labor force who have sought employment at some point but believe there may not be another job for them. The BLS explains as follows: “these individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey” (http://www.bls.gov/news.release/pdf/empsit.pdf 2). The number in job stress unemployed or underemployed of 23.218 million in Sep is composed of 12.088 million unemployed (of whom 4.844 million, or 40.1 percent, unemployed for 27 weeks or more) compared with 12.544 million unemployed in Aug (of whom 5.033 million, or 40.1 percent, unemployed for 27 weeks or more), 8.613 million employed part-time for economic reasons in Sep (who suffered reductions in their work hours or could not find full-time employment) compared with 8.031 million in Aug and 2.517 million who were marginally attached to the labor force in Sep (who were not in the labor force but wanted and were available for work) compared with 2.561 million in Aug. The final row in Table I-2 provides the number in job stress as percent of the labor force: 14.9 percent in Sep, which is equal to 14.9 percent in Aug and marginally lower than 15.2 percent in Jul.
Table I-2, US, People in Job Stress, Millions and % SA
| 2012 | Sep 2012 | Aug 2012 | Jul 2012 |
| Labor Force Millions | 155.063 | 154.645 | 155.013 |
| Unemployed | 12.088 | 12.544 | 12.794 |
| Unemployment Rate (unemployed as % labor force) | 7.8 | 8.1 | 8.3 |
| Unemployed ≥27 weeks | 4.844 | 5.033 | 5.185 |
| Unemployed ≥27 weeks % | 40.1 | 40.1 | 40.5 |
| Part Time for Economic Reasons ∆ Aug 2012/Dec 2011: -7 thousand ∆ Aug 2012/Sep 2011: -0.759 million | 8.613 | 8.031 | 8.246 |
| Marginally ∆Aug 2012/Sep 2011: +50 thousand ∆Aug 2012/Dec 2011: 21 thousand | 2.517 | 2.561 | 2.529 |
| Job Stress ∆Mar 12/Dec 11: -948 thousand ∆Feb 12/Sep 11: -2.145 million | 23.218 | 23.136 | 23.569 |
| In Job Stress as % Labor Force | 14.9 | 14.9 | 15.2 |
Job Stress = Unemployed + Part Time Economic Reasons + Marginally Attached Labor Force
Source: US Bureau of Labor Statistics http://www.bls.gov/data/
Table I-3 repeats the data in Table I-2 but including Jun and additional data. What really matters is the number of people with jobs or the total employed. The final row of Table I-3 provides people employed as percent of the population or employment to population ratio. The number has remained relatively constant around 58.6 percent, decreasing to 58.3 percent in Aug 2012 but increasing to 58.7 percent in Sep 2012.
Table I-3, US, Unemployment and Underemployment, SA, Millions and Percent
| Sep 2012 | Aug 2012 | Jul 2012 | Jun 2012 | |
| Labor Force | 155.063 | 154.645 | 155.013 | 155.163 |
| Unemployed | 12.088 | 12.544 | 12.794 | 12.749 |
| UNE Rate % | 7.8 | 8.1 | 8.3 | 8.2 |
| Part Time Economic Reasons | 8.613 | 8.031 | 8.246 | 8.210 |
| Marginally Attached to Labor Force | 2.517 | 2.561 | 2.529 | 2.483 |
| In Job Stress | 23.218 | 23.136 | 23.569 | 23.442 |
| In Job Stress % Labor Force | 14.9 | 14.9 | 15.2 | 15.1 |
| Employed | 142.974 | 142.101 | 142.220 | 142.415 |
| Employment % Population | 58.7 | 58.3 | 58.4 | 58.6 |
Source: US Bureau of Labor Statistics http://www.bls.gov/data/
The second approach is considered in the balance of this subsection. Charts I-1 to I-12 explain the reasons for considering another approach to calculating job stress in the US. Chart I-1 of the Bureau of Labor Statistics provides the level of employment in the US from 2001 to 2012. There was a big drop of the number of people employed from 147.315 million at the peak in Jul 2007 (NSA) to 136.809 million at the trough in Jan 2010 (NSA) with 10.506 million fewer people employed. Recovery has been anemic compared with the shallow recession of 2001 that was followed by nearly vertical growth in jobs. The number employed in Sep 2012 was 143.333 million (NSA) or 3.982 million fewer people with jobs relative to the peak of 147.315 million in Jul 2007 while the civilian noninstitutional population increased from 231.958 million in Jul 2007 to 243.772 million in Sep 2012 or by 11.776 million.
Chart I-1, US, Employed, Thousands, SA, 2001-2012
Source: Bureau of Labor Statistics
Chart I-2 of the Bureau of Labor Statistics provides 12-month percentage changes of the number of people employed in the US from 2001 to 2012. There was recovery in 2010 and 2011 but not sufficient to recover lost jobs. There are many people in the US who had jobs before the global recession who are not working now.
Chart I-2, US, Employed, 12-Month Percentage Change NSA, 2001-2012
Source: Bureau of Labor Statistics
The foundation of the second approach derives from Chart I-3 of the Bureau of Labor Statistics providing the level of the civilian labor force in the US. The civilian labor force consists of people who are available and willing to work and who have searched for employment recently. The labor force of the US grew from 142.828 million in Jan 2001 to 156.255 million in Jul 2009 but has declined to 153.905 million in Apr 2012, 154.998 million in May 2012, 156.385 million in Jun 2012, 156.526 million in Jul, 155.255 million in Aug 2012 and 155.075 million Sep 2012, all numbers not seasonally adjusted. Chart 1-3 shows the flattening of the curve of expansion of the labor force and its decline in 2010 and 2011. The ratio of the labor force of 154.871 million in Jul 2007 to the noninstitutional population of 231.958 million in Jul 2007 was 66.8 percent while the ratio of the labor force of 155.075 million in Sep 2012 to the noninstitutional population of 243.772 million in Sep 2012 was 63.6 percent. The labor force of the US in Sep 2012 corresponding to 66.8 percent of participation in the population would be 162.840 million (0.668 x 243.772). The difference between the measured labor force in Sep 2012 of 155.075 million and the labor force with participation rate of 66.8 percent as in Jul 2007 of 162.840 million is 7.765 million. The level of the labor force in the US has stagnated and is 7.765 million lower than what it would have been had the same participation rate been maintained. There are millions of people who have abandoned their search for employment because they believe there are no jobs available for them. The key issue is whether the decline in participation of the population in the labor force is the result of people giving up on finding another job.
Chart I-3, US, Civilian Labor Force, Thousands, SA, 2001-2012
Source: Bureau of Labor Statistics
Chart I-4 of the Bureau of Labor Statistics provides 12-month percentage changes of the level of the labor force in the US. The rate of growth fell almost instantaneously with the global recession and became negative from 2009 to 2011. The labor force of the US collapsed and did not recover.
Chart I-4, US, Civilian Labor Force, Thousands, NSA, 12-month Percentage Change, 2001-2012
Source: Bureau of Labor Statistics
Chart I-5 of the Bureau of Labor Statistics provides the labor force participation rate in the US or labor force as percent of the population. The labor force participation rate of the US fell from 66.8 percent in Jan 2001 to 63.6 percent NSA in Sep 2012, all numbers not seasonally adjusted. The annual labor force participation rate for 1979 was 63.7 percent and also 63.7 percent in Nov 1980 during sharp economic contraction. This comparison is further elaborated below. Chart I-5 shows an evident downward trend beginning with the global recession that has continued throughout the recovery beginning in IIIQ2009. The critical issue is whether people left the workforce of the US because they believe there is no longer a job for them.
Chart I-5, Civilian Labor Force Participation Rate, Percent of Population in Labor Force SA, 2001-2012
Source: Bureau of Labor Statistics
Chart I-6 of the Bureau of Labor Statistics provides the level of unemployed in the US. The number unemployed rose from the trough of 6.272 million in Oct 2006 to the peak of 16.147 million in Jan 2010, declining to 13.400 million in Jul 2012, 12.696 million in Aug 2012 and 11.742 million in Sep 2012, all numbers not seasonally adjusted.
Chart I-6, US, Unemployed, Thousands, SA, 2001-2012
Source: Bureau of Labor Statistics
Chart I-7 of the Bureau of Labor Statistics provides the rate of unemployment in the US or unemployed as percent of the labor force. The rate of unemployment of the US rose from 4.7 percent in Jan 2001 to 6.5 percent in Jun 2003, declining to 4.1 percent in Oct 2006. The rate of unemployment jumped to 10.6 percent in Jan 2010 and declined to 8.2 percent in Aug 2012 and 7.6 percent in Aug 2012, all numbers not seasonally adjusted.
Chart I-7, US, Unemployment Rate, SA, 2001-2012
Source: Bureau of Labor Statistics
Chart I-8 of the Bureau of Labor Statistics provides 12-month percentage changes of the level of unemployed. There was a jump of 81.8 percent in Apr 2009 with subsequent decline and negative rates since 2010. On an annual basis, the level of unemployed rose 59.8 percent in 2009 and 26.1 percent in 2008 with increase of 3.9 percent in 2010 and decline of 7.3 percent in 2011.
Chart I-8, US, Unemployed, 12-month Percentage Change, NSA, 2001-2012
Source: Bureau of Labor Statistics
Chart I-9 of the Bureau of Labor Statistics provides the number of people in part-time occupations because of economic reasons, that is, because they cannot find full-time employment. The number underemployed in part-time occupations not seasonally adjusted rose from 3.732 million in Jan 2001 to 5.270 million in Jan 2004, falling to 3.787 million in Apr 2006. The number underemployed seasonally adjusted jumped to 9.130 million in Nov 2009, falling to 8.098 million in Dec 2011 but increasing to 8.230 million in Jan 2012 and 8.119 million in Feb 2012 but then falling to 7.853 million in Apr 2012 and increasing to 8.246 million in Jul 2012, 8.031 million in Aug 2012 and 8.613 million in Sep 2012. Without seasonal adjustment the number employed part-time for economic reasons reached 9.354 million in Dec 2009, declining to 8.918 million in Jan 2012 and 8.110 million in Sep 2012. The longer the period in part-time jobs the worst are the chances of finding another full-time job.
Chart I-9, US, Part-Time for Economic Reasons, Thousands, SA, 2001-2012
Source: Bureau of Labor Statistics
Chart I-10 of the Bureau of Labor Statistics repeats the behavior of unemployment. The 12-month rate of the level of people at work part-time for economic reasons jumped 84.7 percent in Mar 2009 and declined subsequently. The declines have been insufficient to reduce significantly the number of people who cannot shift from part-time to full-time employment. On an annual basis, the number of part-time for economic reasons increased 33.5 percent in 2008 and 51.7 percent in 2009, declining 0.4 percent in 2010 and 3.5 percent in 2011.
Chart I-10, US, Part-Time for Economic Reasons NSA 12-Month Percentage Change, 2001-2011
Source: Bureau of Labor Statistics
Chart I-11 of the Bureau of Labor Statistics provides the same pattern of the number marginally attached to the labor force jumping to significantly higher levels during the global recession and remaining at historically high levels. The number marginally attached to the labor force not seasonally adjusted increased from 1.295 million in Jan 2001 to 1.691 million in Feb 2004. The number of marginally attached to the labor force fell to 1.299 million in Sep 2006 and increased to 2.609 million in Dec 2009 and 2.800 million in Jan 2011. The number marginally attached to the labor force was 2.540 million in Dec 2011, increasing to 2.809 million in Jan 2012, falling to 2.608 million in Feb 2012, 2.352 million in Mar 2012, 2.363 million in Apr 2012, 2.483 million in May 2012, 2.529 million in Jun 2012, 2.529 million in Jul 2012, 2.561 million in Aug 2012 and 2.517 million in Sep 2012.
Chart I-11, US, Marginally-Attached to the Labor Force, Thousands, NSA, 2001-2012
Source: Bureau of Labor Statistics
Chart I-12 provides 12-month percentage changes of the marginally attached to the labor force from 2001 to 2012. There was a jump of 56.1 percent in May 2009 during the global recession followed by declines in percentage changes but insufficient negative changes. On an annual basis, the number of marginally attached to the labor force increased in four consecutive years: 15.7 percent in 2008, 37.9 percent in 2009, 11.7 percent in 2010 and 3.5 percent in 2011.
Chart I-12, US, Marginally-Attached to the Labor Force 12-Month Percentage Change, NSA, 2001-2012
Source: Bureau of Labor Statistics
Table I-4 consists of data and additional calculations using the BLS household survey, illustrating the possibility that the actual rate of unemployment could be 11.0 percent and the number of people in job stress could be around 28.7 million, which is 17.8 percent of the labor force. The first column provides for 2006 the yearly average population (POP), labor force (LF), participation rate or labor force as percent of population (PART %), employment (EMP), employment population ratio (EMP/POP %), unemployment (UEM), the unemployment rate as percent of labor force (UEM/LF Rate %) and the number of people not in the labor force (NLF). All data are unadjusted or not-seasonally-adjusted (NSA). The numbers in column 2006 are averages in millions while the monthly numbers for Sep 2011, Aug 2012 and Sep 2012 are in thousands, not seasonally adjusted. The average yearly participation rate of the population in the labor force was in the range of 66.0 percent minimum to 67.1 percent maximum between 2000 and 2006 with the average of 66.4 percent (ftp://ftp.bls.gov/pub/special.requests/lf/aa2006/pdf/cpsaat1.pdf). Table I-4b provides the yearly labor force participation rate from 1979 to 2012. The objective of Table I-4 is to assess how many people could have left the labor force because they do not think they can find another job. Row “LF PART 66.2 %” applies the participation rate of 2006, almost equal to the rates for 2000 to 2006, to the noninstitutional civilian population in Aug and Sep 2012 and Sep 2011 to obtain what would be the labor force of the US if the participation rate had not changed. In fact, the participation rate fell to 64.2 percent by Sep 2011 and was 63.7 percent in Aug 2012 and 63.6 percent in Sep 2012, suggesting that many people simply gave up on finding another job. Row “∆ NLF UEM” calculates the number of people not counted in the labor force because they could have given up on finding another job by subtracting from the labor force with participation rate of 66.2 percent (row “LF PART 66.2%”) the labor force estimated in the household survey (row “LF”). Total unemployed (row “Total UEM”) is obtained by adding unemployed in row “∆NLF UEM” to the unemployed of the household survey in row “UEM.” The row “Total UEM%” is the effective total unemployed “Total UEM” as percent of the effective labor force in row “LF PART 66.2%.” The results are that: (1) there are an estimated 6.302 million unemployed in Sep 2012 who are not counted because they left the labor force on their belief they could not find another job (∆NLF UEM); (2) the total number of unemployed is effectively 18.044 million (Total UEM) and not 11.742 million (UEM) of whom many have been unemployed long term; (3) the rate of unemployment is 11.2 percent (Total UEM%) and not 7.6 percent, not seasonally adjusted, or 7.8 percent seasonally adjusted; and (4) the number of people in job stress is close to 28.7 million by adding the 6.302 million leaving the labor force because they believe they could not find another job. The row “In Job Stress” in Table I-4 provides the number of people in job stress not seasonally adjusted at 28.7 million in Sep 2012, adding the total number of unemployed (“Total UEM”), plus those involuntarily in part-time jobs because they cannot find anything else (“Part Time Economic Reasons”) and the marginally attached to the labor force (“Marginally attached to LF”). The final row of Table I-4 shows that the number of people in job stress is equivalent to 17.8 percent of the labor force in Sep 2012. The employment population ratio “EMP/POP %” dropped from 62.9 percent on average in 2006 to 58.5 percent in Sep 2011, 58.5 percent in Aug 2012 and 58.8 percent in Sep 2012; the number employed (EMP) dropped from 144 million in 2006 to 143.333 million in Sep 2012 while population increased from 229.420 million in Sep 2006 to 243.772 million in Sep 2012 or by 14.352 million. What really matters for labor input in production and wellbeing is the number of people with jobs or the employment/population ratio, which has declined and does not show signs of increasing. There are several million fewer people working in 2012 than in 2006 and the number employed is not increasing while population increased 14.352 million. The number of hiring relative to the number unemployed measures the chances of becoming employed. The number of hiring in the US economy has declined by 17 million and does not show signs of increasing in an unusual recovery without hiring (http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html).
