Twenty Eight Million Unemployed or Underemployed, Seven Million Dropping from Job Searches, Interest Rate Risk, Steepening Yield Curve and Peaking Valuations of Risk Financial Assets, United States International Trade, World Economic Slowdown and Global Recession Risk: Part I

 

Twenty Eight Million Unemployed or Underemployed, Seven Million Dropping from Job Searches, Interest Rate Risk, Steepening Yield Curve and Peaking Valuations of Risk Financial Assets, United States International Trade, World Economic Slowdown and Global Recession Risk

Carlos M. Pelaez

© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013

Executive Summary

I Twenty Eight Million Unemployed or Underemployed

IIA1 Summary of the Employment Situation

IIA2 Number of People in Job Stress

IIA3 Long-term and Cyclical Comparison of Employment

IIA4 Job Creation

IB Stagnating Real Wages

II United States International Trade

III World Financial Turbulence

IIIA Financial Risks

IIIE Appendix Euro Zone Survival Risk

IIIF Appendix on Sovereign Bond Valuation

IV Global Inflation

V World Economic Slowdown

VA United States

VB Japan

VC China

VD Euro Area

VE Germany

VF France

VG Italy

VH United Kingdom

VI Valuation of Risk Financial Assets

VII Economic Indicators

VIII Interest Rates

IX Conclusion

References

Appendixes

Appendix I The Great Inflation

IIIB Appendix on Safe Haven Currencies

IIIC Appendix on Fiscal Compact

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

IIIG Appendix on Deficit Financing of Growth and the Debt Crisis

IIIGA Monetary Policy with Deficit Financing of Economic Growth

IIIGB Adjustment during the Debt Crisis of the 1980s

Executive Summary

Contents of Executive Summary

ESI Increasing Interest Rate Risk, Tapering Quantitative Easing, Duration Dumping, Steepening Yield Curve and Global Financial and Economic Risk

ESII Twenty Eight Million People Unemployed or Underemployed and Seven Million Dropping from Job Search

ESIII Subpar Job Creation

ESIV Stagnating/Declining Real Wages

ESI Increasing Interest Rate Risk, Tapering Quantitative Easing, Duration Dumping, Steepening Yield Curve and 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 for both theory and measurement. The IMF (2012WEOOct) provides surveillance of the world economy with its Global Economic Outlook (WEO) (http://www.imf.org/external/pubs/ft/weo/2012/02/index.htm), of the world financial system with its Global Financial Stability Report (GFSR) (IMF 2012GFSROct) (http://www.imf.org/external/pubs/ft/gfsr/2012/02/index.htm) and of fiscal affairs with the Fiscal Monitor (IMF 2012FMOct) (http://www.imf.org/external/pubs/ft/fm/2012/02/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. China’s GDP growth decelerated significantly from annual equivalent 10.4 percent in IIQ2011 to 7.4 percent in IVQ2011 and 6.2 percent in IQ2012, rebounding to 8.7 percent in IIQ2012, 8.2 percent in IIIQ2012 and 7.8 percent in IVQ2012. Annual equivalent growth in IQ2013 fell to 6.6 percent and to 7.0 percent in IIQ2013 (See Subsection VC and earlier at http://cmpassocregulationblog.blogspot.com/2013/07/tapering-quantitative-easing-policy-and_7005.html and earlier at http://cmpassocregulationblog.blogspot.com/2013/01/recovery-without-hiring-world-inflation.html and earlier at http://cmpassocregulationblog.blogspot.com/2012/10/world-inflation-waves-stagnating-united_21.html).
2. United States Economic Growth, Labor Markets and Budget/Debt Quagmire. The US is growing slowly with 28.7 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 (http://cmpassocregulationblog.blogspot.com/2013/08/duration-dumping-and-peaking-valuations_18.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

Professionals use a variety of techniques in measuring interest rate risk (Fabozzi, Buestow and Johnson, 2006, Chapter Nine, 183-226):

• Full valuation approach in which securities and portfolios are shocked by 50, 100, 200 and 300 basis points to measure their impact on asset values
• Stress tests requiring more complex analysis and translation of possible events with high impact even if with low probability of occurrence into effects on actual positions and capital
• Value at Risk (VaR) analysis of maximum losses that are likely in a time horizon
• Duration and convexity that are short-hand convenient measurement of changes in prices resulting from changes in yield captured by duration and convexity
• Yield volatility

Professionals use a variety of techniques in measuring interest rate risk (Fabozzi, Buestow and Johnson, 2006, Chapter Nine, 183-226):

• Full valuation approach in which securities and portfolios are shocked by 50, 100, 200 and 300 basis points to measure their impact on asset values
• Stress tests requiring more complex analysis and translation of possible events with high impact even if with low probability of occurrence into effects on actual positions and capital
• Value at Risk (VaR) analysis of maximum losses that are likely in a time horizon
• Duration and convexity that are short-hand convenient measurement of changes in prices resulting from changes in yield captured by duration and convexity
• Yield volatility

Analysis of these methods is in Pelaez and Pelaez (International Financial Architecture (2005), 101-162) and Pelaez and Pelaez, Globalization and the States, Vol. (I) (2008a), 78-100). Frederick R. Macaulay (1938) introduced the concept of duration in contrast with maturity for analyzing bonds. Duration is the sensitivity of bond prices to changes in yields. In economic jargon, duration is the yield elasticity of bond price to changes in yield, or the percentage change in price after a percentage change in yield, typically expressed as the change in price resulting from change of 100 basis points in yield, with the mathematical formula being the negative of the yield elasticity of the bond price or –[dB/d(1+y)]((1+y)/B), where d is the derivative operator of calculus, B the bond price, y the yield and the elasticity does not have dimension (Hallerbach 2001). The duration trap of unconventional monetary policy is that duration is higher the lower the coupon and higher the lower the yield, other things being constant. Coupons and yields are historically low because of unconventional monetary policy. Duration dumping during a rate increase may trigger the same crossfire selling of high duration positions that magnified the credit crisis. Traders reduced positions because capital losses in one segment, such as mortgage-backed securities, triggered haircuts and margin increases that reduced capital available for positioning in all segments, causing fire sales in multiple segments (Brunnermeier and Pedersen 2009; see Pelaez and Pelaez, Regulation of Banks and Finance (2008b), 217-24). Financial markets are currently experiencing fear of duration resulting from the debate within and outside the Fed on tapering quantitative easing. Table VIII-2 provides the yield curve of Treasury securities on Sep 6, 2013, Sep 5, 2013, May 1, 2013, Sep 5, 2012 and Sep 5, 2006. There is ongoing steepening of the yield curve for longer maturities, which are also the ones with highest duration. The 10-year yield increased from 1.45 percent on Jul 26, 2012 to 2.98 percent on Sep 5, 2013, as measured by the United States Treasury. Assume that a bond with maturity in 10 years were issued on Sep 5, 2013 at par or price of 100 with coupon of 1.45 percent. The price of that bond would be 86.8530 with instantaneous increase of the yield to 2.98 percent for loss of 13.1 percent and far more with leverage. Losses absorb capital available for positioning, triggering crossfire sales in multiple asset classes (Brunnermeier and Pedersen 2009). Chris Dieterich, writing on “Bond investors turn to cash,” on Jul 25, 2013, published in the Wall Street Journal (http://online.wsj.com/article/SB10001424127887323971204578625900935618178.html), uses data of the Investment Company Institute (http://www.ici.org/) in showing withdrawals of $43 billion in taxable mutual funds in Jun, which is the largest in history, with flows into cash investments such as $8.5 billion in the week of Jul 17 into money-market funds.

Table VIII-2, United States, Treasury Yields

	9/6/13	9/05/13	5/01/13	9/5/12	9/5/06
1 M	0.02	0.03	0.03	0.11	4.96
3 M	0.02	0.02	0.06	0.11	5.00
6 M	0.05	0.06	0.08	0.14	5.13
1 Y	0.14	0.16	0.11	0.17	5.02
2 Y	0.46	0.52	0.20	0.25	4.80
3 Y	0.91	0.97	0.30	0.32	4.73
5 Y	1.77	1.85	0.65	0.62	4.73
7 Y	2.38	2.45	1.07	1.04	4.74
10 Y	2.94	2.98	1.66	1.60	4.78
20 Y	3.62	3.64	2.44	2.32	5.01
30 Y	3.87	3.88	2.83	2.70	4.93

Source: United States Treasury http://www.treasury.gov/resource-center/data-chart-center/Pages/index.aspx

Interest rate risk is increasing in the US. Chart VI-13 of the Board of Governors provides the conventional mortgage rate for a fixed-rate 30-year mortgage. The rate stood at 5.87 percent on Jan 8, 2004, increasing to 6.79 percent on Jul 6, 2006. The rate bottomed at 3.35 percent on May 2, 2013. Fear of duration risk in longer maturities such as mortgage-backed securities caused continuing increases in the conventional mortgage rate that rose to 4.51 percent on Jul 11, 2013 and 4.57 percent on Sep 5, 2013, which is the last data point in Chart VI-13.

Chart VI-13, US, Conventional Mortgage Rate, Jan 8, 2004 to Sep 5, 2013

Source: Board of Governors of the Federal Reserve System

http://www.federalreserve.gov/releases/h15/update/

Chart VA-15 of the Board of Governors of the Federal Reserve System provides the finance rate on a loan for buying new autos with terms of 48 months. In contrast with mortgage rates, analyzed in Chart VI-13 in Section VI, financing rates on autos declined during and after the global recession with continuing downward trend. The initial data point in Chart VA-15 is for Feb 1972 with the rate at 10.20 percent. The rate rose to 17.36 percent in in Nov 1981, falling to 7.4 percent in Feb 1994. The rate increased to 9.62 percent in Aug 2000, falling to 6.43 percent in Jun 2004. The rate increased to 7.95 percent in Aug 2006, 7.92 percent in May 2007 and 6.84 percent in May 2008. The rate fell to 4.13 percent in May 2013, which is the final point in Chart VA-15. Bankrate quotes the rate on 48-month new car loan at 4.04 percent on Sep 4, 2013, 4.14 percent for a 60-month loan for a new car and 4.62 percent for a 36-month loan of a used car (http://www.bankrate.com/finance/auto/current-interest-rates.aspx).

Chart VA-15, US, Finance Rates on New Autos 48 Month Loan

Source: Board of Governors of the Federal Reserve System

http://www.federalreserve.gov/releases/G19/default.htm

The major reason and channel of transmission of unconventional monetary policy is through expectations of inflation. Fisher (1930) provided theoretical and historical relation of interest rates and inflation. Let i_n be the nominal interest rate, i_r the real or inflation-adjusted interest rate and π^e the expectation of inflation in the time term of the interest rate, which are all expressed as proportions. The following expression provides the relation of real and nominal interest rates and the expectation of inflation:

(1 + i_r) = (1 + i_n)/(1 + π^e) (1)

That is, the real interest rate equals the nominal interest rate discounted by the expectation of inflation in time term of the interest rate. Fisher (1933) analyzed the devastating effect of deflation on debts. Nominal debt contracts remained at original principal interest but net worth and income of debtors contracted during deflation. Real interest rates increase during declining inflation. For example, if the interest rate is 3 percent and prices decline 0.2 percent, equation (1) calculates the real interest rate as:

(1 +0.03)/(1 – 0.02) = 1.03/(0.998) = 1.032

That is, the real rate of interest is (1.032 – 1) 100 or 3.2 percent. If inflation were 2 percent, the real rate of interest would be 0.98 percent, or about 1.0 percent {[(1.03/1.02) -1]100 = 0.98%}.

The yield of the one-year Treasury security was quoted in the Wall Street Journal at 0.114 percent on Fri May 17, 2013 (http://online.wsj.com/mdc/page/marketsdata.html?mod=WSJ_topnav_marketdata_main). The expected rate of inflation π^e in the next twelve months is not observed. Assume that it would be equal to the rate of inflation in the past twelve months estimated by the Bureau of Economic Analysis (BLS) at 1.1 percent (http://www.bls.gov/cpi/). The real rate of interest would be obtained as follows:

(1 + 0.00114)/(1 + 0.011) = (1 + r_r) = 0.9902

That is, i_r is equal to 1 – 0.9902 or minus 0.98 percent. Investing in a one-year Treasury security results in a loss of 0.98 percent relative to inflation. The objective of unconventional monetary policy of zero interest rates is to induce consumption and investment because of the loss to inflation of riskless financial assets. Policy would be truly irresponsible if it intended to increase inflationary expectations or π^e. The result could be the same rate of unemployment with higher inflation (Kydland and Prescott 1977).

Current focus is on “tapering” quantitative easing by the Federal Open Market Committee (FOMC). There is sharp distinction between the two measures of unconventional monetary policy: (1) fixing of the overnight rate of fed funds at 0 to ¼ percent; and (2) outright purchase of Treasury and agency securities and mortgage-backed securities for the balance sheet of the Federal Reserve. Market are overreacting to the so-called “tapering” of outright purchases of $85 billion of securities per month for the balance sheet of the Fed. What really matters in the statement of the Federal Open Market Committee (FOMC) on Jul 31, 2013, is interest rates of fed funds at 0 to ¼ percent for the foreseeable future, even with paring of purchases of longer term bonds for the portfolio of the Fed (http://www.federalreserve.gov/newsevents/press/monetary/20130731a.htm):

“To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.” (emphasis added).

In delivering the biannual report on monetary policy (Board of Governors 2013Jul17), Chairman Bernanke (2013Jul17) advised Congress that:

“Instead, we are providing additional policy accommodation through two distinct yet complementary policy tools. The first tool is expanding the Federal Reserve's portfolio of longer-term Treasury securities and agency mortgage-backed securities (MBS); we are currently purchasing $40 billion per month in agency MBS and $45 billion per month in Treasuries. We are using asset purchases and the resulting expansion of the Federal Reserve's balance sheet primarily to increase the near-term momentum of the economy, with the specific goal of achieving a substantial improvement in the outlook for the labor market in a context of price stability. We have made some progress toward this goal, and, with inflation subdued, we intend to continue our purchases until a substantial improvement in the labor market outlook has been realized. We are relying on near-zero short-term interest rates, together with our forward guidance that rates will continue to be exceptionally low--our second tool--to help maintain a high degree of monetary accommodation for an extended period after asset purchases end, even as the economic recovery strengthens and unemployment declines toward more-normal levels. In appropriate combination, these two tools can provide the high level of policy accommodation needed to promote a stronger economic recovery with price stability.

The Committee's decisions regarding the asset purchase program (and the overall stance of monetary policy) depend on our assessment of the economic outlook and of the cumulative progress toward our objectives. Of course, economic forecasts must be revised when new information arrives and are thus necessarily provisional.”

Friedman (1953) argues there are three lags in effects of monetary policy: (1) between the need for action and recognition of the need; (2) the recognition of the need and taking of actions; and (3) taking of action and actual effects. Friedman (1953) finds that the combination of these lags with insufficient knowledge of the current and future behavior of the economy causes discretionary economic policy to increase instability of the economy or standard deviations of real income σ_y and prices σ_p. Policy attempts to circumvent the lags by policy impulses based on forecasts. We are all naïve about forecasting. Data are available with lags and revised to maintain high standards of estimation. Policy simulation models estimate economic relations with structures prevailing before simulations of policy impulses such that parameters change as discovered by Lucas (1977). Economic agents adjust their behavior in ways that cause opposite results from those intended by optimal control policy as discovered by Kydland and Prescott (1977). Advance guidance attempts to circumvent expectations by economic agents that could reverse policy impulses but is of dubious effectiveness. There is strong case for using rules instead of discretionary authorities in monetary policy (http://cmpassocregulationblog.blogspot.com/search?q=rules+versus+authorities).

The key policy is maintaining fed funds rate between 0 and ¼ percent. An increase in fed funds rates could cause flight out of risk financial markets worldwide. There is no exit from this policy without major financial market repercussions. Indefinite financial repression induces carry trades with high leverage, risks and illiquidity.

A competing event is the high level of valuations of risk financial assets (http://cmpassocregulationblog.blogspot.com/2013/01/peaking-valuation-of-risk-financial.html). Matt Jarzemsky, writing on Dow industrials set record,” on Mar 5, 2013, published in the Wall Street Journal (http://professional.wsj.com/article/SB10001424127887324156204578275560657416332.html), analyzes that the DJIA broke the closing high of 14,164.53 set on Oct 9, 2007, and subsequently also broke the intraday high of 14,198.10 reached on Oct 11, 2007. The DJIA closed at 14,922.50

on Fri Sep 6, 2013, which is higher by 5.4 percent than the value of 14,164.53 reached on Oct 9, 2007 and higher by 5.1 percent than the value of 14,198.10 reached on Oct 11, 2007. Values of risk financial are approaching or exceeding historical highs.

Jon Hilsenrath, writing on “Jobs upturn isn’t enough to satisfy Fed,” on Mar 8, 2013, published in the Wall Street Journal (http://professional.wsj.com/article/SB10001424127887324582804578348293647760204.html), finds that much stronger labor market conditions are required for the Fed to end quantitative easing. Unconventional monetary policy with zero interest rates and quantitative easing is quite difficult to unwind because of the adverse effects of raising interest rates on valuations of risk financial assets and home prices, including the very own valuation of the securities held outright in the Fed balance sheet. Gradual unwinding of 1 percent fed funds rates from Jun 2003 to Jun 2004 by seventeen consecutive increases of 25 percentage points from Jun 2004 to Jun 2006 to reach 5.25 percent caused default of subprime mortgages and adjustable-rate mortgages linked to the overnight fed funds rate. The zero interest rate has penalized liquidity and increased risks by inducing carry trades from zero interest rates to speculative positions in risk financial assets. There is no exit from zero interest rates without provoking another financial crash.

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. The DJIA has increased 54.1 percent since the trough of the sovereign debt crisis in Europe on Jul 2, 2010 to Sep 6, 2013; S&P 500 has gained 61.9 percent; and DAX 45.9 percent. Before the current round of risk aversion, almost all assets in the column “∆% Trough to 9/6/13” had double digit gains relative to the trough around Jul 2, 2010 followed by negative performance but now some valuations of equity indexes show varying behavior: China’s Shanghai Composite is 10.2 percent below the trough; Japan’s Nikkei Average is 57.1 percent above the trough; DJ Asia Pacific TSM is 19.3 percent above the trough; Dow Global is 31.6 percent above the trough; STOXX 50 of 50 blue-chip European equities (http://www.stoxx.com/indices/index_information.html?symbol=sx5E) is 19.6 percent above the trough; and NYSE Financial Index is 37.7 percent above the trough. DJ UBS Commodities is 5.5 percent above the trough. DAX index of German equities (http://www.bloomberg.com/quote/DAX:IND) is 45.9 percent above the trough. Japan’s Nikkei Average is 57.1 percent above the trough on Aug 31, 2010 and 21.7 percent above the peak on Apr 5, 2010. The Nikkei Average closed at 13,860.81 on Fri Sep 6, 2013 (http://professional.wsj.com/mdc/public/page/marketsdata.html?mod=WSJ_PRO_hps_marketdata), which is 35.2 percent higher 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 10.6 percent relative to the euro and even higher before the new bout of sovereign risk issues in Europe. The column “∆% week to 9/6/13” in Table VI-4 shows increase of 2.0 percent in the week for China’s Shanghai Composite. DJ Asia Pacific increased 2.7 percent. NYSE Financial increased 2.6 percent in the week. DJ UBS Commodities increased 0.3 percent. Dow Global increased 2.7 percent in the week of Sep 6, 2013. The DJIA increased 0.8 percent and S&P 500 increased 1.4 percent. DAX of Germany increased 2.1 percent. STOXX 50 increased 2.9 percent. The USD appreciated 0.3 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 VI-4 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 9/6/13” that provides the percentage change from the peak in Apr 2010 before the sovereign risk event to Sep 6, 2013. Most risk financial assets had gained not only relative to the trough as shown in column “∆% Trough to 9/6/13” but also relative to the peak in column “∆% Peak to 9/6/13.” There are now several equity indexes above the peak in Table VI-4: DJIA 33.2 percent, S&P 500 36.0 percent, DAX 30.7 percent, Dow Global 7.3 percent, DJ Asia Pacific 4.5 percent, NYSE Financial Index (http://www.nyse.com/about/listed/nykid.shtml) 9.7 percent, Nikkei Average 21.7 percent and STOXX 50 1.3 percent. There is only one equity index below the peak: Shanghai Composite by 32.4 percent. DJ UBS Commodities Index is now 9.8 percent below the peak. The US dollar strengthened 12.9 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. Alexandra Scaggs, writing on “Tepid profits, roaring stocks,” on May 16, 2013, published in the Wall Street Journal (http://online.wsj.com/article/SB10001424127887323398204578487460105747412.html), analyzes stabilization of earnings growth: 70 percent of 458 reporting companies in the S&P 500 stock index reported earnings above forecasts but sales fell 0.2 percent relative to forecasts of increase of 0.5 percent. Paul Vigna, writing on “Earnings are a margin story but for how long,” on May 17, 2013, published in the Wall Street Journal (http://blogs.wsj.com/moneybeat/2013/05/17/earnings-are-a-margin-story-but-for-how-long/), analyzes that corporate profits increase with stagnating sales while companies manage costs tightly. More than 90 percent of S&P components reported moderate increase of earnings of 3.7 percent in IQ2013 relative to IQ2012 with decline of sales of 0.2 percent. Earnings and sales have been in declining trend. In IVQ2009, growth of earnings reached 104 percent and sales jumped 13 percent. Net margins reached 8.92 percent in IQ2013, which is almost the same at 8.95 percent in IIIQ2006. Operating margins are 9.58 percent. There is concern by market participants that reversion of margins to the mean could exert pressure on earnings unless there is more accelerated growth of sales. Vigna (op. cit.) finds sales growth limited by weak economic growth. Kate Linebaugh, writing on “Falling revenue dings stocks,” on Oct 20, 2012, published in the Wall Street Journal (http://professional.wsj.com/article/SB10000872396390444592704578066933466076070.html?mod=WSJPRO_hpp_LEFTTopStories), identifies a key financial vulnerability: falling revenues across markets for United States reporting companies. Global economic slowdown is reducing corporate sales and squeezing corporate strategies. Linebaugh quotes data from Thomson Reuters that 100 companies of the S&P 500 index have reported declining revenue only 1 percent higher in Jun-Sep 2012 relative to Jun-Sep 2011 but about 60 percent of the companies are reporting lower sales than expected by analysts with expectation that revenue for the S&P 500 will be lower in Jun-Sep 2012 for the entities represented in the index. Results of US companies are likely repeated worldwide. Future company cash flows derive from investment projects. In IQ1980, gross private domestic investment in the US was $951.6 billion of 2009 dollars, growing to $1,143.0 billion in IVQ1986 or 20.1 percent. Real gross private domestic investment in the US decreased 2.9 percent from $2,605.2 billion of 2009 dollars in IVQ2007 to $2,529.2 billion in IIQ2013. Real private fixed investment fell 5.0 percent from $2,586.3 billion of 2009 dollars in IVQ2007 to $2,455.8 billion in IIQ2013. Growth of real private investment in is mediocre for all but four quarters from IIQ2011 to IQ2012 (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/08/risks-of-steepening-yield-curve-and.html). Profits after taxes with inventory valuation adjustment (IVA) and capital consumption adjustment (CCA) increased by 100.3 percent in nominal terms from IVQ2007 to IQ2013 while net dividends increased 24.6 percent and undistributed corporate profits swelled 280.2 percent from $107.7 billion in IQ2007 to $409.5 billion in IIQ2013 and changed signs from minus $55.9 billion in current dollars in IVQ2007. The investment decision of United States corporations has been fractured in the current economic cycle in preference of cash. Corporate profits with IVA and CCA fell $26.6 billion in IQ2013 after increasing $34.9 billion in IVQ2012 and $13.9 billion in IIIQ2012. Corporate profits with IVA and CCA rebounded with $78.3 billion in IIQ2013. Profits after tax with IVA and CCA fell $1.7 billion in IQ2013 after increasing $40.8 billion in IVQ2012 and $4.5 billion in IIIQ2012. In IIQ2013, profits after tax with IVA and CCA increased $67.8 billion. Anticipation of higher taxes in the “fiscal cliff” episode caused increase of $120.9 billion in net dividends in IVQ2012 followed with adjustment in the form of decrease of net dividends by $103.8 billion in IQ2013, rebounding with $273.8 billion in IIQ2013. There is similar decrease of $80.1 billion in undistributed profits with IVA and CCA in IVQ2012 followed by increase of $102.1 billion in IQ2013 and decline of $205.9 billion in IIQ2013. Undistributed profits of US corporations swelled 280.2 percent from $107.7 billion IQ2007 to $409.5 billion in IIQ2013 and changed signs from minus $55.9 billion in billion in IVQ2007 (Section IA2). In IQ2013, corporate profits with inventory valuation and capital consumption adjustment fell $26.6 billion relative to IVQ2012, from $2047.2 billion to $2020.6 billion at the quarterly rate of minus 1.3 percent. In IIQ2013, corporate profits with IVA and CCA increased $78.3 billion from $2020.6 billion in IQ2013 to $2098.9 billion at the quarterly rate of 3.9 percent (http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp2q13_2nd.pdf). Uncertainty originating in fiscal, regulatory and monetary policy causes wide swings in expectations and decisions by the private sector with adverse effects on investment, real economic activity and employment. The investment decision of US business is fractured.

