Risks of Zero Interest Rates, Mediocre United States Economic Growth, Twenty Eight Million Unemployed/Underemployed, United States Trade, United States Housing Collapse, World Economic Slowdown and Global Recession Risk
Carlos M. Pelaez
© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013
Executive Summary
I Mediocre and Decelerating United States Economic Growth
IA Mediocre and Decelerating United States Economic Growth
IA1 Contracting Real Private Fixed Investment
IA2 Swelling Undistributed Corporate Profits
IB Stagnating Real Disposable Income and Consumption Expenditures
IB1 Stagnating Real Disposable Income and Consumption Expenditures
IB2 Financial Repression
II Twenty Nine 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
IIB Stagnating Real Wages
IIC United States International Trade
IID United States Housing Collapse
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
IA Mediocre and Decelerating United States Economic Growth. The US is experiencing the first expansion from a recession after World War II with stressing socioeconomic conditions:
- Mediocre economic growth below potential and long-term trend, resulting in idle productive resources (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html)
- Private fixed investment declining 3.7 percent in the entire cycle from IVQ2007 to IIIQ2013 (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html)
- Twenty eight million or 17.2 percent of the effective labor force unemployed or underemployed in involuntary part-time jobs with stagnating or declining real wages (Section II and earlier http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html)
- Stagnating real disposable income per person or income per person after inflation and taxes (Section IB and earlier http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html)
- Depressed hiring that does not afford an opportunity for reducing unemployment/underemployment and moving to better-paid jobs (http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-zero-interest-rates-world.html)
- Unsustainable government deficit/debt and balance of payments deficit (http://cmpassocregulationblog.blogspot.com/2013/09/duration-dumping-and-peaking-valuations.html)
- Worldwide waves of inflation (http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-zero-interest-rates-world.html and earlier http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-world-inflation.html http://cmpassocregulationblog.blogspot.com/2013/10/world-inflation-waves-regional-economic.html)
- Deteriorating terms of trade and net revenue margins in squeeze of economic activity by carry trades induced by zero interest rates (http://cmpassocregulationblog.blogspot.com/2013/10/world-inflation-waves-regional-economic.html)
- Financial repression of interest rates and credit affecting the most people without means and access to sophisticated financial investments with likely adverse effects on income distribution and wealth disparity (Section IB and earlier http /cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html)
- 47 million in poverty and 48 million without health insurance with family income adjusted for inflation regressing to 1995 levels (http://cmpassocregulationblog.blogspot.com/2013/09/duration-dumping-and-peaking-valuations.html
- Net worth of households and nonprofits organizations declining by 0.9 percent after adjusting for inflation in the entire cycle from IVQ2007 to IIQ2013 in contrast with growth at 3.0 percent in real terms from 1945 to 2012 (http://cmpassocregulationblog.blogspot.com/2013/09/mediocre-and-decelerating-united-states.html)
Valuations of risk financial assets approach historical highs. 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 2.3 percent on average in the cyclical expansion in the 17 quarters from IIIQ2009 to IIIQ2013. 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://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp3q13_2nd.pdf http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp3q13_adv.pdf
http://bea.gov/newsreleases/national/gdp/2013/pdf/gdp2q13_adv.pdf http://bea.gov/newsreleases/national/pi/2013/pdf/pi0613.pdf) and the second estimate of GDP for IIIQ2013 (http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp3q13_2nd.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/2013/11/global-financial-risk-mediocre-united.html). The expansion from IQ1983 to IVQ1985 was at the average annual growth rate of 5.7 percent, 5.4 percent from IQ1983 to IIIQ1986 and at 7.8 percent from IQ1983 to IVQ1983 (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html). As a result, there are 28.1 million unemployed or underemployed in the United States for an effective unemployment rate of 17.2 percent (Section II and earlier) http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html).
The economy of the US can be summarized in growth of economic activity or GDP as decelerating from mediocre growth of 2.5 percent on an annual basis in 2010 to 1.8 percent in 2011 to 2.8 percent in 2012. The following calculations show that actual growth is around 1.9 to 2.4 percent per year. This rate is well below 3 percent per year in trend from 1870 to 2010, which the economy of the US always attained for entire cycles in expansions after events such as wars and recessions (Lucas 2011May).
Revisions and enhancements of United States GDP and personal income accounts by the Bureau of Economic Analysis (BEA) (http://bea.gov/iTable/index_nipa.cfm http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp3q13_2nd.pdf http://bea.gov/newsreleases/national/gdp/2013/pdf/gdp2q13_adv.pdf http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp2q13_2nd.pdf http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp2q13_3rd.pdf http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0713.pdf http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0813.pdf http://bea.gov/newsreleases/national/pi/2013/pdf/pi0613.pdf http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp3q13_adv.pdf) provide important information on long-term growth and cyclical behavior. Table Summary provides relevant data.
- Long-term. US GDP grew at the average yearly rate of 3.3 percent from 1929 to 2012 and at 3.2 percent from 1947 to 2012. There were periodic contractions or recessions in this period but the economy grew at faster rates in the subsequent expansions, maintaining long-term economic growth at trend.
- Cycles. The combined contraction of GDP in the two almost consecutive recessions in the early 1980s is 4.7 percent. The contraction of US GDP from IVQ2007 to IIQ2009 during the global recession was 4.3 percent. The critical difference in the expansion is growth at average 7.8 percent in annual equivalent in the first four quarters of recovery from IQ1983 to IVQ1983. The average rate of growth of GDP in four cyclical expansions in the postwar period is 7.7 percent. In contrast, the rate of growth in the first four quarters from IIIQ2009 to IIQ2010 was only 2.7 percent. Average annual equivalent growth in the expansion from IQ1983 to IIIQ1986 was 5.4 percent. In contrast, average annual equivalent growth in the expansion from IIIQ2009 to IIIQ2013 was only 2.3 percent. The US appears to have lost its dynamism of income growth and employment creation.
Table Summary, Long-term and Cyclical Growth of GDP, Real Disposable Income and Real Disposable Income per Capita
| GDP | ||
| Long-Term | ||
| 1929-2012 | 3.3 | |
| 1947-2012 | 3.2 | |
| Cyclical Contractions ∆% | ||
| IQ1980 to IIIQ1980, IIIQ1981 to IVQ1982 | -4.7 | |
| IVQ2007 to IIQ2009 | -4.3 | |
| Cyclical Expansions Average Annual Equivalent ∆% | ||
| IQ1983 to IVQ1985 IQ1983-IQ1986 IQ1983-IIIQ1986 IQ1983-IV1986 IQ1983-IQ1987 | 5.9 5.7 5.4 5.2 5.0 | |
| First Four Quarters IQ1983 to IVQ1983 | 7.8 | |
| IIIQ2009 to IIIQ2013 | 2.3 | |
| First Four Quarters IIIQ2009 to IIQ2010 | 2.7 | |
| Real Disposable Income | Real Disposable Income per Capita | |
| Long-Term | ||
| 1929-2012 | 3.2 | 2.0 |
| 1947-1999 | 3.7 | 2.3 |
| Whole Cycles | ||
| 1980-1989 | 3.5 | 2.6 |
| 2006-2012 | 1.4 | 0.6 |
Source: Bureau of Economic Analysis http://www.bea.gov/iTable/index_nipa.cfm http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp2q13_3rd.pdf http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0813.pdf
http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp3q13_adv.pdf
http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp3q13_2nd.pdf
The revisions and enhancements of United States GDP and personal income accounts by the Bureau of Economic Analysis (BEA) (http://bea.gov/iTable/index_nipa.cfm http://bea.gov/newsreleases/national/gdp/2013/pdf/gdp2q13_adv.pdf http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp2q13_2nd.pdf http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp2q13_3rd.pdf http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0713.pdf http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0813.pdf http://bea.gov/newsreleases/national/pi/2013/pdf/pi0613.pdf http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp3q13_adv.pdf) also provide critical information in assessing the current rhythm of US economic growth. The economy appears to be moving at a pace from 1.9 to 2.4 percent per year. Table Summary GDP provides the data.
1. Average Annual Growth in the Past Six Quarters. GDP growth in the four quarters of 2012 and the first three quarters of 2013 accumulated to 3.8 percent. This growth is equivalent to 2.1 percent per year, obtained by dividing GDP in IIIQ2013 of $15,819.0 billion by GDP in IVQ2011 of $15,242.1 billion and compounding by 4/7: {[($15,819.0/$15,242.1)4/6 -1]100 = 2.1.
2. Average Annual Growth in the First Three Quarters of 2013. GDP growth in the first three quarters of 2013 accumulated to 1.6 percent that is equivalent to 2.4 percent in a year. This is obtained by dividing GDP in IIIQ2013 of $15,819.0 by GDP in IVQ2012 of $15,539.6 and compounding by 4/3: {[($15,819.0/$15,539.6)4/3 -1]100 = 2.4%}. The US economy grew 1.8 percent in IIIQ2013 relative to the same quarter a year earlier in IIIQ2012. Another important revelation of the revisions and enhancements is that GDP was flat in IVQ2012, which is just at the borderline of contraction. The rate of growth of GDP in the second estimate of IIIQ2013 is 3.6 percent in seasonally adjusted annual rate (SAAR). Inventory accumulation contributed 1.68 percentage points to this rate of growth. The actual rate without this impulse of unsold inventories would have been 1.92 percent, or 0.5 percent in IIIQ2013, such that annual equivalent growth in 2013 is closer to 1.9 percent {[(1.003)(1.006)(1.005)4/3-1]100 = 1.9%}, compounding the quarterly rates and converting into annual equivalent.
Table Summary GDP, US, Real GDP and Percentage Change Relative to IVQ2007 and Prior Quarter, Billions Chained 2005 Dollars and ∆%
| Real GDP, Billions Chained 2009 Dollars | ∆% Relative to IVQ2007 | ∆% Relative to Prior Quarter | ∆% | |
| IVQ2007 | 14,996.1 | NA | NA | 1.9 |
| IVQ2011 | 15,242.1 | 1.6 | 1.2 | 2.0 |
| IQ2012 | 15,381.6 | 2.6 | 0.9 | 3.3 |
| IIQ2012 | 15,427.7 | 2.9 | 0.3 | 2.8 |
| IIIQ2012 | 15,534.0 | 3.6 | 0.7 | 3.1 |
| IVQ2012 | 15,539.6 | 3.6 | 0.0 | 2.0 |
| IQ2013 | 15,583.9 | 3.9 | 0.3 | 1.3 |
| IIQ2013 | 15,679.7 | 4.6 | 0.6 | 1.6 |
| IIIQ2013 | 15,819.0 | 5.5 | 0.9 | 1.8 |
| Cumulative ∆% IQ2012 to IIIQ2013 | 3.8 | 3.8 | ||
| Annual Equivalent ∆% | 2.1 | 2.1 |
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp3q13_2nd.pdf
The objective of this section is analyzing US economic growth in the current cyclical expansion. There is initial discussion of the conventional explanation of the current recovery as being weak because of the depth of the contraction and the financial crisis and brief discussion of the concept of “slow-growth recession.” Analysis that is more complete is in IB Collapse of United States Dynamism of Income Growth and Employment Creation, which is updated with release of more information on the United States economic cycle (IX Conclusion and extended analysis at http://cmpassocregulationblog.blogspot.com/2013/10/collapse-of-united-states-dynamism-of.html). The bulk of the section consists of comparison of the current growth experience of the US with earlier expansions after past deep contractions and consideration of recent performance.
This blog has analyzed systematically the weakness of United States recovery in the current business cycle from IIIQ2009 to the present in comparison with the recovery from the two recessions in the 1980s from IQ1983 to IVQ1986. US economic growth has been at only 2.3 percent on average in the cyclical expansion in the 16 quarters from IIIQ2009 to IIIQ2013 (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.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 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/2013/11/global-financial-risk-mediocre-united.html). The expansion from IQ1983 to IVQ1985 was at the average annual growth rate of 5.7 percent, 5.4 percent from IQ1983 to IIIQ1986 and at 7.8 percent from IQ1983 to IVQ1983 (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html). As a result, there are 28.1 million unemployed or underemployed in the United States for an effective unemployment rate of 17.1 percent (Section II and earlier http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html).
The conventional explanation is that the recession from IVQ2007 (Dec) to IIQ2009 (Jun) was so profound that it caused subsequent weak recovery and that historically growth after recessions with financial crises has been weaker. Michael D. Bordo (2012Sep27) and Bordo and Haubrich (2012DR) provide evidence contradicting the conventional explanation: recovery is much stronger on average after profound contractions and much stronger after recessions with financial crises than after recessions without financial crises. Insistence on the conventional explanation prevents finding policies that can accelerate growth, employment and prosperity.
A monumental effort of data gathering, calculation and analysis by Carmen M. Reinhart and Kenneth Rogoff is highly relevant to banking crises, financial crash, debt crises and economic growth (Reinhart 2010CB; Reinhart and Rogoff 2011AF, 2011Jul14, 2011EJ, 2011CEPR, 2010FCDC, 2010GTD, 2009TD, 2009AFC, 2008TDPV; see also Reinhart and Reinhart 2011Feb, 2010AF and Reinhart and Sbrancia 2011). See http://cmpassocregulationblog.blogspot.com/2011/07/debt-and-financial-risk-aversion-and.html The dataset of Reinhart and Rogoff (2010GTD, 1) is quite unique in breadth of countries and over time periods:
“Our results incorporate data on 44 countries spanning about 200 years. Taken together, the data incorporate over 3,700 annual observations covering a wide range of political systems, institutions, exchange rate and monetary arrangements and historic circumstances. We also employ more recent data on external debt, including debt owed by government and by private entities.”
Reinhart and Rogoff (2010GTD, 2011CEPR) classify the dataset of 2317 observations into 20 advanced economies and 24 emerging market economies. In each of the advanced and emerging categories, the data for countries is divided into buckets according to the ratio of gross central government debt to GDP: below 30, 30 to 60, 60 to 90 and higher than 90 (Reinhart and Rogoff 2010GTD, Table 1, 4). Median and average yearly percentage growth rates of GDP are calculated for each of the buckets for advanced economies. There does not appear to be any relation for debt/GDP ratios below 90. The highest growth rates are for debt/GDP ratios below 30: 3.7 percent for the average and 3.9 for the median. Growth is significantly lower for debt/GDP ratios above 90: 1.7 for the average and 1.9 percent for the median. GDP growth rates for the intermediate buckets are in a range around 3 percent: the highest 3.4 percent average is for the bucket 60 to 90 and 3.1 percent median for 30 to 60. There is even sharper contrast for the United States: 4.0 percent growth for debt/GDP ratio below 30; 3.4 percent growth for debt/GDP ratio of 30 to 60; 3.3 percent growth for debt/GDP ratio of 60 to 90; and minus 1.8 percent, contraction, of GDP for debt/GDP ratio above 90.
For the five countries with systemic financial crises—Iceland, Ireland, UK, Spain and the US—real average debt levels have increased by 75 percent between 2007 and 2009 (Reinhart and Rogoff 2010GTD, Figure 1). The cumulative increase in public debt in the three years after systemic banking crisis in a group of episodes after World War II is 86 percent (Reinhart and Rogoff 2011CEPR, Figure 2, 10).
An important concept is “this time is different syndrome,” which “is rooted in the firmly-held belief that financial crises are something that happens to other people in other countries at other times; crises do not happen here and now to us” (Reinhart and Rogoff 2010FCDC, 9). There is both an arrogance and ignorance in “this time is different” syndrome, as explained by Reinhart and Rogoff (2010FCDC, 34):
“The ignorance, of course, stems from the belief that financial crises happen to other people at other time in other places. Outside a small number of experts, few people fully appreciate the universality of financial crises. The arrogance is of those who believe they have figured out how to do things better and smarter so that the boom can long continue without a crisis.”
There is sober warning by Reinhart and Rogoff (2011CEPR, 42) on the basis of the momentous effort of their scholarly data gathering, calculation and analysis:
“Despite considerable deleveraging by the private financial sector, total debt remains near its historic high in 2008. Total public sector debt during the first quarter of 2010 is 117 percent of GDP. It has only been higher during a one-year sting at 119 percent in 1945. Perhaps soaring US debt levels will not prove to be a drag on growth in the decades to come. However, if history is any guide, that is a risky proposition and over-reliance on US exceptionalism may only be one more example of the “This Time is Different” syndrome.”
As both sides of the Atlantic economy maneuver around defaults, the experience on debt and growth deserves significant emphasis in research and policy. The world economy is slowing with high levels of unemployment in advanced economies. Countries do not grow themselves out of unsustainable debts but rather through de facto defaults by means of financial repression and in some cases through inflation. This time is not different.
Professor Michael D. Bordo (2012Sep27), at Rutgers University, is providing clear thought on the correct comparison of the current business cycles in the United States with those in United States history. There are two issues raised by Professor Bordo: (1) incomplete conclusions by lumping together countries with different institutions, economic policies and financial systems; and (2) the erroneous contention that growth is mediocre after financial crises and deep recessions, which is repeated daily in the media, but that Bordo and Haubrich (2012DR) persuasively demonstrate to be inconsistent with United States experience.
Depriving economic history of institutions is perilous as is illustrated by the economic history of Brazil. Douglass C. North (1994) emphasized the key role of institutions in explaining economic history. Rondo E. Cameron (1961, 1967, 1972) applied institutional analysis to banking history. Friedman and Schwartz (1963) analyzed the relation of money, income and prices in the business cycle and related the monetary policy of an important institution, the Federal Reserve System, to the Great Depression. Bordo, Choudhri and Schwartz (1995) analyze the counterfactual of what would have been economic performance if the Fed had used during the Great Depression the Friedman (1960) monetary policy rule of constant growth of money (for analysis of the Great Depression see Pelaez and Pelaez, Regulation of Banks and Finance (2009b), 198-217). Alan Meltzer (2004, 2010a,b) analyzed the Federal Reserve System over its history. The reader would be intrigued by Figure 5 in Reinhart and Rogoff (2010FCDC, 15) in which Brazil is classified in external default for seven years between 1828 and 1834 but not again until 64 years later in 1989, above the 50 years of incidence for serial default. William R. Summerhill, Jr. (2007SC, 2007IR) has filled this void in scholarly research on nineteenth-century Brazil. There are important conclusions by Summerhill on the exceptional sample of institutional change or actually lack of change, public finance and financial repression in Brazil between 1822 and 1899, combining tools of economics, political science and history. During seven continuous decades, Brazil did not miss a single interest payment with government borrowing without repudiation of debt or default. What is surprising is that Brazil borrowed by means of long-term bonds and, even more surprising, interest rates fell over time. The external debt of Brazil in 1870 was ₤41,275,961 and the domestic debt in the internal market was ₤25,708,711, or 62.3 percent of the total (Summerhill 2007IR, 73).
