CMP Associates Regulation Blog: Twenty Nine Million Unemployed or Underemployed, Stagnating Real Wages and Real Disposable Income, Peaking Valuations of Risk Financial Assets, World Economic Slowdown and Global Recession Risk: Part V

Twenty Nine Million Unemployed or Underemployed, Stagnating Real Wages and Real Disposable Income, Peaking Valuations of Risk Financial Assets, World Economic Slowdown and Global Recession Risk

Carlos M. Pelaez

Executive Summary

I Twenty Nine Million Unemployed or Underemployed

IA1 Summary of the Employment Situation

IA2 Number of People in Job Stress

IA3 Long-term and Cyclical Comparison of Employment

IA4 Job Creation

II Stagnating Real Wages

IIA Stagnating Real Disposable Income and Consumption Expenditures

IIA1 Stagnating Real Disposable Income and Consumption Expenditures

IIA2 Financial Repression

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

VII Economic Indicators. Crude oil input in refineries decreased 0.5 percent to 14,847 thousand barrels per day on average in the four weeks ending on Apr 26, 2013 from 14,921 thousand barrels per day in the four weeks ending on Apr 19, 2013, as shown in Table VII-1. The rate of capacity utilization in refineries continues at a relatively high level of 85.2 percent on Apr 26, 2013, which is higher than 84.8 percent on Apr 27, 2012 and lower than 85.7 percent on Apr 19, 2013. Imports of crude oil increased 0.8 percent from 7,616 thousand barrels per day on average in the four weeks ending on Apr 19 to 7,674 thousand barrels per day in the week of Apr 26. The Energy Information Administration (EIA) informs that “US crude oil imports averaged about 8.2 million barrels per day last week, up by 602 thousand barrels per day from the previous week [Apr 26]. Over the last four weeks, crude oil imports have average just over 7.7 million barrels per day, 987 thousand barrels per day below the same four-week period last year” (http://www.eia.gov/pub/oil_gas/petroleum/data_publications/weekly_petroleum_status_report/current/pdf/highlights.pdf). Marginally lower utilization in refineries with increasing imports at the margin in the prior week resulted in increase of commercial crude oil stocks by 6.7 million barrels from 388.6 million barrels on Apr 19 to 395.3 million barrels on Apr 26. Motor gasoline production decreased 0.4 percent to 8,861 thousand barrels per day in the week of Apr 26 from 8,901 thousand barrels per day on average in the week of Apr 19. Gasoline stocks decreased 1.8 million barrels and stocks of fuel oil decreased 0.5 million barrels. Supply of gasoline decreased from 8,661 thousand barrels per day on Apr 27, 2012, to 8,506 thousand barrels per day on Apr 26, 2013, or by 1.8 percent, while fuel oil supply decreased 3.7 percent. Part of the prior fall in consumption of gasoline had been due to high prices and part to the growth recession. WTI crude oil price traded at $92.63/barrel on Apr 26, 2013, decreasing 11.7 percent relative to $104.86/barrel on Apr 27, 2012. Gasoline prices decreased 8.1 percent from Apr 30, 2012 to Apr 29, 2013. Increases in prices of crude oil and gasoline relative to a year earlier are moderating because year earlier prices are already reflecting the commodity price surge and commodity prices have been declining recently during worldwide risk aversion. Gasoline prices had been increasing to the highest levels at this time of the year.

Table VII-1, US, Energy Information Administration Weekly Petroleum Status Report

Four Weeks Ending Thousand Barrels/Day	4/26/13	4/19/13	4/27/12
Crude Oil Refineries Input	14,847 Week ∆%: -0.5	14,921	14,498
Refinery Capacity Utilization %	85.2	85.7	84.8
Motor Gasoline Production	8,861 Week ∆%: -0.4	8,901	8,851
Distillate Fuel Oil Production	4,399 Week ∆%: -0.1	4,405	4,252
Crude Oil Imports	7,674 Week ∆%: 0.8	7,616	8,668
Motor Gasoline Supplied	8,506 ∆% 2013/2012= -1.8%	8,533	8,661
Distillate Fuel Oil Supplied	3,683 ∆% 2013/2012 = -3.7%	3,737	3,824
	4/26/13	4/19/13	4/27/12
Crude Oil Stocks Million B	395.3 ∆= 6.7 MB	388.6	375.9
Motor Gasoline Million B	216.0 ∆= -1.8 MB	217.8	209.7
Distillate Fuel Oil Million B	115.8 ∆= -0.5 MB	115.3	124.0
WTI Crude Oil Price $/B	92.63 ∆% 2013/2012 -11.7	88.04	104.86
	4/29/13	4/22/13	4/30/12
Regular Motor Gasoline $/G	3.520 ∆% 2013/2012 -8.1	3.536	3.830

B: barrels; G: gallon

Source: US Energy Information Administration http://www.eia.gov/oil_gas/petroleum/data_publications/weekly_petroleum_status_report/wpsr.html

Chart VII-1 of the US Energy Information Administration shows commercial stocks of crude oil of the US. There have been fluctuations around an upward trend since 2005. Crude oil stocks trended downwardly during a few weeks but with fluctuations followed by several sharp weekly increases alternating with declines.