It may be quite painful to exit QE→∞ or use of the balance sheet of the central together with zero interest rates forever. The basic valuation equation that is also used in capital budgeting postulates that the value of stocks or of an investment project is given by:

Where R_τ is expected revenue in the time horizon from τ =1 to T; C_τ denotes costs; and ρ is an appropriate rate of discount. In words, the value today of a stock or investment project is the net revenue, or revenue less costs, in the investment period from τ =1 to T discounted to the present by an appropriate rate of discount. In the current weak economy, revenues have been increasing more slowly than anticipated in investment plans. An increase in interest rates would affect discount rates used in calculations of present value, resulting in frustration of investment decisions. If V represents value of the stock or investment project, as ρ → ∞, meaning that interest rates increase without bound, then V → 0, or

declines. Equally, decline in expected revenue from the stock or project, R_τ, causes decline in valuation. 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 VI-4, Stock Indexes, Commodities, Dollar and 10-Year Treasury  

	Peak	Trough	∆% to Trough	∆% Peak to 9/6/ /13	∆% Week 9/6/13	∆% Trough to 9/6/ 13
DJIA	4/26/ 10	7/2/10	-13.6	33.2	0.8	54.1
S&P 500	4/23/ 10	7/20/ 10	-16.0	36.0	1.4	61.9
NYSE Finance	4/15/ 10	7/2/10	-20.3	9.7	2.6	37.7
Dow Global	4/15/ 10	7/2/10	-18.4	7.3	2.7	31.6
Asia Pacific	4/15/ 10	7/2/10	-12.5	4.5	2.7	19.3
Japan Nikkei Aver.	4/05/ 10	8/31/ 10	-22.5	21.7	3.5	57.1
China Shang.	4/15/ 10	7/02 /10	-24.7	-32.4	2.0	-10.2
STOXX 50	4/15/10	7/2/10	-15.3	1.3	2.9	19.6
DAX	4/26/ 10	5/25/ 10	-10.5	30.7	2.1	45.9
Dollar Euro	11/25 2009	6/7 2010	21.2	12.9	0.3	-10.6
DJ UBS Comm.	1/6/ 10	7/2/10	-14.5	-9.8	0.3	5.5
10-Year T Note	4/5/ 10	4/6/10	3.986	2.784	2.941

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

ESII Twenty Eight Million People Unemployed or Underemployed and Seven Million Dropping from Job Search. The labor force of the US grew 9.4 percent from 142.828 million in Jan 2001 to 156.255 million in Jul 2009 but is virtually equal at 155.971 million in Aug 2013, all numbers not seasonally adjusted. Chart I-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 155.971 million in Aug 2013 to the noninstitutional population of 245.959 million in Aug 2013 was 63.4 percent. The labor force of the US in Aug 2013 corresponding to 66.8 percent of participation in the population would be 164.301 million (0.668 x 245.959). The difference between the measured labor force in Aug 2013 of 155.971 million and the labor force in Aug 2013 with participation rate of 66.8 percent (as in Jul 2007) of 164.165 million is 8.194 million. The level of the labor force in the US has stagnated and is 8.194 million lower than what it would have been had the same participation rate been maintained. Millions of people 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, 2001-2013

Source: US Bureau of Labor Statistics http://www.bls.gov/data/

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. Growth in the beginning of the summer originates in younger people looking for jobs in the summer after graduation or during school recess.

Chart I-4, US, Civilian Labor Force, Thousands, NSA, 12-month Percentage Change, 2001-2013

Source: US Bureau of Labor Statistics http://www.bls.gov/data/

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 11.2 percent and the number of people in job stress could be around 28.3 million, which is 17.4 percent of the effective 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 Aug 2012, Jul 2013 and Aug 2013 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 2013. 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 2012, Jul 2013 and Aug 2013 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 63.7 percent by Aug 2012 and was 64.0 percent in Jul 2013 and 63.4 percent in Aug 2013, 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:

• there are an estimated 6.854 million unemployed in Aug 2013 who are not counted because they left the labor force on their belief they could not find another job (∆NLF UEM), that is, they dropped out of their job searches
• the total number of unemployed is effectively 18.316 million (Total UEM) and not 11.462 million (UEM) of whom many have been unemployed long term
• the rate of unemployment is 11.2 percent (Total UEM%) and not 7.3 percent, not seasonally adjusted, or 7.3 percent seasonally adjusted
• the number of people in job stress is close to 28.3 million by adding the 6.854 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 28.348 million in Aug 2013, 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 17.4 percent of the labor force in Aug 2013. The employment population ratio “EMP/POP %” dropped from 62.9 percent on average in 2006 to 58.5 percent in Aug 2012, 59.0 percent in Jul 2013 and 58.8 percent in Aug 2013. The number employed in the US fell from 147.315 million in Jul 2007 to 144.509 million in Aug 2013, by 2.806 million, or decline of 1.9 percent, while the civilian noninstitutional or economically active population increased from 231.958 million in Jul 2007 to 245.959 million in Aug 2013, by 14.001 million or increase of 6.0 percent, using not seasonally adjusted data. There is actually not sufficient job creation in merely absorbing new entrants in the labor force because of those dropping from job searches, worsening the stock of unemployed or underemployed in involuntary part-time jobs. 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 2013 than in 2006 and the number employed is not increasing while population increased 14.001 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/2013/08/recovery-without-hiring-loss-of-full.html).

Table I-4, US, Population, Labor Force and Unemployment, NSA

	2006	Aug 2012	Jul 2013	Aug 2013
POP	229	243,566	245,756	245,959
LF	151	155,255	157,196	155,971
PART%	66.2	63.7	64.0	63.4
EMP	144	142,558	145,113	144,509
EMP/POP%	62.9	58.5	59.0	58.8
UEM	7	12,696	12,083	11,462
UEM/LF Rate%	4.6	8.2	7.7	7.3
NLF	77	88,311	88,560	89,988
LF PART 66.2%		161,241	162,690	162,825
∆NLF UEM		5,986	5,494	6,854
Total UEM		18,682	17,577	18,316
Total UEM%		11.6	10.8	11.2
Part Time Economic Reasons		7,842	8,324	7,690
Marginally Attached to LF		2,561	2,414	2,342
In Job Stress		29,085	28,315	28,348
People in Job Stress as % Labor Force		18.0	17.4	17.4

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%

Source: US Bureau of Labor Statistics http://www.bls.gov/

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 s_i of a demographic group in an industry i and unemployment rate y_i of that demographic group (Lazear and Spletzer 2012JHJul22, 5-6):

Y = ∑_is_iy_i (1)

This equation can be decomposed for analysis as (Lazear and Spletzer 2012JHJul22, 6):

∆Y = ∑_i∆s_iy*_i + ∑_i∆y_is*_i (2)

The first term in (2) captures changes in the demographic and industrial composition of the economy ∆s_i 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 ∆y_i, 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 provide 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 I-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 63.4 percent in Aug 2013. The civilian labor force participation rate was 63.7 percent on an annual basis in 1979 and 63.4 percent in Dec 1980 and Dec 1981, 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 I-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 with 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, 1979-2013

Year	Feb	Mar	Apr	May	Jun	Jul	Aug	Dec	Annual
1979	63.0	63.2	62.9	62.9	64.5	64.9	64.5	63.8	63.7
1980	63.2	63.2	63.2	63.5	64.6	65.1	64.5	63.4	63.8
1981	63.2	63.5	63.6	63.9	64.6	65.0	64.6	63.4	63.9
1982	63.2	63.4	63.3	63.9	64.8	65.3	64.9	63.8	64.0
1983	63.2	63.3	63.2	63.4	65.1	65.4	65.1	63.8	64.0
1984	63.4	63.6	63.7	64.3	65.5	65.9	65.2	64.3	64.4
1985	64.0	64.4	64.3	64.6	65.5	65.9	65.4	64.6	64.8
1986	64.4	64.6	64.6	65.0	66.3	66.6	66.1	65.0	65.3
1987	64.8	65.0	64.9	65.6	66.3	66.8	66.5	65.5	65.6
1988	65.2	65.2	65.3	65.5	66.7	67.1	66.8	65.9	65.9
1989	65.6	65.7	65.9	66.2	67.4	67.7	67.2	66.3	66.5
1990	66.0	66.2	66.1	66.5	67.4	67.7	67.1	66.1	66.5
1991	65.7	65.9	66.0	66.0	67.2	67.3	66.6	65.8	66.2
1992	65.8	66.0	66.0	66.4	67.6	67.9	67.2	66.1	66.4
1993	65.8	65.8	65.6	66.3	67.3	67.5	67.0	66.2	66.3
1994	66.2	66.1	66.0	66.5	67.2	67.5	67.2	66.5	66.6
1995	66.2	66.4	66.4	66.4	67.2	67.7	67.1	66.2	66.6
1996	66.1	66.4	66.2	66.7	67.4	67.9	67.2	66.7	66.8
1997	66.5	66.9	66.7	67.0	67.8	68.1	67.6	67.0	67.1
1998	66.7	67.0	66.6	67.0	67.7	67.9	67.3	67.0	67.1
1999	66.8	66.9	66.7	67.0	67.7	67.9	67.3	67.0	67.1
2000	67.0	67.1	67.0	67.0	67.7	67.6	67.2	67.0	67.1
2001	66.8	67.0	66.7	66.6	67.2	67.4	66.8	66.6	66.8
2002	66.6	66.6	66.4	66.5	67.1	67.2	66.8	66.2	66.6
2003	66.2	66.2	66.2	66.2	67.0	66.8	66.3	65.8	66.2
2004	65.7	65.8	65.7	65.8	66.5	66.8	66.2	65.8	66.0
2005	65.6	65.6	65.8	66.0	66.5	66.8	66.5	65.9	66.0
2006	65.7	65.8	65.8	66.0	66.7	66.9	66.5	66.3	66.2
2007	65.8	65.9	65.7	65.8	66.6	66.8	66.1	65.9	66.0
2008	65.5	65.7	65.7	66.0	66.6	66.8	66.4	65.7	66.0
2009	65.5	65.4	65.4	65.5	66.2	66.2	65.6	64.4	65.4
2010	64.6	64.8	64.9	64.8	65.1	65.3	65.0	64.1	64.7
2011	63.9	64.0	63.9	64.1	64.5	64.6	64.3	63.8	64.1
2012	63.6	63.6	63.4	63.8	64.3	64.3	63.7	63.4	63.7
2013	63.2	63.1	63.1	63.5	64.0	64.0	63.4

Source: US Bureau of Labor Statistics http://www.bls.gov/

Chart I-12b, US, Labor Force Participation Rate, Percent of Labor Force in Population, NSA, 1979-2013

Source: Bureau of Labor Statistics

http://www.bls.gov/data/

Broader perspective is provided by Chart I-12c of the US Bureau of Labor Statistics. The United States civilian noninstitutional population has increased along a consistent trend since 1948 that continued through earlier recessions and the global recession from IVQ2007 to IIQ2009 and the cyclical expansion after IIIQ2009.

Chart I-12c, US, Civilian Noninstitutional Population, Thousands, NSA, 1948-2013

Sources: US Bureau of Labor Statistics

http://www.bls.gov/data/

http://www.bls.gov/data/

The labor force of the United States in Chart I-12d has increased along a trend similar to that of the civilian noninstitutional population in Chart I-12c. There is an evident stagnation of the civilian labor force in the final segment of Chart I-12d during the current economic cycle. This stagnation is explained by cyclical factors similar to those analyzed by Lazear and Spletzer (2012JHJul22) that motivated an increasing population to drop out of the labor force instead of structural factors. Large segments of the potential labor force are not observed, constituting unobserved unemployment and of more permanent nature because those afflicted have been seriously discouraged from working by the lack of opportunities.

Chart I-12d, US, Labor Force, Thousands, NSA, 1948-2013

Sources: US Bureau of Labor Statistics

http://www.bls.gov/data/

ESIII Subpar Job Creation. What is striking about the data in Table II-8 is that the numbers of monthly increases in jobs in 1983 and 1984 are several times higher than in 2010 to 2013. The civilian noninstitutional population growing by 39.6 percent from 174.215 million in 1983 to 243.284 million in 2012 and labor force higher by 38.9 percent, growing from 111.550 million in 1983 to 154.975 million in 2012. Total nonfarm payroll employment seasonally adjusted (SA) increased 169,000 in Aug 2013 and private payroll employment rose 152,000. The average number of nonfarm jobs created in Jan-Aug 2012 was 178,625 while the average number of private jobs created in Jan-Aug 2013 was 180,250, or increase by 0.9 percent. The average number of private jobs created in the US in Jan-Aug 2012 was 181,750 while the average in Jan-Aug 2013 was 185,625, or increase by 2.1 percent. The US labor force increased from 153.617 million in 2011 to 154.975 million in 2012 by 1.358 million or 113,167 per month. The average increase of nonfarm jobs in the eight months from Jan to Aug 2013 was 178,625, which is a rate of job creation inadequate to reduce significantly unemployment and underemployment in the United States because of 113,167 new entrants in the labor force per month with 28.3 million unemployed or underemployed. The difference between the average increase of 178,625 new private nonfarm jobs per month in the US from Jan to Aug 2013 and the 113,167 average monthly increase in the labor force from 2011 to 2012 is 65,458 monthly new jobs net of absorption of new entrants in the labor force. There are 28.3 million in job stress in the US currently. Creation of 65,458 new jobs per month net of absorption of new entrants in the labor force would require 433 months to provide jobs for the unemployed and underemployed (28.348 million divided by 65,458) or 36 years (433 divided by 12). The civilian labor force of the US in Aug 2013 not seasonally adjusted stood at 155.971 million with 11.462 million unemployed or effectively 18.316 million unemployed in this blog’s calculation by inferring those who are not searching because they believe there is no job for them for effective labor force of 162.825 million. Reduction of one million unemployed at the current rate of job creation without adding more unemployment requires 1.3 years (1 million divided by product of 65,458 by 12, which is 785,496). Reduction of the rate of unemployment to 5 percent of the labor force would be equivalent to unemployment of only 7.799 million (0.05 times labor force of 155.971 million) for new net job creation of 3.663 million (11.462 million unemployed minus 7.799 million unemployed at rate of 5 percent) that at the current rate would take 4.7 years (3.663 million divided by 0.785496). Under the calculation in this blog, there are 18.316 million unemployed by including those who ceased searching because they believe there is no job for them and effective labor force of 162.825 million. Reduction of the rate of unemployment to 5 percent of the labor force would require creating 9.586 million jobs net of labor force growth that at the current rate would take 12.9 years (18.316 million minus 0.05(162.825 million) = 10.175 million divided by 0.785596, using LF PART 66.2% and Total UEM in Table I-4). These calculations assume that there are no more recessions, defying United States economic history with periodic contractions of economic activity when unemployment increases sharply. The number employed in the US fell from 147.315 million in Jul 2007 to 144.509 million in Aug 2013, by 2.806 million, or decline of 1.9 percent, while the civilian noninstitutional or economically active population increased from 231.958 million in Jul 2007 to 245.959 million in Aug 2013, by 14.001 million or increase of 6.0 percent, using not seasonally adjusted data. There is actually not sufficient job creation in merely absorbing new entrants in the labor force because of those dropping from job searches, worsening the stock of unemployed or underemployed in involuntary part-time jobs. The United States economy has grown at the average yearly rate of 3 percent per year and 2 percent per year in per capita terms from 1870 to 2010, as measured by Lucas (2011May). An important characteristic of the economic cycle in the US has been rapid growth in the initial phase of expansion after recessions.

Inferior performance of the US economy and labor markets is the critical current issue of analysis and policy design. Long-term economic performance in the United States consisted of trend growth of GDP at 3 percent per year and of per capita GDP at 2 percent per year as measured for 1870 to 2010 by Robert E Lucas (2011May). The economy returned to trend growth after adverse events such as wars and recessions. The key characteristic of adversities such as recessions was much higher rates of growth in expansion periods that permitted the economy to recover output, income and employment losses that occurred during the contractions. Over the business cycle, the economy compensated the losses of contractions with higher growth in expansions to maintain trend growth of GDP of 3 percent and of GDP per capita of 2 percent. US economic growth has been at only 2.2 percent on average in the cyclical expansion in the 16 quarters from IIIQ2009 to IIQ2013. Boskin (2010Sep) measures that the US economy grew at 6.2 percent in the first four quarters and 4.5 percent in the first 12 quarters after the trough in the second quarter of 1975; and at 7.7 percent in the first four quarters and 5.8 percent in the first 12 quarters after the trough in the first quarter of 1983 (Professor Michael J. Boskin, Summer of Discontent, Wall Street Journal, Sep 2, 2010 http://professional.wsj.com/article/SB10001424052748703882304575465462926649950.html). There are new calculations using the revision of US GDP and personal income data since 1929 by the Bureau of Economic Analysis (BEA) (http://bea.gov/iTable/index_nipa.cfm http://bea.gov/newsreleases/national/gdp/2013/pdf/gdp2q13_adv.pdf http://bea.gov/newsreleases/national/pi/2013/pdf/pi0613.pdf). The average of 7.7 percent in the first four quarters of major cyclical expansions is in contrast with the rate of growth in the first four quarters of the expansion from IIIQ2009 to IIQ2010 of only 2.7 percent obtained by diving GDP of $14,738.0 billion in IIQ2010 by GDP of $14,356.9 billion in IIQ2009 {[$14,738.0/$14,356.9 -1]100 = 2.7%], or accumulating the quarter on quarter growth rates (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/06/tapering-quantitative-easing-policy-and.html). The expansion from IQ1983 to IVQ1985 was at the average annual growth rate of 5.7 percent and at 7.8 percent from IQ1983 to IVQ1983 (http://cmpassocregulationblog.blogspot.com/2013/09/increasing-interest-rate-risk.html). As a result, there are 28.3 million unemployed or underemployed in the United States for an effective unemployment rate of 17.4 percent (Section II and earlier at http://cmpassocregulationblog.blogspot.com/2013/08/risks-of-steepening-yield-curve-and.html).