The experience of Brazil differed from that of Latin America (Summerhill 2007IR). During the six decades when Brazil borrowed without difficulty, Latin American countries becoming independent after 1820 engaged in total defaults, suffering hardship in borrowing abroad. The countries that borrowed again fell again in default during the nineteenth century. Venezuela defaulted in four occasions. Mexico defaulted in 1827, rescheduling its debt eight different times and servicing the debt sporadically. About 44 percent of Latin America’s sovereign debt was in default in 1855 and approximately 86 percent of total government loans defaulted in London originated in Spanish American borrowing countries.
External economies of commitment to secure private rights in sovereign credit would encourage development of private financial institutions, as postulated in classic work by North and Weingast (1989), Summerhill 2007IR, 22). This is how banking institutions critical to the Industrial Revolution were developed in England (Cameron 1967). The obstacle in Brazil found by Summerhill (2007IR) is that sovereign debt credibility combined with financial repression. There was a break in Brazil of the chain of effects from protecting public borrowing, as in North and Weingast (1989), to development of private financial institutions.
Nicia Villela Luz and Carlos Manuel Peláez (1972, 276) find that:
“The lack of interest on historical moments by economists may explain their emphasis on secular trends in their research on the past instead of changes in the historical process. This may be the origin of why they fill gaps in documentation with their extrapolations.”
Vilela Luz (1961) provides classic analysis of industrialization in Brazil. According to Pelaez 1976, 283) following Cameron (1971, 1967):
“The banking law of 1860 placed severe restrictions on two basic modern economic institutions—the corporation and the commercial bank. The growth of the volume of bank credit was one of the most significant factors of financial intermediation and economic growth in the major trading countries of the gold standard group. But Brazil placed strong restrictions on the development of banking and intermediation functions, preventing the channeling of coffee savings into domestic industry at an earlier date.”
Brazil actually abandoned the gold standard during multiple financial crises in the nineteenth century, as it should have to protect domestic economic activity. Pelaez (1975, 447) finds similar experience in the first half of nineteenth-century Brazil:
“Brazil’s experience is particularly interesting in that in the period 1808-1851 there were three types of monetary systems. Between 1808 and 1829, there was only one government-related Bank of Brazil, enjoying a perfect monopoly of banking services. No new banks were established in the 1830s after the liquidation of the Bank of Brazil in 1829. During the coffee boom in the late 1830s and 1840s, a system of banks of issue, patterned after similar institutions in the industrial countries, supplied the financial services required in the first stage of modernization of the export economy.”
Financial crises in the advanced economies transmitted to nineteenth-century Brazil by the arrival of a ship (Pelaez and Suzigan 1981). The explanation of those crises and the economy of Brazil requires knowledge and roles of institutions, economic policies and the financial system chosen by Brazil, in agreement with Bordo (2012Sep27).
The departing theoretical framework of Bordo and Haubrich (2012DR) is the plucking model of Friedman (1964, 1988). Friedman (1988, 1) recalls, “I was led to the model in the course of investigating the direction of influence between money and income. Did the common cyclical fluctuation in money and income reflect primarily the influence of money on income or of income on money?” Friedman (1964, 1988) finds useful for this purpose to analyze the relation between expansions and contractions. Analyzing the business cycle in the United States between 1870 and 1961, Friedman (1964, 15) found that “a large contraction in output tends to be followed on the average by a large business expansion; a mild contraction, by a mild expansion.” The depth of the contraction opens up more room in the movement toward full employment (Friedman 1964, 17):
“Output is viewed as bumping along the ceiling of maximum feasible output except that every now and then it is plucked down by a cyclical contraction. Given institutional rigidities and prices, the contraction takes in considerable measure the form of a decline in output. Since there is no physical limit to the decline short of zero output, the size of the decline in output can vary widely. When subsequent recovery sets in, it tends to return output to the ceiling; it cannot go beyond, so there is an upper limit to output and the amplitude of the expansion tends to be correlated with the amplitude of the contraction.”
Kim and Nelson (1999) test the asymmetric plucking model of Friedman (1964, 1988) relative to a symmetric model using reference cycles of the NBER, finding evidence supporting the Friedman model. Bordo and Haubrich (2012DR) analyze 27 cycles beginning in 1872, using various measures of financial crises while considering different regulatory and monetary regimes. The revealing conclusion of Bordo and Haubrich (2012DR, 2) is that:
“Our analysis of the data shows that steep expansions tend to follow deep contractions, though this depends heavily on when the recovery is measured. In contrast to much conventional wisdom, the stylized fact that deep contractions breed strong recoveries is particularly true when there is a financial crisis. In fact, on average, it is cycles without a financial crisis that show the weakest relation between contraction depth and recovery strength. For many configurations, the evidence for a robust bounce-back is stronger for cycles with financial crises than those without.”
The average rate of growth of real GDP in expansions after recessions with financial crises was 8 percent but only 6.9 percent on average for recessions without financial crises (Bordo 2012Sep27). Real GDP declined 12 percent in the Panic of 1907 and increased 13 percent in the recovery, consistent with the plucking model of Friedman (Bordo 2012Sep27). The comparison of recovery from IQ1983 to IVQ1985 is appropriate even when considering financial crises. There was significant financial turmoil during the 1980s. Bordo and Haubrich (2012DR, 11) identify a financial crisis in the United States starting in 1981. Benston and Kaufman (1997, 139) find that there was failure of 1150 US commercial and savings banks between 1983 and 1990, or about 8 percent of the industry in 1980, which is nearly twice more than between the establishment of the Federal Deposit Insurance Corporation in 1934 through 1983. More than 900 savings and loans associations, representing 25 percent of the industry, were closed, merged or placed in conservatorships (see Pelaez and Pelaez, Regulation of Banks and Finance (2008b), 74-7). The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) created the Resolution Trust Corporation (RTC) and the Savings Association Insurance Fund (SAIF) that received $150 billion of taxpayer funds to resolve insolvent savings and loans. The GDP of the US in 1989 was $5657.7 billion (http://www.bea.gov/iTable/index_nipa.cfm), such that the partial cost to taxpayers of that bailout was around 2.65 percent of GDP in a year. The US Bureau of Economic Analysis (BEA) estimates GDP in 2012 at $16,244.6 billion (http://www.bea.gov/iTable/index_nipa.cfm), such that the bailout would be equivalent to cost to taxpayers of about $430.5 billion in current GDP terms. A major difference with the Troubled Asset Relief Program (TARP) for private-sector banks is that most of the costs were recovered with interest gains whereas in the case of savings and loans there was no recovery. Money center banks were under extraordinary pressure from the default of sovereign debt by various emerging nations that represented a large share of their net worth (see Pelaez 1986).
Bordo (2012Sep27) finds two probable explanations for the weak recovery during the current economic cycle: (1) collapse of United States housing; and (2) uncertainty originating in fiscal policy, regulation and structural changes. There are serious doubts if monetary policy is adequate to recover the economy under these conditions.
The concept of growth recession was popular during the stagflation from the late 1960s to the early 1980s. The economy of the US underperformed with several recession episodes in “stop and go” fashion of policy and economic activity while the rate of inflation rose to the highest in a peacetime period (see http://cmpassocregulationblog.blogspot.com/2011/06/risk-aversion-and-stagflation.html http://cmpassocregulationblog.blogspot.com/2011/05/slowing-growth-global-inflation-great.html http://cmpassocregulationblog.blogspot.com/2011/05/global-inflation-seigniorage-monetary.html http://cmpassocregulationblog.blogspot.com/2011/04/new-economics-of-rose-garden-turned.html Appendix I; see Taylor 1993, 1997, 1999, 1998LB, 2012Mar27, 2012Mar28, 2012FP, 2012JMCB). A growth recession could be defined as a period in which economic growth is insufficient to move the economy toward full employment of humans, equipment and other productive resources. The US is experiencing a dramatic slow growth recession with 28.111 million people in job stress, consisting of an effective number of unemployed of 18.452 million, 7.563 million employed part-time because they cannot find full employment and 2.096 million marginally attached to the labor force for 17.2 percent of the effective labor force (Section II and earlier http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html). The discussion of the growth recession issue in the 1970s by two recognized economists of the twentieth century, James Tobin and Paul A. Samuelson, is worth recalling.
In analysis of the design of monetary policy in 1974, Tobin (1974, 219) finds that the forecast of the President’s Council of Economic Advisers (CEA) was also the target such that monetary policy would have to be designed and implemented to attain that target. The concern was with maintaining full employment as provided in the Employment Law of 1946 (http://www.law.cornell.edu/uscode/15/1021.html http://uscode.house.gov/download/pls/15C21.txt http://www.eric.ed.gov/PDFS/ED164974.pdf) see http://cmpassocregulationblog.blogspot.com/2011/04/new-economics-of-rose-garden-turned.html), which also created the CEA. Tobin (1974, 219) describes the forecast/target of the CEA for 1974:
“The expected and approved path appears to be quarter-to-quarter rates of growth of real gross national product in 1974 of roughly -0.5, 0.1, and 1 percent, with unemployment rising to about 5.6 percent in the second quarter and remaining there the rest of the year. The rate of price inflation would fall shortly in the second quarter, but rise slightly toward the end of the year.”
Referring to monetary policy design, Tobin (1974, 221) states: “if interest rates remain stable or rise during the current (growth) recession and recovery, this will be a unique episode in business cycle annals.” Subpar economic growth is often called a “growth recession.” The critically important concept is that economic growth is not sufficient to move the economy toward full employment, creating the social and economic adverse outcome of idle capacity and unemployed and underemployed workers, much the same as currently.
Samuelson considers the unexpected incidence of inflation surprises during growth recessions (1974, 76):
“Indeed, if there were in Las Vegas or New York a continuous casino on the money GNP of 1974’s fourth quarter, it would be absurd to think that the best economic forecasters could improve upon the guess posted there. Whatever knowledge and analytical skill they possess would already have been fed into the bidding. It is a manifest contradiction to think that most economists can be expected to do better than their own best performance. I am saying that the best forecasters have been poor in predicting the general price level’s movements and level even a year ahead. By Valentine’s Day 1973 the best forecasters were beginning to talk of the growth recession that we now know did set in at the end of the first quarter. Aside from their end-of-1972 forecasts, the fashionable crowd has little to blame itself for when it comes to their 1973 real GNP projections. But, of course, they did not foresee the upward surge of food and decontrolled industrial prices. This has been a recurring pattern: surprise during the event at the virulence of inflation, wisdom after the event in demonstrating that it did, after all, fit with past patterns of experience.”
Economists are known for their forecasts being second only to those of astrologers. Accurate forecasts are typically realized for the wrong reasons. In contrast with meteorologists, economists do not even agree on what happened. There is not even agreement on what caused the global recession and why the economy has reached a perilous standstill.
Historical parallels are instructive but have all the limitations of empirical research in economics. The more instructive comparisons are not with the Great Depression of the 1930s but rather with the recessions in the 1950s, 1970s and 1980s. The growth rates and job creation in the expansion of the economy away from recession are subpar in the current expansion compared to others in the past. Four recessions are initially considered, following the reference dates of the National Bureau of Economic Research (NBER) (http://www.nber.org/cycles/cyclesmain.html ): IIQ1953-IIQ1954, IIIQ1957-IIQ1958, IIIQ1973-IQ1975 and IQ1980-IIIQ1980. The data for the earlier contractions illustrate that the growth rate and job creation in the current expansion are inferior. The sharp contractions of the 1950s and 1970s are considered in Table I-1, showing the Bureau of Economic Analysis (BEA) quarter-to-quarter, seasonally adjusted (SA), yearly-equivalent growth rates of GDP. The recovery from the recession of 1953 consisted of four consecutive quarters of high percentage growth rates from IIIQ1954 to IIIQ1955: 4.6, 8.0, 11.9 and 6.7. The recession of 1957 was followed by four consecutive high percentage growth rates from IIIQ1958 to IIQ1959: 9.6, 9.7, 7.7 and 10.1. The recession of 1973-1975 was followed by high percentage growth rates from IIQ1975 to IQ1976: 3.1, 6.8, 5.5 and 9.3. The disaster of the Great Inflation and Unemployment of the 1970s, which made stagflation notorious, is even better in growth rates during the expansion phase in comparison with the current slow-growth recession.
Table I-1, US, Seasonally Adjusted Quarterly Percentage Growth Rates in Annual Equivalent of GDP in Cyclical Recessions and Following Four Quarter Expansions ∆%
| IQ | IIQ | IIIQ | IV | |
| R IIQ1953-IIQ1954 | ||||
| 1953 | -2.2 | -5.9 | ||
| 1954 | -1.9 | |||
| E IIIQ1954-IIQ1955 | ||||
| 1954 | 4.6 | 8.0 | ||
| 1955 | 11.9 | 6.7 | ||
| R IIIQ1957-IIQ1958 | ||||
| 1957 | -4.1 | |||
| 1958 | -10.0 | |||
| E IIIQ1958-IIQ1959 | ||||
| 1958 | 9.6 | 9.7 | ||
| 1959 | 7.7 | 10.1 | ||
| R IVQ1969-IV1970 | ||||
| 1969 | -1.7 | |||
| 1970 | -0.7 | |||
| E IIQ1970-IQ1971 | ||||
| 1970 | 0.7 | 3.6 | -4.1 | |
| 1971 | 11.2 | |||
| R IVQ1973-IQ1975 | ||||
| 1973 | 3.8 | |||
| 1974 | -3.3 | 1.0 | -3.8 | -1.6 |
| 1975 | -4.7 | |||
| E IIQ1975-IQ1976 | ||||
| 1975 | 3.1 | 6.8 | 5.5 | |
| 1976 | 9.3 | |||
| R IQ1980-IIIQ1980 | ||||
| 1980 | 1.3 | -7.9 | -0.6 | |
| R IQ1981-IVQ1982 | ||||
| 1981 | 8.5 | -2.9 | 4.7 | -4.6 |
| 1982 | -6.5 | 2.2 | -1.4 | 0.4 |
| E IQ1983-IVQ1983 | ||||
| 1983 | 5.3 | 9.4 | 8.1 | 8.5 |
| R IVQ2007-IIQ2009 | ||||
| 2008 | -2.7 | 2.0 | -2.0 | -8.3 |
| 2009 | -5.4 | -0.4 | ||
| E IIIQ2009-IIQ2010 | ||||
| 2009 | 1.3 | 3.9 | ||
| 2010 | 1.6 | 3.9 |
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
The NBER dates another recession in 1980 that lasted about half a year. If the two recessions from IQ1980s to IIIQ1980 and IIIQ1981 to IVQ1982 are combined, the impact of lost GDP of 4.7 percent is more comparable to the latest revised 4.3 percent drop of the recession from IVQ2007 to IIQ2009. 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 26.4 percent cumulatively and fell 45.3 percent in current dollars (Pelaez and Pelaez, Financial Regulation after the Global Recession (2009a), 150-2, Pelaez and Pelaez, Globalization and the State, Vol. II (2009b), 205-7 and revisions in http://bea.gov/iTable/index_nipa.cfm). Table I-2 provides the Bureau of Economic Analysis (BEA) quarterly growth rates of GDP in SA yearly equivalents for the recessions of 1981 to 1982 and 2007 to 2009, using the latest major revision published on July 31, 2013 (http://bea.gov/newsreleases/national/gdp/2013/pdf/gdp2q13_adv.pdf http://bea.gov/newsreleases/national/pi/2013/pdf/pi0613.pdf) and the second estimate for IIIQ2013 (http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp3q13_2nd.pdf), which are available in the dataset of the US Bureau of Economic Analysis (http://www.bea.gov/iTable/index_nipa.cfm). There were four quarters of contraction in 1981-1982 ranging in rate from -1.4 percent to -6.5 percent and five quarters of contraction in 2007-2009 ranging in rate from -0.4 percent to -8.3 percent. The striking difference is that in the first sixteen quarters of expansion from IQ1983 to IVQ1986, shown in Table I-2 in relief, GDP grew at the high quarterly percentage growth rates of 5.3, 9.4, 8.1, 8.5, 8.2, 7.2, 4.0, 3.2, 4.0, 3.7, 6.4, 3.0, 3.8, 1.9, 4.1 and 2.1. In contrast, the percentage growth rates in the first sixteen quarters of expansion from IIIQ2009 to IIIQ2013 shown in relief in Table I-2 were mediocre: 1.3, 3.9, 1.6, 3.9, 2.8, 2.8, -1.3, 3.2, 1.4, 4.9, 3.7, 1.2, 2.8, 0.1, 1.1, 2.5 and 3.6. Inventory accumulation contributed 2.73 percentage points to the rate of growth of 4.9 percent in IVQ2011, which is the only relatively high rate from IQ2011 to IIIQ2012, 0.60 percentage points to the rate of 2.8 percent in IIIQ2012 and 1.68 percentage points to the rate of 3.6 percent in IIIQ2013. Economic growth and employment creation decelerated rapidly during 2012 and in 2013 as would be required in movement to full employment.
Table I-2, US, Quarterly Growth Rates of GDP, % Annual Equivalent SA
| Q | 1981 | 1982 | 1983 | 1984 | 2008 | 2009 | 2010 |
| I | 8.5 | -6.5 | 5.3 | 8.2 | -2.7 | -5.4 | 1.6 |
| II | -2.9 | 2.2 | 9.4 | 7.2 | 2.0 | -0.4 | 3.9 |
| III | 4.7 | -1.4 | 8.1 | 4.0 | -2.0 | 1.3 | 2.8 |
| IV | -4.6 | 0.4 | 8.5 | 3.2 | -8.3 | 3.9 | 2.8 |
| 1985 | 2011 | ||||||
| I | 4.0 | -1.3 | |||||
| II | 3.7 | 3.2 | |||||
| III | 6.4 | 1.4 | |||||
| IV | 3.0 | 4.9 | |||||
| 1986 | 2012 | ||||||
| I | 3.8 | 3.7 | |||||
| II | 1.9 | 1.2 | |||||
| III | 4.1 | 2.8 | |||||
| IV | 2.1 | 0.1 | |||||
| 1987 | 2013 | ||||||
| I | 2.8 | 1.1 | |||||
| II | 4.6 | 2.5 | |||||
| III | 3.7 | 3.6 | |||||
| IV | 6.8 |
Source: US Bureau of Economic Analysis http://bea.gov/iTable/index_nipa.cfm
Chart I-1 of the Bureau of Economic Analysis (BEA) provides strong growth of real GDP in the US between 1929 and 1999 at the yearly average rate of 3.5 percent. There is an evident acceleration of the rate of GDP growth in the 1990s as shown by a much sharper slope of the growth curve. Cobet and Wilson (2002) define labor productivity as the value of manufacturing output produced per unit of labor input used (see Pelaez and Pelaez, The Global Recession Risk (2007), 137-44). Between 1950 and 2000, labor productivity in the US grew less rapidly than in Germany and Japan. The major part of the increase in productivity in Germany and Japan occurred between 1950 and 1973 while the rate of productivity growth in the US was relatively subdued in several periods. While Germany and Japan reached their highest growth rates of productivity before 1973, the US accelerated its rate of productivity growth in the second half of the 1990s. Between 1950 and 2000, the rate of productivity growth in the US of 2.9 percent per year was much lower than 6.3 percent in Japan and 4.7 percent in Germany. Between 1995 and 2000, the rate of productivity growth of the US of 4.6 percent exceeded that of Japan of 3.9 percent and the rate of Germany of 2.6 percent.