Table I-4, US, Population, Labor Force and Unemployment, NSA
| 2006 | Sep 2011 | Aug 2012 | Sep 2012 | |
| POP | 229 | 240,071 | 243,566 | 243,772 |
| LF | 151 | 154,022 | 155,255 | 155,075 |
| PART% | 66.2 | 64.2 | 63.7 | 63.6 |
| EMP | 144 | 140,502 | 142,558 | 143,333 |
| EMP/POP% | 62.9 | 58.5 | 58.5 | 58.8 |
| UEM | 7 | 13,520 | 12,696 | 11,742 |
| UEM/LF Rate% | 4.6 | 8.8 | 8.2 | 7.6 |
| NLF | 77 | 86,049 | 88,311 | 88,697 |
| LF PART 66.2% | 158,927 | 161,241 | 161,377 | |
| ∆NLF UEM | 4,905 | 5,986 | 6,302 | |
| Total UEM | 18,425 | 18,682 | 18,044 | |
| Total UEM% | 11.6 | 11.6 | 11.2 | |
| Part Time Economic Reasons | 8,541 | 7,842 | 8,110 | |
| Marginally Attached to LF | 2,511 | 2,561 | 2,517 | |
| In Job Stress | 29,477 | 28,085 | 28,671 | |
| People in Job Stress as % Labor Force | 18.6 | 17.4 | 17.8 |
Pop: population; LF: labor force; PART: participation; EMP: employed; UEM: unemployed; NLF: not in labor force; ∆NLF UEM: additional unemployed; Total UEM is UEM + ∆NLF UEM; Total UEM% is Total UEM as percent of LF PART 66.2%; In Job Stress = Total UEM + Part Time Economic Reasons + Marginally Attached to LF
Note: the first column for 2006 is in average millions; the remaining columns are in thousands; NSA: not seasonally adjusted
The labor force participation rate of 66.2% in 2006 is applied to current population to obtain LF PART 66.2%; ∆NLF UEM is obtained by subtracting the labor force with participation of 66.2 percent from the household survey labor force LF; Total UEM is household data unemployment plus ∆NLF UEM; and total UEM% is total UEM divided by LF PART 66.2%
Sources: US Bureau of Labor Statistics http://www.bls.gov/data/
In revealing research, Edward P. Lazear and James R. Spletzer (2012JHJul22) use the wealth of data in the valuable database and resources of the Bureau of Labor Statistics (http://www.bls.gov/data/) in providing clear thought on the nature of the current labor market of the United States. The critical issue of analysis and policy currently is whether unemployment is structural or cyclical. Structural unemployment could occur because of (1) industrial and demographic shifts; and (2) mismatches of skills and job vacancies in industries and locations. Consider the aggregate unemployment rate, Y, expressed in terms of share si of a demographic group in an industry i and unemployment rate yi of that demographic group (Lazear and Spletzer 2012JHJul22, 5-6):
Y = ∑isiyi (1)
This equation can be decomposed for analysis as (Lazear and Spletzer 2012JHJul22, 6):
∆Y = ∑i∆siy*i + ∑i∆yis*i (2)
The first term in (2) captures changes in the demographic and industrial composition of the economy ∆si multiplied by the average rate of unemployment y*i , or structural factors. The second term in (2) captures changes in the unemployment rate specific to a group, or ∆yi, multiplied by the average share of the group s*i, or cyclical factors. There are also mismatches in skills and locations relative to available job vacancies. A simple observation by Lazear and Spletzer (2012JHJul22) casts intuitive doubt on structural factors: the rate of unemployment jumped from 4.4 percent in the spring of 2007 to 10 percent in October 2009. By nature, structural factors should be permanent or occur over relative long periods. The revealing result of the exhaustive research of Lazear and Spletzer (2012JHJul22) is:
“The analysis in this paper and in others that we review do not provides any compelling evidence that there have been changes in the structure of the labor market that are capable of explaining the pattern of persistently high unemployment rates. The evidence points to primarily cyclic factors.”
Table I-4b and Chart 12-b provide the US labor force participation rate or percentage of the labor force in population. It is not likely that simple demographic trends caused the sharp decline during the global recession and failure to recover earlier levels. The civilian labor force participation rate dropped from the peak of 66.9 percent in Jul 2006 to 63.7 percent in Aug 2012 and even 63.4 percent in Jan and Apr 2012 and 63.6 percent in Sep 2012. The civilian labor force participation rate was 63.7 percent on an annual basis in 1979 and 63.7 percent in Nov 1980, reaching even 62.9 percent in both Apr and May 1979. The civilian labor force participation rate jumped with the recovery to 64.8 percent on an annual basis in 1985 and 65.9 percent in Jul 1985. Structural factors cannot explain these sudden changes vividly shown visually in the final segment of Chart 12b. Seniors would like to delay their retiring especially because of the adversities of financial repression on their savings. Labor force statistics are capturing the disillusion of potential workers of their chances in finding a job in what Lazear and Spletzer (2012JHJul22) characterize as accentuated cyclical factors.
Table I-4b, US, Labor Force Participation Rate, Percent of Labor Force in Population, NSA, 1979-2012
| Year | Jul | Aug | Sep | Oct | Nov | Dec | Annual |
| 1979 | 64.9 | 64.5 | 63.8 | 64.0 | 63.8 | 63.8 | 63.7 |
| 1980 | 65.1 | 64.5 | 63.6 | 63.9 | 63.7 | 63.4 | 63.8 |
| 1981 | 65.0 | 64.6 | 63.5 | 64.0 | 63.8 | 63.4 | 63.9 |
| 1982 | 65.3 | 64.9 | 64.0 | 64.1 | 64.1 | 63.8 | 64.0 |
| 1983 | 65.4 | 65.1 | 64.3 | 64.1 | 64.1 | 63.8 | 64.0 |
| 1984 | 65.9 | 65.2 | 64.4 | 64.6 | 64.4 | 64.3 | 64.4 |
| 1985 | 65.9 | 65.4 | 64.9 | 65.1 | 64.9 | 64.6 | 64.8 |
| 1986 | 66.6 | 66.1 | 65.3 | 65.5 | 65.4 | 65.0 | 65.3 |
| 1987 | 66.8 | 66.5 | 65.5 | 65.9 | 65.7 | 65.5 | 65.6 |
| 1988 | 67.1 | 66.8 | 65.9 | 66.1 | 66.2 | 65.9 | 65.9 |
| 1989 | 67.7 | 67.2 | 66.3 | 66.6 | 66.7 | 66.3 | 66.5 |
| 1990 | 67.7 | 67.1 | 66.4 | 66.5 | 66.3 | 66.1 | 66.5 |
| 1991 | 67.3 | 66.6 | 66.1 | 66.1 | 66.0 | 65.8 | 66.2 |
| 1992 | 67.9 | 67.2 | 66.3 | 66.2 | 66.2 | 66.1 | 66.4 |
| 1993 | 67.5 | 67.0 | 66.1 | 66.4 | 66.3 | 66.2 | 66.3 |
| 1994 | 67.5 | 67.2 | 66.5 | 66.8 | 66.7 | 66.5 | 66.6 |
| 1995 | 67.7 | 67.1 | 66.5 | 66.7 | 66.5 | 66.2 | 66.6 |
| 1996 | 67.9 | 67.2 | 66.8 | 67.1 | 67.0 | 66.7 | 66.8 |
| 1997 | 68.1 | 67.6 | 67.0 | 67.1 | 67.1 | 67.0 | 67.1 |
| 1998 | 67.9 | 67.3 | 67.0 | 67.1 | 67.1 | 67.0 | 67.1 |
| 1999 | 67.9 | 67.3 | 66.8 | 67.0 | 67.0 | 67.0 | 67.1 |
| 2000 | 67.6 | 67.2 | 66.7 | 66.9 | 66.9 | 67.0 | 67.1 |
| 2001 | 67.4 | 66.8 | 66.6 | 66.7 | 66.6 | 66.6 | 66.8 |
| 2002 | 67.2 | 66.8 | 66.6 | 66.6 | 66.3 | 66.2 | 66.6 |
| 2003 | 66.8 | 66.3 | 65.9 | 66.1 | 66.1 | 65.8 | 66.2 |
| 2004 | 66.8 | 66.2 | 65.7 | 66.0 | 66.1 | 65.8 | 66.0 |
| 2005 | 66.8 | 66.5 | 66.1 | 66.2 | 66.1 | 65.9 | 66.0 |
| 2006 | 66.9 | 66.5 | 66.1 | 66.4 | 66.4 | 66.3 | 66.2 |
| 2007 | 66.8 | 66.1 | 66.0 | 66.0 | 66.1 | 65.9 | 66.0 |
| 2008 | 66.8 | 66.4 | 65.9 | 66.1 | 65.8 | 65.7 | 66.0 |
| 2009 | 66.2 | 65.6 | 65.0 | 64.9 | 64.9 | 64.4 | 65.4 |
| 2010 | 65.3 | 65.0 | 64.6 | 64.4 | 64.4 | 64.1 | 64.7 |
| 2011 | 64.6 | 64.3 | 64.2 | 64.1 | 63.9 | 63.8 | 64.1 |
| 2012 | 64.3 | 63.7 | 63.6 |
Sources: US Bureau of Labor Statistics http://www.bls.gov/data/
Chart 12b, US, Labor Force Participation Rate, Percent of Labor Force in Population, NSA, 1979-2011
Source: Bureau of Labor Statistics
IA3 Long-term and Cyclical Comparison of Employment. There is initial discussion here of long-term employment trends followed by cyclical comparison. Growth and employment creation have been mediocre in the expansion beginning in Jul IIIQ2009 from the contraction between Dec IVQ2007 and Jun IIQ2009 (http://www.nber.org/cycles.html). A series of charts from the database of the Bureau of Labor Statistics (BLS) provides significant insight. Chart I-13 provides the monthly employment level of the US from 1948 to 2012. The number of people employed has trebled. There are multiple contractions throughout the more than six decades but followed by resumption of the strong upward trend. The contraction after 2007 is deeper and followed by a flatter curve of job creation. Economic growth is much lower in the current expansion at 2.2 percent relative to average 6.2 percent in expansions following earlier contractions.
Chart I-13, US, Employment Level, Thousands, 1948-2012
Source: US Bureau of Labor Statistics
The steep and consistent curve of growth of the US labor force is shown in Chart I-14. The contraction beginning in Dec 2007 flattened the path of the US civilian labor force and is now followed by a flatter curve during the current expansion.
Chart I-14, US, Civilian Labor Force, 1948-2012, Thousands
Source: US Bureau of Labor Statistics
Chart I-15 for the period from 1948 to 2012. The labor force participation rate is influenced by numerous factors such as the age of the population. There is no comparable episode in the postwar economy to the sharp collapse of the labor force participation rate in Chart I-15 during the contraction and subsequent expansion after 2007. Aging can reduce the labor force participation rate as many people retire but many may have decided to work longer as their wealth and savings have been significantly reduced. There is an important effect of many people just exiting the labor force because they believe there is no job available for them.
Chart I-15, US, Civilian Labor Force Participation Rate, 1948-2012, %
Source: US Bureau of Labor Statistics
The number of unemployed in the US jumped from 5.8 million in May 1979 to 12.1 million in Dec 1982, by 6.3 million, or 108.6 percent. The number of unemployed jumped from 6.7 million in Mar 2007 to 15.6 million in Oct 2009, by 8.9 million, or 132.8 percent. These are the two episodes with steepest increase in the level of unemployment in Chart I-16.
Chart I-16, US, Unemployed, 1948-2012, Thousands
Source: US Bureau of Labor Statistics
Chart I-17 provides the rate of unemployment of the US from 1948 to 2012. The peak of the series is 10.8 percent in both Nov and Dec 1982. The second highest rates are 10.1 percent in Oct 2009 and 9.9 percent in both Nov and Dec 2009.
Chart I-17, US, Unemployment Rate, 1948-2012
Source: US Bureau of Labor Statistics
Chart I-18 provides the number unemployed for 27 weeks and over from 1948 to 2012. The number unemployed for 27 weeks and over jumped from 510,000 in Dec 1978 to 2.9 million in Jun 1983, by 2.4 million, or 480 percent. The number of unemployed 27 weeks or over jumped from 1.1 million in May 2007 to 6.7 million in Jun 2010, by 5.6 million, or 509 percent.
Chart I-18, US, Unemployed for 27 Weeks or More, 1948-2012, Thousands
Source: US Bureau of Labor Statistics
The employment-population ratio in Chart I-19 is an important indicator of wellbeing in labor markets, measuring the number of people with jobs. The US employment-population ratio fell from 63.4 in Dec 2006 to 58.6 in Jul 2011 and stands at 58.8 NSA in Sep 2012. There is no comparable decline during an expansion in Chart I-19.
Chart I-19, US, Employment-Population Ratio, 1948-2012
Source: US Bureau of Labor Statistics
The number of people at work part-time for economic reasons because they cannot find full-time employment is provided in Chart I-20. The number of people at work part-time for economic reasons jumped from 3.7 million in Sep 2006 to a high of 9.4 million in Dec 2009 and 9.2 million in Jan 2011, or by 5.2 million, or 148.6 percent, all numbers not seasonally adjusted. Earlier increases in the 1980s and after the tough recession of 1991 were followed by rapid decrease that is still absent in the current expansion. The drop by 1,172,000 of seasonally-adjusted data from Sep to Dec 2011 while actual data without seasonal adjustment show decrease by 113,000 is not very credible.