Table I-8, US, Monthly Change in Jobs, Number SA

Month	1981	1982	1983	2008	2009	2010	Private
Jan	95	-327	225	14	-794	-13	-17
Feb	67	-6	-78	-85	-695	-40	-26
Mar	104	-129	173	-79	-830	154	111
Apr	74	-281	276	-215	-704	229	170
May	10	-45	277	-186	-352	521	102
Jun	196	-243	378	-169	-472	-130	94
Jul	112	-343	418	-216	-351	-86	103
Aug	-36	-158	-308	-270	-210	-37	129
Sep	-87	-181	1114	-459	-233	-43	113
Oct	-100	-277	271	-472	-170	228	188
Nov	-209	-124	352	-775	-21	144	154
Dec	-278	-14	356	-705	-220	95	114
			1984			2011	Private
Jan			447			69	80
Feb			479			196	243
Mar			275			205	223
Apr			363			304	303
May			308			115	183
Jun			379			209	177
Jul			312			78	206
Aug			241			132	129
Sep			311			225	256
Oct			286			166	174
Nov			349			174	197
Dec			127			230	249
			1985			2012	Private
Jan			266			311	323
Feb			124			271	265
Mar			346			205	208
Apr			195			112	120
May			274			125	152
Jun			145			87	78
Jul			189			153	177
Aug			193			165	131
Sep			204			138	118
Oct			187			160	217
Nov			209			247	256
Dec			168			219	224
			1985			2013	Private
Jan			123			148	164
Feb			107			332	319
Mar			93			142	154
Apr			188			199	188
May			125			176	187
Jun			-93			172	194
Jul			318			104	127
Aug			113			169	152
Sep			346
Oct			187
Nov			186
Dec			204

Source: US Bureau of Labor Statistics http://www.bls.gov/

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 2013. The sharp decline in total nonfarm jobs during the contraction after 2007 has been followed by initial stagnation and then inadequate growth in 2012 and 2013.

Chart I-38, US, Total Nonfarm Payroll Jobs SA 2001-2013

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

Chart I-39 provides total nonfarm jobs SA from 1979 to 1989. Recovery is strong throughout the decade with the economy growing at trend.

Chart I-39, US, Total Nonfarm Payroll Jobs SA 1979-1989

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

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 2001-2013

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/

ESIV Stagnating/Declining Real Wages. Calculations using BLS data of inflation-adjusted average hourly earnings are in Table IIB-3. The final column of Table IB-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 five 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 0.6 percent in Apr 2012 in inflation-adjusted average hourly earnings but another fall of 0.5 percent in May 2012 followed by increases of 0.3 percent in Jun and 1.0 percent in Jul 2012. Real hourly earnings stagnated in the 12 months ending in Aug 2012 with increase of only 0.1 percent and increased 0.7 percent in the 12 months ending in Sep 2012. Real hourly earnings fell 1.3 percent in Oct 2012 and gained 1.1 percent in Dec 2012 but declined 0.2 percent in Jan 2012 and stagnated at change of 0.1 percent in Feb 2013. Real hourly earnings increased 0.4 percent in the 12 months ending in Mar 2013 and stagnated at 0.1 percent in Apr 2013, increasing 0.5 percent in May 2013. In Jun 2013, real hourly earnings increased 1.0 percent relative to Jun 2012. Real hourly earnings fell 0.7 percent in the 12 months ending in Jul 2013. 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/2013/08/duration-dumping-and-peaking-valuations.html) and in part because of the collapse of hiring (http://cmpassocregulationblog.blogspot.com/2013/08/recovery-without-hiring-loss-of-full.html) originating in weak economic growth (http://cmpassocregulationblog.blogspot.com/2013/09/increasing-interest-rate-risk.html).

Table IB-3, US, Average Hourly Earnings Nominal and Inflation Adjusted, Dollars and % NSA

	AHE ALL	12 Month Nominal ∆%	∆% 12 Month CPI	12 Month Real ∆%
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	$21.19	4.1	2.8	1.3
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	1.9	2.6	-0.7
Feb	$22.61	1.4	2.1	-0.7
Mar	$22.52	1.2	2.3	-1.1
Apr	$22.57	1.8	2.2	-0.4
May	$22.64	2.5	2.0	0.5
Jun	$22.38	1.8	1.1	0.7
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	1.0	1.1	-0.1
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	1.8	2.7	-0.9
Apr	$22.99	1.9	3.2	-1.3
May	$23.09	2.0	3.6	-1.5
Jun	$22.84	2.1	3.6	-1.4
Jul	$22.97	2.4	3.6	-1.2
Aug	$22.88	1.3	3.8	-2.4
Sep	$23.08	2.0	3.9	-1.8
Oct	$23.33	2.6	3.5	-0.9
Nov	$23.18	2.0	3.4	-1.4
Dec	$23.25	2.0	3.0	-1.0
2012
Jan	$23.59	1.7	2.9	-1.2
Feb	$23.44	1.8	2.9	-1.1
Mar	$23.42	2.1	2.7	-0.6
Apr	$23.65	2.9	2.3	0.6
May	$23.36	1.2	1.7	-0.5
Jun	$23.30	2.0	1.7	0.3
Jul	$23.52	2.4	1.4	1.0
Aug	$23.30	1.8	1.7	0.1
Sep	$23.70	2.7	2.0	0.7
Oct	$23.55	0.9	2.2	-1.3
Nov	$23.62	1.9	1.8	0.1
Dec	$23.89	2.8	1.7	1.1
2013
Jan	$23.92	1.4	1.6	-0.2
Feb	$23.94	2.1	2.0	0.1
Mar	$23.86	1.9	1.5	0.4
Apr	$23.94	1.2	1.1	0.1
May	$23.81	1.9	1.4	0.5
Jun	$23.95	2.8	1.8	1.0
Jul	$23.83	1.3	2.0	-0.7
Aug	$23.80	2.1

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 for Jan-Feb 2006

Source: US Bureau of Labor Statistics http://www.bls.gov/

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 IB-4. Average hourly earnings fell 0.5 percent after adjusting for inflation in the 12 months ending in Mar 2012 and gained 0.6 percent in the 12 months ending in Apr 2012 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 Aug 2012 and 0.7 percent in Sep 2012. Average hourly earnings adjusted by inflation fell 1.2 percent in the 12 months ending in Oct 2012. Average hourly earnings adjusted by inflation increased 0.1 percent in the 12 months ending in Nov 2012 and 1.1 percent in the 12 months ending in Dec 2012 but fell 0.2 percent in the 12 months ending in Jan 2013 and stagnated with gain of 0.1 percent in the 12 months ending in Feb 2013. Average hourly earnings adjusted for inflation increased 0.4 percent in the 12 months ending in Mar 2013 and increased 0.2 percent in the 12 months ending in Apr 2013. Average hourly earnings adjusted for inflation increased 0.6 percent in the 12 months ending in May 2013 and 1.1 percent in the 12 months ending in Jun 2013. Average hourly earnings of all employees in adjusted for inflation fell 0.7 percent in the 12 months ending in Jul 2013. Table IB-4 confirms the trend of deterioration of purchasing power of average hourly earnings in 2011 and into 2012 with 12-month percentage declines in three of the first three months of 2012 (-1.1 percent in Jan, -1.1 percent in Feb and -0.5 percent in Mar), declines of 0.6 percent in May and 1.2 percent in Oct and increase in five (0.6 percent in Apr, 0.3 percent in Jun, 1.0 percent in Jul, 0.7 percent in Sep and 1.1 percent in Dec) and stagnation in two (0.1 percent in Aug and 0.1 percent in Nov). Average hourly earnings adjusted for inflation fell 0.2 percent in the 12 months ending in Jan 2013, stagnated with gain of 0.1 percent in the 12 months ending in Feb 2013 and gained 0.4 percent in the 12 months ending Mar 2013. Real average hourly earnings increased 0.2 percent in the 12 months ending in Apr 2013 and 0.6 percent in the 12 months ending in May 2013. Average hourly earnings increased 1.1 percent in the 12 months ending in Jun 2013 and fell 0.7 percent in the 12 months ending in Jul 2013. Annual data are revealing: -0.7 percent in 2008 during carry trades into commodity futures in a global recession, 3.2 percent in 2009 with reversal of carry trades, no change in 2010 and 2012 and decline by 1.1 percent in 2011. Annual average hourly earnings of all employees in the United States adjusted for inflation increased 1.4 percent from 2007 to 2012 at the yearly average rate of 0.3 percent (from $10.11 in 2007 to $10.25 in 2012 in dollars of 1982-1984 using data in http://www.bls.gov/data/). 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 (http://cmpassocregulationblog.blogspot.com/2013/09/increasing-interest-rate-risk.html).

Table IB-4, US, Average Hourly Earnings of All Employees NSA in Constant Dollars of 1982-1984

Year	Jan	Feb	Mar	Apr	May	Jun	Jul
2006			10.05	10.11	9.92	9.89	9.97
2007	10.23	10.22	10.14	10.18	10.02	9.99	10.08
2008	10.11	10.12	10.11	10.00	9.91	9.84	9.77
2009	10.48	10.50	10.47	10.40	10.32	10.20	10.23
2010	10.41	10.43	10.35	10.35	10.38	10.27	10.29
2011	10.53	10.41	10.26	10.22	10.22	10.12	10.17
2012	10.41	10.30	10.21	10.28	10.16	10.15	10.27
∆% 12 M	-1.1	-1.1	-0.5	0.6	-0.6	0.3	1.0
2013	10.39	10.31	10.25	10.30	10.22	10.26	10.20
∆% 12 M	-0.2	0.1	0.4	0.2	0.6	1.1	-0.7

Source: US Bureau of Labor Statistics http://www.bls.gov/

Chart IB-2 of the US Bureau of Labor Statistics plots average hourly earnings of all US employees in constant 1982-1984 dollars with evident decline from annual earnings of $10.36 in 2009 and $10.36 again in 2010 to $10.25 in 2011 and $10.25 again in 2012 or loss of 1.1 percent (data in http://www.bls.gov/data/). The economic welfare or wellbeing of United States workers deteriorated in a recovery without hiring (http://cmpassocregulationblog.blogspot.com/2013/08/recovery-without-hiring-loss-of-full.html), stagnating/declining real wages and 28 million unemployed or underemployed (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/08/risks-of-steepening-yield-curve-and.html) because of mediocre economic growth (http://cmpassocregulationblog.blogspot.com/2013/09/increasing-interest-rate-risk.html).

Chart IB-2, US, Average Hourly Earnings of All Employees in Constant Dollars of 1982-1984, SA 2006-2013

Source: US Bureau of Labor Statistics http://www.bls.gov/

Chart IB-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 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 and marginal gain in Sep 2012 with sharp decline in Oct 2012, stagnation in Nov 2012, increase in Dec 2012 and renewed decrease in Jan 2013 with near stagnation in Feb 2013 followed by mild increase in Mar-Apr 2013. Hourly earnings adjusted for inflation increased in Jun 2013 and fell in Jul 2013.

Chart IB-3, Average Hourly Earnings of All Employees NSA 12-Month Percent Change, 1982-1984 Dollars, NSA 2007-2013

Source: US Bureau of Labor Statistics http://www.bls.gov/data/

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 IB-5. Average weekly earnings fell 3.2 percent after adjusting for inflation in the 12 months ending in Aug 2011, decreased 0.9 percent in the 12 months ending in Sep 2011, increased 0.9 percent in the 12 months ending in Oct 2011, fell 1.0 percent in the 12 months ending in Nov 2011 and 0.3 in the 12 months ending in Dec 2011, declining 0.3 percent in the 12 months ending in Jan 2012 and 0.5 percent in the 12 months ending in Feb 2012. Average weekly earnings in constant dollars were virtually flat in Mar 2012 relative to Mar 2011, increasing 0.1 percent. Average weekly earnings in constant dollars increased 1.7 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 and 2.1 percent in the 12 months ending in Sep 2012. Real weekly earnings fell 2.9 percent in the 12 months ending in Oct 2012 and increased 0.1 percent in the 12 months ending in Nov 2012 and 2.5 percent in the 12 months ending in Dec 2012. Real weekly earnings fell 1.6 percent in the 12 months ending in Jan 2013 and virtually stagnated with gain of 0.2 percent in the 12 months ending in Feb 2013, increasing 0.4 percent in the 12 months ending in Mar 2013. Real weekly earnings fell 1.0 percent in the 12 months ending in Apr 2013 and increased 0.6 percent in the 12 months ending in May 2013. Average weekly earnings increased 2.5 percent in the 12 months ending in Jun 2013 and fell 1.8 percent in the 12 months ending in Jul 2013. Table I-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/2013/08/duration-dumping-and-peaking-valuations.html). On an annual basis, average weekly earnings in constant 1982-1984 dollars increased from $349.78 in 2007 to $353.66 in 2012, by 1.1 percent or at the average rate of 0.2 percent per year (data in http://www.bls.gov/data/). Annual average weekly earnings in constant dollars of $353.50 in 2010 were virtually unchanged at $353.66 in 2012. Those who still work bring back home a paycheck that buys fewer high-quality goods than a year earlier. The fractured US job market does not provide an opportunity for advancement as in past booms following recessions (http://cmpassocregulationblog.blogspot.com/2013/08/recovery-without-hiring-loss-of-full.html).

Table IB-5, US, Average Weekly Earnings of All Employees in Constant Dollars of 1982-1984, NSA 2007-2013

Year	Jan	Feb	Mar	Apr	May	Jun	Jul
2006			343.71	349.95	340.12	342.08	347.97
2007	348.72	349.40	347.76	353.41	344.58	346.74	351.68
2008	345.92	346.21	351.70	344.13	340.93	343.40	337.06
2009	354.10	360.31	355.81	349.33	347.94	344.59	345.92
2010	350.71	350.51	349.76	351.99	356.97	350.13	352.02
2011	360.29	353.81	349.90	350.62	353.56	348.08	349.75
2012	359.06	352.12	350.19	356.68	348.65	349.28	357.26
∆% 12 M	-0.3	-0.5	0.1	1.7	-1.4	0.3	2.1
2013	353.17	352.66	351.59	353.13	350.59	357.96	350.93
∆% 12 M	-1.6	0.2	0.4	-1.0	0.6	2.5	-1.8

Source: US Bureau of Labor Statistics http://www.bls.gov/data/

Chart IB-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 with oscillations caused by carry trades from zero interest rates into commodity futures from 2010 to 2011 and into 2012 and 2013.

Chart IB-4, US, Average Weekly Earnings of All Employees in Constant Dollars of 1982-1984, SA 2006-2013

Source: US Bureau of Labor Statistics http://www.bls.gov/data/

Chart IB-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/2013/09/increasing-interest-rate-risk.html).

I Twenty Nine Million Unemployed or Underemployed. This section analyzes the employment situation report of the United States of the Bureau of Labor Statistics (BLS). There are four subsections: IA1 Summary of the Employment Situation; IA2 Number of People in Job Stress; IA3 Long-term and Cyclical Comparison of Employment; and IA4 Job Creation.

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.”

Requirements of using best available information and updating seasonality factors affect the comparability over time of United States employment data. In the first month of the year, the BLS revises data for several years by adjusting benchmarks and seasonal factors (page 4 at http://www.bls.gov/news.release/pdf/empsit.pdf), which is the case of the data for Jan 2013 released on Feb 1, 2013:

“In accordance with annual practice, the establishment survey data released today have been benchmarked to reflect comprehensive counts of payroll jobs. These counts are derived principally from unemployment insurance tax records for March 2012. The benchmark process results in revisions to not seasonally adjusted data from April 2011 forward. Seasonally adjusted data from January 2008 forward are subject to revision. In addition, data for some series prior to 2008, both seasonally adjusted and unadjusted, incorporate minor revisions.

The total nonfarm employment level for March 2012 was revised upward by 422,000 (424,000 on a not seasonally adjusted basis). Table A presents revised total nonfarm employment data on a seasonally adjusted basis for January through December 2012.”

The range of differences in total nonfarm employment in revisions in Table A of the employment situation report for Feb 2013 (page 4 at http://www.bls.gov/news.release/pdf/empsit.pdf) is from 348,000 for Jan 2012 to 647,000 for Dec 2012. There are also adjustments of population that affect comparability of labor statistics over time (page 5 at http://www.bls.gov/news.release/pdf/empsit.pdf):

“Effective with data for January 2013, updated population estimates have been used in the household survey. Population estimates for the household survey are developed by the U.S. Census Bureau. Each year, the Census Bureau updates the estimates to reflect new information and assumptions about the growth of the population since the previous decennial census. The change in population reflected in the new estimates results from adjustments for net international migration, updated vital statistics and other information, and some methodological changes in the estimation process. In accordance with usual practice, BLS will not revise the official household survey estimates for December 2012 and earlier months. To show the impact of the population adjustment, however, differences in selected December 2012 labor force series based on the old and new population estimates are shown in table B.

The adjustment increased the estimated size of the civilian noninstitutional population in December by 138,000, the civilian labor force by 136,000, employment by 127,000, unemployment by 9,000, and persons not in the labor force by 2,000. The total unemployment rate, employment-population ratio, and labor force participation rate were unaffected.

Data users are cautioned that these annual population adjustments affect the comparability of household data series over time. Table C shows the effect of the introduction of new population estimates on the comparison of selected labor force measures between December 2012 and January 2013. Additional information on the population adjustments and their effect on national labor force estimates are available at www.bls.gov/cps/cps13adj.pdf (emphasis added).”

There are also adjustments of benchmarks and seasonality factors for establishment data that affect comparability over time (page 1 at http://www.bls.gov/news.release/pdf/empsit.pdf):

“Establishment survey data have been revised as a result of the annual benchmarking process and the updating of seasonal adjustment factors.”

All comparisons over time are affected by yearly adjustments of benchmarks and seasonality factors. All data in this blog comment use revised data released by the BLS on Jun 7, 2013 (http://www.bls.gov/).

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 169,000 in Aug 2013 and private payroll employment rose 152,000. The average number of nonfarm jobs created in Jan-Aug 2012 was 178,625 while the average number of private jobs created in Jan-Aug 2013 was 180,250, or increase by 0.9 percent. The average number of private jobs created in the US in Jan-Aug 2012 was 181,750 while the average in Jan-Aug 2013 was 185,625, or increase by 2.1 percent. The US labor force increased from 153.617 million in 2011 to 154.975 million in 2012 by 1.358 million or 113,167 per month. The average increase of nonfarm jobs in the eight months from Jan to Aug 2013 was 178,625, which is a rate of job creation inadequate to reduce significantly unemployment and underemployment in the United States because of 113,167 new entrants in the labor force per month with 28.3 million unemployed or underemployed. The difference between the average increase of 178,625 new private nonfarm jobs per month in the US from Jan to Aug 2013 and the 113,167 average monthly increase in the labor force from 2011 to 2012 is 65,458 monthly new jobs net of absorption of new entrants in the labor force. There are 28.3 million in job stress in the US currently. Creation of 65,458 new jobs per month net of absorption of new entrants in the labor force would require 433 months to provide jobs for the unemployed and underemployed (28.348 million divided by 65,458) or 36 years (433 divided by 12). The civilian labor force of the US in Aug 2013 not seasonally adjusted stood at 155.971 million with 11.462 million unemployed or effectively 18.316 million unemployed in this blog’s calculation by inferring those who are not searching because they believe there is no job for them for effective labor force of 162.825 million. Reduction of one million unemployed at the current rate of job creation without adding more unemployment requires 1.3 years (1 million divided by product of 65,458 by 12, which is 785,496). Reduction of the rate of unemployment to 5 percent of the labor force would be equivalent to unemployment of only 7.799 million (0.05 times labor force of 155.971 million) for new net job creation of 3.663 million (11.462 million unemployed minus 7.799 million unemployed at rate of 5 percent) that at the current rate would take 4.7 years (3.663 million divided by 0.785496). Under the calculation in this blog, there are 18.316 million unemployed by including those who ceased searching because they believe there is no job for them and effective labor force of 162.825 million. Reduction of the rate of unemployment to 5 percent of the labor force would require creating 9.586 million jobs net of labor force growth that at the current rate would take 12.9 years (18.316 million minus 0.05(162.825 million) = 10.175 million divided by 0.785596, using LF PART 66.2% and Total UEM in Table I-4). These calculations assume that there are no more recessions, defying United States economic history with periodic contractions of economic activity when unemployment increases sharply. The number employed in the US fell from 147.315 million in Jul 2007 to 144.509 million in Aug 2013, by 2.806 million, or decline of 1.9 percent, while the civilian noninstitutional or economically active population increased from 231.958 million in Jul 2007 to 245.959 million in Aug 2013, by 14.001 million or increase of 6.0 percent, using not seasonally adjusted data. There is actually not sufficient job creation in merely absorbing new entrants in the labor force because of those dropping from job searches, worsening the stock of unemployed or underemployed in involuntary part-time jobs. Subsection IA4 Job Creation analyzes the types of jobs created, which are lower paying than earlier. Average hourly earnings in Aug 2013 were $24.05 seasonally adjusted (SA), increasing 2.1 percent not seasonally adjusted (NSA) relative to Aug 2012 and increasing 0.2 percent relative to Jul 2013 seasonally adjusted. In Jul 2013, average hourly earnings seasonally adjusted were $24.00, increasing 1.3 percent relative to Jul 2012 not seasonally adjusted and changing 0.0 percent seasonally adjusted relative to Jun 2013. 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 Aug 2013 because the prices indexes of the BLS for Jul 2013 will only be released on Sep 17, 2013 (http://www.bls.gov/cpi/), which will be covered in this blog’s comment on Sep 22, 2013, together with world inflation. The second column provides changes in real wages for Jul 2013. Average hourly earnings adjusted for inflation or in constant dollars decreased 0.7 percent in Jul 2013 relative to Jul 2012 but have been decreasing during many consecutive months. World inflation waves in bouts of risk aversion (http://cmpassocregulationblog.blogspot.com/2013/08/duration-dumping-and-peaking-valuations.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/2013/08/recovery-without-hiring-loss-of-full.html). The following section IB Stagnating Real Wages provides more detailed analysis. Average weekly hours of US workers 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 fell from 7.4 percent in Jul 2013 to 7.3 percent in Aug 2013, seasonally adjusted. 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 28.3 million in Aug 2013 and 28.3 million in Jul 2013. The final row in Table I-1 provides the number in job stress as percent of the actual labor force calculated at 17.4 percent in Aug 2013 and 17.4 percent in Jul 2013. Almost one in every five workers in the US is unemployed or underemployed. There is a socio-economic disaster in the combination of :

· about thirty million people in job stress, falling or stagnating real wages, collapse of hiring (http://cmpassocregulationblog.blogspot.com/2013/08/recovery-without-hiring-loss-of-full.html)

· decline of US inflation-adjusted household wealth by 5.2 percent from IVQ2007 to IQ2013 while it increased 31.2 percent from IQ1980 to IIIQ1986 (http://cmpassocregulationblog.blogspot.com/2013/06/recovery-without-hiring-seven-million.html)