Chart I-1, US, Real GDP 1929-1999
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
Chart I-2 provides the growth of real quarterly GDP in the US between 1947 and 2012. The drop of output in the recession from IVQ2007 to IIQ2009 has been followed by anemic recovery compared with return to trend at 3.0 percent from 1870 to 2010 after events such as wars and recessions (Lucas 2011May) and a standstill that can lead to growth recession, or low rates of economic growth, but perhaps even another contraction or conventional recession. The average rate of growth from 1947 to 2012 is 3.2 percent. The average growth rate from 2000 to 2012 is only 1.7 percent with 2.8 percent annual equivalent from the end of the recession in IVQ2001 to the end of the expansion in IVQ2007.
Chart I-2, US, Real GDP, Quarterly, 1947-2013
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
Chart I-3 provides real GDP percentage change on the quarter a year earlier for 1983-1984. The objective is simply to compare expansion in two recoveries from sharp contractions as shown in Table I-2. Growth rates in the early phase of the recovery in 1983 and 1984 were very high, which is the opportunity to reduce unemployment that has characterized cyclical expansion in the postwar US economy.
Chart I-3, Real GDP Percentage Change on Quarter a Year Earlier 1983-1986
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
In contrast, growth rates in the comparable first sixteen quarters of expansion from 2009 to 2013 in Chart I-4 have been mediocre. As a result, growth has not provided the exit from unemployment and underemployment as in other cyclical expansions in the postwar period. Growth rates did not rise in V shape as in earlier expansions and then declined close to the standstill of growth recessions.
Chart I-4, US, Real GDP Percentage Change on Quarter a Year Earlier 2009-2013
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
Table I-3 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 26.4 percent cumulatively and fell 45.3 percent in current dollars (Pelaez and Pelaez, Financial Regulation after the Global Recession (2009a), 150-2, Pelaez and Pelaez, Globalization and the State, Vol. II (2009b), 205-7 and revisions in http://bea.gov/iTable/index_nipa.cfm). Data are available for the 1930s only on a yearly basis. 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 2.0 to 2.3 percent in 2013 (http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20130918.pdf).
Table I-3, 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
Chart I-5 provides percentage change of GDP in the US during the 1930s. There is vast literature analyzing the Great Depression (Pelaez and Pelaez, Regulation of Banks and Finance (2009), 198-217). Cole and Ohanian (1999) find that US real per capita output was lower by 11 percent in 1939 than in 1929 while the typical expansion of real per capita output in the US during a decade is 31 percent. Private hours worked in the US were 25 percent lower in 1939 relative to 1929.
Chart I-5, US, Percentage Change of GDP in the 1930s
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
In contrast, Chart I-6 shows rapid recovery from the recessions in the 1980s. High growth rates in the initial quarters of expansion eliminated the unemployment and underemployment created during the contraction. The economy then returned to grow at the trend of expansion, interrupted by another contraction in 1991.
Chart I-6, US, Percentage Change of GDP in the 1980s
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
Chart I-7 provides the rates of growth during the 2000s. Growth rates in the initial sixteen quarters of expansion have been relatively lower than during recessions after World War II. As a result, unemployment and underemployment continue at the rate of 17.2 percent of the US labor force (Section II and earlier http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html) with weak hiring (http://cmpassocregulationblog.blogspot.com/2013/10/twenty-eight-million-unemployed-or.html).
Chart I-7, US, Percentage Change of GDP in the 2000s
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
Characteristics of the four cyclical contractions are provided in Table I-4 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 26.4 percent cumulatively and fell 45.3 percent in current dollars (Pelaez and Pelaez, Financial Regulation after the Global Recession (2009a), 150-2, Pelaez and Pelaez, Globalization and the State, Vol. II (2009b), 205-7 and revisions in http://bea.gov/iTable/index_nipa.cfm). The comparison of the global recession after 2007 with the Great Depression is entirely misleading.
Table I-4, 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-5 shows the extraordinary contrast between the mediocre average annual equivalent growth rate of 2.3 percent of the US economy in the seventeen quarters of the current cyclical expansion from IIIQ2009 to IIIQ2013 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, 5.2 percent in the first sixteen quarters of expansion from IQ1983 to IVQ1986 and 5.0 percent in the first seventeen quarters of expansion from IQ1983 to IQ1987. 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-5 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 28.1 million unemployed or underemployed in the United States for an effective unemployment rate 17.2 percent (Section II and earlier http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.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, 5.2 percent from IQ1983 to IVQ1986 and at 7.8 percent from IQ1983 to IVQ1983. GDP growth in the first three quarters of 2013 accumulated to 1.8 percent that is equivalent to 2.4 percent in a year. This is obtained by dividing GDP in IIIQ2013 of 15,819.0 by GDP in IVQ2012 of $15,539.6 and compounding by 4/3: {[(15,819.0/$15,539.6)4/2 -1]100 = 2.4 %}. The US economy grew 1.8 percent in IIIQ2013 relative to the same quarter a year earlier in IIIQ2012. Another important revelation of the revisions and enhancements is that GDP was flat in IVQ2012, just at the borderline of contraction. The rate of growth of GDP in the second estimate of IIIQ2013 is 3.6 percent in seasonally adjusted annual rate (SAAR). Inventory accumulation contributed 1.68 percentage points to this rate of growth. The actual rate without this impulse of unsold inventories would have been 1.92 percent, or 0.5 percent in IIIQ2013, such that annual equivalent growth in 2013 is closer to 1.9 percent {[(1.003)(1.006)(1.005)4/3-1]100 = 1.9%}, compounding the quarterly rates and converting into annual equivalent.
Table I-5, US, Number of Quarters, Cumulative Growth and Average Annual Equivalent Growth Rate in Cyclical Expansions
| Number | Cumulative Growth ∆% | Average Annual Equivalent Growth Rate | |
| IIIQ 1954 to IQ1957 | 11 | 12.8 | 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-IQ1986 IQ1983-IIIQ1986 IQ1983-IVQ1986 IQ1983-IQ1987 | 13 15 16 17 | 19.9 21.6 22.3 23.1 | 5.7 5.4 5.2 5.0 |
| First Four Quarters IQ1983 to IVQ1983 | 4 | 7.8 | |
| Average First Four Quarters in Four Expansions* | 7.7 | ||
| IIIQ2009 to IIIQ2013 | 17 | 10.2 | 2.3 |
| 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
Chart I-8 shows US real quarterly GDP growth from 1980 to 1989. The economy contracted during the recession and then expanded vigorously throughout the 1980s, rapidly eliminating the unemployment caused by the contraction.
Chart I-8, US, Real GDP, 1980-1989
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
Chart I-9 shows the entirely different situation of real quarterly GDP in the US between 2007 and 2012. The economy has underperformed during the first sixteen quarters of expansion for the first time in the comparable contractions since the 1950s. The US economy is now in a perilous standstill.
Chart I-9, US, Real GDP, 2007-2013
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
As shown in Tables I-4 and I-5 above the loss of real GDP in the US during the contraction was 4.3 percent but the gain in the cyclical expansion has been only 10.2 percent (first to the last row in Table I-5), using all latest revisions. As a result, the level of real GDP in IIIQ2013 with the second estimate and revisions is only higher by 5.5 percent than the level of real GDP in IVQ2007. Growth at trend of 3.0 percent in the entire cycle as in past cyclical expansions would result in GDP higher by 19.4 percent in IIIQ2013 relative to IVQ2007. Trend GDP would be $17,905.3 billion, which is higher than actual GDP in IIIQ2013 of $15,819.0 billion, for underperformance of $2,086.0 billion. Table I-6 provides in the second column real GDP in billions of chained 2009 dollars. The third column provides the percentage change of the quarter relative to IVQ2007; the fourth column provides the percentage change relative to the prior quarter; and the final fifth column provides the percentage change relative to the same quarter a year earlier. The contraction actually concentrated in two quarters: decline of 2.2 percent in IVQ2008 relative to the prior quarter and decline of 1.4 percent in IQ2009 relative to IVQ2008. The combined fall of GDP in IVQ2008 and IQ2009 was 3.6 percent {[(1-0.022) x (1-0.014) -1]100 = -3.6%}, or {[(IQ2009 $14,372.1)/(IIIQ2008 $14,895.1) – 1]100 = -3.5%} except for rounding. Those two quarters coincided with the worst effects of the financial crisis. GDP fell 0.1 percent in IIQ2009 but grew 0.3 percent in IIIQ2009, which is the beginning of recovery in the cyclical dates of the NBER. Most of the recovery occurred in five successive quarters from IVQ2009 to IVQ2010 of growth of 1.0 percent in IVQ2009, 0.4 percent in IQ2010, 0.9 percent in IIQ2010 and equal growth at 0.7 percent in IIIQ2010 and 0.7 percent in IVQ2010 for cumulative growth in those five quarters of 3.8 percent, obtained by accumulating the quarterly rates {[(1.01 x 1.004 x 1.009 x 1.007 x 1.007) – 1]100 = 3.8%} or {[(IVQ2010 $14,942.4)/(IIIQ2009 $14,402.5) – 1]100 = 3.7%} with minor rounding difference. The economy then stalled during the first half of 2011 with decline of 0.3 percent in IQ2011 and growth of 0.8 percent in IIQ2011 for combined annual equivalent rate of 1.0 percent {(0.997 x 1.008)2}. The economy grew 0.3 percent in IIIQ2011 for annual equivalent growth of 1.1 percent in the first three quarters {[(0.997 x 1.008 x 1.003)4/3 -1]100 = 1.1%}. Growth picked up in IVQ2011 with 1.2 percent relative to IIIQ2011. Growth in a quarter relative to a year earlier in Table I-6 slows from over 2.7 percent during three consecutive quarters from IIQ2010 to IVQ2010 to 2.0 percent in IQ2011, 1.9 percent in IIQ2011, 1.5 percent in IIIQ2011 and 2.0 percent in IVQ2011. As shown below, growth of 1.2 percent in IVQ2011 was partly driven by inventory accumulation. In IQ2012, GDP grew 0.9 percent relative to IVQ2011 and 3.3 percent relative to IQ2011, decelerating to 0.3 percent in IIQ2012 and 2.8 percent relative to IIQ2011 and 0.7 percent in IIIQ2012 and 3.1 percent relative to IIIQ2011 largely because of inventory accumulation and national defense expenditures. Growth was 0.0 percent in IVQ2012 with 2.0 percent relative to a year earlier but mostly because of deduction of 2.00 percentage points of inventory divestment and 1.22 percentage points of reduction of one-time national defense expenditures. Growth was 0.3 percent in IQ2013 and 1.3 percent relative to IQ2012 in large part because of burning savings to consume caused by financial repression of zero interest rates. There is similar growth of 0.6 percent in IIQ2013 and 1.6 percent relative to a year earlier. In IIIQ2013, GDP grew 0.9 percent relative to the prior quarter and 1.8 percent relative to the same quarter a year earlier with inventory accumulation contributing 1.68 percentage points to growth at 3.6 percent SAAR in IIIQ2013. Rates of a quarter relative to the prior quarter capture better deceleration of the economy than rates on a quarter relative to the same quarter a year earlier. The critical question for which there is not yet definitive solution is whether what lies ahead is continuing growth recession with the economy crawling and unemployment/underemployment at extremely high levels or another contraction or conventional recession. Forecasts of various sources continued to maintain high growth in 2011 without taking into consideration the continuous slowing of the economy in late 2010 and the first half of 2011. The sovereign debt crisis in the euro area is one of the common sources of doubts on the rate and direction of economic growth in the US but there is weak internal demand in the US with almost no investment and spikes of consumption driven by burning saving because of financial repression forever in the form of zero interest rates.
Table I-6, US, Real GDP and Percentage Change Relative to IVQ2007 and Prior Quarter, Billions Chained 2005 Dollars and ∆%
| Real GDP, Billions Chained 2009 Dollars | ∆% Relative to IVQ2007 | ∆% Relative to Prior Quarter | ∆% | |
| IVQ2007 | 14,996.1 | NA | NA | 1.9 |
| IQ2008 | 14,895.4 | -0.7 | -0.7 | 1.1 |
| IIQ2008 | 14,969.2 | -0.2 | 0.5 | 0.9 |
| IIIQ2008 | 14,895.1 | -0.7 | -0.5 | -0.3 |
| IVQ2008 | 14,574.6 | -2.8 | -2.2 | -2.8 |
| IQ2009 | 14,372.1 | -4.2 | -1.4 | -3.5 |
| IIQ2009 | 14,356.9 | -4.3 | -0.1 | -4.1 |
| IIIQ2009 | 14,402.5 | -4.0 | 0.3 | -3.3 |
| IV2009 | 14,540.2 | -3.0 | 1.0 | -0.2 |
| IQ2010 | 14,597.7 | -2.7 | 0.4 | 1.6 |
| IIQ2010 | 14,738.0 | -1.7 | 0.9 | 2.7 |
| IIIQ2010 | 14,839.3 | -1.0 | 0.7 | 3.0 |
| IVQ2010 | 14,942.4 | -0.4 | 0.7 | 2.8 |
| IQ2011 | 14,894.0 | -0.7 | -0.3 | 2.0 |
| IIQ2011 | 15,011.3 | 0.1 | 0.8 | 1.9 |
| IIIQ2011 | 15,062.1 | 0.4 | 0.3 | 1.5 |
| IVQ2011 | 15,242.1 | 1.6 | 1.2 | 2.0 |
| IQ2012 | 15,381.6 | 2.6 | 0.9 | 3.3 |
| IIQ2012 | 15,427.7 | 2.9 | 0.3 | 2.8 |
| IIIQ2012 | 15,534.0 | 3.6 | 0.7 | 3.1 |
| IVQ2012 | 15,539.6 | 3.6 | 0.0 | 2.0 |
| IQ2013 | 15,583.9 | 3.9 | 0.3 | 1.3 |
| IIQ2013 | 15,679.7 | 4.6 | 0.6 | 1.6 |
| IIIQ2013 | 15,819.0 | 5.5 | 0.9 | 1.8 |
Source: US Bureau of Economic Analysis http://bea.gov/iTable/index_nipa.cfm
Chart I-10 provides the percentage change of real GDP from the same quarter a year earlier from 1980 to 1989. There were two contractions almost in succession in 1980 and from 1981 to 1983. The expansion was marked by initial high rates of growth as in other recession in the postwar US period during which employment lost in the contraction was recovered. Growth rates continued to be high after the initial phase of expansion.
Chart I-10, Percentage Change of Real Gross Domestic Product from Quarter a Year Earlier 1980-1989
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
The experience of recovery after 2009 is not as complete as during the 1980s. Chart I-11 shows the much lower rates of growth in the early phase of the current expansion and sharp decline from an early peak. The US missed the initial high growth rates in cyclical expansions that eliminate unemployment and underemployment.
Chart I-11, Percentage Change of Real Gross Domestic Product from Quarter a Year Earlier 2007-2013
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
Chart I-12 provides growth rates from a quarter relative to the prior quarter during the 1980s. There is the same strong initial growth followed by a long period of sustained growth.
Chart I-12, Percentage Change of Real Gross Domestic Product from Prior Quarter 1980-1989
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
Chart I-13 provides growth rates in a quarter relative to the prior quarter from 2007 to 2013. Growth in the current expansion after IIIQ2009 has not been as strong as in other postwar cyclical expansions.
Chart I-13, Percentage Change of Real Gross Domestic Product from Prior Quarter 2007-2013
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
The revised estimates and earlier estimates from IQ2008 to IQ2012 in seasonally adjusted annual equivalent rates are shown in Table I-7. The strongest revision is for IVQ2008 for which the contraction of GDP is revised from minus 6.8 percent to minus 8.9 percent and minus 8.3 percent. IQ2009 is also revised from contraction of minus 4.9 percent to minus 6.7 percent but then lowered to contraction of 5.3 percent and 5.4 percent. There is only minor revision in IIIQ2008 of the contraction of minus 4.0 percent to minus 3.7 percent and minus 2.0 percent. Growth of 5.0 percent in IV2009 is revised to 3.8 percent and then increased to 4.0 percent but lowered to 3.9 percent. Growth in IQ2010 is lowered from 3.9 percent to 2.3 percent and 1.6 percent. Growth in IIQ2010 is upwardly revised to 3.8 percent but then lowered to 2.2 percent. The final revision increased growth in IIQ2010 to 3.9 percent. Revisions lowered growth of 1.9 percent in IQ2011 to minus 1.3 percent. The revisions lowered growth of 1.8 percent in IQ2013 to 1.1 percent but increased growth of 2.0 percent in IQ2012 to 3.7 percent. The revisions do not alter the conclusion that the current expansion is much weaker than historical sharp contractions since the 1950s and is now changing into slow growth recession with higher risks of contraction and continuing underperformance.