Chart I-20, US, Part-Time for Economic Reasons, 1955-2012, Thousands
Source: US Bureau of Labor Statistics
Table I-5 provides the change in real GDP in the United States in the 1930s, 1980s and 2000s. The recession in 1981-1982 is quite similar on its own to the 2007-2009 recession. In contrast, during the Great Depression in the four years of 1930 to 1933, GDP in constant dollars fell 26.7 percent cumulatively and fell 45.6 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). Data are available for the 1930s only on a yearly basis. US GDP fell 4.8 percent in the two recessions (1) from IQ1980 to IIIQ1980 and (2) from III1981 to IVQ1981 to IVQ1982 and 4.7 percent cumulatively in the recession from IVQ2007 to IIQ2009. It is instructive to compare the first two years of the expansions in the 1980s and the current expansion. GDP grew at 4.5 percent in 1983 and 7.2 percent in 1984 while GDP grew at 2.4 percent in 2010, 1.8 percent in 2011 and at 2.0 percent in IQ2012 relative to IQ2011 and 1.5 percent in IIQ2012 relative to IQ2012. Growth in the first two quarters of 2012 accumulates to 0.82 percent, which is equivalent to 1.65 percent per year, decelerating from 2.4 percent annual growth in 2011. GDP grew at 4.1 percent in 1985 and 3.5 percent in 1986 while the forecasts of participants of the Federal Open Market Committee (FOMC) are in the range of 1.7 to 2.0 percent in 2012 and 2.5 to 3.0 percent in 2013 (http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20120913.pdf).
Table I-5, US, Percentage Change of GDP in the 1930s, 1980s and 2000s, ∆%
| Year | GDP ∆% | Year | GDP ∆% | Year | GDP ∆% |
| 1930 | -8.6 | 1980 | -0.3 | 2000 | 4.1 |
| 1931 | -6.5 | 1981 | 2.5 | 2001 | 1.1 |
| 1932 | -13.1 | 1982 | -1.9 | 2002 | 1.8 |
| 1933 | -1.3 | 1983 | 4.5 | 2003 | 2.5 |
| 1934 | 10.9 | 1984 | 7.2 | 2004 | 3.5 |
| 1935 | 8.9 | 1985 | 4.1 | 2005 | 3.1 |
| 1936 | 13.1 | 1986 | 3.5 | 2006 | 2.7 |
| 1937 | 5.1 | 1987 | 3.2 | 2007 | 1.9 |
| 1938 | -3.4 | 1988 | 4.1 | 2008 | -0.3 |
| 1930 | 8.1 | 1989 | 3.6 | 2009 | -3.1 |
| 1940 | 8.8 | 1990 | 1.9 | 2010 | 2.4 |
| 1941 | 17.1 | 1991 | -0.2 | 2011 | 1.8 |
Source: US Bureau of Economic Analysis http://www.bea.gov/iTable/index_nipa.cfm
Characteristics of the four cyclical contractions are provided in Table I-6 with the first column showing the number of quarters of contraction; the second column the cumulative percentage contraction; and the final column the average quarterly rate of contraction. There were two contractions from IQ1980 to IIIQ1980 and from IIIQ1981 to IVQ1982 separated by three quarters of expansion. The drop of output combining the declines in these two contractions is 4.8 percent, which is almost equal to the decline of 4.7 percent in the contraction from IVQ2007 to IIQ2009. In contrast, during the Great Depression in the four years of 1930 to 1933, GDP in constant dollars fell 26.7 percent cumulatively and fell 45.6 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). The comparison of the global recession after 2007 with the Great Depression is entirely misleading.
Table I-6, US, Number of Quarters, Cumulative Percentage Contraction and Average Percentage Annual Equivalent Rate in Cyclical Contractions
| Number of Quarters | Cumulative Percentage Contraction | Average Percentage Rate | |
| IIQ1953 to IIQ1954 | 4 | -2.5 | -0.63 |
| IIIQ1957 to IIQ1958 | 3 | -3.1 | -9.0 |
| IQ1980 to IIIQ1980 | 2 | -2.2 | -1.1 |
| IIIQ1981 to IVQ1982 | 4 | -2.7 | -0.67 |
| IVQ2007 to IIQ2009 | 6 | -4.7 | -0.80 |
Sources: Business Cycle Reference Dates: http://www.nber.org/cycles.html Data: US Bureau of Economic Analysis http://www.bea.gov/iTable/index_nipa.cfm
Table I-5 shows the extraordinary contrast between the mediocre average annual equivalent growth rate of 2.2 percent of the US economy in the twelve quarters of the current cyclical expansion from IIIQ2009 to IIQ2012 and the average of 6.2 percent in the four earlier cyclical expansions. BEA data show the US economy in standstill with annual growth of 2.4 percent in 2010 percent decelerating to 1.8 percent annual growth in 2011 (http://www.bea.gov/iTable/index_nipa.cfm) and cumulative 0.82 percent in the first half of 2012 {(1.02)1/4(1.013)1/4 = 0.82%}, which is equivalent to 1.65 percent per year {([(1.02)1/4(1.013)1/4 ]2 – 1)100 = 1.65%}. The expansion of IQ1983 to IVQ1985 was at the average annual growth rate of 5.7 percent.
Table I-7, US, Number of Quarters, Cumulative Growth and Average Annual Equivalent Growth Rate in Cyclical Expansions
| Number | Cumulative Growth ∆% | Average Annual Equivalent Growth Rate | |
| IIIQ 1954 to IQ1957 | 11 | 12.6 | 4.4 |
| IIQ1958 to IIQ1959 | 5 | 10.2 | 8.1 |
| IIQ1975 to IVQ1976 | 8 | 9.5 | 4.6 |
| IQ1983 to IV1985 | 13 | 19.6 | 5.7 |
| Average Four Above Expansions | 6.2 | ||
| IIIQ2009 to IIQ2012 | 12 | 6.7 | 2.2 |
Sources: Business Cycle Reference Dates: http://www.nber.org/cycles.html Data: US Bureau of Economic Analysis http://www.bea.gov/iTable/index_nipa.cfm
A group of charts from the database of the Bureau of Labor Statistics facilitate the comparison of employment in the 1980s and 2000s. The long-term charts and tables from I-5 to I-7 in the discussion above confirm the view that the comparison of the current expansion should be with that in the 1980s because of similar dimensions. Chart I-21 provides the level of employment in the US between 1979 and 1989. Employment surged after the contraction and grew rapidly during the decade.
Chart I-21, US, Employed, Thousands, 1979-1989
Source: US Bureau of Labor Statistics
The number employed in the US fell from 146.448 million in Sep 2007 to 143.333 million in Sep 2012, by 3.115 million, or 2.1 percent, while the noninstitutional population increased from 232.461 million in Sep 2007 to 243.772 million in Sep 2012, by 11.311 million or increase of 4.9 percent, using not seasonally adjusted data. Chart I-22 shows tepid recovery early in 2010 followed by near stagnation and marginal expansion.
![clip_image012[1]](file:///C:\Users\cmpelaez\AppData\Local\Temp\WindowsLiveWriter1264636800\supfiles11CA60\image64.png "clip_image012[1]")
Chart I-22, US, Employed, Thousands, 2001-2012
Source: US Bureau of Labor Statistics
There was a steady upward trend in growth of the civilian labor force between 1979 and 1989 as shown in Chart I-23. There were fluctuations but strong long-term dynamism over an entire decade.
Chart I-23, US, Civilian Labor Force, Thousands, 1979-1989
Source: US Bureau of Labor Statistics
The civilian labor force in Chart I-24 grew steadily on an upward trend in the 2000s until it contracted together with the economy after 2007. There has not been recovery during the expansion but rather decline and marginal turn of the year into 2012 expansion.
![clip_image016[1]](file:///C:\Users\cmpelaez\AppData\Local\Temp\WindowsLiveWriter1264636800\supfiles11CA60\image68.png "clip_image016[1]")
Chart I-24, US, Civilian Labor Force, Thousands, 2001-2012
Source: US Bureau of Labor Statistics
The rate of participation of the labor force in population stagnated during the stagflation and conquest of inflation in the late 1970s and early 1980s, as shown in Chart I-25. Recovery was vigorous during the expansion and lasted through the remainder of the decade.
Chart I-25, US, Civilian Labor Force Participation Rate, 1979-1989, %
Source: US Bureau of Labor Statistics
The rate of participation in the labor force declined after the recession of 2001 and stagnated until 2007, as shown in Chart I-26. The rate of participation in the labor force continued to decline both during the contraction after 2007 and the expansion after 2009 with marginal expansion at the turn of the year into 2012 followed by trend of decline.
![clip_image020[1]](file:///C:\Users\cmpelaez\AppData\Local\Temp\WindowsLiveWriter1264636800\supfiles11CA60\image72.png "clip_image020[1]")
Chart I-26, US, Civilian Labor Force Participation Rate, 2001-2012, %
Source: US Bureau of Labor Statistics
Chart I-27 provides the number unemployed during the 1980s. The number unemployed peaked at 12.051 million in Dec 1982 seasonally adjusted and 12.517 in Jan 1983 million not seasonally adjusted, declining to 8.358 million in Dec 1984 seasonally adjusted and 7.978 million not seasonally adjusted during the first two years of expansion from the contraction. The number unemployed then fell to 6.667 million in Dec 1989 seasonally adjusted and 6.300 million not seasonally adjusted.
Chart I-27, US, Unemployed Thousands 1979-1989
Source: US Bureau of Labor Statistics
Chart I-28 provides the number unemployed from 2001 to 2012. Using seasonally adjusted data, the number unemployed rose from 6.727 million in Oct 2006 to 15.421 million in Oct 2009, declining to 13.097 million in Dec 2011 and to 12.088 million in Sep 2012. Using data not seasonally adjusted, the number unemployed rose from 6.272 million in Oct 2006 to 16.147 million in Jan 2010, declining to 11.742 million in Sep 2012.
![clip_image022[1]](file:///C:\Users\cmpelaez\AppData\Local\Temp\WindowsLiveWriter1264636800\supfiles11CA60\image76.png "clip_image022[1]")
Chart I-28, US, Unemployed Thousands 2001-2012
Source: US Bureau of Labor Statistics
The rate of unemployment peaked at 10.8 percent in both Nov and Dec 1982 seasonally adjusted, as shown in Chart I-29. The rate of unemployment dropped sharply during the expansion after 1984 and continued to decline during the rest of the decade to 5.4 percent in Dec 1989. Using not seasonally adjusted data, the rate of unemployment peaked at 11.4 percent in Jan 1983, declining to 7.0 percent in Dec 1984 and 5.1 percent in Dec 1989.
Chart I-29, US, Unemployment Rate, 1979-1989, %
Source: US Bureau of Labor Statistics
The rate of unemployment in the US seasonally adjusted jumped from 4.4 percent in May 2007 to 10.0 percent in Oct 2009 and 9.9 percent in both Nov and Dec 2009, as shown in Chart I-30. The rate of unemployment fluctuated at around 9.0 percent in 2011 with the somewhat less credible 8.7 percent in Nov 2011 because of the decrease of the labor force by 120,000 from 154.057 million Oct to 153.937 million in Nov and then declined to 8.5 percent in Dec 2011 with decline of 50,000 of the labor force from 153.937 million in Nov to 153.887 million Dec 2011. The rate of unemployment then fell to 8.3 percent in Jan and Feb 2012 and fell to 8.2 percent in Mar 2012 and 8.1 percent in Apr 2012 with another decline of the labor force. The rate fell to 7.8 percent in Sep 2012. Using not seasonally adjusted data, the rate of unemployment rose from 4.3 percent in Apr and May 2007 to 10.6 percent in Jan 2010, declining to 7.6 percent in Sep 2012.
![clip_image024[1]](file:///C:\Users\cmpelaez\AppData\Local\Temp\WindowsLiveWriter1264636800\supfiles11CA60\image80.png "clip_image024[1]")
Chart I-30, US, Unemployment Rate, 2001-2012, %
Source: US Bureau of Labor Statistics
The employment population ratio seasonally adjusted fell from around 60.1 in Dec 1979 to 57.1 in both Feb and Mar 1983, as shown in Chart I-31. The employment population ratio seasonally adjusted rose back to 59.9 in Dec 1984 and reached 63.0 later in the decade in Dec 1989. Using not seasonally adjusted data, the employment population ratio dropped from 60.4 percent in Oct 1979 to 56.1 percent in Jan 1983, increasing to 59.8 in Dec 1984 and to 62.9 percent in Dec 1989.
Chart I-31, US, Employment Population Ratio, 1979-1989, %
Source: US Bureau of Labor Statistics
The US employment-population ratio seasonally adjusted has fallen from 63.4 in Dec 2006 to 58.5 in Dec 2011 and Jan 2012, increasing to 58.6 percent in Feb 2012 and falling back to 58.5 percent in Mar 2012 and 58.4 percent in Apr 2012 but rising to 58.6 percent in May and Jun 2012, falling back to 58.4 percent in Jul 2012 and 58.3 percent in Aug 2012 with latest increase to 58.7 percent in Sep 2012, as shown in Chart I-32. The employment population-ratio has stagnated during the expansion. Using not seasonally adjusted data, the employment population ratio fell from 63.6 percent in Jul 2006 to 57.6 percent in Jan 2011 and 58.8 percent in Sep 2012.
Chart I-32, US, Employment Population Ratio, 2001-2012, %
Source: US Bureau of Labor Statistics
The number unemployed for 27 weeks or over peaked at 2.885 million in Jun 1983 as shown in Chart I-33. The number unemployed for 27 weeks or over fell sharply during the expansion to 1.393 million in Dec 1984 and continued to decline throughout the 1980s to 0.635 million in Dec 1989.
Chart I-33, US, Number Unemployed for 27 Weeks or More 1979-1989, Thousands
Source: US Bureau of Labor Statistics
The number unemployed for 27 weeks or over, seasonally adjusted, increased sharply during the contraction as shown in Chart I-34 from 1.131 million in Nov 2006 to 6.730 in Apr 2010. The number of unemployed for 27 weeks remained at around 6 million during the expansion compared with somewhat above 1 million before the contraction, falling to 4.844 million in Sep 2012 seasonally adjusted and 4.835 million not seasonally adjusted.
Chart I-34, US, Number Unemployed for 27 Weeks or More, 2001-2012, Thousands
Source: US Bureau of Labor Statistics
The number of persons working part-time for economic reasons because they cannot find full-time work peaked during the contraction at 6.857 million in Oct 1982, as shown in Chart I-35. The number of persons at work part-time for economic reasons fell sharply during the expansion to 5.797 million in Dec 1984 and continued to fall throughout the decade to 4.817 million in Dec 1989.
Chart I-35, US, Part-Time for Economic Reasons, 1979-1989, Thousands
Source: US Bureau of Labor Statistics
The number of people working part-time because they cannot find full-time employment, not seasonally adjusted, increased sharply during the contraction from 3.787 million in Apr 2006, not seasonally adjusted, to 9.354 million in Dec 2009, as shown in Chart I-36. The number of people working part-time because of failure to find an alternative occupation stagnated at a very high level during the expansion, declining to 8.110 million not seasonally adjusted in Sep 2012.
![clip_image028[1]](file:///C:\Users\cmpelaez\AppData\Local\Temp\WindowsLiveWriter1264636800\supfiles11CA60\image100.png "clip_image028[1]")
Chart I-36, US, Part-Time for Economic Reasons, 2001-2012, Thousands
Source: US Bureau of Labor Statistics
The number marginally attached to the labor force in Chart I-37 jumped from 1.252 million in Dec 2006 to 2.730 million in Feb 2011, remaining at a high level of 2.540 million in Dec 2011, 2.809 million in Jan 2012, 2.608 million in Feb 2012, 2.352 million in Mar 2012, 2.363 million in Apr 2012 and increase to 2.423 million in May 2012, 2.483 million in Jun 2012, 2.529 million in Jul 2012, 2.561 million in Aug 2012 and 2.517 million in Sep 2012.