Chart VII-1, US, Weekly Crude Oil Ending Stocks

Source: US Energy Information Administration

http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WCESTUS1&f=W

Chart VII-2 of the US Energy Information Administration (EIA) provides crude oil stocks from 2011 to 2013. There was sharp downward trend from 2011 into 2012 followed by fluctuating upward trend with recent increase in 2013.

Chart VII-2, US, Crude Oil Stocks

Source: US Energy Information Administration

http://www.eia.gov/petroleum/

Chart VII-3 of the US Energy Information Administration shows the price of WTI crude oil since the 1980s. Chart VII-3 captures commodity price shocks during the past decade. The costly mirage of deflation was caused by the decline in oil prices during the recession of 2001. The upward trend after 2003 was promoted by the carry trade from near zero interest rates. The jump above $140/barrel during the global recession in 2008 at $145.29/barrel on Jul 3, 2008, can only be explained by the carry trade promoted by monetary policy of zero fed funds rate. After moderation of risk aversion, the carry trade returned with resulting sharp upward trend of crude prices. Risk aversion resulted in another drop in recent weeks followed by some recovery.

Chart VII-3, US, Crude Oil Futures Contract

Source: US Energy Information Administration

There is typically significant difference between initial claims for unemployment insurance adjusted and not adjusted for seasonality provided in Table VII-2. Seasonally adjusted claims decreased 18,000 from 342,000 on Apr 20, 2013, to 324,000 on Apr 27, 2013. Claims not adjusted for seasonality decreased 27,143 from 325,835 on Apr 20, 2013 to 298,692 on Apr 27, 2013. Strong seasonality is preventing clear analysis of labor markets.

Table VII-2, US, Initial Claims for Unemployment Insurance

	SA	NSA	4-week MA SA
Apr 27, 2013	324,000	298,692	342,250
Apr 20, 2013	342,000	325,835	358,250
Change	-18,000	-27,143	-16,000
Apr 13, 2012	355,000	358,057	362,000
Prior Year	371,000	333,476	379,250

Note: SA: seasonally adjusted; NSA: not seasonally adjusted; MA: moving average

Source: http://www.dol.gov/opa/media/press/eta/ui/current.htm#.UO83JeRZWwb

Table VII-3 provides seasonally and not seasonally adjusted claims in the comparable week for the years from 2001 to 2013. Seasonally adjusted claims typically are lower than claims not adjusted for seasonality. Claims not seasonally adjusted have declined from 583,457 on Apr 25, 2009 to 387,867 on Apr 23, 2011, 333,476 on Apr 28, 2012 and 298,692 on Apr 27, 2013. There is strong indication of significant decline in the level of layoffs in the US. Hiring has not recovered (http://cmpassocregulationblog.blogspot.com/2013/04/recovery-without-hiring-ten-million.html and earlier http://cmpassocregulationblog.blogspot.com/2013/03/recovery-without-hiring-ten-million.html) and there is continuing unemployment and underemployment of 28.6 million or 17.6 percent of the effective labor force (Section and earlier http://cmpassocregulationblog.blogspot.com/2013/04/thirty-million-unemployed-or.html).

Table VII-3, US, Unemployment Insurance Weekly Claims

	Not Seasonally Adjusted Claims	Seasonally Adjusted Claims
Apr 28, 2001	353,831	406,000
Apr 27, 2002	367,350	414,000
Apr 26, 2003	401,342	444,000
Apr 24, 2004	313,686	339,000
Apr 30, 2005	290,824	334,000
Apr 29, 2006	279,715	321,000
Apr 28, 2007	267,672	301,000
Apr 26, 2008	337,854	370,000
Apr 25, 2009	583,457	617,000
Apr 24, 2010	429,196	447,000
Apr 23, 2011	387,867	419,000
Apr 28, 2012	333,476	371,000
Apr 27, 2013	298,692	324,000