Table I-7, US, Quarterly Growth Rates of GDP, % Annual Equivalent SA, Revised and Earlier Estimates
| Quarters | Revised Estimate Jul 31, 2013 | Revised Estimate Jul 27, 2012 | Revised Estimate Jul 29, 2011 | Earlier Estimate |
| 2008 | ||||
| I | -2.7 | -1.8 | -0.7 | |
| II | 2.0 | 1.3 | 0.6 | |
| III | -2.0 | -3.7 | -4.0 | |
| IV | -8.3 | -8.9 | -6.8 | |
| 2009 | ||||
| I | -5.4 | -5.3 | -6.7 | -4.9 |
| II | -0.4 | -0.3 | -0.7 | -0.7 |
| III | 1.3 | 1.4 | 1.7 | 1.6 |
| IV | 3.9 | 4.0 | 3.8 | 5.0 |
| 2010 | ||||
| I | 1.6 | 2.3 | 3.9 | 3.7 |
| II | 3.9 | 2.2 | 3.8 | 1.7 |
| III | 2.8 | 2.6 | 2.5 | 2.6 |
| IV | 2.8 | 2.4 | 2.3 | 3.1 |
| 2011 | ||||
| I | -1.3 | 0.1 | 0.4 | 1.9 |
| II | 3.2 | 2.5 | ||
| III | 1.4 | 1.3 | ||
| IV | 4.9 | 4.1 | ||
| 2012 | ||||
| I | 3.7 | 2.0 | ||
| II | 1.2 | 1.3 | ||
| III | 2.8 | 3.1 | ||
| IV | 0.1 | 0.4 | ||
| 2013 | ||||
| I | 1.1 | 1.8 | ||
| II | 2.5 | |||
| III | 3.6 |
Source: US Bureau of Economic Analysis http://www.bea.gov/iTable/index_nipa.cfm
Aggregate demand, personal consumption expenditures (PCE) and gross private domestic investment (GDI) were much stronger during the expansion phase in IQ1983 to IVQ1986 than in IIIQ2009 to IIQ2013, as shown in Table I-8. GDI provided the impulse of growth in 1983 and 1984, which has not been the case from 2009 to 2013. The investment decision in the US economy has been frustrated in the current cyclical expansion. Growth of GDP in IIIQ2013 at seasonally adjusted annual rate of 3.6 percent consisted of positive contribution of 0.96 percentage points of personal consumption expenditures (PCE) plus positive contribution of 2.49 percentage points of gross private domestic investment (GDI) of which 1.68 percentage points of inventory investment (∆PI), contribution of net exports (trade or exports less imports) of 0.07 percentage points and 0.09 percentage points of government consumption expenditures and gross investment (GOV) partly because of one-time reduction of national defense expenditures of 0.01 percentage points. The economy of the United States has lost the dynamic growth impulse of earlier cyclical expansions with mediocre growth resulting from consumption forced by one-time effects of financial repression, national defense expenditures and inventory accumulation.
Table I-8, US, Contributions to the Rate of Growth of GDP in Percentage Points
| GDP | PCE | GDI | ∆ PI | Trade | GOV | |
| 2013 | ||||||
| I | 1.1 | 1.54 | 0.71 | 0.93 | -0.28 | -0.82 |
| II | 2.5 | 1.24 | 1.38 | 0.41 | -0.07 | -0.07 |
| III | 3.6 | 0.96 | 2.49 | 1.68 | 0.07 | 0.09 |
| 2012 | ||||||
| I | 3.7 | 1.98 | 1.57 | 0.36 | 0.44 | -0.28 |
| II | 1.2 | 1.28 | -0.23 | -0.91 | 0.10 | 0.05 |
| III | 2.8 | 1.15 | 0.99 | 0.60 | -0.03 | 0.67 |
| IV | 0.1 | 1.13 | -0.36 | -2.00 | 0.68 | -1.31 |
| 2011 | ||||||
| I | -1.3 | 1.42 | -1.11 | -1.06 | 0.01 | -1.61 |
| II | 3.2 | 1.03 | 1.88 | 0.72 | 0.53 | -0.25 |
| III | 1.4 | 1.42 | 0.36 | -1.60 | 0.10 | -0.52 |
| IV | 4.9 | 1.65 | 4.13 | 2.73 | -0.60 | -0.31 |
| 2010 | ||||||
| I | 1.6 | 1.42 | 1.77 | 1.66 | -0.96 | -0.63 |
| II | 3.9 | 2.21 | 2.86 | 1.09 | -1.77 | 0.61 |
| III | 2.8 | 1.87 | 1.86 | 1.90 | -0.88 | -0.07 |
| IV | 2.8 | 2.86 | -0.51 | -1.64 | 1.32 | -0.87 |
| 2009 | ||||||
| I | -5.4 | -0.83 | -7.02 | -2.26 | 2.25 | 0.15 |
| II | -0.4 | -1.13 | -3.25 | -1.12 | 2.40 | 1.56 |
| III | 1.3 | 1.73 | -0.40 | -0.38 | -0.53 | 0.48 |
| IV | 3.9 | 0.05 | 4.05 | 4.40 | -0.05 | -0.17 |
| 1982 | ||||||
| I | -6.5 | 1.61 | -7.60 | -5.34 | -0.49 | -0.05 |
| II | 2.2 | 0.89 | -0.06 | 2.26 | 0.81 | 0.56 |
| III | -1.4 | 1.88 | -0.62 | 1.11 | -3.22 | 0.53 |
| IV | 0.4 | 4.51 | -5.37 | -5.33 | -0.10 | 1.35 |
| 1983 | ||||||
| I | 5.3 | 2.45 | 2.36 | 0.92 | -0.29 | 0.82 |
| II | 9.4 | 5.06 | 5.96 | 3.43 | -2.46 | 0.89 |
| III | 8.1 | 4.50 | 4.40 | 0.57 | -2.25 | 1.42 |
| IV | 8.5 | 4.06 | 6.94 | 3.01 | -1.13 | -1.36 |
| 1984 | ||||||
| I | 8.2 | 2.26 | 7.23 | 4.94 | -2.31 | 1.01 |
| II | 7.2 | 3.64 | 2.57 | -0.29 | -0.87 | 1.87 |
| III | 4.0 | 1.95 | 1.69 | 0.21 | -0.35 | 0.70 |
| IV | 3.2 | 3.29 | -1.08 | -2.44 | -0.56 | 1.58 |
| 1985 | ||||||
| I | 4.0 | 4.23 | -2.14 | -2.86 | 0.94 | 1.01 |
| II | 3.7 | 2.35 | 1.34 | 0.35 | -1.90 | 1.93 |
| III | 6.4 | 4.82 | -0.43 | -0.15 | -0.01 | 1.98 |
| IV | 3.0 | 0.62 | 2.80 | 1.40 | -0.66 | 0.27 |
| 1986 | ||||||
| I | 3.8 | 2.10 | 0.04 | -0.17 | 0.92 | 0.70 |
| II | 1.9 | 2.77 | -1.30 | -1.30 | -1.33 | 1.70 |
| III | 4.1 | 4.55 | -1.97 | -1.62 | -0.45 | 1.95 |
| IV | 2.1 | 1.62 | 0.24 | -0.29 | 0.71 | -0.48 |
Note: PCE: personal consumption expenditures; GDI: gross private domestic investment; ∆ PI: change in private inventories; Trade: net exports of goods and services; GOV: government consumption expenditures and gross investment; – is negative and no sign positive
GDP: percent change at annual rate; percentage points at annual rates
Source: US Bureau of Economic Analysis
Source: Bureau of Economic Analysis http://bea.gov/iTable/index_nipa.cfm
The Bureau of Economic Analysis (BEA) (pages 1-2 http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp3q13_2nd.pdf) explains growth of GDP in IIIQ2013 as follows:
“Real gross domestic product -- the output of goods and services produced by labor and property
located in the United States -- increased at an annual rate of 3.6 percent in the third quarter of 2013 (that is, from the second quarter to the third quarter), according to the "second" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 2.5 percent.
The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 2.8 percent (see "Revisions" on page 3). With this second estimate for the third quarter, the increase in private inventory investment was larger than previously estimated.
The increase in real GDP in the third quarter primarily reflected positive contributions from private inventory investment, personal consumption expenditures (PCE), exports, nonresidential fixed investment, residential fixed investment, and state and local government spending that were partly offset by a negative contribution from federal government spending. Imports, which are a subtraction in the calculation of GDP, increased.
The acceleration in real GDP growth in the third quarter primarily reflected an acceleration in private inventory investment, a deceleration in imports, and an acceleration in state and local government spending that were partly offset by decelerations in exports, in PCE, and in nonresidential fixed investment.”
There are positive contributions to growth in IIIQ2013 shown in Table I-9:
- Personal consumption expenditures (PCE) growing at 1.4 percent with consumption of durable goods growing at 7.7 percent
- Residential fixed investment (RFI) growing at 13.0 percent
- Nonresidential fixed investment growing at 3.3 percent
- Private inventory investment contributing 1.68 percentage points
- Growth of exports at 3.7 percent, which is higher than imports at 2.7 percent
There were negative contributions in IIIQ2013:
- Federal government expenditures declining at 1.4 percent partly because of decrease of national defense expenditures at 0.3 percent that deducted 0.01 percentage points from GDP growth
- Growth of imports, which are deduction to growth, at 2.7 percent
The BEA explains acceleration in real GDP growth in IIIQ2013 by:
- Acceleration of inventory investment contributing 1.68 percentage points in IIIQ2013 that is higher than 0.41 percentage points in IIQ2013
- Growth of state and local expenditures at 1.7 percent in IIIQ2013 compared with 0.4 percent in IIQ2013
- Growth of imports at 2.7 percent in IIIQ2013 compared with growth at 6.9 percent in IIQ2013
An important aspect of growth in the US is the decline in growth of real disposable personal income, or what is left after taxes and inflation, which increased at the rate of 1.8 percent in IIIQ2013 compared with a year earlier. The effects of financial repression, or zero interest, are vividly shown in the decline of the savings rate, or personal saving as percent of disposable income from 6.6 percent in IVQ2012 to 5.0 percent in IIIQ2013. Anticipation of income in IVQ2012 to avoid higher taxes in 2013 caused increases in income and savings while higher payroll taxes in 2013 restricted income growth and savings in IQ2013. Zero interest rates induce risky investments with high leverage and can contract balance sheets of families, business and financial institutions when interest rates inevitably increase in the future. There is a tradeoff of weaker economy in the future when interest rates increase by meager growth in the present with forced consumption by zero interest rates.
Table I-9, US, Percentage Seasonally Adjusted Annual Equivalent Quarterly Rates of Increase, %
| IIIQ 2012 | IVQ 2012 | IQ 2013 | IIQ 2013 | IIIQ 2012 | |
| GDP | 2.8 | 0.1 | 1.1 | 2.5 | 3.6 |
| PCE | 1.7 | 1.7 | 2.3 | 1.8 | 1.4 |
| Durable Goods | 8.3 | 10.5 | 5.8 | 6.2 | 7.7 |
| NRFI | 0.3 | 9.8 | -4.6 | 4.7 | 3.5 |
| RFI | 14.1 | 19.8 | 12.5 | 14.2 | 13.0 |
| Exports | 0.4 | 1.1 | -1.3 | 8.0 | 3.7 |
| Imports | 0.5 | -3.1 | 0.6 | 6.9 | 2.7 |
| GOV | 3.5 | -6.5 | -4.2 | -0.4 | 0.4 |
| Federal GOV | 8.9 | -13.9 | -8.4 | -1.6 | -1.4 |
| National Defense | 12.5 | -21.6 | -11.2 | -0.6 | -0.3 |
| Cont to GDP Growth % Points | 0.60 | -1.22 | -0.57 | -0.03 | -0.01 |
| State/Local GOV | -0.2 | -1.0 | -1.3 | 0.4 | 1.7 |
| ∆ PI (PP) | 0.60 | -2.00 | 0.93 | 0.41 | 1.68 |
| Final Sales of Domestic Product | 2.2 | 2.2 | 0.2 | 2.1 | 1.9 |
| Gross Domestic Purchases | 2.7 | -0.5 | 1.4 | 2.5 | 3.4 |
| Prices Gross | 1.4 | 1.6 | 1.2 | 0.3 | 1.0 |
| Prices of GDP | 2.3 | 1.1 | 1.3 | 0.6 | 2.0 |
| Prices of GDP Excluding Food and Energy | 1.3 | 1.4 | 1.6 | 0.9 | 1.9 |
| Prices of PCE | 1.7 | 1.6 | 1.1 | -0.1 | 2.0 |
| Prices of PCE Excluding Food and Energy | 1.4 | 1.3 | 1.4 | 0.6 | 1.5 |
| Prices of Market Based PCE | 1.6 | 1.4 | 1.3 | -0.3 | 2.0 |
| Prices of Market Based PCE Excluding Food and Energy | 1.3 | 0.9 | 1.6 | 0.5 | 1.4 |
| Real Disposable Personal Income* | 1.3 | 3.6 | 0.4 | 0.9 | 1.8 |
| Personal Savings As % Disposable Income | 4.9 | 6.6 | 4.1 | 4.7 | 5.0 |
Note: PCE: personal consumption expenditures; NRFI: nonresidential fixed investment; RFI: residential fixed investment; GOV: government consumption expenditures and gross investment; ∆ PI: change in
private inventories; GDP - ∆ PI: final sales of domestic product; PP: percentage points; Personal savings rate: savings as percent of disposable income
*Percent change from quarter one year ago
Source: Bureau of Economic Analysis http://bea.gov/iTable/index_nipa.cfm
Percentage shares of GDP are shown in Table I-10. PCE is equivalent to 68.2 percent of GDP and is under pressure with stagnant real disposable income, high levels of unemployment and underemployment and higher savings rates than before the global recession, temporarily interrupted by financial repression in the form of zero interest rates. Gross private domestic investment is also growing slowly even with about two trillion dollars in cash holdings by companies. In a slowing world economy, it may prove more difficult to grow exports faster than imports to generate higher growth. Bouts of risk aversion revalue the dollar relative to most currencies in the world as investors increase their holdings of dollar-denominated assets.
Table I-10, US, Percentage Shares of GDP, %
| IIIQ2013 | |
| GDP | 100.0 |
| PCE | 68.2 |
| Goods | 23.1 |
| Durable | 7.5 |
| Nondurable | 15.6 |
| Services | 45.1 |
| Gross Private Domestic Investment | 16.2 |
| Fixed Investment | 15.3 |
| NRFI | 12.2 |
| Structures | 2.8 |
| Equipment & Software | 5.5 |
| Intellectual Property | 3.8 |
| RFI | 3.2 |
| Change in Private | 0.9 |
| Net Exports of Goods and Services | -3.0 |
| Exports | 13.4 |
| Goods | 9.3 |
| Services | 4.1 |
| Imports | 16.4 |
| Goods | 13.7 |
| Services | 2.7 |
| Government | 18.6 |
| Federal | 7.4 |
| National Defense | 4.6 |
| Nondefense | 2.8 |
| State and Local | 11.2 |
PCE: personal consumption expenditures; NRFI: nonresidential fixed investment; RFI: residential fixed investment
Source: US Bureau of Economic Analysis http://bea.gov/iTable/index_nipa.cfm
Table I-11 shows percentage point (PP) contributions to the annual levels of GDP growth in the earlier recessions 1958-1959, 1975-1976, 1982-1983 and 2009, 2010, 2011 and 2012. The data incorporate the new revisions released by the BEA on Jul 31, 2013. The most striking contrast is in the rates of growth of annual GDP in the expansion phases of 6.9 percent in 1959, 5.4 percent in 1976, and 4.6 percent in 1983 followed by 7.3 percent in 1984 and 4.2 percent in 1985. In contrast, GDP grew 2.5 percent in 2010 after six consecutive quarters of growth, 1.8 percent in 2011 after ten consecutive quarters of expansion and 2.8 percent in 2012 after 14 quarters of expansion. Annual levels also show much stronger growth of PCEs in the expansions after the earlier contractions than in the expansion after the global recession of 2007. Gross domestic investment was much stronger in the earlier expansions than in 2010, 2011 and 2012.
Table I-11, US, Percentage Point Contributions to the Annual Growth Rate of GDP
| GDP | PCE | GDI | ∆ PI | Trade | GOV | |
| 1958 | -0.7 | 0.52 | -1.16 | -0.17 | -0.87 | 0.77 |
| 1959 | 6.9 | 3.49 | 2.82 | 0.83 | 0.00 | 0.59 |
| 1975 | -0.2 | 1.36 | -2.90 | -1.23 | 0.86 | 0.49 |
| 1976 | 5.4 | 3.41 | 2.91 | 1.37 | -1.05 | 0.12 |
| 1982 | -1.9 | 0.86 | -2.55 | -1.30 | -0.59 | 0.38 |
| 1983 | 4.6 | 3.54 | 1.60 | 0.28 | -1.32 | 0.81 |
| 1984 | 7.3 | 3.32 | 4.73 | 1.90 | -1.54 | 0.76 |
| 1985 | 4.2 | 3.25 | -0.01 | -1.03 | -0.39 | 1.38 |
| 2009 | -2.8 | -1.06 | -3.52 | -0.76 | 1.14 | 0.64 |
| 2010 | 2.5 | 1.34 | 1.66 | 1.45 | -0.51 | 0.02 |
| 2011 | 1.8 | 1.74 | 0.69 | -0.16 | 0.10 | -0.68 |
| 2012 | 2.8 | 1.52 | 1.36 | 0.20 | 0.10 | -0.20 |
Source: US Bureau of Economic Analysis http://bea.gov/iTable/index_nipa.cfm
Table I-12 provides more detail of the contributions to growth of GDP from 2009 to 2012 using annual-level data. PCEs contributed 1.34 PPs to GDP growth in 2010 of which 0.77 percentage points (PP) in goods and 0.57 PP in services. Gross private domestic investment (GPDI) deducted 3.52 PPs of GDP growth in 2009 of which -2.77 PPs by fixed investment and -0.76 PPs of inventory change (∆PI) and added 1.66 PPs of GPDI in 2010 of which minus 0.21 PPs of fixed investment and 1.45 PPs of inventory accumulation (∆PI). Trade, or exports of goods and services net of imports, contributed 1.14 PPs in 2009 of which exports deducted 1.10 PPs and imports added 2.24 PPs. In 2010, trade deducted 0.51 PPs with exports contributing 1.28 PPs and imports deducting 1.79 PPs likely benefitting from dollar revaluation. In 2009, government added 0.64 PP of which 0.44 PPs by the federal government and 0.20 PPs by state and local government; in 2010, government added 0.02 PPs of which 0.37 PPs by the federal government with state and local government deducting 0.35 PPs. The final two columns of Table I-12 provide the estimates for 2011 and 2012. PCE contributed 1.74 PPs in 2011 after 1.34 PPs in 2010. The contribution of PCE fell to 1.52 points in 2012. The breakdown into goods and services is similar but with contributions in 2012 of 0.77 PPs of goods and 0.74 PPs of services. Gross private domestic investment contributed 1.66 PPs in 2010 with 1.45 PPs of change of private inventories but the contribution of gross private domestic investment was only 0.69 PPs in 2011. The contribution of GPDI in 2012 increased to 1.36 PPs with fixed investment increasing its contribution to 1.17 PPs and residential investment contributing 0.32 PPs for the first time since 2009. Net exports of goods and services contributed marginally in 2011 with 0.10 PPs and 0.10 PPs in 2012. The contribution of exports fell from 1.28 PPs in 2010 and 0.89 PPs in 2011 to only 0.48 PPs in 2012. Government deducted 0.68 PPs in 2011 and 0.20 PPs in 2012. The expansion since IIIQ2009 has been characterized by weak contributions of aggregate demand, which is the sum of personal consumption expenditures plus gross private domestic investment. The US did not recover strongly from the global recessions as typical in past cyclical expansions. Recoveries tend to be more sluggish as expansions mature. At the margin in IVQ2011, the acceleration of expansion was driven by inventory accumulation instead of aggregate demand of consumption and investment. Growth of PCE was partly the result of burning savings because of financial repression, which may not be sustainable in the future while creating multiple distortions of resource allocation and growth restraint.