![clip_image032[1]](file:///C:\Users\cmpelaez\AppData\Local\Temp\WindowsLiveWriter1264636800\supfiles11CA60\image104.png "clip_image032[1]")
Chart I-37, US, Marginally Attached to the Labor Force, 2001-2012
Source: US Bureau of Labor Statistics
Total nonfarm payroll employment seasonally adjusted (SA) increased 114,000 in Sep 2012 and private payroll employment rose 104,000. The number of nonfarm jobs and private jobs created has been declining in the first nine months of 2012 from 275,000 in Jan to 45,000 in Jun and 114,000 in Sep for total nonfarm jobs and from 277,000 in Jan to 63,000 in Jun and 104,000 in Sep for private jobs. Average new nonfarm jobs in the quarter Dec 2011 to Feb 2012 were 252,000 per month, declining to average 114,249 per month in the seven months from Mar to Sep 2012. Average new private jobs in the quarter Dec 2011 to Feb 2012 were 255,000 per month, declining to average 110,714 per month in the seven months from Mar 2012 to Sep 2012. The US labor force stood at 154.812 million in Jul 2011 and at 156.526 million in Jul 2012, not seasonally adjusted, for increase of 1.714 million, or 142,833 per month. The average increase of 114,249 new nonfarm jobs per month in the US from Mar to Sep 2012 is insufficient even to absorb 142,833 new entrants per month into the labor force. There is not sufficient job creation to merely absorb new entrants in the labor force, worsening the stock of unemployed or underemployed in involuntary part-time jobs. Table I-8 provides the monthly change in jobs seasonally adjusted in the prior strong contraction of 1981-1982 and the recovery in 1983 into 1984 and in the contraction of 2008-2009 and in the recovery in 2009 to 2012. All revisions have been incorporated in Table I-8. The data in the recovery periods are in relief to facilitate comparison. There is significant bias in the comparison. The average yearly civilian noninstitutional population was 174.2 million in 1983 and the civilian labor force 111.6 million, growing by 2009 to an average yearly civilian noninstitutional population of 235.8 million and civilian labor force of 154.1 million, that is, increasing by 35.4 percent and 38.1 percent, respectively (http://www.bls.gov/data/). Total nonfarm payroll jobs in 1983 were 90.280 million, jumping to 94.530 million in 1984 while total nonfarm jobs in 2010 were 129.874 million declining from 130.807 million in 2009 (http://www.bls.gov/data/). What is striking about the data in Table I-8 is that the numbers of monthly increases in jobs in 1983 and 1984 are several times higher than in 2010 to 2011 even with population higher by 35.4 percent and labor force higher by 38.1 percent in 2009 relative to 1983 nearly three decades ago and total number of jobs in payrolls rose by 39.5 million in 2010 relative to 1983 or by 43.8 percent. Growth at 2.2 percent has been mediocre in the twelve quarters of expansion beginning in IIIQ2009 in comparison with 6.2 percent in earlier expansions (http://cmpassocregulationblog.blogspot.com/2012/09/historically-sharper-recoveries-from.html) and also in terms of what is required to reduce the job stress of at around 24 million persons but likely close to 30 million. Some of the job growth and contraction in 2010 in Table I-8 is caused by the hiring and subsequent layoff of temporary workers for the 2010 census.
Table I-8, US, Monthly Change in Jobs, Number SA
| Month | 1981 | 1982 | 1983 | 2008 | 2009 | 2010 | Private |
| Jan | 95 | -327 | 225 | 41 | -818 | -40 | -40 |
| Feb | 67 | -6 | -78 | -84 | -724 | -35 | -27 |
| Mar | 104 | -129 | 173 | -95 | -799 | 189 | 141 |
| Apr | 74 | -281 | 276 | -208 | -692 | 239 | 193 |
| May | 10 | -45 | 277 | -190 | -361 | 516 | 84 |
| Jun | 196 | -243 | 378 | -198 | -482 | -167 | 92 |
| Jul | 112 | -343 | 418 | -210 | -339 | -58 | 92 |
| Aug | -36 | -158 | -308 | -274 | -231 | -51 | 128 |
| Sep | -87 | -181 | 1114 | -432 | -199 | -27 | 115 |
| Oct | -100 | -277 | 271 | -489 | -202 | 220 | 196 |
| Nov | -209 | -124 | 352 | -803 | -42 | 121 | 134 |
| Dec | -278 | -14 | 356 | -661 | -171 | 120 | 140 |
| 1984 | 2011 | Private | |||||
| Jan | 447 | 110 | 119 | ||||
| Feb | 479 | 220 | 257 | ||||
| Mar | 275 | 246 | 261 | ||||
| Apr | 363 | 251 | 264 | ||||
| May | 308 | 54 | 108 | ||||
| Jun | 379 | 84 | 102 | ||||
| Jul | 312 | 96 | 175 | ||||
| Aug | 241 | 85 | 52 | ||||
| Sep | 311 | 202 | 216 | ||||
| Oct | 286 | 112 | 139 | ||||
| Nov | 349 | 157 | 178 | ||||
| Dec | 127 | 223 | 234 | ||||
| 1985 | 2012 | Private | |||||
| Jan | 266 | 275 | 277 | ||||
| Feb | 124 | 259 | 254 | ||||
| Mar | 346 | 143 | 147 | ||||
| Apr | 195 | 68 | 85 | ||||
| May | 274 | 87 | 116 | ||||
| Jun | 145 | 45 | 63 | ||||
| Jul | 189 | 181 | 163 | ||||
| Aug | 193 | 142 | 97 | ||||
| Sep | 204 | 114 | 104 | ||||
| Oct | 187 | ||||||
| Nov | 209 | ||||||
| Dec | 168 |
Source: US Bureau of Labor Statistics http://www.bls.gov/data/
Charts numbered from I-38 to I-41 from the database of the Bureau of Labor Statistics provide a comparison of payroll survey data for the contractions and expansions in the 1980s and after 2007. Chart I-38 provides total nonfarm payroll jobs from 2001 to 2012. The sharp decline in total nonfarm jobs during the contraction after 2007 has been followed by initial stagnation and then inadequate growth in the first eight months of 2012.
Chart I-38, US, Total Nonfarm Payroll Jobs SA 2001-2012
Source: US Bureau of Labor Statistics http://www.bls.gov/data/
Total nonfarm payroll jobs grew rapidly during the expansion in 1983 and 1984 as shown in Chart I-39. Nonfarm payroll jobs continued to grow at high rates during the remainder of the 1980s.
Chart I-39, US, Total Nonfarm Payroll Jobs SA 1979-1989
Source: US Bureau of Labor Statistics
Most job creation in the US is by the private sector. Chart I-40 shows the sharp destruction of private payroll jobs during the contraction after 2007. There has been growth after 2010 but insufficient to recover higher levels of employment prevailing before the contraction. At current rates, recovery of employment may spread over several years in contrast with past expansions of the business cycle in the US.
Chart I-40, US, Total Private Payroll Jobs SA 2001-2012
Source: US Bureau of Labor Statistics http://www.bls.gov/data/
In contrast, growth of private payroll jobs in the US recovered vigorously during the expansion in 1983 through 1985, as shown in Chart I-41. Rapid growth of creation of private jobs continued throughout the 1980s.
Chart I-41, US, Total Private Payroll Jobs SA 1979-1989
Source: US Bureau of Labor Statistics http://www.bls.gov/data/
IA4 Creation of Jobs. Types of jobs created, and not only the pace of job creation, may be important. Aspects of growth of payroll jobs from Sep 2011 to Sep 2012, not seasonally adjusted (NSA), are provided in Table I-9. Total nonfarm employment increased by 1,822,000 (row A, column Change), consisting of growth of total private employment by 1,889,000 (row B, column Change) and decline by 67,000 of government employment (row C, column Change). Monthly average growth of private payroll employment has been 157,417, which is mediocre relative to 24 to 30 million in job stress, while total nonfarm employment has grown on average by only 151,833 per month, which barely keeps with 142,833 new entrants per month in the labor force. These monthly rates of job creation are insufficient to meet the demands of new entrants in the labor force and thus perpetuate unemployment and underemployment. Manufacturing employment increased by 180,000, at the monthly rate of 15,000, while private service providing employment grew by 1,667,000, at the monthly rate of 138,917. An important feature in Table I-9 is that jobs in professional and business services increased by 538,000 with temporary help services increasing by 209,000. This episode of jobless recovery is characterized by part-time jobs and creation of jobs that are inferior to those that have been lost. Monetary and fiscal stimuli fail to increase consumption in a fractured job market. The segment leisure and hospitality added 11,000 jobs in Sep and 288,000 in 12 months. An important characteristic is that the losses of government jobs has stabilized in local government after heavy losses, 9,000 jobs lost in the past twelve months (row C3 Local), while there is a higher number of employees in local government, 13.9 million relative to 5.1 million in state jobs and 2.8 million in federal jobs.
Table I-9, US, Employees in Nonfarm Payrolls Not Seasonally Adjusted, in Thousands
| Sep 2011 | Sep 2012 | Change | |
| A Total Nonfarm | 131,975 | 133,797 | 1,822 |
| B Total Private | 110,100 | 111,989 | 1,889 |
| B1 Goods Producing | 18,433 | 18,655 | 222 |
| B1a Manufacturing | 11,848 | 12,028 | 180 |
| B2 Private service providing | 91,667 | 93,334 | 1,667 |
| B2a Wholesale Trade | 5,540 | 5,644 | 104 |
| B2b Retail Trade | 14,571 | 14,689 | 118 |
| B2c Transportation & Warehousing | 4,343 | 4,448 | 105 |
| B2d Financial Activities | 7,677 | 7,760 | 83 |
| B2e Professional and Business Services | 17,513 | 18,051 | 538 |
| B2e1 Temporary help services | 2,408 | 2,617 | 209 |
| B2f Health Care & Social Assistance | 16,706 | 17,049 | 343 |
| B2g Leisure & Hospitality | 13,576 | 13,864 | 288 |
| C Government | 21,875 | 21,808 | -67 |
| C1 Federal | 2,852 | 2,814 | -38 |
| C2 State | 5,102 | 5,082 | -20 |
| C3 Local | 13,921 | 13,912 | -9 |
Note: A = B+C, B = B1 + B2, C=C1 + C2 + C3
Source: US Bureau of Labor Statistics http://www.bls.gov/data/
Greater detail on the types of jobs created is provided in Table I-10 with data for Aug and Sep 2012. Strong seasonal effects are shown by the significant difference between seasonally-adjusted (SA) and not-seasonally-adjusted (NSA) data. The purpose of adjusting for seasonality is to isolate nonseasonal effects. The 114,000 jobs SA total nonfarm jobs created in Sep relative to Aug actually correspond to job increase of 574,000 jobs NSA, as shown in row A. The 104,000 total private payroll jobs SA created in Sep relative to Aug actually correspond to decrease of 377,000 jobs NSA. Adjustment for seasonality isolates nonseasonal effects that suggest improvement from Sep 2011 to Sep 2012. The analysis of NSA job creation in the prior Table I-9 does show improvement over the 12 months ending in Sep 2012 that is not clouded by seasonal variations but significant reduction in number of jobs created. In fact, the 12-month rate of job creation without seasonal adjustment is stronger indication of marginal improvement in the US job market but that is insufficient to even make a dent in about 30 million people unemployed or underemployed.
Table I-10, US, Employees on Nonfarm Payrolls and Selected Industry Detail, Thousands, SA
| Aug 2012 SA | Sep 2012 SA | ∆ | Aug 2012 NSA | Sep 2012 NSA | ∆ | |
| A Total Nonfarm | 133,386 | 133,500 | 114 | 133,223 | 133,797 | 574 |
| B Total Private | 111,395 | 111,499 | 104 | 112,366 | 111,989 | -377 |
| B1 Goods Producing | 18,314 | 18,304 | -10 | 18,738 | 18,655 | -83 |
| B1a Constr. | 5,518 | 5,523 | 5 | 5,813 | 5,777 | -36 |
| B Mfg | 11,958 | 11,942 | -16 | 12,068 | 12,028 | -40 |
| B2 Private Service Providing | 93,081 | 93,195 | 114 | 93,628 | 93,334 | -294 |
| B2a Wholesale Trade | 5,646 | 5,644 | -2 | 5,668 | 5,644 | -24 |
| B2b Retail Trade | 14,759 | 14,768 | 9 | 14,776 | 14,689 | -87 |
| B2c Couriers & Mess. | 526 | 527 | 1 | 517 | 521 | 4 |
| B2d Health-care & Social Assistance | 17,025 | 17,070 | 45 | 17,002 | 17,049 | 47 |
| B2De Profess. & Business Services | 17,943 | 17,956 | 13 | 18,072 | 18,051 | -21 |
| B2De1 Temp Help Services | 2,536 | 2,534 | -2 | 2,570 | 2,617 | 47 |
| B2f Leisure & Hospit. | 13,659 | 13,670 | 11 | 14,297 | 13,864 | -433 |
Notes: ∆: Absolute Change; Constr.: Construction; Mess.: Messengers; Temp: Temporary; Hospit.: Hospitality. SA aggregates do not add because of seasonality.
Source: US Bureau of Labor Statistics http://www.bls.gov/data/
Manufacturing jobs fell by 16,000 in Sep 2012 relative to Aug 2012, seasonally adjusted, and fell 40,000 in Sep 2012 relative to Aug 2012, not seasonally adjusted, as shown in Table I-10, because of the weaker economy and international trade. In the six months ending in Aug, United States national industrial production accumulated decline of 0.4 percent at the annual equivalent rate of decline of 0.8 percent, which is substantially lower than 2.8 percent growth in 12 months. Capacity utilization for total industry in the United States fell 1.0 percentage point in Aug to 78.2 percent, which is 2.1 percentage points lower than the long-run average from 1972 to 2011. Manufacturing decreased 0.7 percent in Aug seasonally adjusted, increasing 4.1 percent not seasonally adjusted in 12 months, and fell 0.5 percent in the six months ending in Aug or at the annual equivalent rate of 1.0 percent (http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation_16.html). Table I-11 provides national income by industry without capital consumption adjustment (WCCA). “Private industries” or economic activities have share of 86.5 percent in US national income in IQ2012 and 86.3 percent in IIQ2012. Most of US national income is in the form of services. In Sep 2012, there were 133.797 million nonfarm jobs NSA in the US, according to estimates of the establishment survey of the Bureau of Labor Statistics (BLS) (http://www.bls.gov/news.release/empsit.nr0.htm Table B-1). Total private jobs of 111.989 million NSA in Sep 2012 accounted for 83.7 percent of total nonfarm jobs of 133.797 million, of which 12.028 million, or 10.7 percent of total private jobs and 9.0 percent of total nonfarm jobs, were in manufacturing. Private service-producing jobs were 93.334 million NSA in Sep 2012, or 69.8 percent of total nonfarm jobs and 83.3 percent of total private-sector jobs. Manufacturing has share of 11.0 percent in US national income in IIQ2011, as shown in Table I-11. Most income in the US originates in services. Subsidies and similar measures designed to increase manufacturing jobs will not increase economic growth and employment and may actually reduce growth by diverting resources away from currently employment-creating activities because of the drain of taxation.