Source: http://www.ows.doleta.gov/unemploy/claims.asp

VIII Interest Rates. It is quite difficult to measure inflationary expectations because they tend to break abruptly from past inflation. There could still be an influence of past and current inflation in the calculation of future inflation by economic agents. Table VIII-1 provides inflation of the CPI. In the three months Jan-Mar 2013, CPI inflation for all items seasonally adjusted was 2.0 percent in annual equivalent, obtained by compounding inflation from Jan 2013 to Mar 2013 and assuming it would be repeated for a full year. In the 12 months ending in Mar 2013, CPI inflation of all items not seasonally adjusted was 1.5 percent. Inflation in Mar 2013 seasonally adjusted was minus 0.2 percent relative to Feb 2013, or minus 2.4 percent annual equivalent (http://www.bls.gov/cpi/). The second row provides the same measurements for the CPI of all items excluding food and energy: 1.9 percent in 12 months and 2.4 percent in annual equivalent Jan to Mar 2013. The Wall Street Journal provides the yield curve of US Treasury securities (http://professional.wsj.com/mdc/public/page/mdc_bonds.html?mod=mdc_topnav_2_3000). The lowest yield is 0.036 percent for three months, 0.071 percent for six months, 0.109 percent for one year, 0.224 percent for two years, 0.338 percent for three years, 0.742 percent for five years, 1.189 percent for seven years, 1.767 percent for ten years and 2.980 percent for 30 years. The Irving Fisher (1930) definition of real interest rates is approximately the difference between nominal interest rates, which are those estimated by the Wall Street Journal, and the rate of inflation expected in the term of the security, which could behave as in Table VIII-1. Mar inflation is low in 12 months because of the unwinding of carry trades from zero interest rates to commodity futures prices but could ignite again with subdued risk aversion. Real interest rates in the US have been negative during substantial periods in the past decade while monetary policy pursues a policy of attaining its “dual mandate” of (http://www.federalreserve.gov/aboutthefed/mission.htm):

“Conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates”

Negative real rates of interest distort calculations of risk and returns from capital budgeting by firms, through lending by financial intermediaries to decisions on savings, housing and purchases of households. Inflation on near zero interest rates misallocates resources away from their most productive uses and creates uncertainty of the future path of adjustment to higher interest rates that inhibit sound decisions.

Table VIII-1, US, Consumer Price Index Percentage Changes 12 months NSA and Annual Equivalent ∆%

	∆% 12 Months Mar 2013/Mar 2012 NSA	∆% Annual Equivalent Jan 2013 to Mar 2013 SA
CPI All Items	1.5	2.0
CPI ex Food and Energy	1.9	2.4

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

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

Table IX-1 provides the data required for broader comparison of the cyclical expansions of IQ1983 to IVQ1985 and the current one from 2009 to 2012. First, in the 13 quarters from IQ1983 to IQ1986, GDP increased 19.6 percent at the annual equivalent rate of 5.7 percent; real disposable personal income (RDPI) increased 14.9 percent at the annual equivalent rate of 4.4 percent; RDPI per capita increased 11.9 percent at the annual equivalent rate of 3.5 percent; and population increased 2.7 percent at the annual equivalent rate of 0.8 percent. Second, in the 14 quarters of the current cyclical expansion from IIIQ2009 to IVQ2012, GDP increased 7.5 percent at the annual equivalent rate of 2.1 percent. In the 14 quarters of cyclical expansion real disposable personal income (RDPI) increased 7.0 percent at the annual equivalent rate of 2.0 percent; RDPI per capita increased 4.4 percent at the annual equivalent rate of 1.3 percent; and population increased 2.5 percent at the annual equivalent rate of 0.7 percent. Third, since the beginning of the recession in IVQ2007 to IVQ2012, GDP increased 2.5 percent, or barely above the level before the recession. Since the beginning of the recession in IVQ2007 to IVQ2012, real disposable personal income increased 5.0 percent at the annual equivalent rate of 0.9 percent; population increased 4.1 percent at the annual equivalent rate of 0.8 percent; and real disposable personal income per capita is 0.9 percent higher than the level before the recession. Real disposable personal income is the actual take home pay after inflation and taxes and real disposable income per capita is what is left per inhabitant. The current cyclical expansion is the worst in the period after World War II in terms of growth of economic activity and income. The United States grew during its history at high rates of per capita income that made its economy the largest in the world. That dynamism is disappearing. Bordo (2012 Sep27) and Bordo and Haubrich (2012DR) provide strong evidence that recoveries have been faster after deeper recessions and recessions with financial crises, casting serious doubts on the conventional explanation of weak growth during the current expansion allegedly because of the depth of the contraction from IVQ2007 to IIQ2009 of 4.7 percent and the financial crisis.