Table I-12, US, Contributions to Growth of Gross Domestic Product in Percentage Points
| 2009 | 2010 | 2011 | 2012 | |
| GDP Growth ∆% | -2.8 | 2.5 | 1.8 | 2.8 |
| Personal Consumption Expenditures (PCE) | -1.06 | 1.34 | 1.74 | 1.52 |
| Goods | -0.68 | 0.77 | 0.76 | 0.77 |
| Durable | -0.41 | 0.43 | 0.46 | 0.56 |
| Nondurable | -0.27 | 0.34 | 0.30 | 0.22 |
| Services | -0.38 | 0.57 | 0.98 | 0.74 |
| Gross Private Domestic Investment (GPDI) | -3.52 | 1.66 | 0.69 | 1.36 |
| Fixed Investment | -2.77 | 0.21 | 0.85 | 1.17 |
| Nonresidential | -2.04 | 0.28 | 0.84 | 0.85 |
| Structures | -0.70 | -0.49 | 0.05 | 0.31 |
| Equipment, software | -1.29 | 0.70 | 0.62 | 0.41 |
| Intellectual Property | -0.05 | 0.07 | 0.17 | 0.13 |
| Residential | -0.73 | -0.07 | 0.01 | 0.32 |
| Change Private Inventories | -0.76 | 1.45 | -0.16 | 0.20 |
| Net Exports of Goods and Services | 1.14 | -0.51 | 0.10 | 0.10 |
| Exports | -1.10 | 1.28 | 0.89 | 0.48 |
| Goods | -1.02 | 1.08 | 0.63 | 0.36 |
| Services | -0.08 | 0.20 | 0.27 | 0.12 |
| Imports | 2.24 | -1.79 | -0.79 | -0.38 |
| Goods | 2.15 | -1.72 | -0.70 | -0.30 |
| Services | 0.08 | -0.07 | -0.09 | -0.07 |
| Government Consumption Expenditures and Gross Investment | 0.64 | 0.02 | -0.68 | -0.20 |
| Federal | 0.44 | 0.37 | -0.23 | -0.12 |
| National Defense | 0.27 | 0.18 | -0.13 | -0.17 |
| Nondefense | 0.17 | 0.19 | -0.10 | 0.05 |
| State and Local | 0.20 | -0.35 | -0.46 | -0.08 |
Source: US Bureau of Economic Analysis http://bea.gov/iTable/index_nipa.cfm
Manufacturing jobs increased 27,000 in Nov 2013 relative to Oct 2013, seasonally adjusted (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html). Manufacturing jobs not seasonally adjusted increased 83,000 from Nov 2012 to Nov 2013 or at the average monthly rate of 6,917. There are effects of the weaker economy and international trade together with the yearly adjustment of labor statistics. Industrial production decreased 0.1 percent in Oct 2013 after increasing 0.7 percent in Sep 2013 and increasing 0.5 percent in Aug 2013, as shown in Table I-1, with all data seasonally adjusted. The report of the Board of Governors of the Federal Reserve System states (http://www.federalreserve.gov/releases/g17/Current/default.htm):
“Industrial production edged down 0.1 percent in October after having increased 0.7 percent in September. Manufacturing production rose 0.3 percent in October for its third consecutive monthly gain. The index for mining fell 1.6 percent after having risen for six consecutive months, and the output of utilities dropped 1.1 percent after having jumped 4.5 percent in September. The level of the index for total industrial production in October was equal to its 2007 average and was 3.2 percent above its year-earlier level. Capacity utilization for the industrial sector declined 0.2 percentage point in October to 78.1 percent, a rate 1.1 percentage points above its level of a year earlier and 2.1 percentage points below its long-run (1972-2012) average.“
In the six months ending in Oct 2013, United States national industrial production accumulated increase of 1.3 percent at the annual equivalent rate of 2.6 percent, which is lower than growth of 3.2 percent in the 12 months ending in Oct 2013. Excluding growth of 0.7 percent in Sep 2013, growth in the remaining five months from May 2012 to Oct 2013 accumulated to 0.6 percent or 1.2 percent annual equivalent. Industrial production fell in two of the past six months. Business equipment accumulated growth of 1.7 percent in the six months from May to Oct 2013 at the annual equivalent rate of 3.4 percent, which is much lower than growth of 5.1 percent in the 12 months ending in Oct 2013. Growth of business equipment accumulated 0.1 percent from Apr to Aug 2013 at the annual equivalent rate of minus 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 the industrial sector declined 0.2 percentage point in October to 78.1 percent, a rate 1.1 percentage points above its level of a year earlier and 2.1 percentage points below its long-run (1972-2012) average.” United States industry apparently decelerated to a lower growth rate. Manufacturing increased 0.3 percent in Oct 2013 after increasing 0.1 percent in Sep 2013 and increasing 0.7 percent in Aug 2013 seasonally adjusted, increasing 3.4 percent not seasonally adjusted in 12 months ending in Oct 2013, as shown in Table I-2 (http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-unwinding-monetary-policy.html). Manufacturing grew cumulatively 1.2 percent in the six months ending in Oct 2013 or at the annual equivalent rate of 2.4 percent. Excluding the increase of 0.7 percent in Aug 2013, manufacturing accumulated growth of 0.5 percent from May 2013 to Oct 2013 or at the annual equivalent rate of 1.0 percent. Manufacturing fell 21.9 from the peak in Jun 2007 to the trough in Apr 2009 and increased 16.8 percent from the trough in Apr 2009 to Dec 2012. Manufacturing grew 21.2 percent from the trough in Apr 2009 to Oct 2013. Manufacturing output in Oct 2013 is 5.3 percent below the peak in Jun 2007.
Table I-13 provides national income by industry without capital consumption adjustment (WCCA). “Private industries” or economic activities have share of 86.7 percent in IIIQ2013. Most of US national income is in the form of services. In Nov 2013, there were 137.942 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 115.622 million NSA in Nov 2013 accounted for 83.8 percent of total nonfarm jobs of 137.942 million, of which 12.022 million, or 10.4 percent of total private jobs and 8.7 percent of total nonfarm jobs, were in manufacturing. Private service-producing jobs were 96.761 million NSA in Nov 2013, or 70.1 percent of total nonfarm jobs and 83.7 percent of total private-sector jobs. Manufacturing has share of 10.8 percent in US national income in IIQ2013, as shown in Table I-13. 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-13, US, National Income without Capital Consumption Adjustment by Industry, Seasonally Adjusted Annual Rates, Billions of Dollars, % of Total
| SAAR | % Total | SAAR IQ2013 | % Total | |
| National Income WCCA | 14,495.5 | 100.0 | 14,630.0 | 100.0 |
| Domestic Industries | 14,248.7 | 98.3 | 14,365.9 | 98.2 |
| Private Industries | 12,568.6 | 86.7 | 12,690.7 | 86.7 |
| Agriculture | 220.3 | 1.5 | ||
| Mining | 254.3 | 1.8 | ||
| Utilities | 216.5 | 1.5 | ||
| Construction | 629.0 | 4.3 | ||
| Manufacturing | 1558.9 | 10.8 | ||
| Durable Goods | 888.1 | 6.1 | ||
| Nondurable Goods | 670.1 | 4.6 | ||
| Wholesale Trade | 874.4 | 6.0 | ||
| Retail Trade | 995.8 | 6.9 | ||
| Transportation & WH | 436.3 | 3.0 | ||
| Information | 507.2 | 3.5 | ||
| Finance, Insurance, RE | 2448.1 | 16.9 | ||
| Professional, BS | 2004.7 | 13.8 | ||
| Education, Health Care | 1438.9 | 9.9 | ||
| Arts, Entertainment | 577.1 | 4.0 | ||
| Other Services | 409.7 | 2.8 | ||
| Government | 1680.1 | 11.6 | 1675.2 | 11.5 |
| Rest of the World | 246.8 | 1.7 | 264.1 | 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
IA1. Contracting Real Private Fixed Investment. 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 2.3 percent on average in the cyclical expansion in the 17 quarters from IIIQ2009 to IIIQ2013. 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://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp3q13_2nd.pdf http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp3q13_adv.pdf
http://bea.gov/newsreleases/national/gdp/2013/pdf/gdp2q13_adv.pdf http://bea.gov/newsreleases/national/pi/2013/pdf/pi0613.pdf) and the second estimate of GDP for IIIQ2013 (http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp3q13_2nd.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/2013/11/global-financial-risk-mediocre-united.html). The expansion from IQ1983 to IVQ1985 was at the average annual growth rate of 5.7 percent, 5.4 percent from IQ1983 to IIIQ1986 and at 7.8 percent from IQ1983 to IVQ1983 (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html). As a result, there are 28.1 million unemployed or underemployed in the United States for an effective unemployment rate of 17.2 percent (Section II and earlier) http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html).
Table IA1-1 provides quarterly seasonally adjusted annual rates (SAAR) of growth of private fixed investment for the recessions of the 1980s and the current economic cycle. In the cyclical expansion beginning in IQ1983 (http://www.nber.org/cycles.html), real private fixed investment in the United States grew at the average annual rate of 14.7 percent in the first eight quarters from IQ1983 to IVQ1984. Growth rates fell to an average of 2.2 percent in the following eight quarters from IQ1985 to IVQ1986. There were only two quarters of contraction of private fixed investment from IQ1983 to IVQ1986. There is quite different behavior of private fixed investment in the seventeen quarters of cyclical expansion from IIIQ2009 to IIIQ2013. The average annual growth rate in the first eight quarters of expansion from IIIQ2009 to IIQ2011 was 3.3 percent, which is significantly lower than 14.7 percent in the first eight quarters of expansion from IQ1983 to IVQ1984. There is only strong growth of private fixed investment in the four quarters of expansion from IIQ2011 to IQ2012 at the average annual rate of 10.5 percent. Growth has fallen from the SAAR of 14.8 percent in IIIQ2011 to 2.7 percent in IIIQ2012, recovering to 11.6 percent in IVQ2012 and falling to minus 1.5 percent in IQ2013. The SAAR of fixed investment rose to 6.5 percent in IIQ2013 and fell to 5.4 percent in IIIQ2013. Sudeep Reddy and Scott Thurm, writing on “Investment falls off a cliff,” on Nov 18, 2012, published in the Wall Street Journal (http://professional.wsj.com/article/SB10001424127887324595904578123593211825394.html?mod=WSJPRO_hpp_LEFTTopStories) analyze the decline of private investment in the US and inform that a review by the Wall Street Journal of filing and conference calls finds that 40 of the largest publicly traded corporations in the US have announced intentions to reduce capital expenditures in 2012. The SAAR of real private fixed investment jumped to 11.6 percent in IVQ2012 but declined to minus 1.5 percent in IQ2013, recovering to 6.5 percent in IIQ2013 and falling to 5.4 percent in IIIQ2013.
Table IA1-1, US, Quarterly Growth Rates of Real Private Fixed Investment, % Annual Equivalent SA
| Q | 1981 | 1982 | 1983 | 1984 | 2008 | 2009 | 2010 |
| I | 3.8 | -12.2 | 9.4 | 13.1 | -7.1 | -27.4 | 0.8 |
| II | 3.2 | -12.1 | 16.0 | 16.6 | -5.5 | -14.2 | 13.6 |
| III | 0.1 | -9.3 | 24.4 | 8.2 | -12.1 | -0.5 | -0.4 |
| IV | -1.5 | 0.2 | 24.3 | 7.3 | -23.9 | -2.8 | 8.5 |
| 1985 | 2011 | ||||||
| I | 3.7 | -0.5 | |||||
| II | 5.2 | 8.6 | |||||
| III | -1.6 | 14.8 | |||||
| IV | 7.8 | 10.0 | |||||
| 1986 | 2012 | ||||||
| I | 1.1 | 8.6 | |||||
| II | 0.1 | 4.7 | |||||
| III | -1.8 | 2.7 | |||||
| IV | 3.1 | 11.6 | |||||
| 1987 | 2013 | ||||||
| I | -6.7 | -1.5 | |||||
| II | 6.3 | 6.5 | |||||
| III | 7.1 | 5.4 | |||||
| IV | -0.2 |
Source: US Bureau of Economic Analysis http://bea.gov/iTable/index_nipa.cfm
Chart IA1-1 of the US Bureau of Economic Analysis (BEA) provides seasonally adjusted annual rates of growth of real private fixed investment from 1981 to 1986. Growth rates recovered sharply during the first eight quarters, which was essential in returning the economy to trend growth and eliminating unemployment and underemployment accumulated during the contractions.
Chart IA1-1, US, Real Private Fixed Investment, Seasonally-Adjusted Annual Rates Percent Change from Prior Quarter, 1981-1986
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
Weak behavior of real private fixed investment from 2007 to 2013 is shown in Chart IA1-2. Growth rates of real private fixed investment were much lower during the initial phase of expansion in the current economic cycle and have entered sharp trend of decline.
Chart IA1-2, US, Real Private Fixed Investment, Seasonally-Adjusted Annual Rates Percent Change from Prior Quarter, 2007-2013
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
Table IA1-2 provides real private fixed investment at seasonally adjusted annual rates from IVQ2007 to IIQ2013 or for the complete economic cycle. The first column provides the quarter, the second column percentage change relative to IVQ2007, the third column the quarter percentage change in the quarter relative to the prior quarter and the final column percentage change in a quarter relative to the same quarter a year earlier. 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 increased 0.7 percent from $2,605.2 billion of 2009 dollars in IVQ2007 to $2,624.6 billion in IIIQ2013. As shown in Table IAI-2, real private fixed investment fell 3.7 percent from $2,586.3 billion of 2009 dollars in IVQ2007 to $2,490.7 billion in IIIQ2013. Growth of real private investment in Table IA1-2 is mediocre for all but four quarters from IIQ2011 to IQ2012.
Table IA1-2, US, Real Private Fixed Investment and Percentage Change Relative to IVQ2007 and Prior Quarter, Billions of Chained 2009 Dollars and ∆%
| Real PFI, Billions Chained 2009 Dollars | ∆% Relative to IVQ2007 | ∆% Relative to Prior Quarter | ∆% | |
| IVQ2007 | 2586.3 | NA | -1.2 | -1.4 |
| IQ2008 | 2539.1 | -1.8 | -1.8 | -3.0 |
| IIQ2008 | 2503.4 | -3.2 | -1.4 | -4.6 |
| IIIQ2008 | 2424.1 | -6.3 | -3.2 | -7.1 |
| IV2008 | 2263.8 | -12.5 | -6.6 | -12.5 |
| IQ2009 | 2089.3 | -19.2 | -7.7 | -17.7 |
| IIQ2009 | 2011.0 | -22.2 | -3.7 | -19.7 |
| IIIQ2009 | 2008.4 | -22.3 | -0.1 | -17.1 |
| IVQ2009 | 1994.1 | -22.9 | -0.7 | -11.9 |
| IQ2010 | 1997.9 | -22.8 | 0.2 | -4.4 |
| IIQ2010 | 2062.8 | -20.2 | 3.2 | 2.6 |
| IIIQ2010 | 2060.8 | -20.3 | -0.1 | 2.6 |
| IVQ2010 | 2103.1 | -18.7 | 2.1 | 5.5 |
| IQ2011 | 2100.7 | -18.8 | -0.1 | 5.1 |
| IIQ2011 | 2144.4 | -17.1 | 2.1 | 4.0 |
| IIIQ2011 | 2219.8 | -14.2 | 3.5 | 7.7 |
| IVQ2011 | 2273.4 | -12.1 | 2.4 | 8.1 |
| IQ2012 | 2320.8 | -10.3 | 2.1 | 10.5 |
| IIQ2012 | 2347.9 | -9.2 | 1.2 | 9.5 |
| IIIQ2012 | 2363.5 | -8.6 | 0.7 | 6.5 |
| IVQ2012 | 2429.1 | -6.1 | 2.8 | 6.8 |
| IQ2013 | 2420.0 | -6.4 | -0.4 | 4.3 |
| IIQ2013 | 2458.4 | -4.9 | 1.6 | 4.7 |
| IIIQ2013 | 2,490.7 | -3.7 | 1.3 | 5.4 |
PFI: Private Fixed Investment
Source: US Bureau of Economic Analysis http://bea.gov/iTable/index_nipa.cfm
Chart IA1-3 provides real private fixed investment in billions of chained 2009 dollars from IQ2007 to IIIQ2013. Real private fixed investment has not recovered, stabilizing at a level in IIIQ2013 that is 3.7 percent below the level in IVQ2007.
Chart IA1-3, US, Real Private Fixed Investment, Billions of Chained 2009 Dollars, IQ2007 to IIIQ2013
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
Chart IA1-4 provides real gross private domestic investment in chained dollars of 2009 from 1980 to 1986. Real gross private domestic investment climbed 20.1 percent to $1143.0 billion of 2009 dollars in IVQ1986 above the level of $951.6 billion in IQ1980.
Chart IA1-4, US, Real Gross Private Domestic Investment, Billions of Chained 2009 Dollars at Seasonally Adjusted Annual Rate, 1980-1986
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
Chart IA1-5 provides real gross private domestic investment in the United States in billions of dollars of 2009 from 2006 to 2013. Gross private domestic investment reached a level of $2624.6 in IIIQ2013 of that was 0.7 percent higher than the level of $2605.6 billion in IVQ2007 (http://www.bea.gov/iTable/index_nipa.cfm).
Chart IA1-5, US, Real Gross Private Domestic Investment, Billions of Chained 2009 Dollars at Seasonally Adjusted Annual Rate, 2007-2013
Source: US Bureau of Economic Analysis http://www.bea.gov/iTable/index_nipa.cfm
Table IA1-3 provides percentage shares in GDP of gross private domestic investment and its components in IIIQ2013, IIIQ2006 and IIIQ2000. The share of gross private domestic investment in GDP has fallen from 19.8 percent in IIIQ2000 and 19.3 percent in IIIQ2006 to 16.2 percent in IIIQ2013. There are declines in percentage shares in GDP of all components with sharp reduction of residential investment from 4.7 percent in IIIQ2000 and 5.8 percent in IIIQ2006 to 3.2 percent in IIIQ2013. The share of fixed investment in GDP fell from 19.3 percent in IIIQ2000 and 18.7 percent in IIIQ2006 to 15.3 percent in IIIQ2013.