· household median income adjusted for inflation back to 1996 levels

· real per capita disposable income of $35,823 in chained 2009 dollars higher in IIQ2013 by only 2.4 percent relative to $36,666 in IVQ2007 (http://www.bea.gov/iTable/index_nipa.cfm Section IB Collapse at http://cmpassocregulationblog.blogspot.com/2013/08/interest-rate-risks-duration-dumping.html)

· federal deficits of $5.092 trillion in four years and debt/GDP of 72.6 percent in 2012 in the unsustainable path to 89.7 percent of GDP (http://cmpassocregulationblog.blogspot.com/2012/11/united-states-unsustainable-fiscal.html)

· and forty-eight million people in poverty and without health insurance (http://cmpassocregulationblog.blogspot.com/2012/09/collapse-of-united-states-creation-of.html)

Table I-1, US, Summary of the Employment Situation Report SA

	Aug 2013	Jul 2013
New Nonfarm Payroll Jobs	169,000	104,000
New Private Payroll Jobs	152,000	127,000
Average Hourly Earnings	Aug 13 $24.05 SA ∆% Aug 13/Aug 12 NSA: 2.1 ∆% Aug 13/Jul 13 SA: 0.2	Jul 13 $24.00 SA ∆% Jul 13/Jul 12 NSA: 1.3 ∆% Jul 13/Jun 13 SA: 0.0
Average Hourly Earnings in Constant Dollars		∆% Jul 2013/Jul 2012: -0.7
Average Weekly Hours	34.5 SA 34.5 NSA	34.4 SA 34.4 NSA
Unemployment Rate Household Survey % of Labor Force SA	7.3	7.4
Number in Job Stress Unemployed and Underemployed Blog Calculation	28.3 million NSA	28.3 million NSA
In Job Stress as % Labor Force	17.4 NSA	17.4 NSA

Source: US Bureau of Labor Statistics Source: US Bureau of Labor Statistics http://www.bls.gov/

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 11.777 million in Jun 2013 to 11.514 million in Jul 2013 and decrease to 11.316 million in Aug 2013. The rate of unemployment decreased from 7.6 in Jun 2013 and 7.4 percent in Jul 2013 to 7.3 percent in Aug 2013. An important aspect of unemployment is its persistence for more than 27 weeks with 4.290 million in Aug 2013, corresponding to 37.9 percent of the unemployed. The longer the period of unemployment the lower are the chances of finding another job with many long-term unemployed ceasing to search for a 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 increased from 8.226 million in Jun 2013 to 8.245 million in Jul 2013 and fell to 7.911 million in Aug 2013. Another important fact is the marginally attached to the labor force. 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 21.569 million in Aug 2013 is composed of 11.316 million unemployed (of whom 4.290 million, or 37.9 percent, unemployed for 27 weeks or more) compared with 11.514 million unemployed in Jul 2013 (of whom 4.246 million, or 36.9 percent, unemployed for 27 weeks or more), 7.911 million employed part-time for economic reasons in Aug 2013 (who suffered reductions in their work hours or could not find full-time employment) compared with 7.245 million in Jul 2013 and 2.342 million who were marginally attached to the labor force in Aug 2013 (who were not in the labor force but wanted and were available for work) compared with 2.414 million in Jul 2013. The final row in Table I-2 provides the number in job stress as percent of the labor force: 13.9 percent in Aug 2013, which is close to 14.2 percent in Jul 2013 and 14.5 percent in Jun 2013.

Table I-2, US, People in Job Stress, Millions and % SA

2013	Aug 2013	Jul 2013	Jun 2013
Labor Force Millions	155.486	155.798	155.835
Unemployed Millions	11.316	11.514	11.777
Unemployment Rate (unemployed as % labor force)	7.3	7.4	7.6
Unemployed ≥27 weeks Millions	4.290	4.246	4.328
Unemployed ≥27 weeks %	37.9	36.9	36.8
Part Time for Economic Reasons Millions	7.911	8.245	8.226
Marginally Attached to Labor Force Millions	2.342	2.414	2.582
Job Stress Millions	21.569	22.173	22.585
In Job Stress as % Labor Force	13.9	14.2	14.5

Job Stress = Unemployed + Part Time Economic Reasons + Marginally Attached Labor Force

Source: US Bureau of Labor Statistics http://www.bls.gov/

Table I-3 repeats the data in Table I-2 but including May and additional data. What really matters is the number of people with jobs or the total employed. The final row of Table II-3 provides people employed as percent of the population or employment to population ratio. The number has remained relatively constant around 58.7 percent. The employment to population ratio fell from an annual level of 63.1 percent in 2006 to 58.6 percent in 2012 with the lowest level at 58.4 percent in 2011.

Table I-3, US, Unemployment and Underemployment, SA, Millions and Percent

	Aug 2013	Jul 2013	Jun 2013	May 2013
Labor Force	155.486	155.798	155.835	155.658
Unemployed	11.316	11.514	11.777	11.760
UNE Rate %	7.3	7.4	7.6	7.6
Part Time Economic Reasons	7.911	8.245	8.226	7.904
Marginally Attached to Labor Force	2.342	2.414	2.582	2.164
In Job Stress	21.922	22.173	22.585	21.828
In Job Stress % Labor Force	14.1	14.2	14.5	14.0
Employed	144.170	144.285	144.058	143.898
Employment % Population	58.6	58.7	58.7	58.6

Job Stress = Unemployed + Part Time Economic Reasons + Marginally Attached Labor Force

Source: US Bureau of Labor Statistics http://www.bls.gov/

The balance of this section considers the second approach. 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 2013. 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 Aug 2013 was 144.509 million (NSA) or 2.806 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 245.959 million in Aug 2013 or by 14.001 million.

Chart I-1, US, Employed, Thousands, SA, 2001-2013

Source: Bureau of Labor Statistics

http://www.bls.gov/data/

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 2013. There was recovery since 2010 but not sufficient to recover lost jobs. Many people in the US who had jobs before the global recession are not working now.

Chart I-2, US, Employed, 12-Month Percentage Change NSA, 2001-2013

Source: Bureau of Labor Statistics

http://www.bls.gov/data/

The foundation of the second approach derives from Chart II-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 9.4 percent from 142.828 million in Jan 2001 to 156.255 million in Jul 2009 but is virtually equal at 155.971 million in Aug 2013, all numbers not seasonally adjusted. Chart I-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 155.971 million in Aug 2013 to the noninstitutional population of 245.959 million in Aug 2013 was 63.4 percent. The labor force of the US in Aug 2013 corresponding to 66.8 percent of participation in the population would be 164.301 million (0.668 x 245.959). The difference between the measured labor force in Aug 2013 of 155.971 million and the labor force in Aug 2013 with participation rate of 66.8 percent (as in Jul 2007) of 164.165 million is 8.194 million. The level of the labor force in the US has stagnated and is 8.194 million lower than what it would have been had the same participation rate been maintained. Millions of people 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, 2001-2013

Source: US Bureau of Labor Statistics http://www.bls.gov/data/

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. Growth in the beginning of the summer originates in younger people looking for jobs in the summer after graduation or during school recess.

Chart I-4, US, Civilian Labor Force, Thousands, NSA, 12-month Percentage Change, 2001-2013

Source: US Bureau of Labor Statistics http://www.bls.gov/data/

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 63.4 percent NSA in Aug 2013, 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, 2001-2013

Source: US Bureau of Labor Statistics http://www.bls.gov/data/

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. The level unemployed fell to 11.741 million in Oct 2012, 11.404 million in Nov 2012, 11.844 million in Dec 2012, 13.181 million in Jan 2013, 12.500 million in Feb 2013 and 11.462 million in Aug 2013, all numbers not seasonally adjusted.

Chart I-6, US, Unemployed, Thousands, SA, 2001-2013

Source: US Bureau of Labor Statistics http://www.bls.gov/data/

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 7.6 percent in Dec 2012 but increased to 8.5 percent in Jan 2013 and 8.1 percent in Feb 2013, falling back to 7.1 percent in Apr 2013 and 7.8 percent in Jun 2013, all numbers not seasonally adjusted. The rate of unemployment not seasonally adjusted stabilized at 7.7 percent in Jul 2013 and fell to 7.3 percent in Aug 2013.

Chart I-7, US, Unemployment Rate, SA, 2001-2013

Source: Bureau of Labor Statistics

http://www.bls.gov/data/

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, decline of 7.3 percent in 2011, decrease of 9.0 percent in 2012 and decrease of 9.7 percent in Aug 2013 relative to Aug 2012.

Chart I-8, US, Unemployed, 12-month Percentage Change, NSA, 2001-2013

Source: US Bureau of Labor Statistics http://www.bls.gov/data/

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 9.103 million in Nov 2009, falling to 8.168 million in Dec 2011 but increasing to 8.220 million in Jan 2012 and 8.127 million in Feb 2012 but then falling to 7.918 million in Dec 2012 and increasing to 8.245 million in Jul 2013. The number employed part-time for economic reasons seasonally adjusted reached 7.911 million in Aug 2013. 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 8.166 million in Dec 2012 but increasing to 8.324 million in Jul 2013. The number employed part-time for economic reasons NSA stood at 7.690 million in Aug 2013. 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, 2001-2013

Source: US Bureau of Labor Statistics http://www.bls.gov/data/

Chart I-10 of the Bureau of Labor Statistics repeats the behavior of unemployment. The 12-month percentage change 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, 3.5 percent in 2011 and 5.1 percent in 2012. The number of part-time for economic reasons decreased 1.9 percent in Aug 2013 relative to Aug 2012.

Chart I-10, US, Part-Time for Economic Reasons NSA 12-Month Percentage Change, 2001-2013

Source: US Bureau of Labor Statistics http://www.bls.gov/data/

Chart II-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, 2.423 million in May 2012, 2.483 million in Jun 2012, 2.529 million in Jul 2012, 2.561 million in Aug 2012, 2.517 million in Sep 2012, 2.433 million in Oct 2012, 2.505 million in Nov 2012 and 2.614 million in Dec 2012. The number marginally attached to the labor force fell to 2.342 million in Aug 2013.

Chart I-11, US, Marginally Attached to the Labor Force, Thousands, NSA, 2001-2013

Source: US Bureau of Labor Statistics http://www.bls.gov/data/

Chart I-12 provides 12-month percentage changes of the marginally attached to the labor force from 2001 to 2013. 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. The number marginally attached to the labor force fell 2.2 percent on annual basis in 2012 but increased 2.9 percent in the 12 months ending in Dec 2012, fell 13.0 percent in the 12 months ending in Jan 2013, falling 10.7 percent in the 12 months ending in May 2013. The number marginally attached to the labor force increased 4.0 percent in the 12 months ending in Jun 2013 and fell 4.5 percent in the 12 months ending in Jul 2013 and 8.6 percent in the 12 months ending in Aug 2013

Chart I-12, US, Marginally Attached to the Labor Force 12-Month Percentage Change, NSA, 2001-2013

Source: US Bureau of Labor Statistics http://www.bls.gov/data/

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 11.2 percent and the number of people in job stress could be around 28.3 million, which is 17.4 percent of the effective 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 Aug 2012, Jul 2013 and Aug 2013 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 2013. 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 2012, Jul 2013 and Aug 2013 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 63.7 percent by Aug 2012 and was 64.0 percent in Jul 2013 and 63.4 percent in Aug 2013, 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:

· there are an estimated 6.854 million unemployed in Aug 2013 who are not counted because they left the labor force on their belief they could not find another job (∆NLF UEM), that is, they dropped out of their job searches

· the total number of unemployed is effectively 18.316 million (Total UEM) and not 11.462 million (UEM) of whom many have been unemployed long term

· the rate of unemployment is 11.2 percent (Total UEM%) and not 7.3 percent, not seasonally adjusted, or 7.3 percent seasonally adjusted

· the number of people in job stress is close to 28.3 million by adding the 6.854 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 28.348 million in Aug 2013, 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 17.4 percent of the labor force in Aug 2013. The employment population ratio “EMP/POP %” dropped from 62.9 percent on average in 2006 to 58.5 percent in Aug 2012, 59.0 percent in Jul 2013 and 58.8 percent in Aug 2013. The number employed in the US fell from 147.315 million in Jul 2007 to 144.509 million in Aug 2013, by 2.806 million, or decline of 1.9 percent, while the civilian noninstitutional or economically active population increased from 231.958 million in Jul 2007 to 245.959 million in Aug 2013, by 14.001 million or increase of 6.0 percent, using not seasonally adjusted data. There is actually not sufficient job creation in merely absorbing new entrants in the labor force because of those dropping from job searches, worsening the stock of unemployed or underemployed in involuntary part-time jobs. 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 2013 than in 2006 and the number employed is not increasing while population increased 14.001 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/2013/08/recovery-without-hiring-loss-of-full.html).

Table I-4, US, Population, Labor Force and Unemployment, NSA

	2006	Aug 2012	Jul 2013	Aug 2013
POP	229	243,566	245,756	245,959
LF	151	155,255	157,196	155,971
PART%	66.2	63.7	64.0	63.4
EMP	144	142,558	145,113	144,509
EMP/POP%	62.9	58.5	59.0	58.8
UEM	7	12,696	12,083	11,462
UEM/LF Rate%	4.6	8.2	7.7	7.3
NLF	77	88,311	88,560	89,988
LF PART 66.2%		161,241	162,690	162,825
∆NLF UEM		5,986	5,494	6,854
Total UEM		18,682	17,577	18,316
Total UEM%		11.6	10.8	11.2
Part Time Economic Reasons		7,842	8,324	7,690
Marginally Attached to LF		2,561	2,414	2,342
In Job Stress		29,085	28,315	28,348
People in Job Stress as % Labor Force		18.0	17.4	17.4

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%

Source: US Bureau of Labor Statistics http://www.bls.gov/

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 s_i of a demographic group in an industry i and unemployment rate y_i of that demographic group (Lazear and Spletzer 2012JHJul22, 5-6):

Y = ∑_is_iy_i (1)

This equation can be decomposed for analysis as (Lazear and Spletzer 2012JHJul22, 6):

∆Y = ∑_i∆s_iy*_i + ∑_i∆y_is*_i (2)

The first term in (2) captures changes in the demographic and industrial composition of the economy ∆s_i 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 ∆y_i, 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 provide 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 I-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 63.4 percent in Aug 2013. The civilian labor force participation rate was 63.7 percent on an annual basis in 1979 and 63.4 percent in Dec 1980 and Dec 1981, 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 I-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 with 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, 1979-2013

Year	Feb	Mar	Apr	May	Jun	Jul	Aug	Dec	Annual
1979	63.0	63.2	62.9	62.9	64.5	64.9	64.5	63.8	63.7
1980	63.2	63.2	63.2	63.5	64.6	65.1	64.5	63.4	63.8
1981	63.2	63.5	63.6	63.9	64.6	65.0	64.6	63.4	63.9
1982	63.2	63.4	63.3	63.9	64.8	65.3	64.9	63.8	64.0
1983	63.2	63.3	63.2	63.4	65.1	65.4	65.1	63.8	64.0
1984	63.4	63.6	63.7	64.3	65.5	65.9	65.2	64.3	64.4
1985	64.0	64.4	64.3	64.6	65.5	65.9	65.4	64.6	64.8
1986	64.4	64.6	64.6	65.0	66.3	66.6	66.1	65.0	65.3
1987	64.8	65.0	64.9	65.6	66.3	66.8	66.5	65.5	65.6
1988	65.2	65.2	65.3	65.5	66.7	67.1	66.8	65.9	65.9
1989	65.6	65.7	65.9	66.2	67.4	67.7	67.2	66.3	66.5
1990	66.0	66.2	66.1	66.5	67.4	67.7	67.1	66.1	66.5
1991	65.7	65.9	66.0	66.0	67.2	67.3	66.6	65.8	66.2
1992	65.8	66.0	66.0	66.4	67.6	67.9	67.2	66.1	66.4
1993	65.8	65.8	65.6	66.3	67.3	67.5	67.0	66.2	66.3
1994	66.2	66.1	66.0	66.5	67.2	67.5	67.2	66.5	66.6
1995	66.2	66.4	66.4	66.4	67.2	67.7	67.1	66.2	66.6
1996	66.1	66.4	66.2	66.7	67.4	67.9	67.2	66.7	66.8
1997	66.5	66.9	66.7	67.0	67.8	68.1	67.6	67.0	67.1
1998	66.7	67.0	66.6	67.0	67.7	67.9	67.3	67.0	67.1
1999	66.8	66.9	66.7	67.0	67.7	67.9	67.3	67.0	67.1
2000	67.0	67.1	67.0	67.0	67.7	67.6	67.2	67.0	67.1
2001	66.8	67.0	66.7	66.6	67.2	67.4	66.8	66.6	66.8
2002	66.6	66.6	66.4	66.5	67.1	67.2	66.8	66.2	66.6
2003	66.2	66.2	66.2	66.2	67.0	66.8	66.3	65.8	66.2
2004	65.7	65.8	65.7	65.8	66.5	66.8	66.2	65.8	66.0
2005	65.6	65.6	65.8	66.0	66.5	66.8	66.5	65.9	66.0
2006	65.7	65.8	65.8	66.0	66.7	66.9	66.5	66.3	66.2
2007	65.8	65.9	65.7	65.8	66.6	66.8	66.1	65.9	66.0
2008	65.5	65.7	65.7	66.0	66.6	66.8	66.4	65.7	66.0
2009	65.5	65.4	65.4	65.5	66.2	66.2	65.6	64.4	65.4
2010	64.6	64.8	64.9	64.8	65.1	65.3	65.0	64.1	64.7
2011	63.9	64.0	63.9	64.1	64.5	64.6	64.3	63.8	64.1
2012	63.6	63.6	63.4	63.8	64.3	64.3	63.7	63.4	63.7
2013	63.2	63.1	63.1	63.5	64.0	64.0	63.4

Source: US Bureau of Labor Statistics http://www.bls.gov/

Chart I-12b, US, Labor Force Participation Rate, Percent of Labor Force in Population, NSA, 1979-2013

Source: Bureau of Labor Statistics

http://www.bls.gov/data/

Broader perspective is provided by Chart I-12c of the US Bureau of Labor Statistics. The United States civilian noninstitutional population has increased along a consistent trend since 1948 that continued through earlier recessions and the global recession from IVQ2007 to IIQ2009 and the cyclical expansion after IIIQ2009.

Chart I-12c, US, Civilian Noninstitutional Population, Thousands, NSA, 1948-2013

Sources: US Bureau of Labor Statistics

http://www.bls.gov/data/

http://www.bls.gov/data/

The labor force of the United States in Chart I-12d has increased along a trend similar to that of the civilian noninstitutional population in Chart I-12c. There is an evident stagnation of the civilian labor force in the final segment of Chart I-12d during the current economic cycle. This stagnation is explained by cyclical factors similar to those analyzed by Lazear and Spletzer (2012JHJul22) that motivated an increasing population to drop out of the labor force instead of structural factors. Large segments of the potential labor force are not observed, constituting unobserved unemployment and of more permanent nature because those afflicted have been seriously discouraged from working by the lack of opportunities.

Chart I-12d, US, Labor Force, Thousands, NSA, 1948-2013

Sources: US Bureau of Labor Statistics

http://www.bls.gov/data/

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 2013. 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. The United States missed this opportunity of high growth in the initial phase of recovery that historically eliminated unemployment and underemployment created during the contraction. Inferior performance of the US economy and labor markets is the critical current issue of analysis and policy design. Long-term economic performance in the United States consisted of trend growth of GDP at 3 percent per year and of per capita GDP at 2 percent per year as measured for 1870 to 2010 by Robert E Lucas (2011May). The economy returned to trend growth after adverse events such as wars and recessions. The key characteristic of adversities such as recessions was much higher rates of growth in expansion periods that permitted the economy to recover output, income and employment losses that occurred during the contractions. Over the business cycle, the economy compensated the losses of contractions with higher growth in expansions to maintain trend growth of GDP of 3 percent and of GDP per capita of 2 percent. US economic growth has been at only 2.2 percent on average in the cyclical expansion in the 16 quarters from IIIQ2009 to IIQ2013 (http://cmpassocregulationblog.blogspot.com/2013/09/increasing-interest-rate-risk.html). Boskin (2010Sep) measures that the US economy grew at 6.2 percent in the first four quarters and 4.5 percent in the first 12 quarters after the trough in the second quarter of 1975; and at 7.7 percent in the first four quarters and 5.8 percent in the first 12 quarters after the trough in the first quarter of 1983 (Professor Michael J. Boskin, Summer of Discontent, Wall Street Journal, Sep 2, 2010 http://professional.wsj.com/article/SB10001424052748703882304575465462926649950.html). (http://cmpassocregulationblog.blogspot.com/2013/06/twenty-eight-million-unemployed-or.html). The average of 7.7 percent in the first four quarters of major cyclical expansions is in contrast with the rate of growth in the first four quarters of the expansion from IIIQ2009 to IIQ2010 of only 2.7 percent obtained by diving GDP of $14,738.0 billion in IIQ2010 by GDP of $14,356.9 billion in IIQ2009 {[$14,738.0/$14,356.9 -1]100 = 2.7%], or accumulating the quarter on quarter growth rates (http://cmpassocregulationblog.blogspot.com/2013/09/increasing-interest-rate-risk.html). The expansion from IQ1983 to IVQ1985 was at the average annual growth rate of 5.7 percent and at 7.8 percent from IQ1983 to IVQ1983 (http://cmpassocregulationblog.blogspot.com/2013/09/increasing-interest-rate-risk.html). As a result, there are 28.3 million unemployed or underemployed in the United States for an effective unemployment rate of 17.4 percent (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/08/risks-of-steepening-yield-curve-and.html). Zero interest rates and quantitative easing did not provide the impulse for growth and were not required in past successful cyclical expansions.