Table IX-1, US, GDP, Real Disposable Personal Income, Real Disposable Income per Capita and Population in 1983-85 and 2007-2011, %

	# Quarters	∆%	∆% Annual Equivalent
IQ1983 to IVQ1986	13
GDP		19.6	5.7
RDPI		14.9	4.4
RDPI Per Capita		11.9	3.5
Population		2.7	0.8
IIIQ2009 to IVQ2012	14
GDP		7.5	2.1
RDPI		7.0	2.0
RDPI per Capita		4.4	1.3
Population		2.5	0.7
IVQ2007 to IVQ2012	21
GDP		2.5	0.5
RDPI		5.0	0.9
RDPI per Capita		0.9	0.2
Population		4.1	0.8

RDPI: Real Disposable Personal Income

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

There are seven basic facts illustrating the current economic disaster of the United States: (1) GDP maintained trend growth in the entire business cycle from IQ1980 to IV1985 and IQ1986, including contractions and expansions, but is well below trend in the entire business cycle from IVQ2007 to IVQ2012, including contractions and expansions; (2) per capita real disposable income exceeded trend growth in the 1980s but is substantially below trend in IVQ2012; (3) the number of employed persons increased in the 1980s but declined into IVQ2012; (4) the number of full-time employed persons increased in the 1980s but declined into IVQ2012; (5) the number unemployed, unemployment rate and number employed part-time for economic reasons fell in the recovery from the recessions of the 1980s but not substantially in the recovery after IIQ2009; (6) wealth of households and nonprofit organizations soared in the 1980s but declined in real terms into IVQ2012; and (7) gross private domestic investment increased sharply from IQ1980 to IVQ1985 but gross private domestic investment and private fixed investment have fallen sharply from IVQ2007 to IVQ2012. There is a critical issue of whether the United States economy will be able in the future to attain again the level of activity and prosperity of projected trend growth. Growth at trend during the entire business cycles built the largest economy in the world but there may be an adverse, permanent weakness in United States economic performance and prosperity. Table IX-2 provides data for analysis of these five basic facts. The six blocks of Table IX-2 are separated initially after individual discussion of each one followed by the full Table IB-2.

1. Trend Growth.

i. As shown in Table IX-2, actual GDP grew cumulatively 18.9 percent from IQ1980 to IQ1986, which is relatively close to what trend growth would have been at 20.3 percent. Rapid growth at 5.7 percent annual rate on average per quarter during the expansion from IQ1983 to IQ1986 erased the loss of GDP of 4.8 percent during the contraction and maintained trend growth at 3 percent over the entire cycle.

ii. In contrast, cumulative growth from IVQ2007 to IVQ2012 was 2.5 percent while trend growth would have been 16.8 percent. GDP in IVQ2012 at seasonally adjusted annual rate is estimated at $13,665.4 billion by the Bureau of Economic Analysis (BEA) (http://www.bea.gov/iTable/index_nipa.cfm) and would have been $15,564.8 billion, or $1,899 billion higher, had the economy grown at trend over the entire business cycle as it happened during the 1980s and throughout most of US history. There is $1.9 trillion of foregone GDP that would have been created as it occurred during past cyclical expansions, which explains why employment has not rebounded to even higher than before. There would not be recovery of full employment even with growth of 3 percent per year beginning immediately because the opportunity was lost to grow faster during the expansion from IIIQ2009 to IVQ2012 after the recession from IVQ2007 to IIQ2009. The United States has acquired a heavy social burden of unemployment and underemployment of 28.6 million people or 17.6 percent of the effective labor force (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/04/thirty-million-unemployed-or.html) that will not be significantly diminished even with return to growth of GDP of 3 percent per year because of growth of the labor force by new entrants. The US labor force grew from 142.583 million in 2000 to 153.124 million in 2007 or by 7.4 percent at the average yearly rate of 1.0 percent per year. The civilian noninstitutional population increased from 212.577 million in 2000 to 231.867 million in 2007 or 9.1 percent at the average yearly rate of 1.3 percent per year (data from http://www.bls.gov/data/). Data for the past five years cloud accuracy because of the number of people discouraged from seeking employment. The noninstitutional population of the United States increased from 231.867 million in 2007 to 243.284 million in 2012 or by 4.9 percent while the labor force increased from 153.124 million in 2007 to 154.975 million in 2012 or by 1.2 percent and only by 0.3 percent to 153.617 million in 2011 while population increased 3.3 percent from 231.867 million in 2007 to 239.618 million in 2011 (data from http://www.bls.gov/data/). People ceased to seek jobs because they do not believe that there is a job available for them (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/04/thirty-million-unemployed-or.html). Structural change in demography occurs over relatively long periods and not suddenly as shown by Edward P. Lazear and James R. Spletzer (2012JHJul22).