Table IA1-3, Percentage Shares of Gross Private Domestic Investment and Components in Gross Domestic Product, % of GDP, IQ2013
| IIIQ2013 | IIIQ2006 | IIIQ2000 | |
| Gross Private Domestic Investment | 16.2 | 19.3 | 19.8 |
| Fixed Investment | 15.3 | 18.7 | 19.3 |
| Nonresidential | 12.2 | 12.9 | 14.6 |
| Structures | 2.8 | 3.1 | 3.2 |
| Equipment and Software | 5.5 | 6.2 | 7.5 |
| Intellectual | 3.8 | 3.7 | 4.0 |
| Residential | 3.2 | 5.8 | 4.7 |
| Change in Private Inventories | 0.9 | 0.6 | 0.6 |
Source: US Bureau of Economic Analysis http://bea.gov/iTable/index_nipa.cfm
Broader perspective is provided in Chart IA1-6 with the percentage share of gross private domestic investment in GDP in annual data from 1929 to 2012. There was sharp drop during the current economic cycle with almost no recovery in contrast with sharp recovery after the recessions of the 1980s.
Chart IA1-6, US, Percentage Share of Gross Private Domestic Investment in Gross Domestic Product, Annual, 1929-2012
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
Chart IA1-7 provides percentage shares of private fixed investment in GDP with annual data from 1929 to 2012. The sharp contraction after the recessions of the 1980s was followed by sustained recovery while the sharp drop in the current economic cycle has not been recovered.
Chart IA1-7, US, Percentage Share of Private Fixed Investment in Gross Domestic Product, Annual, 1929-2012
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
Chart IA1-8 provides percentage shares in GDP of nonresidential investment from 1929 to 2012. There is again recovery from sharp contraction in the 1980s but inadequate recovery in the current economic cycle.
Chart IA1-8, US, Percentage Share of Nonresidential Investment in Gross Domestic Product, Annual, 1929-2012
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
Chart IA1-9 provides percentage shares of business equipment and software in GDP with annual data from 1929 to 2012. There is again inadequate recovery in the current economic cycle.
Chart IA1-9, US, Percentage Share of Business Equipment and Software in Gross Domestic Product, Annual, 1929-2012
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
Chart IA1-10 provides percentage shares of residential investment in GDP with annual data from 1929 to 2012. The salient characteristic of Chart IA1-10 is the vertical increase of the share of residential investment in GDP up to 2006 and subsequent collapse.
Chart IA1-10, US, Percentage Share of Residential Investment in Gross Domestic Product, Annual, 1929-2012
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
Finer detail is provided by the quarterly share of residential investment in GDP from 1979 to 2013 in Chart IA1-11. There was protracted growth of that share, accelerating sharply into 2006 followed with nearly vertical drop. The explanation of the sharp contraction of United States housing can probably be found in the origins of the financial crisis and global recession. Let V(T) represent the value of the firm’s equity at time T and B stand for the promised debt of the firm to bondholders and assume that corporate management, elected by equity owners, is acting on the interests of equity owners. Robert C. Merton (1974, 453) states:
“On the maturity date T, the firm must either pay the promised payment of B to the debtholders or else the current equity will be valueless. Clearly, if at time T, V(T) > B, the firm should pay the bondholders because the value of equity will be V(T) – B > 0 whereas if they do not, the value of equity would be zero. If V(T) ≤ B, then the firm will not make the payment and default the firm to the bondholders because otherwise the equity holders would have to pay in additional money and the (formal) value of equity prior to such payments would be (V(T)- B) < 0.”
Pelaez and Pelaez (The Global Recession Risk (2007), 208-9) apply this analysis to the US housing market in 2005-2006 concluding:
“The house market [in 2006] is probably operating with low historical levels of individual equity. There is an application of structural models [Duffie and Singleton 2003] to the individual decisions on whether or not to continue paying a mortgage. The costs of sale would include realtor and legal fees. There could be a point where the expected net sale value of the real estate may be just lower than the value of the mortgage. At that point, there would be an incentive to default. The default vulnerability of securitization is unknown.”
There are multiple important determinants of the interest rate: “aggregate wealth, the distribution of wealth among investors, expected rate of return on physical investment, taxes, government policy and inflation” (Ingersoll 1987, 405). Aggregate wealth is a major driver of interest rates (Ingersoll 1987, 406). Unconventional monetary policy, with zero fed funds rates and flattening of long-term yields by quantitative easing, causes uncontrollable effects on risk taking that can have profound undesirable effects on financial stability. Excessively aggressive and exotic monetary policy is the main culprit and not the inadequacy of financial management and risk controls.
The net worth of the economy depends on interest rates. In theory, “income is generally defined as the amount a consumer unit could consume (or believe that it could) while maintaining its wealth intact” (Friedman 1957, 10). Income, Y, is a flow that is obtained by applying a rate of return, r, to a stock of wealth, W, or Y = rW (Ibid). According to a subsequent restatement: “The basic idea is simply that individuals live for many years and that therefore the appropriate constraint for consumption decisions is the long-run expected yield from wealth r*W. This yield was named permanent income: Y* = r*W” (Darby 1974, 229), where * denotes permanent. The simplified relation of income and wealth can be restated as:
W = Y/r (1)
Equation (1) shows that as r goes to zero, r →0, W grows without bound, W→∞.
Lowering the interest rate near the zero bound in 2003-2004 caused the illusion of permanent increases in wealth or net worth in the balance sheets of borrowers and also of lending institutions, securitized banking and every financial institution and investor in the world. The discipline of calculating risks and returns was seriously impaired. The objective of monetary policy was to encourage borrowing, consumption and investment but the exaggerated stimulus resulted in a financial crisis of major proportions as the securitization that had worked for a long period was shocked with policy-induced excessive risk, imprudent credit, high leverage and low liquidity by the incentive to finance everything overnight at close to zero interest rates, from adjustable rate mortgages (ARMS) to asset-backed commercial paper of structured investment vehicles (SIV).
The consequences of inflating liquidity and net worth of borrowers were a global hunt for yields to protect own investments and money under management from the zero interest rates and unattractive long-term yields of Treasuries and other securities. Monetary policy distorted the calculations of risks and returns by households, business and government by providing central bank cheap money. Short-term zero interest rates encourage financing of everything with short-dated funds, explaining the SIVs created off-balance sheet to issue short-term commercial paper to purchase default-prone mortgages that were financed in overnight or short-dated sale and repurchase agreements (Pelaez and Pelaez, Financial Regulation after the Global Recession, 50-1, Regulation of Banks and Finance, 59-60, Globalization and the State Vol. I, 89-92, Globalization and the State Vol. II, 198-9, Government Intervention in Globalization, 62-3, International Financial Architecture, 144-9). ARMS were created to lower monthly mortgage payments by benefitting from lower short-dated reference rates. Financial institutions economized in liquidity that was penalized with near zero interest rates. There was no perception of risk because the monetary authority guaranteed a minimum or floor price of all assets by maintaining low interest rates forever or equivalent to writing an illusory put option on wealth. Subprime mortgages were part of the put on wealth by an illusory put on house prices. The housing subsidy of $221 billion per year created the impression of ever increasing house prices. The suspension of auctions of 30-year Treasuries was designed to increase demand for mortgage-backed securities, lowering their yield, which was equivalent to lowering the costs of housing finance and refinancing. Fannie and Freddie purchased or guaranteed $1.6 trillion of nonprime mortgages and worked with leverage of 75:1 under Congress-provided charters and lax oversight. The combination of these policies resulted in high risks because of the put option on wealth by near zero interest rates, excessive leverage because of cheap rates, low liquidity because of the penalty in the form of low interest rates and unsound credit decisions because the put option on wealth by monetary policy created the illusion that nothing could ever go wrong, causing the credit/dollar crisis and global recession (Pelaez and Pelaez, Financial Regulation after the Global Recession, 157-66, Regulation of Banks, and Finance, 217-27, International Financial Architecture, 15-18, The Global Recession Risk, 221-5, Globalization and the State Vol. II, 197-213, Government Intervention in Globalization, 182-4).
Chart IA1-11, US, Percentage Share of Residential Investment in Gross Domestic Product, Quarterly, 1979-2013
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
Chart IA1-12 provides the share of intellectual property products investment in GDP with annual data from 1929 to 2012. This is an important addition in the revision and enhancement of GDP provided by the Bureau of Economic Analysis. The share rose sharply over time but in the past decade and stabilized at a lower level.
Chart IA1-12, US, Percentage Share of Intellectual Property Products Investment in Gross Domestic Product, Annual, 1929-2012
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
Chart IA1-13 provides the percentage share of intellectual property investment in GDP on a quarterly basis from 1979 to 2013. The share stabilized in the 2000s.
Chart IA1-13, US, Percentage Share of Intellectual Property Investment in Gross Domestic Product, Quarterly, 1979-2013
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
Table IA1-4 provides the seasonally adjusted annual rate of real GDP percentage change and contributions in percentage points in annual equivalent rate of gross domestic investment (GDI), real private fixed investment (PFI), nonresidential investment (NRES), business equipment and software (BES), residential investment (RES), intellectual property products (IPP) and change in inventories (∆INV) for the cyclical expansions from IQ1983 to IVQ1985 and from IIIQ2009 to IIIQ2013. GDI provided strong percentage points contributions to GDP growth in the critical first year of expansion in 1983 and also in several quarters in 1984 and 1985 while it has been muted in the cyclical expansion since IIIQ2009 with contributions largely only from IQ2010 to IVQ2011. Gross domestic investment added 2.49 percentage points to GDP growth of 3.6 percent in IIIQ2013 partly because of change of inventories of 1.68 percentage points with PFI adding 0.81 percentage points. Nonresidential investment added 0.42 percentage points and residential investment added 0.38 percentage points to GDP growth of 3.6 percent in IIIQ2013. GDI added 1.38 percentage points to GDP growth of 2.5 percent in IIQ2013 with 0.41 percentage points from inventory change while nonresidential investment added 0.56 percentage points and residential investment 0.40 percentage points. GDI added 0.71 percentage points in IQ2013 mostly because of 0.93 percentage points of inventory investment while private fixed investment deducted 0.23 percentage points. Nonresidential investment deducted 0.57 percentage points. Business equipment and software added 0.09 percentage points and residential investment 0.34 percentage points. Intellectual property products (IPP) added 0.14 percentage points in IQ2013, deducted 0.06 percentage points in IIQ2013 and added 0.07 percentage points in IIIQ2013. Much of the strong performance of GDI in the cyclical expansion after IQ1983 originated in contributions by real private fixed investment (PFI). Nonresidential investment also contributed strongly to growth in the expansion of the 1980s but has been muted in the current expansion. The contribution of business equipment and software collapsed to negative 0.22 percentage points in IIIQ2012 as business scales down investment but rebounded with 0.47 percentage points in IVQ2012, 0.09 percentage points in IQ2013 and 0.18 percentage points in IIQ2013. Business equipment and software contributed 0.0 percentage points in IIIQ2013. Residential investment (RES) was relatively strong in 1983 but was muted in following quarters. Residential investment only contributed significantly to growth of GDP in the four quarters of 2012, IQ2013, IIQ2013 and IIIQ2013.
Table IA1-4, US, Contributions to the Rate of Growth of Real GDP in Percentage Points
| GDP | GDI | PFI | NRES | BES | IPP | RES | ∆INV | |
| 2013 | ||||||||
| I | 1.1 | 0.71 | -0.23 | -0.57 | 0.09 | 0.14 | 0.34 | 0.93 |
| II | 2.5 | 1.38 | 0.96 | 0.56 | 0.18 | -0.06 | 0.40 | 0.41 |
| III | 3.6 | 2.49 | 0.81 | 0.42 | 0.00 | 0.07 | 0.38 | 1.68 |
| 2012 | ||||||||
| I | 3.7 | 1.57 | 1.21 | 0.68 | 0.45 | 0.05 | 0.53 | 0.36 |
| II | 1.2 | -0.23 | 0.68 | 0.53 | 0.29 | 0.07 | 0.15 | -0.91 |
| III | 2.8 | 0.99 | 0.39 | 0.04 | -0.22 | 0.11 | 0.35 | 0.60 |
| IV | 0.1 | -0.36 | 1.63 | 1.13 | 0.47 | 0.21 | 0.50 | -2.00 |
| 2011 | ||||||||
| I | -1.3 | -1.11 | -0.05 | -0.09 | 0.59 | 0.14 | 0.04 | -1.06 |
| II | 3.2 | 1.88 | 1.16 | 1.09 | 0.23 | 0.18 | 0.07 | 0.72 |
| III | 1.4 | 0.36 | 1.96 | 1.81 | 0.99 | 0.20 | 0.15 | -1.60 |
| IV | 4.9 | 4.13 | 1.39 | 1.10 | 0.54 | 0.21 | 0.29 | 2.73 |
| 2010 | ||||||||
| I | 1.6 | 1.77 | 0.11 | 0.46 | 1.25 | -0.07 | -0.35 | 1.66 |
| II | 3.9 | 2.86 | 1.77 | 1.21 | 1.02 | -0.08 | 0.56 | 1.09 |
| III | 2.8 | 1.86 | -0.04 | 0.90 | 0.83 | 0.22 | -0.94 | 1.90 |
| IV | 2.8 | -0.51 | 1.13 | 0.94 | 0.57 | 0.19 | 0.19 | -1.64 |
| 2009 | ||||||||
| I | -5.4 | -7.02 | -4.75 | -3.58 | -2.25 | -0.23 | -1.17 | -2.26 |
| II | -0.4 | -3.25 | -2.13 | -1.46 | -0.60 | 0.16 | -0.66 | -1.12 |
| III | 1.3 | -0.40 | -0.02 | -0.54 | 0.25 | 0.04 | 0.52 | -0.38 |
| IV | 3.9 | 4.05 | -0.36 | -0.37 | 0.36 | 0.25 | 0.01 | 4.40 |
| 1982 | ||||||||
| I | -6.5 | -7.60 | -2.26 | -1.45 | -0.83 | 0.14 | -0.81 | -5.34 |
| II | 2.2 | -0.06 | -2.32 | -1.89 | -1.20 | 0.08 | -0.44 | 2.26 |
| III | -1.4 | -0.62 | -1.73 | -1.71 | -0.55 | 0.06 | -0.02 | 1.11 |
| IV | 0.4 | -5.37 | -0.03 | -1.05 | -0.57 | 0.00 | 1.01 | -5.33 |
| 1983 | ||||||||
| I | 5.3 | 2.36 | 1.44 | -0.92 | -0.27 | 0.16 | 2.36 | 0.92 |
| II | 9.4 | 5.96 | 2.53 | 0.67 | 1.24 | 0.29 | 1.86 | 3.43 |
| III | 8.1 | 4.40 | 3.82 | 2.13 | 1.43 | 0.31 | 1.70 | 0.57 |
| IV | 8.5 | 6.94 | 3.93 | 3.14 | 2.32 | 0.35 | 0.79 | 3.01 |
| 1984 | ||||||||
| I | 8.2 | 7.23 | 2.29 | 1.71 | 0.46 | 0.30 | 0.58 | 4.94 |
| II | 7.2 | 2.57 | 2.86 | 2.52 | 1.36 | 0.29 | 0.34 | -0.29 |
| III | 4.0 | 1.69 | 1.48 | 1.70 | 0.88 | 0.25 | -0.22 | 0.21 |
| IV | 3.2 | -1.08 | 1.36 | 1.34 | 0.86 | 0.29 | 0.02 | -2.44 |
| 1985 | ||||||||
| I | 4.0 | -2.14 | 0.72 | 0.67 | -0.23 | 0.14 | 0.05 | -2.86 |
| II | 3.7 | 1.34 | 0.99 | 0.83 | 0.64 | 0.20 | 0.16 | 0.35 |
| III | 6.4 | -0.43 | -0.28 | -0.62 | -0.38 | 0.13 | 0.34 | -0.15 |
| IV | 3.0 | 2.80 | 1.40 | 1.00 | 0.53 | 0.26 | 0.40 | 1.40 |
| 1986 | ||||||||
| I | 3.8 | 0.04 | 0.21 | -0.55 | -0.28 | 0.17 | 0.76 | -0.17 |
| II | 1.9 | -1.30 | 0.00 | -1.12 | 0.34 | 0.15 | 1.12 | -1.30 |
| III | 4.1 | -1.97 | -0.34 | -0.63 | -0.17 | 0.10 | 0.28 | -1.62 |
| IV | 2.1 | 0.24 | 0.53 | 0.48 | 0.30 | 0.10 | 0.05 | -0.29 |
GDP: Gross Domestic Product; GDI: Gross Domestic Investment; PFI: Private Fixed Investment; NRES: Nonresidential; BES: Business Equipment and Software; IPP: Intellectual Property Products; RES: Residential; ∆INV: Change in Private Inventories.
GDI = PFI + ∆INV, may not add exactly because of errors of rounding.
GDP: Seasonally adjusted annual equivalent rate of growth in a quarter; components: percentage points at annual rate.
Source: US Bureau of Economic Analysis http://bea.gov/iTable/index_nipa.cfm
IA2 Swelling Undistributed Corporate Profits. Table IA1-5 provides value added of corporate business, dividends and corporate profits in billions of current dollars at seasonally adjusted annual rates (SAAR) in IVQ2007 and IIIQ2013 together with percentage changes. The last three rows of Table IA1-5 provide gross value added of nonfinancial corporate business, consumption of fixed capital and net value added in billions of chained 2009 dollars at SAARs. Deductions from gross value added of corporate profits down the rows of Table IA1-5 end with undistributed corporate profits. Profits after taxes with inventory valuation adjustment (IVA) and capital consumption adjustment (CCA) increased by 104.1 percent in nominal terms from IVQ2007 to IIIQ2013 while net dividends increased 10.3 percent and undistributed corporate profits swelled 394.4 percent from $107.7 billion in IQ2007 to $532.5 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. Gross value added of nonfinancial corporate business adjusted for inflation increased 5.3 percent from IVQ2007 to IIQ2013, which is much lower than nominal increase of 16.5 percent in the same period for gross value added of total corporate business.