Chart I-13, US, Employment Level, Thousands, SA, 1948-2013

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

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, SA, 1948-2013, Thousands

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

Chart I-15 for the period from 1948 to 2013. 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, SA, 1948-2013, %

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

The number of unemployed in the US jumped seasonally adjusted from 5.8 million in May 1979 to 12.1 million in Dec 1982, by 6.3 million, or 108.6 percent. The jump not seasonally adjusted was from 5.4 million in May 1979 to 12.5 million in Jan 1983, by 7.1 million or 131.5 percent. The number of unemployed seasonally adjusted jumped from 6.7 million in Mar 2007 to 15.4 million in Oct 2009, by 8.7 million, or 129.9 percent. The number of unemployed not seasonally adjusted jumped from 6.5 million in Apr 2007 to 16.1 million in Jan 2010, by 9.6 million or 147.7 percent. These are the two episodes with steepest increase in the level of unemployment in Chart I-16.

Chart I-16, US, Unemployed, SA, 1948-2013, Thousands

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

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 10.0 percent in Oct 2009 and 9.9 percent in both Nov and Dec 2009. The unadjusted rate of unemployment reached 10.6 percent in Jan 2010.

Chart I-17, US, Unemployment Rate, SA, 1948-2013

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

Chart I-18 provides the number unemployed for 27 weeks and over from 1948 to 2013. 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 6.6 million in Jun 2010, by 5.5 million, or 500 percent.

Chart I-18, US, Unemployed for 27 Weeks or More, 1948-2013, Thousands

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

http://www.bls.gov/data/

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 63.5 in Dec 2006 to 58.6 in Jul 2011 and stands at 58.8 NSA in Aug 2013. There is no comparable decline followed by stabilization during an expansion in Chart I-19.

Chart I-19, US, Employment-Population Ratio, 1948-2013

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

The number employed part-time for economic reasons in Chart I-20 increased in the recessions and declined during the expansions. In the current cycle, the number employed part-time for economic reasons increased sharply and has not returned to normal levels. Lower growth of economic activity in the expansion after IIIQ2009 failed to reduce the number desiring to work full time but finding only part-time occupations.

Chart I-20, US, Part-Time for Economic Reasons, NSA, 1955-2013, Thousands

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

Table I-5 provides percentage change of 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 26.3 percent cumulatively and fell 45.3 percent in current dollars (Pelaez and Pelaez, Financial Regulation after the Global Recession (2009a), 150-2, Pelaez and Pelaez, Globalization and the State, Vol. II (2009b), 205-7 and revisions in http://bea.gov/iTable/index_nipa.cfm). Data are available for the 1930s only on a yearly basis. US GDP fell 4.7 percent in the two recessions (1) from IQ1980 to IIIQ1980 and (2) from III1981 to IVQ1981 to IVQ1982 and 4.3 percent cumulatively in the recession from IVQ2007 to IIQ2009. It is instructive to compare the first three years of the expansions in the 1980s and the current expansion. GDP grew at 4.6 percent in 1983, 7.3 percent in 1984 and 4.2 percent in 1985 while GDP grew, 2.5 percent in 2010, 1.8 percent in 2011 and 2.8 percent in 2012. Actual annual equivalent GDP growth in the four quarters of 2012 and first two quarters of 2013 is 1.9 percent and 1.8 percent in the first two quarters of 2013. GDP grew at 4.2 percent in 1985 and 3.5 percent in 1986 while the forecasts of the central tendency of participants of the Federal Open Market Committee (FOMC) are in the range of 2.3 to 2.6 percent in 2013 (http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20130619.pdf).

Table I-5, US, Percentage Change of GDP in the 1930s, 1980s and 2000s, ∆%

Year	GDP ∆%	Year	GDP ∆%	Year	GDP ∆%
1930	-8.5	1980	-0.2	2000	4.1
1931	-6.4	1981	2.6	2001	1.0
1932	-12.9	1982	-1.9	2002	1.8
1933	-1.3	1983	4.6	2003	2.8
1934	10.8	1984	7.3	2004	3.8
1935	8.9	1985	4.2	2005	3.4
1936	12.9	1986	3.5	2006	2.7
1937	5.1	1987	3.5	2007	1.8
1938	-3.3	1988	4.2	2008	-0.3
1930	8.0	1989	3.7	2009	-2.8
1940	8.8	1990	1.9	2010	2.5
1941	17.7	1991	-0.1	2011	1.8
1942	18.9	1992	3.6	2012	2.8

Source: US Bureau of Economic Analysis http://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 4.7 percent, which is almost equal to the decline of 4.3 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 26.3 percent cumulatively and fell 45.3 percent in current dollars (Pelaez and Pelaez, Financial Regulation after the Global Recession (2009a), 150-2, Pelaez and Pelaez, Globalization and the State, Vol. II (2009b), 205-7 and revisions in http://bea.gov/iTable/index_nipa.cfm). The comparison of the global recession after 2007 with the Great Depression is entirely misleading.

Table I-6, US, Number of Quarters, GDP Cumulative Percentage Contraction and Average Percentage Annual Equivalent Rate in Cyclical Contractions   

	Number of Quarters	Cumulative Percentage Contraction	Average Percentage Rate
IIQ1953 to IIQ1954	3	-2.4	-0.8
IIIQ1957 to IIQ1958	3	-3.0	-1.0
IVQ1973 to IQ1975	5	-3.1	-0.6
IQ1980 to IIIQ1980	2	-2.2	-1.1
IIIQ1981 to IVQ1982	4	-2.5	-0.64
IVQ2007 to IIQ2009	6	-4.3	-0.72

Sources: Source: Bureau of Economic Analysis http://bea.gov/iTable/index_nipa.cfm Reference Cycles National Bureau of Economic Research http://www.nber.org/cycles/cyclesmain.html

Table I-7 shows the extraordinary contrast between the mediocre average annual equivalent growth rate of 2.2 percent of the US economy in the sixteen quarters of the current cyclical expansion from IIIQ2009 to IIQ2013 and the average of 5.7 percent in the first thirteen quarters of expansion from IQ1983 to IQ1986, 5.3 percent in the first fifteen quarters of expansion from IQ1983 to IIIQ1986 and 5.2 percent in the first sixteen quarters of expansion from IQ1983 to IVQ1986. The line “average first four quarters in four expansions” provides the average growth rate of 7.7 percent with 7.8 percent from IIIQ1954 to IIQ1955, 9.2 percent from IIIQ1958 to IIQ1959, 6.1 percent from IIIQ1975 to IIQ1976 and 7.8 percent from IQ1983 to IVQ1983. The United States missed this opportunity of high growth in the initial phase of recovery. Boskin (2010Sep) measures that the US economy grew at 6.2 percent in the first four quarters and 4.5 percent in the first 12 quarters after the trough in the second quarter of 1975; and at 7.7 percent in the first four quarters and 5.8 percent in the first 12 quarters after the trough in the first quarter of 1983 (Professor Michael J. Boskin, Summer of Discontent, Wall Street Journal, Sep 2, 2010 http://professional.wsj.com/article/SB10001424052748703882304575465462926649950.html). Table I-7 provides an average of 7.7 percent in the first four quarters of major cyclical expansions while the rate of growth in the first four quarters of the expansion from IIIQ2009 to IIQ2010 is only 2.7 percent obtained by diving GDP of $14,738.0 billion in IIQ2010 by GDP of $14,356.9 billion in IIQ2009 {[$14,738.0/$14,356.9 -1]100 = 2.7%], or accumulating the quarter on quarter growth rates. As a result, there are 28.3 million unemployed or underemployed in the United States for an effective unemployment rate of 17.4 percent (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/08/risks-of-steepening-yield-curve-and.html). BEA data show the US economy in standstill with annual growth of 2.4 percent in 2010 decelerating to 1.8 percent annual growth in 2011 and 2.8 percent in 2012 (http://www.bea.gov/iTable/index_nipa.cfm) The expansion from IQ1983 to IVQ1985 was at the average annual growth rate of 5.7 percent and at 7.8 percent from IQ1983 to IVQ1983. GDP growth in the first two quarters of 2013 accumulated to 0.9 percent that is equivalent to 1.8 percent in a year. This is obtained by dividing GDP in IIQ2013 of $15681.0 by GDP in IVQ2012 of $15,539.6 and compounding by 4/2: {[($15,681.0/$15,539.6)^4/2 -1]100 =1.8%}. The US economy grew 1.6 percent in IIQ2013 relative to the same quarter a year earlier in IIQ2012. Another important revelation of the revisions and enhancements is that GDP was flat in IVQ2012, just at the borderline of contraction.

Table I-7, US, Number of Quarters, Cumulative Growth and Average Annual Equivalent Growth Rate in Cyclical Expansions

	Number of Quarters	Cumulative Growth ∆%	Average Annual Equivalent Growth Rate
IIIQ 1954 to IQ1957	11	12.8	4.5
First Four Quarters IIIQ1954 to IIQ1955	4	7.8
IIQ1958 to IIQ1959	5	10.0	7.9
First Four Quarters IIIQ1958 to IIQ1959	4	9.2
IIQ1975 to IVQ1976	8	8.3	4.1
First Four Quarters IIIQ1975 to IIQ1976	4	6.1
IQ1983 to IQ1986 IQ1983 to IIIQ1986 IQ1983 to IVQ1986	13 15 16	19.9 21.6 22.3	5.7 5.4 5.2
First Four Quarters IQ1983 to IVQ1983	4	7.8
Average First Four Quarters in Four Expansions*		7.7
IIIQ2009 to IIQ2013	16	9.2	2.2
First Four Quarters IIIQ2009 to IIQ2010		2.7

*First Four Quarters: 7.8% IIIQ1954-IIQ1955; 9.2% IIIQ1958-IIQ1959; 6.1% IIIQ1975-IIQ1976; 7.8% IQ1983-IVQ1983

Source: Bureau of Economic Analysis http://bea.gov/iTable/index_nipa.cfm Reference Cycles National Bureau of Economic Research http://www.nber.org/cycles/cyclesmain.html

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

http://www.bls.gov/data/

The number employed in the US fell from 147.315 million in Jul 2007 to 144.509 million in Aug 2013, by 2.806 million, or decline of 1.9 percent, while the civilian noninstitutional or economically active population increased from 231.958 million in Jul 2007 to 245.959 million in Aug 2013, by 14.001 million or increase of 6.0 percent, using not seasonally adjusted data. There is actually not sufficient job creation in merely absorbing new entrants in the labor force because of those dropping from job searches, worsening the stock of unemployed or underemployed in involuntary part-time jobs. Chart I-22 shows tepid recovery early in 2010 followed by near stagnation and marginal expansion.

Chart I-22, US, Employed, Thousands, 2001-2013

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

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

http://www.bls.gov/data/

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 2011 into expansion in 2012 followed by stability and oscillation into 2013.

Chart I-24, US, Civilian Labor Force, Thousands, 2001-2013

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

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

http://www.bls.gov/data/

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 and stability.

Chart I-26, US, Civilian Labor Force Participation Rate, 2001-2013, %

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

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

http://www.bls.gov/data/

Chart I-28 provides the number unemployed from 2001 to 2013. Using seasonally adjusted data, the number unemployed rose from 6.727 million in Oct 2006 to 15.382 million in Oct 2009, declining to 13.049 million in Dec 2011 and to 11.316 million in Aug 2013. 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 11.844 million in Dec 2012, increasing to 13.181 million in Jan 2013 and declining to 11,462 million in Aug 2013.

Chart I-28, US, Unemployed Thousands 2001-2013

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

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

http://www.bls.gov/data/

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 II-30. The rate of unemployment fluctuated at around 9.0 percent in 2011, declining to 7.8 percent in Dec 2012 and 7.3 percent in Aug 2013.

Chart I-30, US, Unemployment Rate, 2001-2013, %

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

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 II-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

http://www.bls.gov/data/

The US employment-population ratio seasonally adjusted has fallen from 63.4 in Dec 2006 to 58.6 in Dec 2011, 58.6 in Dec 2012 and 58.6 in Aug 2013, 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, 58.5 percent in Dec 2012 and 58.8 percent in Aug 2013.

Chart I-32, US, Employment Population Ratio, 2001-2013, %

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

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, SA, Thousands

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

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 6.704 million 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 4.290 million in Aug 2013 seasonally adjusted and 4.297 million not seasonally adjusted.

Chart I-34, US, Number Unemployed for 27 Weeks or More, 2001-2013, SA, Thousands

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

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

http://www.bls.gov/data/

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 7.911 million not seasonally adjusted in Aug 2013.

Chart I-36, US, Part-Time for Economic Reasons, 2001-2013, Thousands

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

The number marginally attached to the labor force in Chart II-37 jumped from 1.252 million in Dec 2006 to 2.800 million in Jan 2011, remaining at a high level of 2.540 million in Dec 2011, 2.809 million in Jan 2012, 2.614 million in Dec 2012 and 2.342 million in Aug 2013.

Chart I-37, US, Marginally Attached to the Labor Force, 2001-2013

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

What is striking about the data in Table II-8 is that the numbers of monthly increases in jobs in 1983 and 1984 are several times higher than in 2010 to 2013. The civilian noninstitutional population growing by 39.6 percent from 174.215 million in 1983 to 243.284 million in 2012 and labor force higher by 38.9 percent, growing from 111.550 million in 1983 to 154.975 million in 2012. Total nonfarm payroll employment seasonally adjusted (SA) increased 169,000 in Aug 2013 and private payroll employment rose 152,000. The average number of nonfarm jobs created in Jan-Aug 2012 was 178,625 while the average number of private jobs created in Jan-Aug 2013 was 180,250, or increase by 0.9 percent. The average number of private jobs created in the US in Jan-Aug 2012 was 181,750 while the average in Jan-Aug 2013 was 185,625, or increase by 2.1 percent. The US labor force increased from 153.617 million in 2011 to 154.975 million in 2012 by 1.358 million or 113,167 per month. The average increase of nonfarm jobs in the eight months from Jan to Aug 2013 was 178,625, which is a rate of job creation inadequate to reduce significantly unemployment and underemployment in the United States because of 113,167 new entrants in the labor force per month with 28.3 million unemployed or underemployed. The difference between the average increase of 178,625 new private nonfarm jobs per month in the US from Jan to Aug 2013 and the 113,167 average monthly increase in the labor force from 2011 to 2012 is 65,458 monthly new jobs net of absorption of new entrants in the labor force. There are 28.3 million in job stress in the US currently. Creation of 65,458 new jobs per month net of absorption of new entrants in the labor force would require 433 months to provide jobs for the unemployed and underemployed (28.348 million divided by 65,458) or 36 years (433 divided by 12). The civilian labor force of the US in Aug 2013 not seasonally adjusted stood at 155.971 million with 11.462 million unemployed or effectively 18.316 million unemployed in this blog’s calculation by inferring those who are not searching because they believe there is no job for them for effective labor force of 162.825 million. Reduction of one million unemployed at the current rate of job creation without adding more unemployment requires 1.3 years (1 million divided by product of 65,458 by 12, which is 785,496). Reduction of the rate of unemployment to 5 percent of the labor force would be equivalent to unemployment of only 7.799 million (0.05 times labor force of 155.971 million) for new net job creation of 3.663 million (11.462 million unemployed minus 7.799 million unemployed at rate of 5 percent) that at the current rate would take 4.7 years (3.663 million divided by 0.785496). Under the calculation in this blog, there are 18.316 million unemployed by including those who ceased searching because they believe there is no job for them and effective labor force of 162.825 million. Reduction of the rate of unemployment to 5 percent of the labor force would require creating 9.586 million jobs net of labor force growth that at the current rate would take 12.9 years (18.316 million minus 0.05(162.825 million) = 10.175 million divided by 0.785596, using LF PART 66.2% and Total UEM in Table I-4). These calculations assume that there are no more recessions, defying United States economic history with periodic contractions of economic activity when unemployment increases sharply. The number employed in the US fell from 147.315 million in Jul 2007 to 144.509 million in Aug 2013, by 2.806 million, or decline of 1.9 percent, while the civilian noninstitutional or economically active population increased from 231.958 million in Jul 2007 to 245.959 million in Aug 2013, by 14.001 million or increase of 6.0 percent, using not seasonally adjusted data. There is actually not sufficient job creation in merely absorbing new entrants in the labor force because of those dropping from job searches, worsening the stock of unemployed or underemployed in involuntary part-time jobs. The United States economy has grown at the average yearly rate of 3 percent per year and 2 percent per year in per capita terms from 1870 to 2010, as measured by Lucas (2011May). An important characteristic of the economic cycle in the US has been rapid growth in the initial phase of expansion after recessions.

Inferior performance of the US economy and labor markets is the critical current issue of analysis and policy design. Long-term economic performance in the United States consisted of trend growth of GDP at 3 percent per year and of per capita GDP at 2 percent per year as measured for 1870 to 2010 by Robert E Lucas (2011May). The economy returned to trend growth after adverse events such as wars and recessions. The key characteristic of adversities such as recessions was much higher rates of growth in expansion periods that permitted the economy to recover output, income and employment losses that occurred during the contractions. Over the business cycle, the economy compensated the losses of contractions with higher growth in expansions to maintain trend growth of GDP of 3 percent and of GDP per capita of 2 percent. US economic growth has been at only 2.2 percent on average in the cyclical expansion in the 16 quarters from IIIQ2009 to IIQ2013. Boskin (2010Sep) measures that the US economy grew at 6.2 percent in the first four quarters and 4.5 percent in the first 12 quarters after the trough in the second quarter of 1975; and at 7.7 percent in the first four quarters and 5.8 percent in the first 12 quarters after the trough in the first quarter of 1983 (Professor Michael J. Boskin, Summer of Discontent, Wall Street Journal, Sep 2, 2010 http://professional.wsj.com/article/SB10001424052748703882304575465462926649950.html). There are new calculations using the revision of US GDP and personal income data since 1929 by the Bureau of Economic Analysis (BEA) (http://bea.gov/iTable/index_nipa.cfm http://bea.gov/newsreleases/national/gdp/2013/pdf/gdp2q13_adv.pdf http://bea.gov/newsreleases/national/pi/2013/pdf/pi0613.pdf). The average of 7.7 percent in the first four quarters of major cyclical expansions is in contrast with the rate of growth in the first four quarters of the expansion from IIIQ2009 to IIQ2010 of only 2.7 percent obtained by diving GDP of $14,738.0 billion in IIQ2010 by GDP of $14,356.9 billion in IIQ2009 {[$14,738.0/$14,356.9 -1]100 = 2.7%], or accumulating the quarter on quarter growth rates (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/06/tapering-quantitative-easing-policy-and.html). The expansion from IQ1983 to IVQ1985 was at the average annual growth rate of 5.7 percent and at 7.8 percent from IQ1983 to IVQ1983 (http://cmpassocregulationblog.blogspot.com/2013/09/increasing-interest-rate-risk.html). As a result, there are 28.3 million unemployed or underemployed in the United States for an effective unemployment rate of 17.4 percent (Section II and earlier at http://cmpassocregulationblog.blogspot.com/2013/08/risks-of-steepening-yield-curve-and.html).

Table I-8, US, Monthly Change in Jobs, Number SA

Month	1981	1982	1983	2008	2009	2010	Private
Jan	95	-327	225	14	-794	-13	-17
Feb	67	-6	-78	-85	-695	-40	-26
Mar	104	-129	173	-79	-830	154	111
Apr	74	-281	276	-215	-704	229	170
May	10	-45	277	-186	-352	521	102
Jun	196	-243	378	-169	-472	-130	94
Jul	112	-343	418	-216	-351	-86	103
Aug	-36	-158	-308	-270	-210	-37	129
Sep	-87	-181	1114	-459	-233	-43	113
Oct	-100	-277	271	-472	-170	228	188
Nov	-209	-124	352	-775	-21	144	154
Dec	-278	-14	356	-705	-220	95	114
			1984			2011	Private
Jan			447			69	80
Feb			479			196	243
Mar			275			205	223
Apr			363			304	303
May			308			115	183
Jun			379			209	177
Jul			312			78	206
Aug			241			132	129
Sep			311			225	256
Oct			286			166	174
Nov			349			174	197
Dec			127			230	249
			1985			2012	Private
Jan			266			311	323
Feb			124			271	265
Mar			346			205	208
Apr			195			112	120
May			274			125	152
Jun			145			87	78
Jul			189			153	177
Aug			193			165	131
Sep			204			138	118
Oct			187			160	217
Nov			209			247	256
Dec			168			219	224
			1985			2013	Private
Jan			123			148	164
Feb			107			332	319
Mar			93			142	154
Apr			188			199	188
May			125			176	187
Jun			-93			172	194
Jul			318			104	127
Aug			113			169	152
Sep			346
Oct			187
Nov			186
Dec			204

Source: US Bureau of Labor Statistics http://www.bls.gov/

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 2013. The sharp decline in total nonfarm jobs during the contraction after 2007 has been followed by initial stagnation and then inadequate growth in 2012 and 2013.

Chart I-38, US, Total Nonfarm Payroll Jobs SA 2001-2013

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

Chart I-39 provides total nonfarm jobs SA from 1979 to 1989. Recovery is strong throughout the decade with the economy growing at trend.

Chart I-39, US, Total Nonfarm Payroll Jobs SA 1979-1989

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

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 2001-2013

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 Aug 2012 to Aug 2013, not seasonally adjusted (NSA), are provided in Table I-9. Total nonfarm employment increased by 2,208,000 (row A, column Change), consisting of growth of total private employment by 2,291,000 (row B, column Change) and decrease by 83,000 of government employment (row C, column Change). Monthly average growth of private payroll employment has been 190,917, which is mediocre relative to 24 to 30 million in job stress, while total nonfarm employment has grown on average by only 184,000 per month, which barely keeps with 113,167 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 15,000, at the monthly rate of 1,250 while private service providing employment grew by 2,085,000, at the monthly rate of 173,750. An important feature in Table I-9 is that jobs in professional and business services increased by 621,000 with temporary help services increasing by 186,000. 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 429,000 jobs in 12 months. An important characteristic is that the loss of government jobs has stabilized in federal government with loss of 83,000 jobs while states reduced 48,000 jobs and local government added 38,000 jobs. Local government provides the bulk of government jobs, 13.257 million, while federal government provides 2.752 million and states government 4.734 million.