Period IQ1980 to IQ1986
GDP SAAR USD Billions
IQ1980	5,903.4
IQ1986	7,016.8
∆% IQ1980 to IQ1986 (19.6 percent from IVQ1982 $5866.0 billion)	18.9
∆% Trend Growth IQ1980 to IQ1986	20.3

Period IVQ2007 to IVQ2012
GDP SAAR USD Billions
IVQ2007	13,326.0
IVQ2012	13,665.4
∆% IVQ2007 to IVQ2012 Actual	2.5
∆% IVQ2007 to IVQ2012 Trend	16.8

2. Decline of Per Capita Real Disposable Income

i. In the entire business cycle from IQ1980 to IQ1986, as shown in Table IX-2 trend growth of per capita real disposable income, or what is left per person after inflation and taxes, grew cumulatively 15.7 percent, which is close to what would have been trend growth of 13.2 percent.

ii. In contrast, in the entire business cycle from IVQ2007 to IVQ2012, per capita real disposable income grew 0.9 percent while trend growth would have been 10.9 percent. Income available after inflation and taxes is about the same as before the contraction after 14 consecutive quarters of GDP growth at mediocre rates relative to those prevailing during historical cyclical expansions. In IVQ2012, real disposable income grew at seasonally adjusted annual rate (SAAR) of 6.2 percent, which the BEA explains as: “Personal income in November and December [2012] was boosted by accelerated and special dividend payments to persons and by accelerated bonus payments and other irregular pay in private wages and salaries in anticipation of changes in individual income tax rates. Personal income in December was also boosted by lump-sum social security benefit payments” (page 2 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0213.pdf http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi1212.pdf http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0113.pdf http://cmpassocregulationblog.blogspot.com/2013/03/mediocre-gdp-growth-at-16-to-20-percent.html). Without these exceptional increases of realization of incomes in anticipation of higher taxes in Jan 2013, per capita disposable real income would likely not be higher in IVQ2012 relative to IVQ2007.

Period IQ1980 to IQ1986

Real Disposable Personal Income per Capita IQ1980 Chained 2005 USD	18,938
Real Disposable Personal Income per Capita IQ1986 Chained 2005 USD	21,902
∆% IQ1980 to IQ1986	15.7
∆% Trend Growth	13.2

Period IVQ2007 to IVQ2012

Real Disposable Personal Income per Capita IVQ2007 Chained 2005USD	32,837
Real Disposable Personal Income per Capita IVQ2012 Chained 2005 USD	33,138
∆% IVQ2007 to IVQ2012	0.9
∆% Trend Growth	10.9

3. Number of Employed Persons

i. As shown in Table IX-2, the number of employed persons increased over the entire business cycle from 98.527 million not seasonally adjusted (NSA) in IQ1980 to 107.819 million NSA in IVQ1985 or by 9.7 percent.

ii. In contrast, during the entire business cycle the number employed fell from 146.334 million in IVQ2007 to 143.060 million in IVQ2012 or by 2.2 percent. There are 28.6 million persons unemployed or underemployed, which is 17.6 percent of the effective labor force (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/04/thirty-million-unemployed-or.html).

Period IQ1980 to IVQ1985

Employed Millions IQ1980 NSA End of Quarter	98.527
Employed Millions IVQ1985 NSA End of Quarter	108.063
∆% Employed IQ1980 to IVQ1985	9.7

Period IVQ2007 to IVQ2012

Employed Millions IVQ2007 NSA End of Quarter	146.334
Employed Millions IVQ2012 NSA End of Quarter	143.060
∆% Employed IVQ2007 to IVQ2012	-2.2

4. Number of Full-Time Employed Persons

i. As shown in Table IX-2, during the entire business cycle in the 1980s, including contractions and expansion, the number of employed full-time rose from 81.280 million NSA in IQ1980 to 88.757 million NSA in IVQ1985 or 9.2 percent.

ii. In contrast, during the entire current business cycle, including contraction and expansion, the number of persons employed full-time fell from 121.042 million in IVQ2007 to 115.079 million in IVQ2012 or by minus 4.9 percent.

Period IQ1980 to IVQ1985

Employed Full-time Millions IQ1980 NSA End of Quarter	81.280
Employed Full-time Millions IV1985 NSA End of Quarter	88.757
∆% Full-time Employed IQ1980 to IV1985	9.2

Period IVQ2007 to IVQ2012

Employed Full-time Millions IVQ2007 NSA End of Quarter	121.042
Employed Full-time Millions IVQ2012 NSA End of Quarter	115.079
∆% Full-time Employed IVQ2007 to IVQ2012	-4.9

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

i. As shown in Table IX-2 and in the following block, in the cycle from IQ1980 to IVQ1985: (a) the rate of unemployment was virtually the same at 6.7 percent in IQ1985 relative to 6.6 percent in IQ1980; (b) the number unemployed increased from 6.983 million in IQ1980 to 7.717 million in IVQ1985 or 10.5 percent; and (c) the number employed part-time for economic reasons increased 49.1 percent from 3.624 million in IQ1980 to 5.402 million in IVQ1985.