Table I-11, US, National Income without Capital Consumption Adjustment by Industry, Seasonally Adjusted Annual Rates, Billions of Dollars, % of Total
| SAAR IQ2012 | % Total | SAAR | % Total | |
| National Income WCCA | 13,788.3 | 100.0 | 13,867.8 | 100.0 |
| Domestic Industries | 13,573.4 | 98.4 | 13,620.5 | 98.2 |
| Private Industries | 11,922.7 | 86.5 | 11,967.5 | 86.3 |
| Agriculture | 134.0 | 1.0 | 132.8 | 0.9 |
| Mining | 211.0 | 1.5 | 208.7 | 1.5 |
| Utilities | 211.9 | 1.5 | 214.7 | 1.6 |
| Construction | 585.6 | 4.3 | 585.8 | 4.2 |
| Manufacturing | 1521.9 | 11.0 | 1530.4 | 11.0 |
| Durable Goods | 865.2 | 6.3 | 877.3 | 6.3 |
| Nondurable Goods | 656.6 | 4.8 | 653.1 | 4.7 |
| Wholesale Trade | 831.6 | 6.0 | 852.8 | 6.2 |
| Retail Trade | 947.5 | 6.9 | 947.2 | 6.8 |
| Transportation & WH | 416.5 | 3.0 | 417.7 | 3.0 |
| Information | 486.7 | 3.5 | 497.0 | 3.6 |
| Finance, insurance, RE | 2301.3 | 16.7 | 2271.1 | 16.4 |
| Professional, BS | 1955.0 | 14.2 | 1983.5 | 14.3 |
| Education, Health Care | 1380.8 | 10.0 | 1832.7 | 13.2 |
| Arts, Entertainment | 541.1 | 3.9 | 542.7 | 3.9 |
| Other Services | 397.9 | 2.9 | 400.3 | 2.9 |
| Government | 1650.7 | 12.0 | 1653.0 | 11.9 |
| Rest of the World | 214.9 | 1.6 | 247.3 | 1.8 |
Notes: SSAR: Seasonally-Adjusted Annual Rate; WCCA: Without Capital Consumption Adjustment by Industry; WH: Warehousing; RE, includes rental and leasing: Real Estate; Art, Entertainment includes recreation, accommodation and food services; BS: business services
Source: US Bureau of Economic Analysis http://www.bea.gov/iTable/index_nipa.cfm
The NBER dates recessions in the US from peaks to troughs as: IQ80 to IIIQ80, IIIQ81 to IV82 and IVQ07 to IIQ09 (http://www.nber.org/cycles/cyclesmain.html). Table I-12 provides total annual level nonfarm employment in the US for the 1980s and the 2000s, which is different from 12 months comparisons. Nonfarm jobs rose by 4.853 million in 1982 to 1984, or 5.4 percent, and continued rapid growth in the rest of the decade. In contrast, nonfarm jobs are down by 7.724 million in 2010 relative to 2007 and fell by 933,000 in 2010 relative to 2009 even after six quarters of GDP growth. Monetary and fiscal stimuli have failed in increasing growth to rates required for mitigating job stress. The initial growth impulse reflects a flatter growth curve in the current expansion.
Table I-12, US, Total Nonfarm Employment in Thousands
| Year | Total Nonfarm | Year | Total Nonfarm |
| 1980 | 90,528 | 2000 | 131,785 |
| 1981 | 91,289 | 2001 | 131,826 |
| 1982 | 89,677 | 2002 | 130,341 |
| 1983 | 90,280 | 2003 | 129,999 |
| 1984 | 94,530 | 2004 | 131,435 |
| 1985 | 97,511 | 2005 | 133,703 |
| 1986 | 99,474 | 2006 | 136,086 |
| 1987 | 102,088 | 2007 | 137,598 |
| 1988 | 105,345 | 2008 | 136,790 |
| 1989 | 108,014 | 2009 | 130,807 |
| 1990 | 109,487 | 2010 | 129,874 |
| 1991 | 108,374 | 2011 | 131,359 |
Source: http://www.bls.gov/data/
The highest average yearly percentage of unemployed to the labor force since 1940 was 14.6 percent in 1940 followed by 9.9 percent in 1941, 8.5 percent in 1975, 9.7 percent in 1982 and 9.6 percent in 1983 (ftp://ftp.bls.gov/pub/special.requests/lf/aa2006/pdf/cpsaat1.pdf). The rate of unemployment remained at high levels in the 1930s, rising from 3.2 percent in 1929 to 22.9 percent in 1932 in one estimate and 23.6 percent in another with real wages increasing by 16.4 percent (Margo 1993, 43; see Pelaez and Pelaez, Regulation of Banks and Finance (2009b), 214-5). There are alternative estimates of 17.2 percent or 9.5 percent for 1940 with real wages increasing by 44 percent. Employment declined sharply during the 1930s. The number of hours worked remained in 1939 at 29 percent below the level of 1929 (Cole and Ohanian 1999). Private hours worked fell in 1939 to 25 percent of the level in 1929. The policy of encouraging collusion through the National Industrial Recovery Act (NIRA), to maintain high prices, together with the National Labor Relations Act (NLRA), to maintain high wages, prevented the US economy from recovering employment levels until Roosevelt abandoned these policies toward the end of the 1930s (for review of the literature analyzing the Great Depression see Pelaez and Pelaez, Regulation of Banks and Finance (2009b), 198-217).
The Bureau of Labor Statistics (BLS) makes yearly revisions of its establishment survey (Harris 2011BA):
“With the release of data for January 2011, the Bureau of Labor Statistics (BLS) introduced its annual revision of national estimates of employment, hours, and earnings from the Current Employment Statistics (CES) monthly survey of nonfarm establishments. Each year, the CES survey realigns its sample-based estimates to incorporate universe counts of employment—a process known as benchmarking. Comprehensive counts of employment, or benchmarks, are derived primarily from unemployment insurance (UI) tax reports that nearly all employers are required to file with State Workforce Agencies.”
The number of not seasonally adjusted total private jobs in the US in Dec 2010 is 108.464 million, declining to 106.079 million in Jan 2011, or by 2.385 million, because of the adjustment of a different benchmark and not actual job losses. The not seasonally adjusted number of total private jobs in Dec 1984 is 80.250 million, declining to 78.704 million in Jan 1985, or by 1.546 million for the similar adjustment. Table I-13 attempts to measure job losses and gains in the recessions and expansions of 1981-1985 and 2007-2011. The final ten rows provide job creation from May 1983 to May 1984 and from May 2010 to May 2011, that is, at equivalent stages of the recovery from two comparable strong recessions. The row “Change ∆%” for May 1983 to May 1984 shows an increase of total nonfarm jobs by 4.9 percent and of 5.9 percent for total private jobs. The row “Change ∆%” for May 2010 to May 2011 shows an increase of total nonfarm jobs by 0.7 percent and of 1.7 percent for total private jobs. The last two rows of Table 7 provide a calculation of the number of jobs that would have been created from May 2010 to May 2011 if the rate of job creation had been the same as from May 1983 to May 1984. If total nonfarm jobs had grown between May 2010 and May 2011 by 4.9 percent, as between May 1983 and May 1984, 6.409 million jobs would have been created in the past 12 months for a difference of 5.457 million more total nonfarm jobs relative to 0.952 million jobs actually created. If total private jobs had grown between May 2010 and May 2011 by 5.9 percent as between May 1983 and May 1984, 6.337 million private jobs would have been created for a difference of 4.539 million more total private jobs relative to 1.798 million jobs actually created.
Table I-13, US, Total Nonfarm and Total Private Jobs Destroyed and Subsequently Created in
Two Recessions IIIQ1981-IVQ1982 and IVQ2007-IIQ2009, Thousands and Percent
| Total Nonfarm Jobs | Total Private Jobs | |
| 06/1981 # | 92,288 | 75,969 |
| 11/1982 # | 89,482 | 73,260 |
| Change # | -2,806 | -2,709 |
| Change ∆% | -3.0 | -3.6 |
| 12/1982 # | 89,383 | 73,185 |
| 05/1984 # | 94,471 | 78,049 |
| Change # | 5,088 | 4,864 |
| Change ∆% | 5.7 | 6.6 |
| 11/2007 # | 139,090 | 116,291 |
| 05/2009 # | 131,626 | 108,601 |
| Change % | -7,464 | -7,690 |
| Change ∆% | -5.4 | -6.6 |
| 12/2009 # | 130,178 | 107,338 |
| 05/2011 # | 131,753 | 108,494 |
| Change # | 1,575 | 1,156 |
| Change ∆% | 1.2 | 1.1 |
| 05/1983 # | 90,005 | 73,667 |
| 05/1984 # | 94,471 | 78,049 |
| Change # | 4,466 | 4,382 |
| Change ∆% | 4.9 | 5.9 |
| 05/2010 # | 130,801 | 107,405 |
| 05/2011 # | 131,753 | 109,203 |
| Change # | 952 | 1,798 |
| Change ∆% | 0.7 | 1.7 |
| Change # by ∆% as in 05/1984 to 05/1985 | 6,409* | 6,337** |
| Difference in Jobs that Would Have Been Created | 5,457 = | 4,539 = |
*[(130,801x1.049)-130,801] = 6,409 thousand
**[(107,405)x1.059 – 107,405] = 6,337 thousand
Source: http://www.bls.gov/data/
IIA Stagnating Real Wages. The wage bill is the product of average weekly hours times the earnings per hour. Table II-1 provides the estimates by the Bureau of Labor Statistics (BLS) of earnings per hour seasonally adjusted, increasing from $23.16/hour in Sep 2011 to $23.58/hour in Sep 2012, or by 1.8 percent. There has been disappointment about the pace of wage increases because of rising food and energy costs that inhibit consumption and thus sales and similar concern about growth of consumption that accounts for about 70 percent of GDP. Growth of consumption by decreasing savings by means of controlling interest rates in what is called financial repression may not be lasting and sound for personal finances (See Section IB3 at http://cmpassocregulationblog.blogspot.com/2012/09/historically-sharper-recoveries-from.html and earlier at http://cmpassocregulationblog.blogspot.com/2012/09/collapse-of-united-states-dynamism-of.html http://cmpassocregulationblog.blogspot.com/2012/07/recovery-without-jobs-stagnating-real.html http://cmpassocregulationblog.blogspot.com/2012/06/mediocre-recovery-without-jobs.html http://cmpassocregulationblog.blogspot.com/2012/04/mediocre-growth-with-high-unemployment.html http://cmpassocregulationblog.blogspot.com/2012/04/mediocre-economic-growth-falling-real.html http://cmpassocregulationblog.blogspot.com/2012/03/mediocre-economic-growth-flattening.html http://cmpassocregulationblog.blogspot.com/2012/01/mediocre-economic-growth-financial.html http://cmpassocregulationblog.blogspot.com/2011/12/slow-growth-falling-real-disposable.html http://cmpassocregulationblog.blogspot.com/2011/11/us-growth-standstill-falling-real.html http://cmpassocregulationblog.blogspot.com/2011/10/slow-growth-driven-by-reducing-savings.html). Average hourly earnings seasonally adjusted increased 0.3 percent from $23.51 in Aug 2012 to $23.58 in Sep 2012. Average private weekly earnings increased $16.81 from $796.70 in Sep 2011 to $813.51 in Sep 2012 or 2.1 percent and increased from $809.74 in Sep 2012 to $813.51 in Sep 2012 or 0.5 percent. The inflation-adjusted wage bill can only be calculated for Aug, which is the most recent month for which there are estimates of the consumer price index. Earnings per hour (not-seasonally-adjusted (NSA)) rose from $22.88 in Aug 2011 to $23.29 in Aug 2012 or by 1.8 percent (http://www.bls.gov/data/; see Table II-3 below). Data NSA are more suitable for comparison over a year. Average weekly hours NSA were 34.4 in Aug 2011 and 34.5 in Aug 2012 (http://www.bls.gov/data/; see Table II-2 below). The wage bill rose 2.3 percent in the 12 months ending in Jun 2012:
{[(wage bill in Aug 2012)/(wage bill in Aug 2011)]-1}100 =
{[($23.29x34.5)/($22.88x34.4)]-1]}100
= {[($803.5/$787.1)]-1}100 = 2.1%
CPI inflation was 1.7 percent in the 12 months ending in Aug 2012 (http://www.bls.gov/cpi/) for an inflation-adjusted wage-bill change of 0.4 percent :{[(1.021/1.017)-1]100}. The wage bill for Sep 2012 before inflation adjustment increased 3.5 percent relative to the wage bill for Sep 2011:
{[(wage bill in Sep 2012)/(wage bill in Sep 2011)]-1}100 =
{[($23.67x34.9)/($23.09x34.4)]-1]}100
= {[($826.08/$794.29)]-1}100 = 4.0%
Average hourly earnings increased 2.5 percent from Sep 2011 to Sep 2012 {[($23.67/23.09) – 1]100 = 2.5%] while hours worked increased 1.5 percent {[(34.9/34.4) – 1]100 = 1.5%}. The increase of the wage bill is the product of the increase of hourly earnings of 2.5 percent and of hours worked of 1.5 percent {[(1.025x1.015) -1]100 = 4.0%}.
Energy and food price increases are similar to a “silent tax” that is highly regressive, harming the most those with lowest incomes. There are concerns that the wage bill would deteriorate in purchasing power because of renewed raw materials shocks in the form of increases in prices of commodities such as the 31.1 percent steady increase in the DJ-UBS Commodity Index from Jul 2, 2010 to Sep 2, 2011. The charts of four commodity price indexes by Bloomberg show steady increase since Jul 2, 2010 that was interrupted briefly only in Nov 2010 with the sovereign issues in Europe triggered by Ireland, in Mar 2011 by the earthquake and tsunami in Japan and in the beginning of May 2011 by the decline in oil prices and sovereign risk difficulties in Europe (http://www.bloomberg.com/markets/commodities/futures/). Renewed risk aversion because of the sovereign risks in Europe has reduced the rate of increase of the DJ UBS commodity index to 19.2 percent on Oct 7, 2012, relative to Jul 2, 2010 (see Table VI-4). Inflation has been rising in waves with carry trades driven by zero interest rates to commodity futures during periods of risk appetite with interruptions during risk aversion (http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html). Inflation-adjusted wages fall sharply during carry trades from zero interest rates to long positions in commodity futures during periods of risk appetite
Table II-1, US, Earnings per Hour and Average Weekly Hours SA
| Earnings per Hour | Sep 2011 | Jul 2012 | Aug 2012 | Sep 2012 |
| Total Private | $23.16 | $23.52 | $23.51 | $23.58 |
| Goods Producing | $24.50 | $24.76 | $24.74 | $24.83 |
| Service Providing | $22.84 | $23.23 | $23.22 | $23.28 |
| Average Weekly Earnings | ||||
| Total Private | $796.70 | $809.09 | $809.74 | $813.51 |
| Goods Producing | $977.55 | $995.35 | $992.07 | $998.17 |
| Service Providing | $760.57 | $773.56 | $773.23 | $777.55 |
| Average Weekly Hours | ||||
| Total Private | 34.4 | 34.4 | 34.4 | 34.5 |
| Goods Producing | 39.9 | 40.2 | 40.1 | 40.2 |
| Service Providing | 33.3 | 33.3 | 33.3 | 33.4 |
Source: US Bureau of Labor Statistics http://www.bls.gov/data/
Table II-2 provides average weekly hours of all employees in the US from 2006 to 2012. Average weekly hours fell from 35.0 in Dec 2007 at the beginning of the contraction to 33.8 in Jun 2009, which was the last month of the contraction. Average weekly hours rose to 34.4 in Dec 2011 and oscillated to 34.9 in Sep 2012.