Table I-9, US, Employees in Nonfarm Payrolls Not Seasonally Adjusted, in Thousands

	Aug 2012	Aug 2013	Change
A Total Nonfarm	133,753	135,961	2,208
B Total Private	112,927	115,218	2,291
B1 Goods Producing	18,838	19,044	206
B1a Manufacturing	12,048	12,063	15
B2 Private service providing	94,089	96,174	2,085
B2a Wholesale Trade	5,714	5,795	81
B2b Retail Trade	14,854	15,248	394
B2c Transportation & Warehousing	4,390	4,425	35
B2d Financial Activities	7,844	7,952	108
B2e Professional and Business Services	18,122	18,743	621
B2e1 Temporary help services	2,564	2,750	186
B2f Health Care & Social Assistance	16,977	17,328	351
B2g Leisure & Hospitality	14,404	14,833	429
C Government	20,826	20,743	-83
C1 Federal	2,825	2,752	-73
C2 State	4,782	4,734	-48
C3 Local	13,219	13,257	38

Note: A = B+C, B = B1 + B2, C=C1 + C2 + C3

Source: US Bureau of Labor Statistics http://www.bls.gov/

Greater detail on the types of jobs created is provided in Table I-10 with data for Jul and Aug 2013. 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 169,000 SA total nonfarm jobs created in Aug 2013 relative to Jul 2013 actually correspond to increase of 378,000 jobs NSA, as shown in row A. The 152,000 total private payroll jobs SA created in Aug 2013 relative to Jul 2013 actually correspond to increase of 164,000 jobs NSA. The analysis of NSA job creation in the prior Table I-9 does show improvement over the 12 months ending in Aug 2013 that is not clouded by seasonal variations but is inadequate 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 in even making a dent in about 30 million people unemployed or underemployed. Benchmark and seasonal adjustments affect comparability of data over time.

Table I-10, US, Employees on Nonfarm Payrolls and Selected Industry Detail, Thousands, SA and NSA

	Jul  2013 SA	Aug       2013 SA	∆	Jul   2013 NSA	Aug       2013 NSA	∆
A Total Nonfarm	135,964	136,133	169	135,583	135,961	378
B Total Private	114,150	114,302	152	115,054	115,218	164
B1 Goods Producing	18,620	18,638	18	18,958	19,044	86
B1a Constr.	5,798	5,798	0	6,059	6,085	26
B Mfg	11,949	11,963	14	12,011	12,063	52
B2 Private Service Providing	95,530	95,664	134	96,096	96,174	78
B2a Wholesale Trade	5,766	5,774	8	5,802	5,795	-7
B2b Retail Trade	15,199	15,243	44	15,194	15,248	54
B2c Couriers     & Mess.	533	535	2	517	523	6
B2d Health-care & Social Assistance	17,315	17,353	38	17,268	17,328	60
B2De Profess. & Business Services	18,585	18,608	23	18,692	18,743	51
B2De1 Temp Help Services	2,703	2,716	13	2,685	2,750	65
B2f Leisure & Hospit.	14,185	14,212	27	14,855	14,833	82

Notes: ∆: Absolute Change; Constr.: Construction; Mess.: Messengers; Temp: Temporary; Hospit.: Hospitality. SA aggregates do not add because of seasonal adjustment.

Source: US Bureau of Labor Statistics http://www.bls.gov/

Chart I-42 of the Board of Governors of the Federal Reserve System shows that output of durable manufacturing accelerated in the 1980s and 1990s with slower growth in the 2000s perhaps because processes matured. Growth was robust after the major drop during the global recession but appears to vacillate in the final segment.

Chart I-42, US, Output of Durable Manufacturing, 1972-2013

Source: Board of Governors of the Federal Reserve System

http://www.federalreserve.gov/releases/g17/Current/default.htm

Manufacturing jobs increased 14,000 in Aug 2013 relative to Jul 2013, seasonally adjusted (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/08/risks-of-steepening-yield-curve-and.html). Manufacturing jobs not seasonally adjusted increased 15,000 from Aug 2012 to Aug 2013 or at the average monthly rate of 1,250. There are effects of the weaker economy and international trade together with the yearly adjustment of labor statistics. The report of the Board of Governors of the Federal Reserve System states (http://www.federalreserve.gov/releases/g17/Current/default.htm):

“Industrial production was unchanged in July after having gained 0.2 percent in June. In July, manufacturing production declined 0.1 percent. The output of mines advanced 2.1 percent, its fourth consecutive monthly increase, and the production of utilities fell 2.1 percent, its fourth consecutive monthly decrease. At 98.9 percent of its 2007 average, total industrial production in July was 1.4 percent above its year-earlier level.”

In the six months ending in Jul 2013, United States national industrial production accumulated increase of 0.7 percent at the annual equivalent rate of 1.4 percent, which is equal to growth of 1.4 percent in 12 months. Excluding growth of 0.7 in Feb 2013, growth in the remaining five months from Mar 2012 to Jul 2013 accumulated to 0.0 percent or 0.0 percent annual equivalent. Industrial production stagnated in two of the past six months and fell in one. Business equipment accumulated growth of 2.0 percent in the six months from Feb to Jul 2013 at the annual equivalent rate of 1.8 percent, which is much higher than growth of 2.1 percent in 12 months. Growth of business equipment accumulated 0.1 percent from Mar to July 2013 at the annual equivalent rate of 0.2 percent. The Fed analyzes capacity utilization of total industry in its report (http://www.federalreserve.gov/releases/g17/Current/default.htm): “Capacity utilization for total industry edged down 0.1 percentage point to 77.6 percent in July, a rate 0.3 percentage point below its level of a year earlier and 2.6 percentage points below its long-run (1972-2012) average.” United States industry is apparently decelerating. Manufacturing decreased 0.1 percent in Jul 2013 after increasing 0.2 percent in Jun 2013 and 0.3 percent in May 2013 seasonally adjusted, increasing 1.4 percent not seasonally adjusted in 12 months ending in Jul 2013, as shown in Table II-2. Manufacturing grew cumulatively 0.3 percent in the six months ending in Jul 2013 or at the annual equivalent rate of 0.6 percent. Excluding the increase of 0.6 percent in Feb 2012, manufacturing accumulated growth of minus 0.3 percent from Mar 2013 to Jul 2013 or at the annual equivalent rate of minus 0.7 percent.

Table I-10 provides national income by industry without capital consumption adjustment (WCCA). “Private industries” or economic activities have share of 86.6 percent in IQ2013. Most of US national income is in the form of services. In Aug 2013, there were 135.961 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 115.218 million NSA in Aug 2013 accounted for 84.7 percent of total nonfarm jobs of 135.664 million, of which 12.063 million, or 10.5 percent of total private jobs and 8.9 percent of total nonfarm jobs, were in manufacturing. Private service-producing jobs were 96.174 million NSA in Aug 2013, or 70.7 percent of total nonfarm jobs and 83.5 percent of total private-sector jobs. Manufacturing has share of 10.9 percent in US national income in IQ2013, 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 IQ2013	% Total	SAAR IIQ2013	% Total
National Income WCCA	14,354.5	100.0	14,480.5	100.0
Domestic Industries	14,117.1	98.3	14,223.1	98.2
Private Industries	12,432.9	86.6	12,542.6	86.6
Agriculture	226.4	1.6
Mining	247.6	1.7
Utilities	209.1	1.5
Construction	618.2	4.3
Manufacturing	1568.1	10.9
Durable Goods	878.8	6.1
Nondurable Goods	689.2	4.8
Wholesale Trade	870.0	6.1
Retail Trade	971.4	6.8
Transportation & WH	434.0	3.0
Information	496.0	3.5
Finance, Insurance, RE	2418.9	16.8
Professional, BS	1973.6	13.7
Education, Health Care	1423.7	9.9
Arts, Entertainment	569.7	4.0
Other Services	406.1	2.8
Government	1684.3	11.7	1680.5	11.6
Rest of the World	237.4	1.7	257.4	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://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 from 1982 to 1984, or 5.4 percent, and continued rapid growth in the rest of the decade. In contrast, nonfarm jobs are down by 7.728 million in 2010 relative to 2007 and fell by 959,000 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. Nonfarm jobs declined from 137.645 million in 2007 to 133.739 million in 2012, by 3.906 million or 2.8 percent.

Table I-12, US, Total Nonfarm Employment in Thousands

Year	Total Nonfarm	Year	Total Nonfarm
1980	90,528	2000	131,881
1981	91,289	2001	131,919
1982	89,677	2002	130,450
1983	90,280	2003	130,100
1984	94,530	2004	131,509
1985	97,511	2005	133,747
1986	99,474	2006	136,125
1987	102,088	2007	137,645
1988	105,345	2008	136,852
1989	108,014	2009	130,876
1990	109,487	2010	129,917
1991	108,377	2011	131,497
1992	108,745	2012	133,739

Source: US Bureau of Labor Statistics 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 = 6,409-952	4,539 = 6,337-1,798

*[(130,801x1.049)-130,801] = 6,409 thousand

**[(107,405)x1.059 – 107,405] = 6,337 thousand

Source: http://www.bls.gov/data/

IB Stagnating Real Wages. The wage bill is the product of average weekly hours times the earnings per hour. Table IB-1 provides the estimates by the Bureau of Labor Statistics (BLS) of earnings per hour seasonally adjusted, increasing from $24.00/hour in Jul 2012 to $24.05/hour in Aug 2013, or by 0.2 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 68.6 percent of GDP (Table I-10 http://cmpassocregulationblog.blogspot.com/2013/09/increasing-interest-rate-risk.html). 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 Pelaez and Pelaez, Globalization and the State, Vol. II (2008c), 81-6, Pelaez (1975), http://cmpassocregulationblog.blogspot.com/2013/09/increasing-interest-rate-risk.html http://cmpassocregulationblog.blogspot.com/2013/08/risks-of-steepening-yield-curve-and.html http://cmpassocregulationblog.blogspot.com/2013/06/tapering-quantitative-easing-policy-and.html

http://cmpassocregulationblog.blogspot.com/2013/06/mediocre-united-states-economic-growth.html

http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states.html http://cmpassocregulationblog.blogspot.com/2013/03/mediocre-gdp-growth-at-16-to-20-percent.html http://cmpassocregulationblog.blogspot.com/2012/12/mediocre-and-decelerating-united-states_24.html http://cmpassocregulationblog.blogspot.com/2012/12/mediocre-and-decelerating-united-states.html http://cmpassocregulationblog.blogspot.com/2012/09/historically-sharper-recoveries-from.html 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 changed 0.4 percent from $24.00 in Jun 2013 to $24.00 in Jul 2013. Average private weekly earnings increased $20.30 from $809.43 in Aug 2012 to $829.73 in Aug 2013 or 2.5 percent and increased from $825.60 in Jul 2013 to $829.73 in Aug 2013 or 0.5 percent. The inflation-adjusted wage bill can only be calculated for Jul, 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 $23.52 in Jul 2012 to $23.83 in Jul 2013 or by 1.3 percent (http://www.bls.gov/data/; see Table IB-3 below). Data NSA are more suitable for comparison over a year. Average weekly hours NSA were 34.8 in Jul 2012 and 34.4 in Jul 2013 (http://www.bls.gov/data/; see Table IB-2 below). The wage bill increased 0.3 percent in the 12 months ending in Jul 2013:

{[(wage bill in Jul 2013)/(wage bill in Jul 2012)]-1}100 =

{[($23.83x34.4)/($23.52x34.8)]-1]}100

= {[($819.75/$819.50)]-1}100 = 0.3%

CPI inflation was 2.0 percent in the 12 months ending in Jul 2013 (http://www.bls.gov/cpi/) for an inflation-adjusted wage-bill change of minus 1.7 percent :{[(1.003/1.020)-1]100} (see Table IB-5 below for Jun 2013). The wage bill for Aug 2013 before inflation adjustment increased 2.1 percent relative to the wage bill for Aug 2012:

{[(wage bill in Aug 2013)/(wage bill in Aug 2012)]-1}100 =

{[($23.80x34.5)/($23.30x34.5)]-1]}100

= {[($821.10/$803.85)]-1}100 = 2.1%

Average hourly earnings increased 2.1 percent from Jul 2012 to Jul 2013 {[($23.80/23.30) – 1]100 = 1.2%} while hours worked changed 0.0 percent {[(34.5/34.5) – 1]100 = 0.0%}. The increase of the wage bill is the product of the increase of hourly earnings of 2.1 percent and change of hours worked of 0.0 percent {[(1.021x1.00) -1]100 = 2.1%}.

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 had reduced the rate of increase of the DJ UBS commodity index to 1.4 percent on Aug 2, 2013, relative to Jul 2, 2010 (see Table VI-4) but there has been a shift in investor preferences into equities. 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/2013/08/duration-dumping-and-peaking-valuations.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 IB-1, US, Earnings per Hour and Average Weekly Hours SA

Earnings per Hour	Aug 2012	Jun 2013	Jul 2013	Aug 2013
Total Private	$23.53	$24.00	$24.00	$24.05
Goods Producing	$24.70	$25.22	$25.21	$25.28
Service Providing	$23.26	$23.71	$23.71	$23.76
Average Weekly Earnings
Total Private	$809.43	$828.00	$825.60	$829.73
Goods Producing	$990.47	$1,018.89	$1,015.96	$1,021.31
Service Providing	$724.56	$789.54	$789.54	$791.21
Average Weekly Hours
Total Private	34.4	34.5	34.4	34.5
Goods Producing	40.1	40.4	40.3	40.4
Service Providing	33.3	33.3	33.3	33.3

Source: US Bureau of Labor Statistics http://www.bls.gov/

Average weekly hours in Table IB-2 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 Dec 2012 and 34.5 in Aug 2013.

Table IB-2, US, Average Weekly Hours of All Employees, NSA 2006-2013

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	34.3	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	34.3	34.4
2012	34.5	34.2	34.3	34.7	34.3	34.4	34.8	34.5	34.9	34.3	34.3	34.9
2013	34.0	34.2	34.3	34.3	34.3	34.9	34.4	34.5

Source: US Bureau of Labor Statistics http://www.bls.gov/

Chart IB-1 provides average weekly hours monthly from Mar 2006 to Aug 2013. 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 IB-1, US, Average Weekly Hours of All Employees, SA 2006-2013

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

Calculations using BLS data of inflation-adjusted average hourly earnings are in Table IIB-3. The final column of Table IB-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 five 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 0.6 percent in Apr 2012 in inflation-adjusted average hourly earnings but another fall of 0.5 percent in May 2012 followed by increases of 0.3 percent in Jun and 1.0 percent in Jul 2012. Real hourly earnings stagnated in the 12 months ending in Aug 2012 with increase of only 0.1 percent and increased 0.7 percent in the 12 months ending in Sep 2012. Real hourly earnings fell 1.3 percent in Oct 2012 and gained 1.1 percent in Dec 2012 but declined 0.2 percent in Jan 2012 and stagnated at change of 0.1 percent in Feb 2013. Real hourly earnings increased 0.4 percent in the 12 months ending in Mar 2013 and stagnated at 0.1 percent in Apr 2013, increasing 0.5 percent in May 2013. In Jun 2013, real hourly earnings increased 1.0 percent relative to Jun 2012. Real hourly earnings fell 0.7 percent in the 12 months ending in Jul 2013. 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/2013/08/duration-dumping-and-peaking-valuations.html) and in part because of the collapse of hiring (http://cmpassocregulationblog.blogspot.com/2013/08/recovery-without-hiring-loss-of-full.html) originating in weak economic growth (http://cmpassocregulationblog.blogspot.com/2013/09/increasing-interest-rate-risk.html).

Table IB-3, US, Average Hourly Earnings Nominal and Inflation Adjusted, Dollars and % NSA

	AHE ALL	12 Month Nominal ∆%	∆% 12 Month CPI	12 Month Real ∆%
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	$21.19	4.1	2.8	1.3
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	1.9	2.6	-0.7
Feb	$22.61	1.4	2.1	-0.7
Mar	$22.52	1.2	2.3	-1.1
Apr	$22.57	1.8	2.2	-0.4
May	$22.64	2.5	2.0	0.5
Jun	$22.38	1.8	1.1	0.7
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	1.0	1.1	-0.1
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	1.8	2.7	-0.9
Apr	$22.99	1.9	3.2	-1.3
May	$23.09	2.0	3.6	-1.5
Jun	$22.84	2.1	3.6	-1.4
Jul	$22.97	2.4	3.6	-1.2
Aug	$22.88	1.3	3.8	-2.4
Sep	$23.08	2.0	3.9	-1.8
Oct	$23.33	2.6	3.5	-0.9
Nov	$23.18	2.0	3.4	-1.4
Dec	$23.25	2.0	3.0	-1.0
2012
Jan	$23.59	1.7	2.9	-1.2
Feb	$23.44	1.8	2.9	-1.1
Mar	$23.42	2.1	2.7	-0.6
Apr	$23.65	2.9	2.3	0.6
May	$23.36	1.2	1.7	-0.5
Jun	$23.30	2.0	1.7	0.3
Jul	$23.52	2.4	1.4	1.0
Aug	$23.30	1.8	1.7	0.1
Sep	$23.70	2.7	2.0	0.7
Oct	$23.55	0.9	2.2	-1.3
Nov	$23.62	1.9	1.8	0.1
Dec	$23.89	2.8	1.7	1.1
2013
Jan	$23.92	1.4	1.6	-0.2
Feb	$23.94	2.1	2.0	0.1
Mar	$23.86	1.9	1.5	0.4
Apr	$23.94	1.2	1.1	0.1
May	$23.81	1.9	1.4	0.5
Jun	$23.95	2.8	1.8	1.0
Jul	$23.83	1.3	2.0	-0.7
Aug	$23.80	2.1

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 for Jan-Feb 2006

Source: US Bureau of Labor Statistics http://www.bls.gov/

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 IB-4. Average hourly earnings fell 0.5 percent after adjusting for inflation in the 12 months ending in Mar 2012 and gained 0.6 percent in the 12 months ending in Apr 2012 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 Aug 2012 and 0.7 percent in Sep 2012. Average hourly earnings adjusted by inflation fell 1.2 percent in the 12 months ending in Oct 2012. Average hourly earnings adjusted by inflation increased 0.1 percent in the 12 months ending in Nov 2012 and 1.1 percent in the 12 months ending in Dec 2012 but fell 0.2 percent in the 12 months ending in Jan 2013 and stagnated with gain of 0.1 percent in the 12 months ending in Feb 2013. Average hourly earnings adjusted for inflation increased 0.4 percent in the 12 months ending in Mar 2013 and increased 0.2 percent in the 12 months ending in Apr 2013. Average hourly earnings adjusted for inflation increased 0.6 percent in the 12 months ending in May 2013 and 1.1 percent in the 12 months ending in Jun 2013. Average hourly earnings of all employees in adjusted for inflation fell 0.7 percent in the 12 months ending in Jul 2013. Table IB-4 confirms the trend of deterioration of purchasing power of average hourly earnings in 2011 and into 2012 with 12-month percentage declines in three of the first three months of 2012 (-1.1 percent in Jan, -1.1 percent in Feb and -0.5 percent in Mar), declines of 0.6 percent in May and 1.2 percent in Oct and increase in five (0.6 percent in Apr, 0.3 percent in Jun, 1.0 percent in Jul, 0.7 percent in Sep and 1.1 percent in Dec) and stagnation in two (0.1 percent in Aug and 0.1 percent in Nov). Average hourly earnings adjusted for inflation fell 0.2 percent in the 12 months ending in Jan 2013, stagnated with gain of 0.1 percent in the 12 months ending in Feb 2013 and gained 0.4 percent in the 12 months ending Mar 2013. Real average hourly earnings increased 0.2 percent in the 12 months ending in Apr 2013 and 0.6 percent in the 12 months ending in May 2013. Average hourly earnings increased 1.1 percent in the 12 months ending in Jun 2013 and fell 0.7 percent in the 12 months ending in Jul 2013. Annual data are revealing: -0.7 percent in 2008 during carry trades into commodity futures in a global recession, 3.2 percent in 2009 with reversal of carry trades, no change in 2010 and 2012 and decline by 1.1 percent in 2011. Annual average hourly earnings of all employees in the United States adjusted for inflation increased 1.4 percent from 2007 to 2012 at the yearly average rate of 0.3 percent (from $10.11 in 2007 to $10.25 in 2012 in dollars of 1982-1984 using data in http://www.bls.gov/data/). 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 (http://cmpassocregulationblog.blogspot.com/2013/09/increasing-interest-rate-risk.html).

Table IB-4, US, Average Hourly Earnings of All Employees NSA in Constant Dollars of 1982-1984

Year	Jan	Feb	Mar	Apr	May	Jun	Jul
2006			10.05	10.11	9.92	9.89	9.97
2007	10.23	10.22	10.14	10.18	10.02	9.99	10.08
2008	10.11	10.12	10.11	10.00	9.91	9.84	9.77
2009	10.48	10.50	10.47	10.40	10.32	10.20	10.23
2010	10.41	10.43	10.35	10.35	10.38	10.27	10.29
2011	10.53	10.41	10.26	10.22	10.22	10.12	10.17
2012	10.41	10.30	10.21	10.28	10.16	10.15	10.27
∆% 12 M	-1.1	-1.1	-0.5	0.6	-0.6	0.3	1.0
2013	10.39	10.31	10.25	10.30	10.22	10.26	10.20
∆% 12 M	-0.2	0.1	0.4	0.2	0.6	1.1	-0.7

Source: US Bureau of Labor Statistics http://www.bls.gov/

Chart IB-2 of the US Bureau of Labor Statistics plots average hourly earnings of all US employees in constant 1982-1984 dollars with evident decline from annual earnings of $10.36 in 2009 and $10.36 again in 2010 to $10.25 in 2011 and $10.25 again in 2012 or loss of 1.1 percent (data in http://www.bls.gov/data/). The economic welfare or wellbeing of United States workers deteriorated in a recovery without hiring (http://cmpassocregulationblog.blogspot.com/2013/08/recovery-without-hiring-loss-of-full.html), stagnating/declining real wages and 28 million unemployed or underemployed (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/08/risks-of-steepening-yield-curve-and.html) because of mediocre economic growth (http://cmpassocregulationblog.blogspot.com/2013/09/increasing-interest-rate-risk.html).