ii. In contrast, in the economic cycle from IVQ2007 to IVQ2012: (a) the rate of unemployment increased from 4.8 percent in IVQ2007 to 7.6 percent in IVQ2012; (b) the number unemployed increased 60.7 percent from 7.371 million in IVQ2007 to 11.844 million in IVQ2012; (c) the number employed part-time for economic reasons increased 71.9 percent from 4.750 million in IVQ2007 to 8.166 million in IVQ2012; and (d) U6 Total Unemployed plus all marginally attached workers plus total employed part time for economic reasons as percent of all civilian labor force plus all marginally attached workers NSA increased from 8.7 percent in IVQ2007 to 14.4 percent in IVQ2012.

Period IQ1980 to IVQ1985

Unemployment Rate IQ1980 NSA End of Quarter	6.6
Unemployment Rate IVQ1985 NSA End of Quarter	6.7
Unemployed IQ1980 Millions End of Quarter	6.983
Unemployed IVQ1985 Millions End of Quarter	7.717
Employed Part-time Economic Reasons Millions IQ1980 End of Quarter	3.624
Employed Part-time Economic Reasons Millions IVQ1985 End of Quarter	5.402
∆%	49.1

Period IVQ2007 to IVQ2012

Unemployment Rate IVQ2007 NSA End of Quarter	4.8
Unemployment Rate IVQ2012 NSA End of Quarter	7.6
Unemployed IVQ2007 Millions End of Quarter	7.371
Unemployed IVQ2012 Millions End of Quarter	11.844
∆%	60.7
Employed Part-time Economic Reasons IVQ2007 Millions End of Quarter	4.750
Employed Part-time Economic Reasons Millions IVQ2012 End of Quarter	8.166
∆%	71.9
U6 Total Unemployed plus all marginally attached workers plus total employed part time for economic reasons as percent of all civilian labor force plus all marginally attached workers NSA
IVQ2007	8.7
IVQ2012	14.4

6. Wealth of Households and Nonprofit Organizations.

i. The comparison of net worth of households and nonprofit organizations in the entire economic cycle from IQ1980 (and also from IVQ1979) to IVQ1985 and from IVQ2007 to IIIQ2012 is provided in the following block and in Table IX-2. Net worth of households and nonprofit organizations increased from $8,326.4 billion in IVQ1979 to $14,395.2 billion in IVQ1985 or 72.9 percent or 69.3 percent from $8,502.9 billion in IQ1980. The starting quarter does not bias the results. The US consumer price index not seasonally adjusted increased from 76.7 in Dec 1979 to 109.3 in Dec 1985 or 42.5 percent or 36.5 percent from 80.1 in Mar 1980 (using consumer price index data from the US Bureau of Labor Statistics at http://www.bls.gov/cpi/data.htm). In terms of purchasing power measured by the consumer price index, real wealth of households and nonprofit organizations increased 21.3 percent in constant purchasing power from IVQ1979 to IVQ1985 or 24.0 percent from IQ1980.

ii. In contrast, as shown in Table IX-2, net worth of households and nonprofit organizations fell from $66,118.3 billion in IVQ2007 to $66,071.7 billion in IVQ2012 by $46.6 billion or 0.1 percent. The US consumer price index was 210.036 in Dec 2007 and 229.601 in Dec 2012 for increase of 9.1 percent. In purchasing power of Dec 2007, wealth of households and nonprofit organizations is lower by 8.4 percent in Dec 2012 after 14 consecutive quarters of expansion from IIIQ2009 to IVQ2012 relative to IVQ2007 when the recession began. The explanation is partly in the sharp decline of wealth of households and nonprofit organizations and partly in the mediocre growth rates of the cyclical expansion beginning in IIIQ2009. The average growth rate from IIIQ2009 to IQ2013 has been 2.1 percent, which is substantially lower than the average of 5.7 percent in the expansion from IQ1983 to IQ1986 (http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states.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). The US missed the opportunity of high growth rates that has been available in past cyclical expansions. US wealth of households and nonprofit organizations grew from IVQ1945 at $710,125.9 million to IIIQ2009 at $64,768,835.3 million or increase of 9,020.8 percent. The consumer price index not seasonally adjusted was 18.2 in Dec 1945 jumping to 231.407 in Sep 2012 or 1,171.5 percent. There was a gigantic increase of US net worth of households and nonprofit organizations over 67 years with inflation-adjusted increase of 617.3 percent. The combination of collapse of values of real estate and financial assets during the global recession of IVQ2007 to IIQ2009 caused sharp contraction of US household and nonprofit net worth. Recovery has been in stop-and-go fashion during the worst cyclical expansion in the 67 years when US GDP grew at 2.1 percent on average in 14 quarters between IIIQ2009 and IVQ2012 in contrast with average 5.7 percent from IQ1983 to IQ1986. 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).