Table II-2, US, Average Weekly Hours of All Employees, NSA 2006-2012
| Year | Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec |
| 2006 | 34.2 | 34.6 | 34.3 | 34.6 | 34.9 | 34.6 | 34.5 | 34.9 | 34.4 | 34.6 | ||
| 2007 | 34.1 | 34.2 | 34.3 | 34.7 | 34.4 | 34.7 | 34.9 | 34.7 | 35.0 | 34.5 | 34.5 | 35.0 |
| 2008 | 34.2 | 34.2 | 34.8 | 34.4 | 34.4 | 34.9 | 34.5 | 34.6 | 34.4 | 34.4 | 34.6 | 34.1 |
| 2009 | 33.8 | 34.2 | 34.0 | 33.6 | 33.7 | 33.8 | 33.8 | 34.3 | 33.7 | 33.8 | 34.3 | 33.9 |
| 2010 | 33.7 | 33.6 | 33.8 | 34.0 | 34.4 | 34.1 | 34.2 | 34.7 | 34.1 | 34.3 | 34.2 | 34.2 |
| 2011 | 34.2 | 34.0 | 34.1 | 34.3 | 34.6 | 34.4 | 34.4 | 34.4 | 34.4 | 34.9 | 34.4 | 34.4 |
| 2012 | 34.5 | 34.2 | 34.3 | 34.7 | 34.3 | 34.4 | 34.8 | 34.5 | 34.9 |
Source: US Bureau of Labor Statistics http://www.bls.gov/data/
Chart II-1 provides average weekly hours monthly from Mar 2006 to Sep 2012. Average weekly hours remained relatively stable in the period before the contraction and fell sharply during the contraction as business could not support lower production with the same labor input. Average weekly hours rose rapidly during the expansion but have stabilized at a level below that prevailing before the contraction.
Chart II-1, US, Average Weekly Hours of All Employees, SA 2006-2012
Source: US Bureau of Labor Statistics
Calculations using BLS data of inflation-adjusted average hourly earnings are shown in Table II-3. The final column of Table II-3 (“12 Month Real ∆%”) provides inflation-adjusted average hourly earnings of all employees in the US. Average hourly earnings rose above inflation throughout the first nine months of 2007 just before the global recession that began in the final quarter of 2007 when average hourly earnings lost to inflation. In contrast, average hourly earnings of all US workers have risen less than inflation in four months in 2010 and in all but the first month in 2011 and the loss accelerated at 1.8 percent in Sep 2011, declining to a real loss of 1.1 percent in Feb 2012 and 0.6 percent in Mar 2012. There was a gain of 0.5 percent in Apr 2012 in inflation-adjusted average hourly earnings but another fall of 0.6 percent in May 2012 followed by increases of 0.3 percent in Jun and 0.9 percent in Jul 2012. Real hourly earnings stagnated in the 12 months ending in Aug 2012 with increase of only 0.1 percent. Real hourly earnings are oscillating in part because of world inflation waves caused by carry trades from zero interest rates to commodity futures (http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html) and in part because of the collapse of hiring (http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html).
Table II-3, US, Average Hourly Earnings Nominal and Inflation Adjusted, Dollars and % NSA
| AHE ALL | 12 Month | ∆% 12 Month CPI | 12 Month | |
| 2007 | ||||
| Jan* | $20.70* | 4.2* | 2.1 | 2.1* |
| Feb* | $20.79* | 4.1* | 2.4 | 1.7* |
| Mar | $20.82 | 3.7 | 2.8 | 0.9 |
| Apr | $21.05 | 3.3 | 2.6 | 0.7 |
| May | $20.83 | 3.7 | 2.7 | 1.0 |
| Jun | $20.82 | 3.8 | 2.7 | 1.1 |
| Jul | $20.99 | 3.4 | 2.4 | 1.0 |
| Aug | $20.85 | 3.5 | 2.0 | 1.5 |
| Sep | $21.18 | 4.0 | 2.8 | 1.2 |
| Oct | $21.07 | 2.7 | 3.5 | -0.8 |
| Nov | $21.13 | 3.3 | 4.3 | -0.9 |
| Dec | $21.37 | 3.7 | 4.1 | -0.4 |
| 2010 | ||||
| Jan | $22.55 | 2.0 | 2.6 | -0.6 |
| Feb | $22.61 | 1.4 | 2.1 | -0.7 |
| Mar | $22.51 | 1.2 | 2.3 | -1.1 |
| Apr | $22.56 | 1.8 | 2.2 | -0.4 |
| May | $22.63 | 2.5 | 2.0 | 0.5 |
| Jun | $22.37 | 1.7 | 1.1 | 0.6 |
| Jul | $22.44 | 1.8 | 1.2 | 0.6 |
| Aug | $22.58 | 1.7 | 1.1 | 0.6 |
| Sep | $22.63 | 1.8 | 1.1 | 0.7 |
| Oct | $22.73 | 1.9 | 1.2 | 0.7 |
| Nov | $22.72 | 1.1 | 1.1 | 0.0 |
| Dec | $22.79 | 1.7 | 1.5 | 0.2 |
| 2011 | ||||
| Jan | $23.20 | 2.9 | 1.6 | 1.3 |
| Feb | $23.03 | 1.9 | 2.1 | -0.2 |
| Mar | $22.93 | 1.9 | 2.7 | -0.8 |
| Apr | $23.00 | 2.0 | 3.2 | -1.2 |
| May | $23.09 | 2.0 | 3.6 | -1.5 |
| Jun | $22.85 | 2.1 | 3.6 | -1.4 |
| Jul | $22.98 | 2.4 | 3.6 | -1.2 |
| Aug | $22.88 | 1.3 | 3.8 | -2.4 |
| Sep | $23.09 | 2.0 | 3.9 | -1.8 |
| Oct | $23.34 | 2.7 | 3.5 | -0.8 |
| Nov | $23.19 | 2.1 | 3.4 | -1.3 |
| Dec | $23.26 | 2.1 | 3.0 | -0.9 |
| 2012 | ||||
| Jan | $23.61 | 1.8 | 2.9 | -1.1 |
| Feb | $23.45 | 1.8 | 2.9 | -1.1 |
| Mar | $23.41 | 2.1 | 2.7 | -0.6 |
| Apr | $23.64 | 2.8 | 2.3 | 0.5 |
| May | $23.35 | 1.1 | 1.7 | -0.6 |
| Jun | $23.30 | 2.0 | 1.7 | 0.3 |
| Jul | $23.52 | 2.3 | 1.4 | 0.9 |
| Aug | $23.29 | 1.8 | 1.7 | 0.1 |
| Sep | $23.67 | 2.5 |
Note: AHE ALL: average hourly earnings of all employees; CPI: consumer price index; Real: adjusted by CPI inflation; NA: not available
*AHE of production and nonsupervisory employees because of unavailability of data for all employees
Source: US Bureau of Labor Statistics http://www.bls.gov/data/
Average hourly earnings of all US employees in the US in constant dollars of 1982-1984 from the dataset of the US Bureau of Labor Statistics (BLS) are provided in Table II-4. Average hourly earnings fell 0.5 percent after adjusting for inflation in the 12 months ending in Mar 2012 and gained 0.4 percent in the 12 months ending in Apr 2011 but then lost 0.6 percent in the 12 months ending in May 2012 with a gain of 0.3 percent in the 12 months ending in Jun 2012 and 1.0 percent in Jul 2012 followed by 0.1 percent in Sep 2012. Table II-4 confirms the trend of deterioration of purchasing power of average hourly earnings in 2011 and into 2012 with 12-month percentage declines in four of the first four months of 2012, increase in three and stagnation in one. Those who still work bring back home a paycheck that buys fewer goods than a year earlier and savings in bank deposits do not pay anything because of financial repression (Section IB3 http://cmpassocregulationblog.blogspot.com/2012/09/historically-sharper-recoveries-from.html).
Table II-4, US, Average Hourly Earnings of All Employees NSA in Constant Dollars of 1982-1984
| Year | Jan | Feb | Mar | Apr | May | Jun | Jul | Aug |
| 2006 | 10.05 | 10.11 | 9.92 | 9.88 | 9.97 | 9.88 | ||
| 2007 | 10.23 | 10.22 | 10.14 | 10.18 | 10.02 | 9.99 | 10.08 | 10.03 |
| 2008 | 10.11 | 10.12 | 10.11 | 10.00 | 9.91 | 9.84 | 9.77 | 9.83 |
| 2009 | 10.47 | 10.50 | 10.46 | 10.39 | 10.32 | 10.20 | 10.23 | 10.29 |
| 2010 | 10.41 | 10.43 | 10.34 | 10.35 | 10.37 | 10.26 | 10.29 | 10.34 |
| 2011 | 10.53 | 10.41 | 10.26 | 10.23 | 10.22 | 10.12 | 10.17 | 10.10 |
| 2012 | 10.42 | 10.30 | 10.21 | 10.27 | 10.16 | 10.15 | 10.27 | 10.11 |
| ∆% 12 Months | -1.0 | -1.1 | -0.5 | 0.4 | -0.6 | 0.3 | 1.0 | 0.1 |
Source: US Bureau of Labor Statistics
The deterioration of purchasing power of average hourly earnings of US workers is shown by Chart II-2 of the US Bureau of Labor Statistics. Chart IB-2 plots average hourly earnings of all US employees in constant 1982-1984 dollars with evident decline from 2010 to 2012.
Chart II-2, US, Average Hourly Earnings of All Employees in Constant Dollars of 1982-1984, SA 2006-2012
Source: US Bureau of Labor Statistics
Chart II-3 provides 12-month percentage changes of average hourly earnings of all employees in constant dollars of 1982-1984, that is, adjusted for inflation. There was sharp contraction of inflation-adjusted average hourly earnings of US employees during parts of 2007 and 2008. Rates of change in 12 months became positive in parts of 2009 and 2010 but then became negative again in 2011 and now into 2012 with temporary increase in Apr 2012 that was reversed in May with another gain in Jun and Jul 2012 followed by stagnation in Aug 2012.
Chart II-3, Average Hourly Earnings of All Employees NSA 12-Month Percent Change, 1982-1984 Dollars, NSA 2007-2012
Source: US Bureau of Labor Statistics
Average weekly earnings of all US employees in the US in constant dollars of 1982-1984 from the dataset of the US Bureau of Labor Statistics (BLS) are provided in Table II-5. Average weekly earnings fell 0.9 percent after adjusting for inflation in the 12 months ending in Sep 2011, increased 0.9 percent in the 12 months ending in Oct, fell 0.7 percent in the 12 months ending in Nov and 0.3 in the 12 months ending in Dec, declining 0.3 percent in the 12 months ending in Jan 2012 and 0.4 percent in the 12 months ending in Feb 2012. Average weekly earnings in constant dollars were flat in Mar 2012 relative to Mar 2011, increasing 0.04 percent. Average weekly earnings in constant dollars increased 1.6 percent in Apr 2012 relative to Apr 2011 but fell 1.4 percent in May 2012 relative to May 2011, increasing 0.3 percent in the 12 months ending in Jun and 2.1 percent in Jul 2012. Real weekly earnings increased 0.4 percent in the 12 months ending in Aug 2012. Table II-5 confirms the trend of deterioration of purchasing power of average weekly earnings in 2011 and into 2012 with oscillations according to carry trades causing world inflation waves (http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html). Those who still work bring back home a paycheck that buys fewer goods than a year earlier. The fractured US job market does not provide an opportunity for advancement as in past booms following recessions.
Table II-5, US, Average Weekly Earnings of All Employees in Constant Dollars of 1982-1984, NSA 2007-2012
| Year | Feb | Mar | Apr | May | Jun | Jul | Aug |
| 2006 | 343.71 | 349.78 | 340.12 | 341.91 | 347.97 | 341.76 | |
| 2007 | 349.40 | 347.76 | 353.41 | 344.58 | 346.74 | 351.68 | 347.98 |
| 2008 | 346.21 | 351.70 | 344.13 | 340.77 | 343.40 | 337.06 | 340.18 |
| 2009 | 359.26 | 355.65 | 349.17 | 347.79 | 344.59 | 345.92 | 352.80 |
| 2010 | 350.51 | 349.60 | 351.84 | 356.80 | 349.97 | 352.02 | 358.90 |
| 2011 | 353.81 | 349.90 | 350.77 | 353.56 | 348.23 | 349.90 | 347.42 |
| 2012 | 352.27 | 350.04 | 356.52 | 348.50 | 349.28 | 357.26 | 348.78 |
| ∆% 12 M | -0.4 | 0.0 | 1.6 | -1.4 | 0.3 | 2.1 | 0.4 |
Source: US Bureau of Labor Statistics
Chart II-4 provides average weekly earnings of all employees in constant dollars of 1982-1984. The same pattern emerges of sharp decline during the contraction, followed by recovery in the expansion and continuing fall from 2010 to 2011 and into 2012.
Chart II-4, US, Average Weekly Earnings of All Employees in Constant Dollars of 1982-1984, SA 2006-2012
Source: US Bureau of Labor Statistics
Chart II-5 provides 12-month percentage changes of average weekly earnings of all employees in the US in constant dollars of 1982-1984. There is the same pattern of contraction during the global recession in 2008 and then again trend of deterioration in the recovery without hiring and inflation waves in 2011 and 2012 (http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html http://cmpassocregulationblog.blogspot.com/2012_09_01_archive.html http://cmpassocregulationblog.blogspot.com/2012/07/world-inflation-waves-financial.html http://cmpassocregulationblog.blogspot.com/2012/06/destruction-of-three-trillion-dollars.html http://cmpassocregulationblog.blogspot.com/2012/05/world-inflation-waves-monetary-policy.html http://cmpassocregulationblog.blogspot.com/2012/06/recovery-without-hiring-continuance-of.html http://cmpassocregulationblog.blogspot.com/2012/04/fractured-labor-market-with-hiring.html http://cmpassocregulationblog.blogspot.com/2012/03/global-financial-and-economic-risk.html http://cmpassocregulationblog.blogspot.com/2012/02/world-inflation-waves-united-states.html http://cmpassocregulationblog.blogspot.com/2012/01/world-inflation-waves-united-states.html http://cmpassocregulationblog.blogspot.com/2012/01/recovery-without-hiring-united-states.html).