Table IA1-5, US, Value Added of Corporate Business, Corporate Profits and Dividends, IVQ2007-IQ2013
| IVQ2007 | IIIQ2013 | ∆% | |
| Current Billions of Dollars Seasonally Adjusted Annual Rates (SAAR) | |||
| Gross Value Added of Corporate Business | 8,165.9 | 9,513.8 | 16.5 |
| Consumption of Fixed Capital | 1,216.5 | 1,428.7 | 17.4 |
| Net Value Added | 6,949.4 | 8,085.1 | 16.3 |
| Compensation of Employees | 4,945.8 | 5,414.0 | 9.5 |
| Taxes on Production and Imports Less Subsidies | 688.5 | 754.9 | 9.6 |
| Net Operating Surplus | 1,315.1 | 1,916.2 | 45.7 |
| Net Interest and Misc | 204.2 | 117.1 | -42.7 |
| Business Current Transfer Payment Net | 68.9 | 93.2 | 35.3 |
| Corporate Profits with IVA and CCA Adjustments | 1,042.0 | 1,705.9 | 63.7 |
| Taxes on Corporate Income | 408.8 | 413.4 | 1.1 |
| Profits after Tax with IVA and CCA Adjustment | 633.2 | 1,292.4 | 104.1 |
| Net Dividends | 689.1 | 760.0 | 10.3 |
| Undistributed Profits with IVA and CCA Adjustment | -55.9 | 532.5 | NA |
| Billions of Chained USD 2009 SAAR | |||
| Gross Value Added of Nonfinancial Corporate Business | 7,519.3 | 7,919.9 | 5.3 |
| Consumption of Fixed Capital | 1,066.0 | 1,172.8 | 10.0 |
| Net Value Added | 6,453.4 | 6,747.1 | 4.6 |
IVA: Inventory Valuation Adjustment; CCA: Capital Consumption Adjustment
Source: US Bureau of Economic Analysis http://bea.gov/iTable/index_nipa.cfm
Table IA1-6 provides comparable United States value added of corporate business, corporate profits and dividends from IQ1980 to IVQ1986. There is significant difference both in nominal and inflation-adjusted data. Between IQ1980 and IVQ1986, profits after tax with IVA and CCA increased 66.6 percent with dividends growing 118.6 percent and undistributed profits increasing 15.5 percent. There was much higher inflation in the 1980s than in the current cycle. For example, the consumer price index for all items not seasonally adjusted increased 37.9 percent between Mar 1980 and Dec 1986 but only 11.5 percent between Dec 2007 and Sep 2013 (http://www.bls.gov/cpi/data.htm). The comparison is still valid in terms of inflation-adjusted data: gross value added of nonfinancial corporate business adjusted for inflation increased 25.5 percent between IQ1980 and IVQ1986 but only 5.3 percent between IVQ2007 and IIIQ2013 while net value added adjusted for inflation increased 24.3 percent between IQ1980 and IVQ1986 but only 4.6 percent between IVQ2007 and IIIQ2013.
Table IA1-6, US, Value Added of Corporate Business, Corporate Profits and Dividends, IQ1980-IVQ1985
| IQ1980 | IVQ1986 | ∆% | |
| Current Billions of Dollars Seasonally Adjusted Annual Rates (SAAR) | |||
| Gross Value Added of Corporate Business | 1,654.1 | 2,756.0 | 66.6 |
| Consumption of Fixed Capital | 200.5 | 357.7 | 78.4 |
| Net Value Added | 1,453.6 | 2,398.4 | 65.0 |
| Compensation of Employees | 1,072.9 | 1,765.1 | 64.5 |
| Taxes on Production and Imports Less Subsidies | 121.5 | 224.5 | 84.8 |
| Net Operating Surplus | 259.2 | 408.7 | 57.7 |
| Net Interest and Misc. | 50.4 | 106.0 | 110.3 |
| Business Current Transfer Payment Net | 11.5 | 26.3 | 128.7 |
| Corporate Profits with IVA and CCA Adjustments | 197.2 | 276.4 | 40.2 |
| Taxes on Corporate Income | 97.0 | 118.5 | 22.2 |
| Profits after Tax with IVA and CCA Adjustment | 100.2 | 158.0 | 57.7 |
| Net Dividends | 40.9 | 89.4 | 118.6 |
| Undistributed Profits with IVA and CCA Adjustment | 59.3 | 68.5 | 15.5 |
| Billions of Chained USD 2009 SAAR | |||
| Gross Value Added of Nonfinancial Corporate Business | 2,952.3 | 3,704.6 | 25.5 |
| Consumption of Fixed Capital | 315.6 | 428.0 | 35.6 |
| Net Value Added | 2,636.7 | 3,276.6 | 24.3 |
IVA: Inventory Valuation Adjustment; CCA: Capital Consumption Adjustment
Source: US Bureau of Economic Analysis http://bea.gov/iTable/index_nipa.cfm
Chart IA1-12 of the US Bureau of Economic Analysis provides quarterly corporate profits after tax and undistributed profits with IVA and CCA from 1979 to 2013. There is tightness between the series of quarterly corporate profits and undistributed profits in the 1980s with significant gap developing from 1988 and to the present with the closest approximation peaking in IVQ2005 and surrounding quarters. These gaps widened during all recessions including in 1991 and 2001 and recovered in expansions with exceptionally weak performance in the current expansion.
Chart IA1-14, US, Corporate Profits after Tax and Undistributed Profits with Inventory Valuation Adjustment and Capital Consumption Adjustment, Quarterly, 1979-2013
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
Table IA1-7 provides price, costs and profit per unit of gross value added of nonfinancial domestic corporate income for IVQ2007 and IIIQ2013 in the upper block and for IQ1980 and IVQ1986 in the lower block. Compensation of employees or labor costs per unit of gross value added of nonfinancial domestic corporate income hardly changed from 0.577 in IVQ2007 to 0.600 in IIIQ2013 in a fractured labor market but increased from 0.340 in IQ1980 to 0.436 in IVQ1986 in a more vibrant labor market. Unit nonlabor costs increased mildly from 0.270 per unit of gross value added in IVQ2007 to 0.294 in IIIQ2013 but increased from 0.124 in IQ1980 to 0.181 in IVQ1986 in an economy closer to full employment of resources. Profits after tax with IVA and CCA per unit of gross value added of nonfinancial domestic corporate income increased from 0.076 in IVQ2007 to 0.123 in IIIQ2013 and from 0.029 in IQ1980 to 0.037 in IVQ1986.
Table IA1-7, US, Price, Costs and Profit per Unit of Gross Value Added of Nonfinancial Domestic Corporate Income
| IVQ2007 | IIIQ2013 | |
| Price per Unit of Real Gross Value Added of Nonfinancial Corporate Business | 0.961 | 1.052 |
| Compensation of Employees (Unit Labor Cost) | 0.577 | 0.600 |
| Unit Nonlabor Cost | 0.270 | 0.294 |
| Consumption of Fixed Capital | 0.140 | 0.157 |
| Taxes on Production and Imports less Subsidies plus Business Current Transfer Payments (net) | 0.093 | 0.098 |
| Net Interest and Misc. Payments | 0.037 | 0.039 |
| Corporate Profits with IVA and CCA Adjustment (Unit Profits from Current Production) | 0.114 | 0.157 |
| Taxes on Corporate Income | 0.038 | 0.033 |
| Profits after Tax with IVA and CCA Adjustment | 0.076 | 0.123 |
| IQ1980 | IVQ1986 | |
| Price per Unit of Real Gross Value Added of Nonfinancial Corporate Business | 0.518 | 0.678 |
| Compensation of Employees (Unit Labor Cost) | 0.340 | 0.436 |
| Unit Nonlabor Cost | 0.124 | 0.181 |
| Consumption of Fixed Capital | 0.064 | 0.087 |
| Taxes on Production and Imports less Subsidies plus Business Current Transfer Payments (net) | 0.042 | 0.064 |
| Net Interest and Misc. Payments | 0.018 | 0.030 |
| Corporate Profits with IVA and CCA Adjustment (Unit Profits from Current Production) | 0.055 | 0.060 |
| Taxes on Corporate Income | 0.026 | 0.023 |
| Profits after Tax with IVA and CCA Adjustment | 0.029 | 0.037 |
IVA: Inventory Valuation Adjustment; CCA: Capital Consumption Adjustment
Source: US Bureau of Economic Analysis http://bea.gov/iTable/index_nipa.cfm
Chart IA1-13 provides quarterly profits after tax with IVA and CCA per unit of gross value added of nonfinancial domestic corporate income from 1980 to 2013. In an environment of idle labor and other productive resources nonfinancial corporate income increased after tax profits with IVA and CCA per unit of gross value added at a faster pace in the weak economy from IVQ2007 to IIIQ2013 than in the vibrant expansion of the cyclical contractions of the 1980s. Part of the profits was distributed as dividends and significant part was retained as undistributed profits in the current economic cycle with frustrated investment decision.
Chart IA1-15, US, Profits after Tax with Inventory Valuation Adjustment and Capital Consumption Adjustment per Unit of Gross Value Added of Nonfinancial Domestic Corporate Income, 1980-2013
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
Table IA1-8 provides seasonally adjusted annual rates of change of corporate profits from IVQ2012 to IIIQ2013. US corporate profits with inventory valuation adjustment (IVA) and capital consumption adjustment (CCA) fell 1.3 percent in IQ2013 and 0.1 percent after taxes. Corporate profits with IVA and CCA rebounded at 3.3 percent in IIQ2013 and at 3.5 percent after taxes. Corporate profits with IVA and CCA increased at 1.8 percent in IIIQ2013 and 2.6 percent after taxes. Net dividends jumped 16.2 percent in IVQ2012 in generalized anticipation of income because of fear of the so-called “fiscal cliff,” or increases in taxes in 2013, and fell 12.0 percent in IQ2013 in adjustment to normal levels. Net dividends jumped at 35.8 percent in IIQ2013 and fell at 17.3 percent in IIIQ2013. Undistributed profits fell 9.7 percent in IVQ2012 in anticipation of tax increases and adjusted by increasing 13.7 percent in IQ2013. Undistributed profits fell at 25.5 percent in IIQ2013 and increased at 35.2 percent in IIIQ2013.
Table IA1-8, Quarterly Seasonally Adjusted Annual Equivalent Percentage Rates of Change of Corporate Profits, ∆%
| IVQ2012 | IQ2013 | IIQ2013 | IIIQ2013 | |
| Corporate Profits with IVA and CCA | 1.7 | -1.3 | 3.3 | 1.8 |
| Corporate Income Taxes | -1.3 | -5.8 | 2.4 | -1.1 |
| After Tax Profits with IVA and CCA | 2.6 | -0.1 | 3.5 | 2.6 |
| Net Dividends | 16.2 | -12.0 | 35.8 | -17.3 |
| Und Profits with IVA and CCA | -9.7 | 13.7 | -25.5 | 35.2 |
Source: Bureau of Economic Analysis http://bea.gov/iTable/index_nipa.cfm
Table IA1-9 provides change from prior quarter of the level of seasonally adjusted annual rates of US corporate profits. 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 $66.8 billion in IIQ2013 and $38.3 billion in IIIQ2013. 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 $56.9 billion and $43.0 billion in IIIQ2013. 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 $273.5 billion in IIQ2013. Net dividends fell at $179.7 billion in IIIQ2013. 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 $216.6 billion in IIQ2013. Undistributed profits with IVA and CCA rose at $222.8 billion in IIIQ2013. Undistributed profits of US corporations swelled 394.4 percent from $107.7 billion IQ2007 to $532.5 billion in IIIQ2013 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 $66.8 billion from $2020.6 billion in IQ2013 to $2087.4 billion at the quarterly rate of 3.3 percent. Corporate profits with IVA and CCA increased $38.3 billion from $2087.4 billion in IIQ2013 to $2125.7 billion in IIIQ2013 at the annual rate of 1.8 percent. (http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp3q13_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.
Table IA1-9, Change from Prior Quarter of Level of Seasonally Adjusted Annual Equivalent Rates of Corporate Profits, Billions of Dollars
| IVQ2012 | IQ2013 | IIQ2013 | IIIQ2013 | |
| Corporate Profits with IVA and CCA | 34.9 | -26.6 | 66.8 | 38.3 |
| Corporate Income Taxes | -5.9 | -25.0 | 10.0 | -4.8 |
| After Tax Profits with IVA and CCA | 40.8 | -1.7 | 56.9 | 43.0 |
| Net Dividends | 120.9 | -103.8 | 273.5 | -179.7 |
| Und Profits with IVA and CCA | -80.1 | 102.1 | -216.6 | 222.8 |
Source: Bureau of Economic Analysis
http://bea.gov/iTable/index_nipa.cfm
IB Stagnating Real Disposable Income and Consumption Expenditures. The Bureau of Economic Analysis (BEA) provides important revisions and enhancements of data on personal income and outlays since 1929 (http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0613.pdf http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0713.pdf http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0813.pdf http://www.bea.gov/iTable/index_nipa.cfm http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi1013.pdf http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0913.pdf). There are waves of changes in personal income and expenditures in Table IB-1 that correspond somewhat to inflation waves observed worldwide (http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-zero-interest-rates-world.html) because of the influence through price indexes. Data are distorted in Nov and Dec 2012 by the rush to realize income of all forms in anticipation of tax increases beginning in Jan 2013. There is major distortion in Jan 2013 because of higher contributions in payrolls to government social insurance that caused sharp reduction in personal income and disposable personal income. The Bureau of Economic Analysis (BEA) explains as follows (page 3 http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0313.pdf):
“The February and January [2013] changes in disposable personal income (DPI) mainly reflected the effect of special factors in January, such as the expiration of the “payroll tax holiday” and the acceleration of bonuses and personal dividends to November and to December [2012] in anticipation of changes in individual tax rates.”
In the first wave in Jan-Apr 2011 with relaxed risk aversion, nominal personal income (NPI) increased at the annual equivalent rate of 8.1 percent, nominal disposable personal income (NDPI) at 5.2 percent and nominal personal consumption expenditures (NPCE) at 5.5 percent. Real disposable income (RDPI) increased at the annual equivalent rate of 1.8 percent and real personal consumption expenditures (RPCE) rose at annual equivalent 2.1 percent. In the second wave in May-Aug 2011 under risk aversion, NPI rose at annual equivalent 4.3 percent, NPDI at 4.3 percent and NPCE at 4.0 percent. RDPI increased at 1.8 percent annual equivalent and RPCE at 1.5 percent annual equivalent. With mixed shocks of risk aversion in the third wave from Sep to Dec 2011, NPI rose at 1.5 percent annual equivalent, NDPI at 1.5 percent and NPCE at 3.3 percent. RDPI increased at 0.3 percent annual equivalent and RPCE at 2.1 percent annual equivalent. In the fourth wave from Jan to Mar 2012, NPI increased at 8.3 percent annual equivalent and NDPI at 7.0 percent. Real disposable income (RDPI) is more dynamic in the revisions, growing at 3.7 percent annual equivalent and RPCE at 3.7 percent. The policy of repressing savings with zero interest rates stimulated growth of nominal consumption (NPCE) at the annual equivalent rate of 6.6 percent and real consumption (RPCE) at 3.7 percent. In the fifth wave in Apr-Jul 2012, NPI increased at annual equivalent 1.2 percent, NDPI at 1.2 percent and RDPI at 0.6 percent. Financial repression failed to stimulate consumption with NPCE growing at 2.1 percent annual equivalent and RPCE at 2.1 percent. In the sixth wave in Aug-Oct 2012, in another wave of carry trades into commodity futures, NPI increased at 4.5 percent annual equivalent and NDPI increased at 3.7 percent while real disposable income (RDPI) increased at 0.4 percent annual equivalent. Data for Nov-Dec 2012 have illusory increases: “Personal income in November and December 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/pi1212.pdf). In the seventh wave, anticipations of tax increases in Jan 2013 caused exceptional income gains that increased personal income to annual equivalent 29.0 percent in Nov-Dec 2012, nominal disposable income at 29.0 percent and real disposable personal income at 29.8 percent with likely effects on nominal personal consumption that increased at 1.8 percent and real personal consumption at 2.4 percent with subdued prices. The numbers in parentheses show that without the exceptional effects NDPI (nominal disposable personal income) increased at 5.5 percent and RDPI (real disposable personal income) at 8.7 percent. In the eighth wave, nominal personal income fell 4.4 percent in Jan 2013 or at the annual equivalent rate of decline of 41.7 percent; nominal disposable personal income fell 5.1 percent or at the annual equivalent rate of decline of 46.6 percent; real disposable income fell 5.1 percent or at the annual rate of decline of 46.6 percent; nominal personal consumption expenditures increased 0.2 percent or at the annual equivalent rate of 2.4 percent; and real personal consumption expenditures increased 0.1 percent or at the annual equivalent rate of 1.2 percent. The savings rate fell significantly from 8.7 percent in Dec 2012 to 3.6 percent in Jan 2013. The Bureau of Economic Analysis explains as follows (http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0113.pdf 3):
“Contributions for government social insurance -- a subtraction in calculating personal income -- increased $126.7 billion in January, compared with an increase of $6.3 billion in December. The
January estimate reflected increases in both employer and employee contributions for government social insurance. The January estimate of employee contributions for government social insurance reflected the expiration of the “payroll tax holiday,” that increased the social security contribution rate for employees and self-employed workers by 2.0 percentage points, or $114.1 billion at an annual rate. For additional information, see FAQ on “How did the expiration of the payroll tax holiday affect personal income for January 2013?” at www.bea.gov. The January estimate of employee contributions for government social insurance also reflected an increase in the monthly premiums paid by participants in the supplementary medical insurance program, in the hospital insurance provisions of the Patient Protection and Affordable Care Act, and in the social security taxable wage base; together, these changes added $12.8 billion to January. As noted above, employer contributions were boosted $5.9 billion in January, so the total contribution of special factors to the January change in contributions for government social insurance was $132.8 billion”
Further explanation is provided by the Bureau of Economic Analysis (http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0213.pdf 2-3):
“Contributions for government social insurance -- a subtraction in calculating personal income --increased $6.4 billion in February, compared with an increase of $126.8 billion in January. The
January estimate reflected increases in both employer and employee contributions for government social insurance. The January estimate of employee contributions for government social insurance reflected the expiration of the “payroll tax holiday,” that increased the social security contribution rate for employees and self-employed workers by 2.0 percentage points, or $114.1 billion at an annual rate. For additional information, see FAQ on “How did the expiration of the payroll tax holiday affect personal income for January 2013?” at www.bea.gov. The January estimate of employee contributions for government social insurance also reflected an increase in the monthly premiums paid by participants in the supplementary medical insurance program, in the hospital insurance provisions of the Patient Protection and Affordable Care Act, and in the social security taxable wage base; together, these changes added $12.9 billion to January. Employer contributions were boosted $5.9 billion in January, which reflected increases in the social security taxable wage base (from $110,100 to $113,700), in the tax rates paid by employers to state unemployment insurance, and in employer contributions for the federal unemployment tax and for pension guaranty. The total contribution of special factors to the January change in contributions for government social insurance was $132.9 billion. The January change in disposable personal income (DPI) mainly reflected the effect of special factors, such as the expiration of the “payroll tax holiday” and the acceleration of bonuses and personal dividends to December in anticipation of changes in individual tax rates. Excluding these special factors and others, which are discussed more fully below, DPI increased $46.8 billion in February, or 0.4 percent, after increasing $15.8 billion, or 0.1 percent, in January.”