Period IQ1980 to IVQ1985
Net Worth of Households and Nonprofit Organizations USD Billions
IVQ1979	8,326.4
IVQ1985	14,395.2
∆ USD Billions	+6,068.8
Period IVQ2007 to IIIQ2012
Net Worth of Households and Nonprofit Organizations USD Billions
IVQ2007	66,118.3
IVQ2012	66,071.7
∆ USD Billions	-46.6

7. Gross Private Domestic Investment.

i. The comparison of gross private domestic investment in the entire economic cycles from IQ1980 to IVQ1985 and from IVQ2007 to IVQ2012 is provided in the following block and in Table IX-2. Gross private domestic investment increased from $778.3 billion in IQ1980 to $965.9 billion in IVQ1985 or by 24.1 percent.

ii In the current cycle, gross private domestic investment decreased from $2,123.6 billion in IVQ2007 to $1,935.1 billion in IVQ2012, or decline by 8.9 percent. Private fixed investment fell from $2,111.5 billion in IVQ2007 to $1,906.3 billion in IVQ2012, or decline by 9.7 percent.

Period IQ1980 to IVQ1985
Gross Private Domestic Investment USD 2005 Billions
IQ1980	778.3
IVQ1985	965.9
∆%	24.1
Period IVQ2007 to IVQ2012
Gross Private Domestic Investment USD Billions
IVQ2007	2,123.6
IVQ2012	1,935.1
∆%	-8.9
Private Fixed Investment USD 2005 Billions
IVQ2007	2,111.5
IVQ2012	1,906.3
∆%	-9.7

Table IX-2, US, GDP and Real Disposable Personal Income per Capita Actual and Trend Growth and Employment, 1980-1985 and 2007-2012, SAAR USD Billions, Millions of Persons and ∆%


Period IQ1980 to IQ1986
GDP SAAR USD Billions
IQ1980	5,903.4
IQ1986	7,016.8
∆% IQ1980 to IQ1986 (19.6 percent from IVQ1982 $5866.0 billion)	18.9
∆% Trend Growth IQ1980 to IQ1986	20.3
Real Disposable Personal Income per Capita IQ1980 Chained 2005 USD	18,938
Real Disposable Personal Income per Capita IQ1986 Chained 2005 USD	21,902
∆% IQ1980 to IQ1986	15.7
∆% Trend Growth	13.2
Employed Millions IQ1980 NSA End of Quarter	98.527
Employed Millions IV1985 NSA End of Quarter	108.063
∆% Employed IQ1980 to IVQ1985	9.7
Employed Full-time Millions IQ1980 NSA End of Quarter	81.280
Employed Full-time Millions IVQ1985 NSA End of Quarter	88.757
∆% Full-time Employed IQ1980 to IVQ1985	9.2
Unemployment Rate IQ1980 NSA End of Quarter	6.6
Unemployment Rate IVQ1985 NSA End of Quarter	6.7
Unemployed IQ1980 Millions NSA End of Quarter	6.983
Unemployed IVQ1985 Millions NSA End of Quarter	7.717
∆%	10.5
Employed Part-time Economic Reasons IQ1980 Millions NSA End of Quarter	3.624
Employed Part-time Economic Reasons Millions IVQ1985 NSA End of Quarter	5.402
∆%	49.1
Net Worth of Households and Nonprofit Organizations USD Billions
IVQ1979	8,326.4
IVQ1985	14,395.2
∆ USD Billions	+6,068.8
Gross Private Domestic Investment USD 2005 Billions
IQ1980	778.3
IVQ1985	965.9
∆%	24.1
Period IVQ2007 to IVQ2012
GDP SAAR USD Billions
IVQ2007	13,326.0
IVQ2012	13,665.4
∆% IVQ2007 to IVQ2012	2.5
∆% IVQ2007 to IVQ2012 Trend Growth	16.8
Real Disposable Personal Income per Capita IVQ2007 Chained 2005USD	32,837
Real Disposable Personal Income per Capita IVQ2012 Chained 2005 USD	33,138
∆% IVQ2007 to IVQ2012	0.9
∆% Trend Growth	10.9
Employed Millions IVQ2007 NSA End of Quarter	146.334
Employed Millions IVQ2012 NSA End of Quarter	143.060
∆% Employed IVQ2007 to IVQ2012	-2.2
Employed Full-time Millions IVQ2007 NSA End of Quarter	121.042
Employed Full-time Millions IVQ2012 NSA End of Quarter	115.079
∆% Full-time Employed IVQ2007 to IVQ2012	-4.9
Unemployment Rate IVQ2007 NSA End of Quarter	4.8
Unemployment Rate IVQ2012 NSA End of Quarter	7.6
Unemployed IVQ2007 Millions NSA End of Quarter	7.371
Unemployed IVQ2012 Millions NSA End of Quarter	11.844
∆%	60.7
Employed Part-time Economic Reasons IVQ2007 Millions NSA End of Quarter	4.750
Employed Part-time Economic Reasons Millions IVQ2012 NSA End of Quarter	8.166
∆%	71.9
U6 Total Unemployed plus all marginally attached workers plus total employed part time for economic reasons as percent of all civilian labor force plus all marginally attached workers NSA
IVQ2007	8.7
IVQ2012	14.4
Net Worth of Households and Nonprofit Organizations USD Billions
IVQ2007	66,118.3
IVQ2012	66,071.7
∆ USD Billions	-46.6
Gross Private Domestic Investment USD Billions
IVQ2007	2,123.6
IVQ2012	1,935.1
∆%	-8.9
Private Fixed Investment USD 2005 Billions
IVQ2007	2,111.5
IVQ2012	1,906.3
∆%	-9.7