Chart II-5, US, Average Weekly Earnings of All Employees NSA in Constant Dollars of 1982-1984 12-Month Percent Change, NSA 2007-2011
Source: US Bureau of Labor Statistics
IIB Collapse of United States Dynamism of Income Growth and Employment Creation. This blog has analyzed systematically the weakness of the United States recovery in the current business cycle from IIIQ2009 to the present in comparison with the recovery from the recessions in the 1980s from IQ1983 to IVQ1985. The United States has grown on average at 2.2 percent annual equivalent in the 12 quarters of expansion since IIIQ2009 while growth was 6.2 percent on average in recoveries after World War II and 5.7 percent from IQ1983 to IVQ1985. The conventional explanation is that the recession from IVQ2007 (Dec) to IIQ2009 (Jun) was so profound that it caused subsequent weak recovery and that historically growth after recessions with financial crises has been weaker. Michael D. Bordo (2012Sep27) and Bordo and Haubrich (2012DR) provide evidence contradicting the conventional explanation: recovery is much stronger on average after profound contractions and also much stronger after recessions with financial crises than after recessions without financial crises. Insistence on the conventional explanation prevents finding policies that can accelerate growth, employment and prosperity.
A monumental effort of data gathering, calculation and analysis by Carmen M. Reinhart and Kenneth Rogoff is highly relevant to banking crises, financial crash, debt crises and economic growth (Reinhart 2010CB; Reinhart and Rogoff 2011AF, 2011Jul14, 2011EJ, 2011CEPR, 2010FCDC, 2010GTD, 2009TD, 2009AFC, 2008TDPV; see also Reinhart and Reinhart 2011Feb, 2010AF and Reinhart and Sbrancia 2011). See http://cmpassocregulationblog.blogspot.com/2011/07/debt-and-financial-risk-aversion-and.html The dataset of Reinhart and Rogoff (2010GTD, 1) is quite unique in breadth of countries and over time periods:
“Our results incorporate data on 44 countries spanning about 200 years. Taken together, the data incorporate over 3,700 annual observations covering a wide range of political systems, institutions, exchange rate and monetary arrangements and historic circumstances. We also employ more recent data on external debt, including debt owed by government and by private entities.”
Reinhart and Rogoff (2010GTD, 2011CEPR) classify the dataset of 2317 observations into 20 advanced economies and 24 emerging market economies. In each of the advanced and emerging categories, the data for countries is divided into buckets according to the ratio of gross central government debt to GDP: below 30, 30 to 60, 60 to 90 and higher than 90 (Reinhart and Rogoff 2010GTD, Table 1, 4). Median and average yearly percentage growth rates of GDP are calculated for each of the buckets for advanced economies. There does not appear to be any relation for debt/GDP ratios below 90. The highest growth rates are for debt/GDP ratios below 30: 3.7 percent for the average and 3.9 for the median. Growth is significantly lower for debt/GDP ratios above 90: 1.7 for the average and 1.9 percent for the median. GDP growth rates for the intermediate buckets are in a range around 3 percent: the highest 3.4 percent average is for the bucket 60 to 90 and 3.1 percent median for 30 to 60. There is even sharper contrast for the United States: 4.0 percent growth for debt/GDP ratio below 30; 3.4 percent growth for debt/GDP ratio of 30 to 60; 3.3 percent growth for debt/GDP ratio of 60 to 90; and minus 1.8 percent, contraction, of GDP for debt/GDP ratio above 90.
For the five countries with systemic financial crises—Iceland, Ireland, UK, Spain and the US—real average debt levels have increased by 75 percent between 2007 and 2009 (Reinhart and Rogoff 2010GTD, Figure 1). The cumulative increase in public debt in the three years after systemic banking crisis in a group of episodes after World War II is 86 percent (Reinhart and Rogoff 2011CEPR, Figure 2, 10).
An important concept is “this time is different syndrome,” which “is rooted in the firmly-held belief that financial crises are something that happens to other people in other countries at other times; crises do not happen here and now to us” (Reinhart and Rogoff 2010FCDC, 9). There is both an arrogance and ignorance in “this time is different” syndrome, as explained by Reinhart and Rogoff (2010FCDC, 34):
“The ignorance, of course, stems from the belief that financial crises happen to other people at other time in other places. Outside a small number of experts, few people fully appreciate the universality of financial crises. The arrogance is of those who believe they have figured out how to do things better and smarter so that the boom can long continue without a crisis.”
There is sober warning by Reinhart and Rogoff (2011CEPR, 42) on the basis of the momentous effort of their scholarly data gathering, calculation and analysis:
“Despite considerable deleveraging by the private financial sector, total debt remains near its historic high in 2008. Total public sector debt during the first quarter of 2010 is 117 percent of GDP. It has only been higher during a one-year sting at 119 percent in 1945. Perhaps soaring US debt levels will not prove to be a drag on growth in the decades to come. However, if history is any guide, that is a risky proposition and over-reliance on US exceptionalism may only be one more example of the “This Time is Different” syndrome.”
As both sides of the Atlantic economy maneuver around defaults the experience on debt and growth deserves significant emphasis in research and policy. The world economy is slowing with high levels of unemployment in advanced economies. Countries do not grow themselves out of unsustainable debts but rather through de facto defaults by means of financial repression and in some cases through inflation. This time is not different.
Professor Michael D. Bordo (2012Sep27), at Rutgers University, is providing clear thought on the correct comparison of the current business cycles in the United States with those in United States history. There are two issues raised by Professor Bordo: (1) incomplete conclusions by lumping together countries with different institutions, economic policies and financial systems; and (2) the erroneous contention that growth is mediocre after financial crises and deep recessions, which is repeated daily in the media, but that Bordo and Haubrich (2012DR) persuasively demonstrate to be inconsistent with United States experience.
Depriving economic history of institutions is perilous as is illustrated by the economic history of Brazil. Douglass C. North (1994) emphasized the key role of institutions in explaining economic history. Rondo E. Cameron (1961, 1967, 1972) applied institutional analysis to banking history. Friedman and Schwartz (1963) analyzed the relation of money, income and prices in the business cycle and related the monetary policy of an important institution, the Federal Reserve System, to the Great Depression. Bordo, Choudhri and Schwartz (1995) analyze the counterfactual of what would have been economic performance if the Fed had used during the Great Depression the Friedman (1960) monetary policy rule of constant growth of money(for analysis of the Great Depression see Pelaez and Pelaez, Regulation of Banks and Finance (2009b), 198-217). Alan Meltzer (2004, 2010a,b) analyzed the Federal Reserve System over its history. The reader would be intrigued by Figure 5 in Reinhart and Rogoff (2010FCDC, 15) in which Brazil is classified in external default for seven years between 1828 and 1834 but not again until 64 years later in 1989, above the 50 years of incidence for serial default. This void has been filled in scholarly research on nineteenth-century Brazil by William R. Summerhill, Jr. (2007SC, 2007IR). There are important conclusions by Summerhill on the exceptional sample of institutional change or actually lack of change, public finance and financial repression in Brazil between 1822 an 1899, combining tools of economics, political science and history. During seven continuous decades, Brazil did not miss a single interest payment with government borrowing without repudiation of debt or default. What is really surprising is that Brazil borrowed by means of long-term bonds and even more surprising interest rates fell over time. The external debt of Brazil in 1870 was ₤41,275,961 and the domestic debt in the internal market was ₤25,708,711, or 62.3 percent of the total (Summerhill 2007IR, 73).
The experience of Brazil differed from that of Latin America (Summerhill 2007IR). During the six decades when Brazil borrowed without difficulty, Latin American countries becoming independent after 1820 engaged in total defaults, suffering hardship in borrowing abroad. The countries that borrowed again fell again in default during the nineteenth century. Venezuela defaulted in four occasions. Mexico defaulted in 1827, rescheduling its debt eight different times and servicing the debt sporadically. About 44 percent of Latin America’s sovereign debt was in default in 1855 and approximately 86 percent of total government loans defaulted in London originated in Spanish American borrowing countries.
External economies of commitment to secure private rights in sovereign credit would encourage development of private financial institutions, as postulated in classic work by North and Weingast (1989), Summerhill 2007IR, 22). This is how banking institutions critical to the Industrial Revolution were developed in England (Cameron 1972). The obstacle in Brazil found by Summerhill (2007IR) is that sovereign debt credibility was combined with financial repression. There was a break in Brazil of the chain of effects from protecting public borrowing, as in North and Weingast (1989), to development of private financial institutions. According to Pelaez 1976, 283) following Cameron:
“The banking law of 1860 placed severe restrictions on two basic modern economic institutions—the corporation and the commercial bank. The growth of the volume of bank credit was one of the most significant factors of financial intermediation and economic growth in the major trading countries of the gold standard group. But Brazil placed strong restrictions on the development of banking and intermediation functions, preventing the channeling of coffee savings into domestic industry at an earlier date.”
Brazil actually abandoned the gold standard during multiple financial crises in the nineteenth century, as it should have to protect domestic economic activity. Pelaez (1975, 447) finds similar experience in the first half of nineteenth-century Brazil:
“Brazil’s experience is particularly interesting in that in the period 1808-1851 there were three types of monetary systems. Between 1808 and 1829, there was only one government-related Bank of Brazil, enjoying a perfect monopoly of banking services. No new banks were established in the 1830s after the liquidation of the Bank of Brazil in 1829. During the coffee boom in the late 1830s and 1840s, a system of banks of issue, patterned after similar institutions in the industrial countries, supplied the financial services required in the first stage of modernization of the export economy.”
Financial crises in the advanced economies were transmitted to nineteenth-century Brazil by the arrival of a ship (Pelaez and Suzigan 1981). The explanation of those crises and the economy of Brazil requires knowledge and roles of institutions, economic policies and the financial system chosen by Brazil, in agreement with Bordo (2012Sep27).
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, finding 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). The comparison of recovery from IQ1983 to IVQ1985 is appropriate even when considering financial crises. There was significant financial turmoil during the 1980s. Benston and Kaufman (1997, 139) find that there was failure of 1150 US commercial and savings banks between 1983 and 1990, or about 8 percent of the industry in 1980, which is nearly twice more than between the establishment of the Federal Deposit Insurance Corporation in 1934 through 1983. More than 900 savings and loans associations, representing 25 percent of the industry, were closed, merged or placed in conservatorships (see Pelaez and Pelaez, Regulation of Banks and Finance (2008b), 74-7). The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) created the Resolution Trust Corporation (RTC) and the Savings Association Insurance Fund (SAIF) that received $150 billion of taxpayer funds to resolve insolvent savings and loans. The GDP of the US in 1989 was $5482.1 billion (http://www.bea.gov/iTable/index_nipa.cfm), such that the partial cost to taxpayers of that bailout was around 2.74 percent of GDP in a year. US GDP in 2011 is estimated at $15,075.7 billion, such that the bailout would be equivalent to cost to taxpayers of about $412.5 billion in current GDP terms. A major difference with the Troubled Asset Relief Program (TARP) for private-sector banks is that most of the costs were recovered with interest gains whereas in the case of savings and loans there was no recovery. Money center banks were under extraordinary pressure from the default of sovereign debt by various emerging nations that represented a large share of their net worth (see Pelaez 1986).
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 then returns to trend. 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. The analysis is sharpened 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. Long-term economic growth and prosperity are measured by the key indicators of growth of real income per capita, or what is earned per person after inflation. A refined concept would include real disposable income per capita, or what is earned per person after inflation and taxes.
Table IIB-1 provides the data required for broader comparison of the cyclical expansions of IQ1983 to IVQ1985 and the current one from 2009 to 2012. First, in the 13 quarters from IQ1983 to IVQ1985, GDP increased 19.6 percent at the annual equivalent rate of 5.7 percent; real disposable personal income (RDPI) increased 14.5 percent at the annual equivalent rate of 4.3 percent; RDPI per capita increased 11.5 percent at the annual equivalent rate of 3.4 percent; and population increased 2.7 percent at the annual equivalent rate of 0.8 percent. Second, in the 12 quarters of the current cyclical expansion from IIIQ2009 to IIQ2012, GDP increased 6.7 percent at the annual equivalent rate of 2.2 percent; real disposable personal income (RDPI) increased 3.8 percent at the annual equivalent rate of 1.3 percent; RDPI per capita increased 1.4 percent at the annual equivalent rate of 0.5 percent; and population increased 2.3 percent at the annual equivalent rate of 0.8 percent. Third, since the beginning of the recession in IVQ2007 to IIQ2012, GDP increased 1.7 percent, or barely above the level before the recession; real disposable personal income increased 3.5 percent; population increased 3.7 percent; and real disposable personal income per capita is 0.2 percent lower than the level before the recession. Real disposable personal income is the actual take home pay after inflation and taxes and real disposable income per capita is what is left per inhabitant. The current cyclical expansion is the worst in the period after World War II in terms of growth of economic activity and income. 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 strong 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 from IVQ2007 to IIQ2009 of 4.7 percent and the financial crisis.
Table IIB-1, US, GDP, Real Disposable Personal Income, Real Disposable Income per Capita and Population in 1983-85 and 2007-2011, %
| # Quarters | ∆% | ∆% Annual Equivalent | |
| IQ1983 to IVQ1985 | 13 | ||
| GDP | 19.6 | 5.7 | |
| RDPI | 14.5 | 4.3 | |
| RDPI Per Capita | 11.5 | 3.4 | |
| Population | 2.7 | 0.8 | |
| IIIQ2009 to IIQ2012 | 12 | ||
| GDP | 6.7 | 2.2 | |
| RDPI | 3.8 | 1.3 | |
| RDPI per Capita | 1.4 | 0.5 | |
| Population | 2.3 | 0.8 | |
| IVQ2007 to IIQ2012 | 19 | ||
| GDP | 1.7 | 0.4 | |
| RDPI | 3.5 | 0.7 | |
| RDPI per Capita | -0.2 | ||
| Population | 3.7 | 0.8 |
RDPI: Real Disposable Personal Income
Source: US Bureau of Economic Analysis http://www.bea.gov/iTable/index_nipa.cfm
There are six basic facts illustrating the current economic disaster of the United States: (1) GDP maintained trend growth in the entire business cycle from IQ1980 to IV1985, including contractions and expansions, but is well below trend in the entire business cycle from IVQ2007 to IIQ2012, including contractions and expansions; (2) per capita real disposable income exceeded trend growth in the 1980s but is substantially below trend in IIQ2012; (3) the number of employed persons increased in the 1980s but declined into IIQ2012; (4) the number of full-time employed persons increased in the 1980s but declined into IIQ2012; (5) the number unemployed, unemployment rate and number employed part-time for economic reasons fell in the recovery from the recessions of the 1980s but not substantially in the recovery after IIQ2009; and (6) wealth of households and nonprofit organizations soared in the 1980s but declined into IIQ2012. There is a critical issue of whether 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 IB1-2 provides data for analysis of these five basic facts. The six blocks of Table IIB-2 are separated initially after individual discussion of each one followed by the full Table IIB-2.