Chart IB-2, US, Average Hourly Earnings of All Employees in Constant Dollars of 1982-1984, SA 2006-2013

Source: US Bureau of Labor Statistics http://www.bls.gov/

Chart IB-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 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 and marginal gain in Sep 2012 with sharp decline in Oct 2012, stagnation in Nov 2012, increase in Dec 2012 and renewed decrease in Jan 2013 with near stagnation in Feb 2013 followed by mild increase in Mar-Apr 2013. Hourly earnings adjusted for inflation increased in Jun 2013 and fell in Jul 2013.

Chart IB-3, Average Hourly Earnings of All Employees NSA 12-Month Percent Change, 1982-1984 Dollars, NSA 2007-2013

Source: US Bureau of Labor Statistics http://www.bls.gov/data/

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 IB-5. Average weekly earnings fell 3.2 percent after adjusting for inflation in the 12 months ending in Aug 2011, decreased 0.9 percent in the 12 months ending in Sep 2011, increased 0.9 percent in the 12 months ending in Oct 2011, fell 1.0 percent in the 12 months ending in Nov 2011 and 0.3 in the 12 months ending in Dec 2011, declining 0.3 percent in the 12 months ending in Jan 2012 and 0.5 percent in the 12 months ending in Feb 2012. Average weekly earnings in constant dollars were virtually flat in Mar 2012 relative to Mar 2011, increasing 0.1 percent. Average weekly earnings in constant dollars increased 1.7 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 and 2.1 percent in the 12 months ending in Sep 2012. Real weekly earnings fell 2.9 percent in the 12 months ending in Oct 2012 and increased 0.1 percent in the 12 months ending in Nov 2012 and 2.5 percent in the 12 months ending in Dec 2012. Real weekly earnings fell 1.6 percent in the 12 months ending in Jan 2013 and virtually stagnated with gain of 0.2 percent in the 12 months ending in Feb 2013, increasing 0.4 percent in the 12 months ending in Mar 2013. Real weekly earnings fell 1.0 percent in the 12 months ending in Apr 2013 and increased 0.6 percent in the 12 months ending in May 2013. Average weekly earnings increased 2.5 percent in the 12 months ending in Jun 2013 and fell 1.8 percent in the 12 months ending in Jul 2013. Table I-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/2013/08/duration-dumping-and-peaking-valuations.html). On an annual basis, average weekly earnings in constant 1982-1984 dollars increased from $349.78 in 2007 to $353.66 in 2012, by 1.1 percent or at the average rate of 0.2 percent per year (data in http://www.bls.gov/data/). Annual average weekly earnings in constant dollars of $353.50 in 2010 were virtually unchanged at $353.66 in 2012. Those who still work bring back home a paycheck that buys fewer high-quality goods than a year earlier. The fractured US job market does not provide an opportunity for advancement as in past booms following recessions (http://cmpassocregulationblog.blogspot.com/2013/08/recovery-without-hiring-loss-of-full.html).

Table IB-5, US, Average Weekly Earnings of All Employees in Constant Dollars of 1982-1984, NSA 2007-2013

Year	Jan	Feb	Mar	Apr	May	Jun	Jul
2006			343.71	349.95	340.12	342.08	347.97
2007	348.72	349.40	347.76	353.41	344.58	346.74	351.68
2008	345.92	346.21	351.70	344.13	340.93	343.40	337.06
2009	354.10	360.31	355.81	349.33	347.94	344.59	345.92
2010	350.71	350.51	349.76	351.99	356.97	350.13	352.02
2011	360.29	353.81	349.90	350.62	353.56	348.08	349.75
2012	359.06	352.12	350.19	356.68	348.65	349.28	357.26
∆% 12 M	-0.3	-0.5	0.1	1.7	-1.4	0.3	2.1
2013	353.17	352.66	351.59	353.13	350.59	357.96	350.93
∆% 12 M	-1.6	0.2	0.4	-1.0	0.6	2.5	-1.8

Source: US Bureau of Labor Statistics http://www.bls.gov/data/

Chart IB-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 with oscillations caused by carry trades from zero interest rates into commodity futures from 2010 to 2011 and into 2012 and 2013.

Chart IB-4, US, Average Weekly Earnings of All Employees in Constant Dollars of 1982-1984, SA 2006-2013

Source: US Bureau of Labor Statistics http://www.bls.gov/data/

Chart IB-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/2013/08/duration-dumping-and-peaking-valuations.html http://cmpassocregulationblog.blogspot.com/2013/07/tapering-quantitative-easing-policy-and.html

http://cmpassocregulationblog.blogspot.com/2013/06/paring-quantitative-easing-policy-and.html http://cmpassocregulationblog.blogspot.com/2013/05/word-inflation-waves-squeeze-of.html http://cmpassocregulationblog.blogspot.com/2013/04/world-inflation-waves-squeeze-of.html http://cmpassocregulationblog.blogspot.com/2013/04/recovery-without-hiring-ten-million.html http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states.html http://cmpassocregulationblog.blogspot.com/2013/02/world-inflation-waves-united-states.html http://cmpassocregulationblog.blogspot.com/2012/12/recovery-without-hiring-forecast-growth.html http://cmpassocregulationblog.blogspot.com/2012/11/united-states-unsustainable-fiscal.html 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).

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 IB-5, US, Average Weekly Earnings of All Employees NSA in Constant Dollars of 1982-1984 12-Month Percent Change, NSA 2007-2013

Source: US Bureau of Labor Statistics http://www.bls.gov/data/

II United States International Trade. Table IIA-1 provides the trade balance of the US and monthly growth of exports and imports seasonally adjusted with the latest release and revisions (http://www.census.gov/foreign-trade/). Because of heavy dependence on imported oil, fluctuations in the US trade account originate largely in fluctuations of commodity futures prices caused by carry trades from zero interest rates into commodity futures exposures in a process similar to world inflation waves (http://cmpassocregulationblog.blogspot.com/2013/08/duration-dumping-and-peaking-valuations_18.html). The Census Bureau revised data for 2012 and 2013. The US trade balance deteriorated from deficit of $39,519 million in Apr 2013 to deficit of $43,725 million in May 2013 and improved to lower deficit of $34,543million in Jun 2013. The trade account deteriorated again to $39,147 million in Jul 2013. The deterioration in the trade account in Jul 2013 originated in decline of exports by 0.6 percent while imports increased 1.6 percent. Exports increased 2.2 percent in Jun 2013 while imports decreased 2.2 percent. The trade balance deteriorated from cumulative deficit of $499,379 million in Jan-Dec 2010 to deficit of $556,838 million in Jan-Dec 2011 and improved to marginally lower deficit of $534,656 million in Jan-Dec 2012.

Table IIA-1, US, Trade Balance of Goods and Services Seasonally Adjusted Millions of Dollars and ∆%  

	Trade Balance	Exports	Month ∆%	Imports	Month ∆%
Jul 2013	-39,147	189,446	-0.6	228,593	1.6
Jun	-34,543	190,528	2.2	225,071	-2.2
May	-43,725	186,487	-0.2	230,212	1.7
Apr	-39,519	186,941	1.3	226,460	2.3
Mar	-36,787	184,578	-1.1	221,365	-3.8
Feb	-43,481	186,698	0.0	230,180	0.5
Jan	-42,364	186,607	-1.1	228,971	0.9
Dec 2012	-38,307	188,686	1.9	226,994	-2.0
Nov	-46,422	185,220	1.4	231,641	2.8
Oct	-42,650	182,655	-2.2	225,304	-1.4
Sep	-41,570	186,829	2.6	228,400	1.0
Aug	-44,007	182,071	-0.7	226,078	-0.3
Jul	-43,451	183,375	-1.0	226,826	-0.4
Jun	-42,430	185,218	0.5	227,648	-1.2
May	-46,247	184,217	0.0	230,464	-0.2
Apr	-46,625	184,267	-1.2	230,892	-1.5
Mar	-47,790	186,505	2.4	234,295	3.7
Feb	-43,763	182,064	1.4	225,827	-2.2
Jan	-51,393	179,477	0.2	230,871	0.2
Jan-Dec 2012	-534,656	2,210,585		2,745,240
Jan-Dec 2011	-556,838	2,112,825		2,669,663
Jan-Dec 2010	-499,379	1,844,468		2,343,847

Note: Trade Balance of Goods and Services = Exports of Goods and Services less Imports of Goods and Services. Trade balance may not add exactly because of errors of rounding and seasonality. Source: US Census Bureau http://www.census.gov/foreign-trade/

Table IIA-2 provides the US international trade balance, exports and imports on an annual basis from 1992 to 2012. The trade balance deteriorated sharply over the long term. The US has a large deficit in goods or exports less imports of goods but it has a surplus in services that helps to reduce the trade account deficit or exports less imports of goods and services. The current account deficit of the US decreased from $100.4 billion in IQ2012, or 3.1 percent of GDP to $83.2 billion in IQ2013, or 2.7 percent of GDP (http://cmpassocregulationblog.blogspot.com/2013/06/recovery-without-hiring-seven-million_16.html). The ratio of the current account deficit to GDP has stabilized around 3 percent of GDP compared with much higher percentages before the recession (see Pelaez and Pelaez, The Global Recession Risk (2007), Globalization and the State, Vol. II (2008b), 183-94, Government Intervention in Globalization (2008c), 167-71). The last row of Table IIA-2 shows marginal improvement of the trade deficit from $556,838 million in 2011 to lower $534,656 million in 2012 with exports growing 4.6 percent and imports 2.8 percent. Growth and commodity shocks under alternating inflation waves (http://cmpassocregulationblog.blogspot.com/2013/08/duration-dumping-and-peaking-valuations_18.html) have deteriorated the trade deficit from the low of $383,657 million in 2009.

Table IIA-2, US, International Trade Balance, Exports and Imports SA, Millions of Dollars and ∆%

Year	Balance	Exports	Imports
1960	3,508	25,940	22,432
1961	4,195	26,403	22,208
1962	3,370	27,722	24,352
1963	4,210	29,620	25,410
1964	6,022	33,341	27,319
1965	4,664	35,285	30,621
1966	2,939	38,926	35,987
1967	2,604	41,333	38,729
1968	250	45,543	45,293
1969	91	49,220	49,129
1970	2,254	56,640	54,386
1971	-1,302	59,677	60,979
1972	-5,443	67,222	72,665
1973	1,900	91,242	89,342
1974	-4,293	120,897	125,190
1975	12,404	132,585	120,181
1976	-6,082	142,716	148,798
1977	-27,246	152,301	179,547
1978	-29,763	178,428	208,191
1979	-24,565	224,131	248,696
1980	-19,407	271,834	291,241
1981	-16,172	294,398	310,570
1982	-24,156	275,236	299,391
1983	-57,767	266,106	323,874
1984	-109,072	291,094	400,166
1985	-121,880	289,070	410,950
1986	-138,538	310,033	448,572
1987	-151,684	348,869	500,552
1988	-114,566	431,149	545,715
1989	-93,141	487,003	580,144
1990	-80,864	535,233	616,097
1991	-31,135	578,344	609,479
1992	-39,212	616,882	656,094
1993	-70,311	642,863	713,174
1994	-98,493	703,254	801,747
1995	-96,384	794,387	890,771
1996	-104,065	851,602	955,667
1997	-108,273	934,453	1,042,726
1998	-166,140	933,174	1,099,314
1999	-263,755	967,008	1,230,764
2000	-377,337	1,072,782	1,450,119
2001	-362,339	1,007,725	1,370,065
2002	-418,165	980,879	1,399,044
2003	-490,545	1,023,937	1,514,482
2004	-604,897	1,163,724	1,768,622
2005	-707,914	1,288,257	1,996,171
2006	-752,399	1,460,792	2,213,191
2007	-699,065	1,652,859	2,351,925
2008	-702,302	1,840,332	2,542,634
2009	-383,657	1,578,187	1,961,844
2010	-499,379	1,844,468	2,343,847
2011	-556,838	2,112,825	2,669,663
2012	-534,656	2,210,585	2,745,240

Source: US Census Bureau http://www.census.gov/foreign-trade/

Chart IIA-1 of the US Census Bureau of the Department of Commerce shows that the trade deficit (gap between exports and imports) fell during the economic contraction after 2007 but has grown again during the expansion. The low average rate of growth of GDP of 2.2 percent during the expansion beginning in IIIQ2009 does not deteriorate further the trade balance. Higher rates of growth may cause sharper deterioration.

Chart IIA-1, US, International Trade Balance, Exports and Imports of Goods and Services USD Billions

Source: US Census Bureau

http://www.census.gov/briefrm/esbr/www/esbr042.html

Chart IIA-2 of the US Census Bureau provides the US trade account in goods and services SA from Jan 1992 to Jul 2013. There is long-term trend of deterioration of the US trade deficit shown vividly by Chart IIA-2. The trend of deterioration was reversed by the global recession from IVQ2007 to IIQ2009. Deterioration resumed together with incomplete recovery and was influenced significantly by the carry trade from zero interest rates to commodity futures exposures (these arguments are elaborated in Pelaez and Pelaez, Financial Regulation after the Global Recession (2009a), 157-66, Regulation of Banks and Finance (2009b), 217-27, International Financial Architecture (2005), 15-18, The Global Recession Risk (2007), 221-5, Globalization and the State Vol. II (2008b), 197-213, Government Intervention in Globalization (2008c), 182-4 http://cmpassocregulationblog.blogspot.com/2011/07/causes-of-2007-creditdollar-crisis.html http://cmpassocregulationblog.blogspot.com/2011/01/professor-mckinnons-bubble-economy.html http://cmpassocregulationblog.blogspot.com/2011/01/world-inflation-quantitative-easing.html http://cmpassocregulationblog.blogspot.com/2011/01/treasury-yields-valuation-of-risk.html http://cmpassocregulationblog.blogspot.com/2010/11/quantitative-easing-theory-evidence-and.html http://cmpassocregulationblog.blogspot.com/2010/12/is-fed-printing-money-what-are.html). Earlier research focused on the long-term external imbalance of the US in the form of trade and current account deficits (Pelaez and Pelaez, The Global Recession Risk (2007), Globalization and the State Vol. II (2008b) 183-94, Government Intervention in Globalization (2008c), 167-71). US external imbalances have not been fully resolved and tend to widen together with improving world economic activity and commodity price shocks.

Chart IIA-2, US, Balance of Trade SA, Monthly, Millions of Dollars, Jan 1992-Jul 2013

Source: US Census Bureau

http://www.census.gov/foreign-trade/

Chart IIA-3 of the US Census Bureau provides US exports SA from Jan 1992 to Jun 2013. There was sharp acceleration from 2003 to 2007 during worldwide economic boom and increasing inflation. Exports fell sharply during the financial crisis and global recession from IVQ2007 to IIQ2009. Growth picked up again together with world trade and inflation but stalled in the final segment with less rapid global growth and inflation.

Chart IIA-3, US, Exports SA, Monthly, Millions of Dollars Jan 1992-Jul 2013

Source: US Census Bureau

http://www.census.gov/foreign-trade/

Chart IIA-4 of the US Census Bureau provides US imports SA from Jan 1992 to Jul 2013. Growth was stronger between 2003 and 2007 with worldwide economic boom and inflation. There was sharp drop during the financial crisis and global recession. There is stalling import levels in the final segment resulting from weaker world economic growth and diminishing inflation because of risk aversion.

Chart IIA-4, US, Imports SA, Monthly, Millions of Dollars Jan 1992-Jul 2013

Source: US Census Bureau

http://www.census.gov/foreign-trade/

The balance of international trade in goods of the US seasonally adjusted is shown in Table IIA-3. The US has a dynamic surplus in services that reduces the large deficit in goods for a still very sizeable deficit in international trade of goods and services. The balance in international trade of goods decreased from deficit of $59,464 billion in Jul 2012 to $58,582 billion in Jul 2013. The relative improvement of the goods balance in Jul 2013 relative to Jul 2012 occurred mostly in the petroleum balance, exports less imports of nonpetroleum goods, in the magnitude of decreasing the deficit by $2867 million, while there was deterioration in the petroleum balance, exports less imports of petroleum goods, in the magnitude of increasing the deficit by $1652 million. US terms of trade, export prices relative to import prices, and the US trade account fluctuate in accordance with the carry trade from zero interest rates to commodity futures exposures, especially oil futures. Exports increased 1.9 percent with nonpetroleum exports increasing 0.3 percent. Total imports increased 0.8 percent with petroleum imports declining 0.9 percent and nonpetroleum imports increasing 1.3 percent. Details do not add because of seasonal adjustment and rounding.

Table IIA-3, US, International Trade in Goods Balance, Exports and Imports $ Millions and ∆% SA

	Jul 2013	Jul 2012	∆%
Total Balance	-58,582	-59,464
Petroleum	-18,746	-21,613
Non Petroleum	-38,713	-37,061
Total Exports	132,712	130,276	1.9
Petroleum	12,525	9,947	25.9
Non Petroleum	119,238	118,892	0.3
Total Imports	191,294	189,741	0.8
Petroleum	31,271	31,559	-0.9
Non Petroleum	157,951	155,953	1.3

Details may not add because of rounding and seasonal adjustment

Source: US Census Bureau http://www.census.gov/foreign-trade/

US exports and imports of goods not seasonally adjusted in Jan-Jul 2013 and Jan-Jul 2012 are shown in Table IIA-4. The rate of growth of exports was 1.6 percent and minus 1.4 percent for imports. The US has partial hedge of commodity price increases in exports of agricultural commodities that increased 0.8 percent and of mineral fuels that increased 3.0 percent both because higher prices of raw materials and commodities increase and fall recurrently as a result of shocks of risk aversion. The US exports an insignificant amount of crude oil. US exports and imports consist mostly of manufactured products, with less rapidly increasing prices. US manufactured exports rose 1.6 percent while manufactured imports rose 0.8 percent. Significant part of the US trade imbalance originates in imports of mineral fuels decreasing 12.4 percent and petroleum decreasing 13.3 percent with wide oscillations in oil prices. The limited hedge in exports of agricultural commodities and mineral fuels compared with substantial imports of mineral fuels and crude oil results in waves of deterioration of the terms of trade of the US, or export prices relative to import prices, originating in commodity price increases caused by carry trades from zero interest rates. These waves are similar to those in worldwide inflation (http://cmpassocregulationblog.blogspot.com/2013/08/duration-dumping-and-peaking-valuations_18.html).

Table IIA-4, US, Exports and Imports of Goods, Not Seasonally Adjusted Millions of Dollars and %

	Jan-Jul 2013 $ Millions	Jan-Jul 2012 $ Millions	∆%
Exports	908,575	894,385	1.6
Manufactured	685,026	674,272	1.6
Agricultural Commodities	78,075	77,490	0.8
Mineral Fuels	80,065	77,754	3.0
Petroleum	65,993	62,918	4.9
Imports	1,307,023	1,325,043	-1.4
Manufactured	1,049,236	1,040,452	0.8
Agricultural Commodities	62,887	61,700	1.9
Mineral Fuels	225,247	257,108	-12.4
Petroleum	215,012	248,124	-13.3

Source: US Census Bureau http://www.census.gov/foreign-trade/

The G7 meeting in Washington on Apr 21 2006 of finance ministers and heads of central bank governors of the G7 established the “doctrine of shared responsibility” (G7 2006Apr):

“We, Ministers and Governors, reviewed a strategy for addressing global imbalances. We recognized that global imbalances are the product of a wide array of macroeconomic and microeconomic forces throughout the world economy that affect public and private sector saving and investment decisions. We reaffirmed our view that the adjustment of global imbalances:

• Is shared responsibility and requires participation by all regions in this global process;
• Will importantly entail the medium-term evolution of private saving and investment across countries as well as counterpart shifts in global capital flows; and
• Is best accomplished in a way that maximizes sustained growth, which requires strengthening policies and removing distortions to the adjustment process.

In this light, we reaffirmed our commitment to take vigorous action to address imbalances. We agreed that progress has been, and is being, made. The policies listed below not only would be helpful in addressing imbalances, but are more generally important to foster economic growth.

• In the United States, further action is needed to boost national saving by continuing fiscal consolidation, addressing entitlement spending, and raising private saving.
• In Europe, further action is needed to implement structural reforms for labor market, product, and services market flexibility, and to encourage domestic demand led growth.
• In Japan, further action is needed to ensure the recovery with fiscal soundness and long-term growth through structural reforms.

Others will play a critical role as part of the multilateral adjustment process.

• In emerging Asia, particularly China, greater flexibility in exchange rates is critical to allow necessary appreciations, as is strengthening domestic demand, lessening reliance on export-led growth strategies, and actions to strengthen financial sectors.

• In oil-producing countries, accelerated investment in capacity, increased economic diversification, enhanced exchange rate flexibility in some cases.

• Other current account surplus countries should encourage domestic consumption and investment, increase micro-economic flexibility and improve investment climates.

We recognized the important contribution that the IMF can make to multilateral surveillance.”

The concern at that time was that fiscal and current account global imbalances could result in disorderly correction with sharp devaluation of the dollar after an increase in premiums on yields of US Treasury debt (see Pelaez and Pelaez, The Global Recession Risk (2007)). The IMF was entrusted with monitoring and coordinating action to resolve global imbalances. The G7 was eventually broadened to the formal G20 in the effort to coordinate policies of countries with external surpluses and deficits.

The database of the WEO (http://www.imf.org/external/pubs/ft/weo/2013/01/weodata/index.aspx) is used to contract Table IIA-5 with fiscal and current account imbalances projected for 2013 and 2015. The WEO finds the need to rebalance external and domestic demand (IMF 2011WEOSep xvii):

“Progress on this front has become even more important to sustain global growth. Some emerging market economies are contributing more domestic demand than is desirable (for example, several economies in Latin America); others are not contributing enough (for example, key economies in emerging Asia). The first set needs to restrain strong domestic demand by considerably reducing structural fiscal deficits and, in some cases, by further removing monetary accommodation. The second set of economies needs significant currency appreciation alongside structural reforms to reduce high surpluses of savings over investment. Such policies would help improve their resilience to shocks originating in the advanced economies as well as their medium-term growth potential.”