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

Source: US Bureau of Economic Analysis http://www.bea.gov/iTable/index_nipa.cfm US Bureau of Labor Statistics http://www.bls.gov/data/. Board of Governors of the Federal Reserve System. 2012Sep20. Flow of funds accounts of the United States. Washington, DC, Federal Reserve System.

The Congressional Budget Office (CBO 2013BEOFeb5) estimates potential GDP, potential labor force and potential labor productivity provided in Table IX-3. The average rate of growth of potential GDP from 1950 to 2012 is estimated at 3.3 percent per year. The projected path is significantly lower at 2.2 percent per year from 2012 to 2023. The legacy of the economic cycle with expansion from IIIQ2009 to IQ2013 at 2.1 percent on average in contrast with 5.7 percent on average in the expansion (http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states_28.html

and earlier at http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states.html) may perpetuate unemployment and underemployment estimated at 28.6 million or 17.6 percent of the effective labor force in Apr 2013 (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/04/thirty-million-unemployed-or.html) with much lower hiring than in the period before the current cycle (http://cmpassocregulationblog.blogspot.com/2013/04/recovery-without-hiring-ten-million.html

http://cmpassocregulationblog.blogspot.com/2013/03/recovery-without-hiring-ten-million.html).

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

	Potential GDP	Potential Labor Force	Potential Labor Productivity*
Average Annual ∆%
1950-1973	3.9	1.6	2.3
1974-1981	3.3	2.5	0.8
1982-1990	3.1	1.6	1.5
1991-2001	3.1	1.3	1.8
2002-2012	2.2	0.8	1.4
Total 1950-2012	3.3	1.5	1.7
Projected Average Annual ∆%
2013-2018	2.2	0.6	1.6
2019-2023	2.3	0.5	1.8
2012-2023	2.2	0.5	1.7

*Ratio of potential GDP to potential labor force

Source: CBO (2013BEOFeb5).

Chart IX-1 of the Congressional Budget Office (CBO 2013BEOFeb5) provides actual and potential GDP of the United States from 2000 to 2011 and projected to 2024. Lucas (2011May) estimates trend of United States real GDP of 3.0 percent from 1870 to 2010 and 2.2 percent for per capita GDP. The United States successfully returned to trend growth of GDP by higher rates of growth during cyclical expansion as analyzed by Bordo (2012Sep27, 2012Oct21) and Bordo and Haubrich (2012DR). Growth in expansions following deeper contractions and financial crises was much higher in agreement with the plucking model of Friedman (1964, 1988). The unusual weakness of growth at 2.1 percent on average from IIIQ2009 to IQ2013 during the current economic expansion in contrast with 5.7 percent on average in the cyclical expansion from IQ1983 to IQ1986 (http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states_28.html and earlier http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states.html) cannot be explained by the contraction of 4.7 of GDP from IVQ2007 to IIQ2009 and the financial crisis. Weakness of growth in the expansion is perpetuating unemployment and underemployment of 28.6 million or 17.6 percent of the labor as estimated for Apr 2013 (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/04/thirty-million-unemployed-or.html) and the collapse of hiring (http://cmpassocregulationblog.blogspot.com/2013/04/recovery-without-hiring-ten-million.html and earlier http://cmpassocregulationblog.blogspot.com/2013/03/recovery-without-hiring-ten-million.html).

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

Source: Congressional Budget Office, CBO (2013BEOFeb5).

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Twenty Nine Million Unemployed or Underemployed, Stagnating Real Wages and Real Disposable Income, Peaking Valuations of Risk Financial Assets, World Economic Slowdown and Global Recession Risk: Part V

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