1. Trend Growth.
i. As shown in Table IIB-2, actual GDP grew cumulatively 17.7 percent from IQ1980 to IVQ1985, which is relatively close to what trend growth would have been at 18.5 percent. Rapid growth at 5.7 percent annual rate on average per quarter during the expansion from IQ1983 to IVQ1985 erased the loss of GDP of 4.8 percent during the contraction and maintained trend growth at 3 percent over the entire cycle.
ii. In contrast, cumulative growth from IVQ2007 to IIQ2012 was 1.7 percent while trend growth would have been 14.2 percent. GDP in IIQ2012 at seasonally adjusted annual rate is estimated at $13,548.5 percent by the Bureau of Economic Analysis (BEA) (http://www.bea.gov/iTable/index_nipa.cfm) and would have been $15,218.3 billion, or $1,669 billion higher, had the economy grown at trend over the entire business cycle as it happened during the 1980s and throughout most of US history. There is $1.7 trillion of foregone GDP that would have been created as it occurred during past cyclical expansions, which explains why employment has not rebounded to even higher than before. There would not be recovery of full employment even with growth of 3 percent per year beginning immediately because the opportunity was lost to grow faster during the expansion from IIIQ2009 to IIQ2012 after the recession from IVQ2007 to IIQ2009. The United States has acquired a heavy social burden of unemployment and underemployment of 28.7 million people or 17.8 percent of the effective labor force (Section I, Table I-4) that will not be significantly diminished even with return to growth of GDP of 3 percent per year because of growth of the labor force by new entrants. The US labor force grew from 142.583 million in 2000 to 153.124 million in 2007 or by 7.4 percent at the average yearly rate of 1.0 percent per year. The civilian noninstitutional population increased from 212.577 million in 2000 to 231.867 million in 2007 or 9.1 percent at the average yearly rate of 1.3 percent per year (data from http://www.bls.gov/data/). Data for the past five years cloud accuracy because of the number of people discouraged from seeking employment. The noninstitutional population of the United States increased from 231.867 million in 2007 to 239.618 million in 2011 or by 3.3 percent while the labor force increased from 153.124 million in 2007 to 153.617 million in 2011 or by 0.3 percent (data from http://www.bls.gov/data/). People ceased to seek jobs because they do not believe that there is a job available for them (Section I).
| Period IQ1980 to IVQ1985 | |
| GDP SAAR USD Billions | |
| IQ1980 | 5,903.4 |
| IVQ1985 | 6,950.0 |
| ∆% IQ1980 to IVQ1985 | 17.7 |
| ∆% Trend Growth IQ1980 to IVQ1985 | 18.5 |
| Period IVQ2007 to IIQ2012 | |
| GDP SAAR USD Billions | |
| IVQ2007 | 13,326.0 |
| IIQ2012 | 13,548.5 |
| ∆% IVQ2007 to IIQ2012 Actual | 1.7 |
| ∆% IVQ2007 to IIQ2012 Trend | 14.2 |
2. Decline of Per Capita Real Disposable Income
i. In the entire business cycle from IQ1980 to IVQ1985, as shown in Table IIB-2 trend growth of per capita real disposable income, or what is left per person after inflation and taxes, grew cumulatively 14.5 percent, which is close to what would have been trend growth of 12.1 percent.
ii. In contrast, in the entire business cycle from IVQ2007 to IIQ2012, per capita real disposable income fell 0.2 percent while trend growth would have been 9.3 percent. Income available after inflation and taxes is lower than before the contraction after 12 consecutive quarters of GDP growth at mediocre rates relative to those prevailing during historical cyclical expansions.
| Period IQ1980 to IVQ1985 |
| Real Disposable Personal Income per Capita IQ1980 Chained 2005 USD | 18,938 |
| Real Disposable Personal Income per Capita IVQ1985 Chained 2005 USD | 21,687 |
| ∆% IQ1980 to IVQ1985 | 14.5 |
| ∆% Trend Growth | 12.1 |
| Period IVQ2007 to IIQ2012 |
| Real Disposable Personal Income per Capita IVQ2007 Chained 2005USD | 32,837 |
| Real Disposable Personal Income per Capita IIQ2012 Chained 2005 USD | 32,779 |
| ∆% IVQ2007 to IIQ2012 | -0.2 |
| ∆% Trend Growth | 9.3 |
3. Number of Employed Persons
i. As shown in Table IIB-2, the number of employed persons increased over the entire business cycle from 98.527 million not seasonally adjusted (NSA) in IQ1980 to 107.819 million NSA in IVQ1985 or by 9.4 percent.
ii. In contrast, during the entire business cycle the number employed fell from 146.334 million in IVQ2007 to 143.202 million in IIQ2012 or by 2.1 percent. There are 28.7 million persons unemployed or underemployed, which is 17.8 percent of the effective labor force (Section I, Table I-4).
| Period IQ1980 to IVQ1985 |
| Employed Millions IQ1980 NSA End of Quarter | 98.527 |
| Employed Millions IV1985 NSA End of Quarter | 107.819 |
| ∆% Employed IQ1980 to IV1985 | 9.4 |
| Period IVQ2007 to IIQ2012 |
| Employed Millions IVQ2007 NSA End of Quarter | 146.334 |
| Employed Millions IIQ2012 NSA End of Quarter | 143.202 |
| ∆% Employed IVQ2007 to IIQ2012 | -2.1 |
4. Number of Full-Time Employed Persons
i. As shown in Table IIB-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 88.757 million NSA in IVQ1985 or 9.2 percent.
ii. In contrast, during the entire current business cycle, including contraction and expansion, the number of persons employed full-time fell from 121.042 million in IVQ2007 to 116.024 million in IIQ2012 or by minus 4.1 percent.
| Period IQ1980 to IVQ1985 |
| Employed Full-time Millions IQ1980 NSA End of Quarter | 81.280 |
| Employed Full-time Millions IV1985 NSA End of Quarter | 88.757 |
| ∆% Full-time Employed IQ1980 to IV1985 | 9.2 |
| Period IVQ2007 to IIQ2012 |
| Employed Full-time Millions IVQ2007 NSA End of Quarter | 121.042 |
| Employed Full-time Millions IIQ2012 NSA End of Quarter | 116.024 |
| ∆% Full-time Employed IVQ2007 to IIQ2012 | -4.1 |
5. Unemployed, Unemployment Rate and Employed Part-time for Economic Reasons.
iii. As shown in Table IIB-2 and in the following block, in the cycle from IQ1980 to IVQ1985: (a) the rate of unemployment was virtually the same at 6.7 percent in IQ1985 relative to 6.6 percent in IQ1980; (b) the number unemployed increased from 6.983 million in IQ1980 to 7.717 million in IVQ1985 or 10.5 percent; and (c) the number employed part-time for economic reasons increased 49.1 percent from 3.624 million in IQ1980 to 5.402 million in IVQ1985.
iv. In contrast, in the economic cycle from IVQ2007 to IIQ2012: (a) the rate of unemployment increased from 4.8 percent in IVQ2007 to 8.4 percent in IIQ2012; (b) the number unemployed increased 78.9 percent from 7.371 million in IVQ2007 to 13.184 million in IIQ2012; and (c) the number employed part-time for economic reasons increased 76.7 percent from 4.750 in IVQ2007 to 8.394 million in IIQ2012.
| Period IQ1980 to IVQ1985 |
| Unemployment Rate IQ1980 NSA End of Quarter | 6.6 |
| Unemployment Rate IV1985 NSA End of Quarter | 6.7 |
| Unemployed IQ1980 Millions End of Quarter | 6.983 |
| Unemployed IV 1985 Millions End of Quarter | 7.717 |
| Employed Part-time Economic Reasons Millions IQ1980 End of Quarter | 3.624 |
| Employed Part-time Economic Reasons Millions IVQ1985 End of Quarter | 5.402 |
| ∆% | 49.1 |
| Period IVQ2007 to IIQ2012 |
| Unemployment Rate IVQ2007 NSA End of Quarter | 4.8 |
| Unemployment Rate IIQ2012 NSA End of Quarter | 8.4 |
| Unemployed IVQ2007 Millions End of Quarter | 7.371 |
| Unemployed IIQ2009 Millions End of Quarter | 13.184 |
| ∆% | 78.9 |
| Employed Part-time Economic Reasons IVQ2007 Millions End of Quarter | 4.750 |
| Employed Part-time Economic Reasons Millions IIQ2009 End of Quarter | 8.394 |
| ∆% | 76.7 |
6. Wealth of Households and Nonprofit Organizations.
i. The comparison of net worth of households and nonprofit organizations in the entire economic cycle from IQ1980 (and also from IVQ1979) to IVQ1985 and from IVQ2007 to IIQ2012 is provided in the following block and in Table IIB-2. Net worth of households and nonprofit organizations increased from $8,326.4 billion in IVQ1979 to $14,395.2 billion in IVQ1985 or 72.9 percent or 69.3 percent from $8,502.9 billion in IQ1980. The starting quarter does not bias the results. The US consumer price index not seasonally adjusted increased from 76.7 in Dec 1979 to 109.3 in Dec 1985 or 42.5 percent or 36.5 percent from 80.1 in Mar 1980 (using consumer price index data from the US Bureau of Labor Statistics at http://www.bls.gov/cpi/data.htm). In terms of purchasing power measured by the consumer price index, real wealth of households and nonprofit organizations increased 21.3 percent in constant purchasing power from IVQ1979 to IVQ1985 or 24.0 percent from IQ1980.
ii. In contrast, as shown in the following block and in Table IIB-2, net worth of households and nonprofit organizations fell from $66,057.1 billion in IVQ2007 to $62,668.4 billion in IIQ2012 by $3,388.7 billion or 5.1 percent. The US consumer price index was 210.036 in Dec 2007 and 229.478 in Jun 2012 for increase of 9.3 percent. In purchasing power of Dec 2007, wealth of households and nonprofit organizations is lower by 13.2 percent in Jun 2012 after 12 consecutive quarters of expansion from IIIQ2009 to IIQ2012 relative to IVQ2012 when the recession began. 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. The average growth rate from IIIQ2009 to IIQ2012 has been 2.2 percent, which is substantially lower than the average of 6.2 percent in cyclical expansions after World War II and 5.7 percent in the expansion from IQ1983 to IVQ1985 (see Table I-5 http://cmpassocregulationblog.blogspot.com/2012/09/historically-sharper-recoveries-from.html). The US missed the opportunity of high growth rates that has been available in past cyclical expansions.
| Period IQ1980 to IVQ1985 | |
| Net Worth of Households and Nonprofit Organizations USD Billions | |
| IVQ1979 | 8,326.4 |
| IVQ1985 | 14,395.2 |
| ∆ USD Billions | +6,068.8 |
| Period IVQ2007 to IIQ2012 | |
| Net Worth of Households and Nonprofit Organizations USD Billions | |
| IVQ2007 | 66,057.1 |
| IIQ2012 | 62,668.4 |
| ∆ USD Billions | -3,388.7 |
Table IIB-2, US, GDP and Real Disposable Personal Income per Capita Actual and Trend Growth and Employment, 1980-1985 and 2007-2012, SAAR USD Billions, Millions of Persons and ∆%
| Period IQ1980 to IVQ1985 | |
| GDP SAAR USD Billions | |
| IQ1980 | 5,903.4 |
| IVQ1985 | 6,950.0 |
| ∆% IQ1980 to IVQ1985 | 17.7 |
| ∆% Trend Growth IQ1980 to IVQ1985 | 18.5 |
| Real Disposable Personal Income per Capita IQ1980 Chained 2005 USD | 18,938 |
| Real Disposable Personal Income per Capita IVQ1985 Chained 2005 USD | 21,687 |
| ∆% IQ1980 to IVQ1985 | 14.5 |
| ∆% Trend Growth | 12.1 |
| Employed Millions IQ1980 NSA End of Quarter | 98.527 |
| Employed Millions IV1985 NSA End of Quarter | 107.819 |
| ∆% Employed IQ1980 to IV1985 | 9.4 |
| Employed Full-time Millions IQ1980 NSA End of Quarter | 81.280 |
| Employed Full-time Millions IV1985 NSA End of Quarter | 88.757 |
| ∆% Full-time Employed IQ1980 to IV1985 | 9.2 |
| Unemployment Rate IQ1980 NSA End of Quarter | 6.6 |
| Unemployment Rate IV1985 NSA End of Quarter | 6.7 |
| Unemployed IQ1980 Millions NSA End of Quarter | 6.983 |
| Unemployed IV 1985 Millions NSA End of Quarter | 7.717 |
| ∆% | 11.9 |
| Employed Part-time Economic Reasons IVQ2007 Millions NSA End of Quarter | 4.750 |
| Employed Part-time Economic Reasons Millions IIQ2009 NSA End of Quarter | 8.394 |
| ∆% | 76.7 |
| Net Worth of Households and Nonprofit Organizations USD Billions | |
| IVQ1979 | 8,326.4 |
| IVQ1985 | 14,395.2 |
| ∆ USD Billions | +6,068.8 |
| Period IVQ2007 to IIQ2012 | |
| GDP SAAR USD Billions | |
| IVQ2007 | 13,326.0 |
| IIQ2012 | 13,548.5 |
| ∆% IVQ2007 to IIQ2012 | 1.7 |
| ∆% IVQ2007 to IIQ2012 Trend Growth | 14.2 |
| Real Disposable Personal Income per Capita IVQ2007 Chained 2005USD | 32,837 |
| Real Disposable Personal Income per Capita IIQ2012 Chained 2005 USD | 32,779 |
| ∆% IVQ2007 to IIQ2012 | -0.2 |
| ∆% Trend Growth | 9.3 |
| Employed Millions IVQ2007 NSA End of Quarter | 146.334 |
| Employed Millions IIQ2012 NSA End of Quarter | 143.202 |
| ∆% Employed IVQ2007 to IIQ2012 | -2.1 |
| Employed Full-time Millions IVQ2007 NSA End of Quarter | 121.042 |
| Employed Full-time Millions IIQ2012 NSA End of Quarter | 116.024 |
| ∆% Full-time Employed IVQ2007 to IIQ2012 | -4.1 |
| Unemployment Rate IVQ2007 NSA End of Quarter | 4.8 |
| Unemployment Rate IIQ2012 NSA End of Quarter | 8.4 |
| Unemployed IVQ2007 Millions NSA End of Quarter | 7.371 |
| Unemployed IIQ2009 Millions NSA End of Quarter | 13.184 |
| ∆% | 78.9 |
| Employed Part-time Economic Reasons IVQ2007 Millions NSA End of Quarter | 4.750 |
| Employed Part-time Economic Reasons Millions IIQ2009 NSA End of Quarter | 8.394 |
| ∆% | 76.7 |
| Net Worth of Households and Nonprofit Organizations USD Billions | |
| IVQ2007 | 66,057.1 |
| IIQ2012 | 62,668.4 |
| ∆ USD Billions | -3,388.7 |
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 US Bureau of Labor Statistics http://www.bls.gov/data/. Board of Governors of the Federal Reserve System. 2012Sep20. Flow of funds accounts of the United States. Washington, DC, Federal Reserve System.
© Carlos M. Pelaez, 2010, 2011, 2012
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