The IMF (2012WEOApr, XVII) explains decreasing importance of the issue of global imbalances as follows:

“The latest developments suggest that global current account imbalances are no longer expected to widen again, following their sharp reduction during the Great Recession. This is largely because the excessive consumption growth that characterized economies that ran large external deficits prior to the crisis has been wrung out and has not been offset by stronger consumption in surplus economies. Accordingly, the global economy has experienced a loss of demand and growth in all regions relative to the boom years just before the crisis. Rebalancing activity in key surplus economies toward higher consumption, supported by more market-determined exchange rates, would help strengthen their prospects as well as those of the rest of the world.”

Table IIA-5, Fiscal Deficit, Current Account Deficit and Government Debt as % of GDP and 2011 Dollar GDP

	GDP $B 2012	FD %GDP 2013	CAD %GDP 2013	Debt %GDP 2013	FD%GDP 2015	CAD%GDP 2015	Debt %GDP 2015
US	15685	-7.3	-3.1	80.3	-2.3	-3.2	88.3
Japan	5964	-9.1	2.0	126.6	-5.8	2.4	155.0
UK	2441	-5.8	-1.9	78.3	-0.8	-0.4	88.1
Euro	12198	-1.6	0.3	68.4	1.1	1.2	71.3
Ger	3401	0.7	5.7	56.1	1.4	4.3	52.4
France	2609	-2.9	-2.2	80.4	0.3	-0.8	83.8
Italy	2014	0.8	-3.2	99.6	4.4	-1.6	101.5
Can	1819	-4.1	-2.8	33.3	-1.1	-2.5	37.4
China	8227	-1.2	2.7	25.8	-0.1	3.4	14.8
Brazil	2396	3.3	-2.4	33.6	3.1	-3.3	30.8

Note: GER = Germany; Can = Canada; FD = fiscal deficit; CAD = current account deficit

FD is primary except total for China; Debt is net except gross for China

Source: IMF World Economic Outlook databank http://www.imf.org/external/pubs/ft/weo/2013/01/weodata/index.aspx

The current account of the US balance of payments is provided in Table IIA-6 for IQ2012 and IQ2013. The US has a large deficit in goods or exports less imports of goods but it has a surplus in services that helps to reduce the trade account deficit or exports less imports of goods and services. The current account deficit of the US decreased from $100.4 billion in IQ2012, or 3.1 percent of GDP, to $83.2 billion in IQ2013, or 2.7 percent of GDP. The ratio of the current account deficit to GDP has stabilized around 3 percent of GDP compared with much higher percentages before the recession but is combined now with much higher imbalance in the Treasury budget (see Pelaez and Pelaez, The Global Recession Risk (2007), Globalization and the State, Vol. II (2008b), 183-94, Government Intervention in Globalization (2008c), 167-71).

In their classic work on “unpleasant monetarist arithmetic,” Sargent and Wallace (1981, 2) consider a regime of domination of monetary policy by fiscal policy (emphasis added):

“Imagine that fiscal policy dominates monetary policy. The fiscal authority independently sets its budgets, announcing all current and future deficits and surpluses and thus determining the amount of revenue that must be raised through bond sales and seignorage. Under this second coordination scheme, the monetary authority faces the constraints imposed by the demand for government bonds, for it must try to finance with seignorage any discrepancy between the revenue demanded by the fiscal authority and the amount of bonds that can be sold to the public. Suppose that the demand for government bonds implies an interest rate on bonds greater than the economy’s rate of growth. Then if the fiscal authority runs deficits, the monetary authority is unable to control either the growth rate of the monetary base or inflation forever. If the principal and interest due on these additional bonds are raised by selling still more bonds, so as to continue to hold down the growth of base money, then, because the interest rate on bonds is greater than the economy’s growth rate, the real stock of bonds will growth faster than the size of the economy. This cannot go on forever, since the demand for bonds places an upper limit on the stock of bonds relative to the size of the economy. Once that limit is reached, the principal and interest due on the bonds already sold to fight inflation must be financed, at least in part, by seignorage, requiring the creation of additional base money.”

The alternative fiscal scenario of the CBO (2012NovCDR) resembles an economic world in which eventually the placement of debt reaches a limit of what is proportionately desired of US debt in investment portfolios. This unpleasant environment is occurring in various European countries.

The current real value of government debt plus monetary liabilities depends on the expected discounted values of future primary surpluses or difference between tax revenue and government expenditure excluding interest payments (Cochrane 2011Jan, 27, equation (16)). There is a point when adverse expectations about the capacity of the government to generate primary surpluses to honor its obligations can result in increases in interest rates on government debt.

This analysis suggests that there may be a point of saturation of demand for United States financial liabilities without an increase in interest rates on Treasury securities. A risk premium may develop on US debt. Such premium is not apparent currently because of distressed conditions in the world economy and international financial system. Risk premiums are observed in the spread of bonds of highly indebted countries in Europe relative to bonds of the government of Germany.

The issue of global imbalances centered on the possibility of a disorderly correction (Pelaez and Pelaez, The Global Recession Risk (2007), Globalization and the State Vol. II (2008b) 183-94, Government Intervention in Globalization (2008c), 167-71). Such a correction has not occurred historically but there is no argument proving that it could not occur. The need for a correction would originate in unsustainable large and growing United States current account deficits (CAD) and net international investment position (NIIP) or excess of financial liabilities of the US held by foreigners net relative to financial liabilities of foreigners held by US residents. The IMF estimated that the US could maintain a CAD of two to three percent of GDP without major problems (Rajan 2004). The threat of disorderly correction is summarized by Pelaez and Pelaez, The Global Recession Risk (2007), 15):

“It is possible that foreigners may be unwilling to increase their positions in US financial assets at prevailing interest rates. An exit out of the dollar could cause major devaluation of the dollar. The depreciation of the dollar would cause inflation in the US, leading to increases in American interest rates. There would be an increase in mortgage rates followed by deterioration of real estate values. The IMF has simulated that such an adjustment would cause a decline in the rate of growth of US GDP to 0.5 percent over several years. The decline of demand in the US by four percentage points over several years would result in a world recession because the weakness in Europe and Japan could not compensate for the collapse of American demand. The probability of occurrence of an abrupt adjustment is unknown. However, the adverse effects are quite high, at least hypothetically, to warrant concern.”

Table IIA-6, US, Balance of Payments, Millions of Dollars NSA

	IQ2012	IQ2013	Difference
Goods Balance	-174,091	-157,503	16,588
X Goods	385,589	385,955	0.1 ∆%
M Goods	-559,679	-543,459	-2.9 ∆%
Services Balance	51,893	56,222	4,329
X Services	157,061	164,383	4.7 ∆%
M Services	-105,169	-108,161	2.8 ∆%
Balance Goods and Services	-122,198	-101,281	20,917
Balance Income	55,315	53,030	-2,285
Unilateral Transfers	-33,546	-34,968	-1,422
Current Account Balance	-100,429	-83,219	17,210
% GDP	IQ2012	IQ2013	IVQ2012
	3.1	2.7	2.6

X: exports; M: imports

Balance on Current Account = Balance on Goods and Services + Balance on Income + Unilateral Transfers

Source: Bureau of Economic Analysis http://www.bea.gov/international/index.htm#bop http://www.bea.gov/iTable/index_nipa.cfm

The United States could be moving toward a situation typical of heavily indebted countries, requiring fiscal adjustment and increases in productivity to become more competitive internationally. The CAD and NIIP of the United States are not observed in full deterioration because the economy is well below potential. There are two complications in the current environment relative to the concern with disorderly correction in the first half of the past decade. In the release of Jun 14, 2013, the Bureau of Economic Analysis (http://www.bea.gov/newsreleases/international/transactions/2013/pdf/trans113.pdf) informs of revisions of US data on US international transactions since 1999:

“The statistics of the U.S. international transactions accounts released today have been revised for the first quarter of 1999 to the fourth quarter of 2012 to incorporate newly available and revised source data, updated seasonal adjustments, changes in definitions and classifications, and improved estimating methodologies.”

Table IIA-7 provides data on the US fiscal and balance of payments imbalances. In 2007, the federal deficit of the US was $161 billion corresponding to 1.2 percent of GDP while the Congressional Budget Office (CBO 2012NovCDR) estimates the federal deficit in 2012 at $1089 billion or 7.0 percent of GDP (http://cmpassocregulationblog.blogspot.com/2013/02/united-states-unsustainable-fiscal.html). The combined record federal deficits of the US from 2009 to 2012 are $5092 billion or 33 percent of the estimate of GDP of $15,549 billion for fiscal year 2012 by the CBO (http://www.cbo.gov/publication/43905 CBO (2013BEOFeb5)). The deficits from 2009 to 2012 exceed one trillion dollars per year, adding to $5.090 trillion in four years, using the fiscal year deficit of $1087 billion for fiscal year 2012, which is the worst fiscal performance since World War II. Federal debt in 2007 was $5035 billion, less than the combined deficits from 2009 to 2012 of $5.090 billion. Federal debt in 2011 was 67.8 percent of GDP and is estimated to reach 72.6 percent of GDP in 2012 (CBO2012AugBEO, CBO2012NovCDR, CBO2013BEOFeb5). This situation may worsen in the future (CBO 2012LTBO):

“The budget outlook is much bleaker under the extended alternative fiscal scenario, which maintains what some analysts might consider “current policies,” as opposed to current laws. Federal debt would grow rapidly from its already high level, exceeding 90 percent of GDP in 2022. After that, the growing imbalance between revenues and spending, combined with spiraling interest payments, would swiftly push debt to higher and higher levels. Debt as a share of GDP would exceed its historical peak of 109 percent by 2026, and it would approach 200 percent in 2037.

The changes under this scenario would result in much lower revenues than would occur under the extended baseline scenario because almost all expiring tax provisions are assumed to be extended through 2022 (with the exception of the current reduction in the payroll tax rate for Social Security). After 2022, revenues under this scenario are assumed to remain at their 2022 level of 18.5 percent of GDP, just above the average of the past 40 years.

Outlays would be much higher than under the other scenario. This scenario incorporates assumptions that through 2022, lawmakers will act to prevent Medicare’s payment rates for physicians from declining; that after 2022, lawmakers will not allow various restraints on the growth of Medicare costs and health insurance subsidies to exert their full effect; and that the automatic reductions in spending required by the Budget Control Act of 2011 will not occur (although the original caps on discretionary appropriations in that law are assumed to remain in place). Finally, under this scenario, federal spending as a percentage of GDP for activities other than Social Security, the major health care programs, and interest payments is assumed to return to its average level during the past two decades, rather than fall significantly below that level, as it does under the extended baseline scenario.”

Table IIA-7, US, Current Account, NIIP, Fiscal Balance, Nominal GDP, Federal Debt and Direct Investment, Dollar Billions and %

	2007	2008	2009	2010	2011	2012
Goods & Services	-699	-702	-384	-499	-557	-535
Income	101	146	124	178	233	224
UT	-115	-125	-122	-128	-134	-130
Current Account	-713	-681	-382	-449	-458	-440
NGDP	14028	14291	13974	14499	15076	15684
Current Account % GDP	-5.1	-4.8	-2.7	-3.1	-3.1	-2.8
NIIP	-1796	-3260	-2321	-2474	-4030	-4416
US Owned Assets Abroad	18400	19464	18512	20298	21132	20760
Foreign Owned Assets in US	20196	22724	20833	22772	25162	25176
NIIP % GDP	-12.8	-22.8	-16.6	-17.1	-26.7	-28.2
Exports Goods Services Income	2487	2654	2185	2523	2874	2987
NIIP % Exports Goods Services Income	-72	-123	-106	-98	-140	-148
DIA MV	5274	3102	4287	4767	4499	5191
DIUS MV	3551	2486	2995	3397	3509	3931
Fiscal Balance	-161	-459	-1413	-1294	-1296	-1087
Fiscal Balance % GDP	-1.2	-3.2	-10.1	-9.0	-8.7	-7.0
Federal   Debt	5035	5803	7545	9019	10128	11281
Federal Debt % GDP	36.3	40.5	54.0	62.9	67.8	72.6
Federal Outlays	2729	2983	3518	3456	3598	3537
∆%	2.8	9.3	17.9	-1.8	4.1	-1.7
% GDP	19.7	20.8	25.2	24.1	24.1	22.7
Federal Revenue	2568	2524	2105	2162	2302	2450
∆%	6.7	-1.7	-16.6	2.7	6.5	6.4
% GDP	18.5	17.6	15.1	15.1	15.4	15.8

Notes: UT: unilateral transfers; NGDP: nominal GDP or in current dollars; NIIP: Net International Investment Position; DIA MV: US Direct Investment Abroad at Market Value; DIUS MV: Direct Investment in the US at Market Value. There are minor discrepancies in the decimal point of percentages of GDP between the balance of payments data and federal debt, outlays, revenue and deficits in which the original number of the CBO source is maintained. These discrepancies do not alter conclusions.

Sources: http://www.cbo.gov/ budget http://www.bea.gov/international/index.htm#bop Balance of Payments and NIIP, Bureau of Economic Analysis (BEA)

Gross Domestic Product, Bureau of Economic Analysis (BEA) http://www.bea.gov/iTable/index_nipa.cfm

Chart IIA-5 of the Bureau of Economic Analysis shows the US balance on current account from 1960 to 2012. The sharp devaluation of the dollar resulting from unconventional monetary policy of zero interest rates and elimination of auctions of 30-year Treasury bonds did not adjust the US balance of payments. Partial adjustment only occurred after the contraction of economic activity during the global recession.

Chart IIA-5, US, Balance on Current Account, 1960-2012, Millions of Dollars

Source: Bureau of Economic Analysis

http://www.bea.gov/iTable/index_ita.cfm

Chart IIA-6 provides the quarterly balance of current account of the United States in millions of dollars from 1995 to IQ2013. The global recession appeared to be adjusting the current account deficit that rises to lower dollar values. Recovery of the economy worsened again the current account deficit. Growth at trend worsens the external imbalance of the US that combines now with unsustainable Treasury deficits/debt.

Chart IIA-6, US, Balance on Current Account, Quarterly 1979-2013, Millions of Dollars, SA

Source: Bureau of Economic Analysis

http://www.bea.gov/iTable/index_ita.cfm

Risk aversion channels funds toward US long-term and short-term securities that finance the US balance of payments and fiscal deficits benefitting from risk flight to US dollar denominated assets. There are now temporary interruptions because of fear of rising interest rates that erode prices of US government securities because of mixed signals on monetary policy and exit from the Fed balance sheet of three trillion dollars of securities held outright. Net foreign purchases of US long-term securities (row C in Table IIA-8) deteriorated sharply from minus $27.0 billion in May 2013 to minus $66.9 billion in Jun 2013. Foreign (residents) purchases minus sales of US long-term securities (row A in Table IIA-8) in May 2013 of $0.0 billion decreased to minus $77.8 billion in Jun 2013. Net US (residents) purchases of long-term foreign securities (row B in Table IIA-8) increased from minus $27.0 billion in May 2013 to $11.0 billion in Jun 2013. In Jun 2013,

C = A + B = -$77.8 billion + $11.0 billion = -$66.9 billion

There are minor rounding errors. There is decreasing demand in Table IIA-8 in A1 private purchases by residents overseas of US long-term securities of $81.6 billion of which decreases in A11 Treasury securities of $40.1 billion, decrease in A12 of $9.1 billion in agency securities, decrease by $6.9 billion of corporate bonds and decrease of $25.5 billion in equities. Worldwide risk aversion causes flight into US Treasury obligations with significant oscillations. Official purchases of securities in row A2 increased $3.8 billion with decrease of Treasury securities of $0.7 billion in Jun 2013. Official purchases of agency securities increased $3.9 billion in Jun. Row D shows decrease in Jun 2013 of 4.4 billion in purchases of short-term dollar denominated obligations. Foreign private holdings of US Treasury bills increased $25.9 billion (row D11) with foreign official holdings decreasing $17.1 billion while the category “other” decreased $13.2 billion. Foreign private holdings of US Treasury bills increased $25.9 billion in what could be reduction of duration exposures. Risk aversion of default losses in foreign securities dominates decisions to accept zero interest rates in Treasury securities with no perception of principal losses. In the case of long-term securities, investors prefer to sacrifice inflation and possible duration risk to avoid principal losses with significant oscillations in risk perceptions.

Table IIA-8, Net Cross-Borders Flows of US Long-Term Securities, Billion Dollars, NSA

	Jun 2012 12 Months	Jun 2013 12 Months	May 2013	Jun 2013
A Foreign Purchases less Sales of US LT Securities	500.4	328.0	0.0	-77.8
A1 Private	321.0	137.3	-43.8	-81.6
A11 Treasury	325.6	-5.4	-29.0	-40.1
A12 Agency	104.7	69.0	-9.3	-9.1
A13 Corporate Bonds	-78.2	10.4	4.6	-6.9
A14 Equities	-31.0	63.3	-10.2	-25.5
A2 Official	179.4	190.7	43.8	3.8
A21 Treasury	177.5	109.7	40.3	-0.7
A22 Agency	-4.3	53.6	-1.1	3.9
A23 Corporate Bonds	0.8	19.7	3.0	1.9
A24 Equities	5.4	7.6	1.6	-1.4
B Net US Purchases of LT Foreign Securities	19.1	-156.2	-27.0	11.0
B1 Foreign Bonds	59.4	-48.7	-11.4	13.3
B2 Foreign Equities	-40.2	-107.5	-15.6	-2.4
C Net Foreign Purchases of US LT Securities	519.5	171.8	-27.0	-66.9
D Increase in Foreign Holdings of Dollar Denominated Short-term	-40.7	41.1	-35.8	-4.4
D1 US Treasury Bills	-11.3	44.6	-39.2	8.8
D11 Private	35.4	46.4	-19.8	25.9
D12 Official	-46.7	-1.7	-19.4	-17.1
D2 Other	-29.4	-3.5	3.4	-13.2

C = A + B;

A = A1 + A2

A1 = A11 + A12 + A13 + A14

A2 = A21 + A22 + A23 + A24

B = B1 + B2

D = D1 + D2

Sources: http://www.treasury.gov/resource-center/data-chart-center/tic/Pages/index.aspx

Table IIA-9 provides major foreign holders of US Treasury securities. China is the largest holder with $1275.8 billion in Jun 2013, increasing 11.2 percent from $1147.0 billion in Jun 2012 while decreasing $21.5 billion from May 2013 or 1.7 percent. Japan decreased its holdings from $1108.4 billion in Jun 2012 to $1083.4 billion in Jun 2013 or by 2.3 percent. Japan reduced its holdings from $1103.7 billion in May 2013 to $1083.4 billion in Jun 2013 by $20.3 billion or 1.8 percent. Total foreign holdings of Treasury securities rose from $5313.5 billion in Jun 2012 to $5600.6 billion in Jun 2013, or 5.4 percent. Foreign holdings of Treasury securities fell from $5740.4 in Mar 2013 to $5670.8 in Apr 2013 or 1.2 percent. Foreign holdings of US Treasury securities fell from $5657.1 billion in May 2013 to $5600.6 billion in Jun 2013, by $56.5 billion or by 1.0 percent. The US continues to finance its fiscal and balance of payments deficits with foreign savings (see Pelaez and Pelaez, The Global Recession Risk (2007)). A point of saturation of holdings of US Treasury debt may be reached as foreign holders evaluate the threat of reduction of principal by dollar devaluation and reduction of prices by increases in yield, including possibly risk premium. Shultz et al (2012) find that the Fed financed three-quarters of the US deficit in fiscal year 2011, with foreign governments financing significant part of the remainder of the US deficit while the Fed owns one in six dollars of US national debt. Concentrations of debt in few holders are perilous because of sudden exodus in fear of devaluation and yield increases and the limit of refinancing old debt and placing new debt. In their classic work on “unpleasant monetarist arithmetic,” Sargent and Wallace (1981, 2) consider a regime of domination of monetary policy by fiscal policy (emphasis added):

“Imagine that fiscal policy dominates monetary policy. The fiscal authority independently sets its budgets, announcing all current and future deficits and surpluses and thus determining the amount of revenue that must be raised through bond sales and seignorage. Under this second coordination scheme, the monetary authority faces the constraints imposed by the demand for government bonds, for it must try to finance with seignorage any discrepancy between the revenue demanded by the fiscal authority and the amount of bonds that can be sold to the public. Suppose that the demand for government bonds implies an interest rate on bonds greater than the economy’s rate of growth. Then if the fiscal authority runs deficits, the monetary authority is unable to control either the growth rate of the monetary base or inflation forever. If the principal and interest due on these additional bonds are raised by selling still more bonds, so as to continue to hold down the growth of base money, then, because the interest rate on bonds is greater than the economy’s growth rate, the real stock of bonds will growth faster than the size of the economy. This cannot go on forever, since the demand for bonds places an upper limit on the stock of bonds relative to the size of the economy. Once that limit is reached, the principal and interest due on the bonds already sold to fight inflation must be financed, at least in part, by seignorage, requiring the creation of additional base money.”

Table IIA-9, US, Major Foreign Holders of Treasury Securities $ Billions at End of Period

	Jun 2013	May 2013	Jun 2012
Total	5600.6	5657.1	5313.5
China	1275.8	1297.3	1147.0
Japan	1083.4	1103.7	1108.4
Caribbean Banking Centers	290.8	280.0	244.6
Oil Exporters	256.8	264.5	270.2
Brazil	253.7	255.2	244.3
Taiwan	186.2	188.8	196.4
Switzerland	180.4	182.6	172.4
Belgium	176.1	175.2	144.5
United Kingdom	162.6	155.8	138.0
Luxembourg	150.6	143.2	137.8
Russia	138.0	143.4	163.8
Hong Kong	124.2	136.4	136.0
Foreign Official Holdings	4009.2	4072.8	3857.9
A. Treasury Bills	362.7	379.8	364.5
B. Treasury Bonds and Notes	3646.4	3693.0	3493.4

Source: http://www.treasury.gov/resource-center/data-chart-center/tic/Pages/ticsec2.aspx#ussecs

 

© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013