The increase was provided in the “fiscal cliff” law H.R. 8 American Taxpayer Relief Act of 2012 (http://www.gpo.gov/fdsys/pkg/BILLS-112hr8eas/pdf/BILLS-112hr8eas.pdf). In the ninth wave in Feb-Mar 2013, nominal personal income increased at 10.0 percent and nominal disposable income at 10.0 percent annual equivalent, while real disposable income increased at 8.1 percent annual equivalent. Nominal personal consumption expenditures grew at 5.5 annual equivalent and real personal consumption expenditures at 3.7 percent annual equivalent. The savings rate collapsed from 5.0 percent in Oct 2012, 5.9 percent in Nov 2012 and 8.7 percent in Dec 2012 to 3.6 percent in Jan 2013, 4.2 percent in Feb 2013 and 4.3 percent in Mar 2013. In the tenth wave from Apr to Sep 2013, personal income grew at 4.3 percent annual equivalent, nominal disposable income increased at annual equivalent 4.3 percent and nominal personal consumption expenditures at 2.4 percent. Real disposable income grew at 3.2 percent annual equivalent and real personal consumption expenditures at 1.2 percent. In the eleventh wave, nominal personal income fell at 1.2 percent annual equivalent in Oct 2013, nominal disposable income at 2.4 percent and real disposable income at 2.4 percent. Nominal personal consumption expenditures increased at 3.7 percent annual equivalent and real personal consumption expenditures at 0.3 percent.
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 2.3 percent on average in the cyclical expansion in the 17 quarters from IIIQ2009 to IIIQ2013. 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://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp3q13_2nd.pdf http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp3q13_adv.pdf
http://bea.gov/newsreleases/national/gdp/2013/pdf/gdp2q13_adv.pdf http://bea.gov/newsreleases/national/pi/2013/pdf/pi0613.pdf) and the second estimate of GDP for IIIQ2013 (http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp3q13_2nd.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/2013/11/global-financial-risk-mediocre-united.html). The expansion from IQ1983 to IVQ1985 was at the average annual growth rate of 5.7 percent, 5.4 percent from IQ1983 to IIIQ1986 and at 7.8 percent from IQ1983 to IVQ1983 (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html). As a result, there are 28.1 million unemployed or underemployed in the United States for an effective unemployment rate of 17.2 percent (Section II and earlier) http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html).
RDPI stagnated in Jan-Dec 2011 at 1.2 percent with the latest revised data compared with growth of 2.8 percent in Jan-Dec 2010 but grew at annual equivalent 3.7 percent in Jan-Mar 2012 and 0.6 percent in Apr-Jul 2012. The salient deceleration is the decline of the annual equivalent rate of NPCE (nominal personal consumption expenditures) to 2.1 percent annual equivalent in Apr-Jul 2012 and of RPCE (real personal consumption expenditures) to 2.1 percent. A bump occurred in Aug 2012 with increases of commodity prices by the carry trade from zero interest rates to exposures in commodity futures and other risk financial assets. Real disposable income fell 0.3 percent in Aug 2012 or at annual equivalent minus 3.5 percent. Nominal personal consumption expenditures increased 0.2 percent in Aug 2012 or at annual equivalent 2.4 percent but declined 0.1 percent in real terms. Nominal personal income increased 0.1 percent in Aug 2012 or 1.2 percent annual equivalent while nominal disposable income was flat at 0.0 percent. Real disposable income (RDPI) increased 0.2 percent in Oct 2012 while real personal consumption expenditures (RPCE) decreased 0.1 percent. RDPI increased 1.3 percent in Nov 2012 and 3.1 percent in Dec 2012 because of realization of incomes in anticipation of tax increases in Jan 2013 while RPCE increased 0.3 percent in Nov 2012 and 0.1 percent in Dec 2012. In Jan-Dec 2012, RDPI increased 5.9 percent and RPCE 2.2 percent. NPI contracted 4.4 percent in Jan 2013, NDPI 5.1 percent and RDPI 5.1 percent but NPCE increased 0.2 percent and RPCE 0.1 percent, probably by drawing on savings. There is strong recovery in Feb-Mar 2013 and renewed weakness in Apr 2013. While NPI increased at 4.3 percent and NDPI at 4.3 percent in annual equivalent in Apr-Sep 2013 and RDPI at 3.2 percent, NPCE stagnated in Apr-May 2013 and RPCE increased at 1.2 percent annual equivalent in Apr-Sep 2013.
Table IB-1, US, Percentage Change from Prior Month Seasonally Adjusted of Personal Income, Disposable Income and Personal Consumption Expenditures %
| NPI | NDPI | RDPI | NPCE | RPCE | |
| 2013 | |||||
| Oct | -0.1 | -0.2 | -0.2 | 0.3 | 0.3 |
| AE ∆% Oct | -1.2 | -2.4 | -2.4 | 3.7 | 3.7 |
| Sep | 0.5 | 0.5 | 0.4 | 0.2 | 0.1 |
| Aug | 0.5 | 0.6 | 0.5 | 0.3 | 0.2 |
| Jul | 0.2 | 0.3 | 0.2 | 0.1 | 0.0 |
| Jun | 0.4 | 0.3 | -0.1 | 0.6 | 0.2 |
| May | 0.4 | 0.4 | 0.3 | 0.2 | 0.1 |
| Apr | 0.1 | 0.0 | 0.3 | -0.2 | 0.0 |
| AE ∆% Apr-Sep | 4.3 | 4.3 | 3.2 | 2.4 | 1.2 |
| Mar | 0.3 | 0.3 | 0.4 | 0.2 | 0.3 |
| Feb | 1.3 | 1.3 | 0.9 | 0.7 | 0.3 |
| AE ∆% Feb-Mar | 10.0 | 10.0 | 8.1 | 5.5 | 3.7 |
| Jan | -4.4 | -5.1 (0.1)a | -5.1 | 0.2 | 0.1 |
| AE ∆% Jan | -41.7 | -46.6 (3.7)a | -46.6 | 2.4 | 1.2 |
| 2012 | |||||
| ∆% Jan-Dec 2012*** | 7.9 | 7.5 | 5.9 | 3.8 | 2.2 |
| Dec | 3.1 | 3.1 (0.3)* | 3.1 (0.5)* | 0.1 | 0.1 |
| Nov | 1.2 | 1.2 (0.6)* | 1.3 (0.9)* | 0.2 | 0.3 |
| AE ∆% Nov-Dec | 29.0 | 29.0 (5.5)* | 29.8 (8.7)* | 1.8 | 2.4 |
| Oct | 0.4 | 0.4 | 0.2 | 0.1 | -0.1 |
| Sep | 0.6 | 0.5 | 0.2 | 0.7 | 0.4 |
| Aug | 0.1 | 0.0 | -0.3 | 0.2 | -0.1 |
| AE ∆% Aug-Oct | 4.5 | 3.7 | 0.4 | 4.1 | 0.8 |
| Jul | -0.1 | -0.1 | -0.1 | 0.4 | 0.4 |
| Jun | 0.3 | 0.3 | 0.1 | 0.1 | 0.0 |
| May | 0.0 | 0.0 | 0.0 | -0.1 | 0.0 |
| Apr | 0.2 | 0.2 | 0.2 | 0.3 | 0.3 |
| AE ∆% Apr-Jul | 1.2 | 1.2 | 0.6 | 2.1 | 2.1 |
| Mar | 0.4 | 0.3 | 0.1 | 0.2 | 0.0 |
| Feb | 0.7 | 0.6 | 0.3 | 0.8 | 0.5 |
| Jan | 0.9 | 0.8 | 0.5 | 0.6 | 0.4 |
| AE ∆% Jan-Mar | 8.3 | 7.0 | 3.7 | 6.6 | 3.7 |
| 2011 | |||||
| ∆% Jan-Dec 2011* | 4.6 | 3.6 | 1.2 | 4.3 | 1.8 |
| Dec | 0.7 | 0.6 | 0.6 | 0.0 | 0.0 |
| Nov | -0.1 | -0.1 | -0.2 | 0.2 | 0.0 |
| Oct | 0.0 | 0.1 | 0.0 | 0.4 | 0.4 |
| Sep | -0.1 | -0.1 | -0.3 | 0.5 | 0.3 |
| AE ∆% Sep-Dec | 1.5 | 1.5 | 0.3 | 3.3 | 2.1 |
| Aug | 0.1 | 0.1 | -0.1 | 0.2 | 0.0 |
| Jul | 0.6 | 0.6 | 0.4 | 0.5 | 0.3 |
| Jun | 0.4 | 0.4 | 0.3 | 0.3 | 0.2 |
| May | 0.3 | 0.3 | 0.0 | 0.3 | 0.0 |
| AE ∆% May-Aug | 4.3 | 4.3 | 1.8 | 4.0 | 1.5 |
| Apr | 0.2 | 0.2 | -0.1 | 0.4 | 0.0 |
| Mar | 0.2 | 0.2 | -0.2 | 0.7 | 0.4 |
| Feb | 0.6 | 0.5 | 0.3 | 0.4 | 0.2 |
| Jan | 1.6 | 0.8 | 0.6 | 0.3 | 0.1 |
| AE ∆% Jan-Apr | 8.1 | 5.2 | 1.8 | 5.5 | 2.1 |
| 2010 | |||||
| ∆% Jan-Dec 2010** | 4.8 | 4.2 | 2.8 | 4.4 | 2.9 |
| Dec | 0.9 | 0.9 | 0.7 | 0.3 | 0.1 |
| Nov | 0.5 | 0.4 | 0.3 | 0.6 | 0.4 |
| Oct | 0.5 | 0.5 | 0.2 | 0.8 | 0.5 |
| IVQ2010∆% | 1.9 | 1.8 | 1.2 | 1.7 | 1.0 |
| IVQ2010 AE ∆% | 7.9 | 7.4 | 4.9 | 7.0 | 4.1 |
Notes: *Excluding exceptional income gains in Nov and Dec 2012 because of anticipated tax increases in Jan 2013 ((page 2 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi1212.pdf). a Excluding employee contributions for government social insurance (pages 1-2 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0113.pdf )Excluding NPI: current dollars personal income; NDPI: current dollars disposable personal income; RDPI: chained (2005) dollars DPI; NPCE: current dollars personal consumption expenditures; RPCE: chained (2005) dollars PCE; AE: annual equivalent; IVQ2010: fourth quarter 2010; A: annual equivalent
Percentage change month to month seasonally adjusted
*∆% Dec 2011/Dec 2010 **∆% Dec 2010/Dec 2009 *** ∆% Dec 2012/Dec 2011
Source: US Bureau of Economic http://bea.gov/iTable/index_nipa.cfm
Table IB-2 provides further information on income and consumption. The 12-month rate of increase of RDPI of 2.8 percent in Dec 2010 fell to 1.2 percent in Dec 2011 while that of RPCE fell from 2.9 percent to 1.8 percent. Revisions shows increase of RDPI of 1.1 percent in the 12 months ending in Jan 2012 and marginal increase to 1.2 percent in the 12 months ending in Feb 2012. The significant difference is continuing growth of 12-month percentage changes of RDPI with 1.7 percent in Jun 2012, 1.6 percent in Sep 2013 and 1.7 percent in Oct 2012 followed by 3.2 percent in Nov 2012 and 5.9 percent in Dec 2012. The BEA explains increases of RDPI in Nov-Dec 2012: “Personal income in November and December 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/pi1212.pdf). The 12-month rate of growth of real disposable personal income fell from 5.9 percent in Dec 2012 to minus 0.1 percent in Jan 2013, increasing to 0.5 percent in Feb 2013, 0.8 percent in Mar 2013 and 0.9 percent in May 2013, 1.0 percent in Jul 2013 and 1.7 percent in Aug 2013. RDPI increased 2.0 percent in the 12 months ending in Sep 2013. Real disposable income fell 5.1 percent in Jan 2013, which is explained by the Bureau of Economic Analysis as follows (page 2 http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0213.pdf):
“The January change in disposable personal income (DPI) mainly reflected the effect of special factors, such as the expiration of the “payroll tax holiday” and the acceleration of bonuses and personal dividends to December in anticipation of changes in individual tax rates. Excluding these special factors and others, which are discussed more fully below, DPI increased $46.8 billion in February, or 0.4 percent, after increasing $15.8 billion, or 0.1 percent, in January.”
The increase was provided in the “fiscal cliff” law H.R. 8 American Taxpayer Relief Act of 2012 (http://www.gpo.gov/fdsys/pkg/BILLS-112hr8eas/pdf/BILLS-112hr8eas.pdf)
RPCE growth decelerated less sharply from close to 3 percent in IVQ 2010 to 2.1 percent in Mar 2012, 1.8 percent in Oct 2012, 2.1 percent in Nov 2012, 2.2 percent in Dec 2012 perhaps also with some effects of anticipations of tax increases in Jan 2013, 2.0 percent in Jan 2013 by burning savings, 1.7 percent in Feb 2013 and 2.0 percent in Mar 2013. RPCE increased 1.7 percent in the 12 months ending in Apr 2013, 1.8 percent in the 12 months ending in May 2013 and 2.0 percent in the 12 months ending in Jun 2013. RPCE increased 2.0 percent in the 12 months ending in Aug 2013 and 1.7 percent in the 12 months ending in Sep 2013. RPCE increased 2.1 percent in the 12 months ending in Oct 2013. Subdued growth of RPCE could affect revenues of business. Growth rates of personal consumption have weakened. Goods and especially durable goods have been driving growth of PCE as shown by the much higher 12-month rates of growth of real goods PCE (RPCEG) and durable goods real PCE (RPCEGD) than services real PCE (RPCES). Growth of consumption of goods and, in particular, of consumer durable goods drives the faster expansion of the economy while growth of consumption of services is much more moderate. The 12-month rates of growth of RPCEGD have fallen from around 10 percent and even higher in several months from Sep 2010 to Feb 2011 to the range of 5.7 to 9.1 percent from Jan 2012 to Oct 2013. RPCEG growth rates have fallen from around 5 percent late in 2010 and early Jan-Feb 2011 to the range of 2.3 to 4.2 percent from Jan 2012 to Oct 2013. Growth rates in 12 months of goods and durable goods increased again toward the end of 2012 with strength continuing into 2013. In Oct 2013, RPCEG increased 4.1 percent in 12 months and RPCEGD 7.1 percent while RPCES increased only 1.0 percent. There are limits to sustained growth based on financial repression in an environment of weak labor markets and real labor remuneration.
Table IB-2, Real Disposable Personal Income and Real Personal Consumption Expenditures
Percentage Change from the Same Month a Year Earlier %
| RDPI | RPCE | RPCEG | RPCEGD | RPCES | |
| 2013 | |||||
| Oct | 1.8 | 2.1 | 4.1 | 7.1 | 1.0 |
| Sep | 2.2 | 1.7 | 3.1 | 5.7 | 0.9 |
| Aug | 2.0 | 2.0 | 3.9 | 8.9 | 1.0 |
| Jul | 1.2 | 1.7 | 3.9 | 8.0 | 0.6 |
| Jun | 0.9 | 2.0 | 4.1 | 8.3 | 1.0 |
| May | 1.1 | 1.8 | 3.6 | 7.7 | 0.9 |
| Apr | 0.8 | 1.7 | 3.0 | 7.1 | 1.1 |
| Mar | 0.8 | 2.0 | 3.1 | 6.3 | 1.4 |
| Feb | 0.5 | 1.7 | 3.2 | 6.6 | 0.9 |
| Jan | -0.1 | 2.0 | 3.7 | 7.7 | 1.1 |
| 2012 | |||||
| Dec | 5.9 | 2.2 | 4.2 | 9.0 | 1.2 |
| Nov | 3.2 | 2.1 | 3.6 | 8.4 | 1.4 |
| Oct | 1.7 | 1.8 | 2.8 | 6.1 | 1.3 |
| Sep | 1.6 | 2.3 | 4.1 | 8.8 | 1.4 |
| Aug | 1.1 | 2.1 | 4.0 | 9.1 | 1.2 |
| Jul | 1.2 | 2.2 | 3.4 | 7.9 | 1.6 |
| Jun | 1.7 | 2.2 | 3.2 | 8.9 | 1.7 |
| May | 1.9 | 2.4 | 3.5 | 7.7 | 1.8 |
| Apr | 1.8 | 2.4 | 3.0 | 6.7 | 2.1 |
| Mar | 1.5 | 2.1 | 2.9 | 6.5 | 1.7 |
| Feb | 1.2 | 2.5 | 3.0 | 7.5 | 2.2 |
| Jan | 1.1 | 2.1 | 2.3 | 6.4 | 1.9 |
| Dec 2011 | 1.2 | 1.8 | 1.9 | 5.8 | 1.7 |
| Dec 2010 | 2.8 | 2.9 | 4.7 | 8.4 | 2.1 |
Notes: RDPI: real disposable personal income; RPCE: real personal consumption expenditures (PCE); RPCEG: real PCE goods; RPCEGD: RPCEG durable goods; RPCES: RPCE services
Numbers are percentage changes from the same month a year earlier
Source: US Bureau of Economic Analysis http://bea.gov/iTable/index_nipa.cfm
Chart IB-1 shows US real personal consumption expenditures (RPCE) between 1995 and 2013. There is an evident drop in RPCE during the global recession in 2007 to 2009 but the slope is flatter during the current recovery than in the period before 2007.
Chart IB-1, US, Real Personal Consumption Expenditures, Quarterly Seasonally Adjusted at Annual Rates 1999-2013
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
Percent changes from the prior period in seasonally adjusted annual equivalent quarterly rates (SAAR) of real personal consumption expenditures (RPCE) are provided in Chart IB-2 from 1995 to 2013. The average rate could be visualized as a horizontal line. Although there are not yet sufficient observations, it appears from Chart II-2 that the average rate of growth of RPCE was higher before the recession than during the past sixteen quarters of expansion that began in IIIQ2009.
Chart IB-2, Percent Change from Prior Period in Real Personal Consumption Expenditures, Quarterly Seasonally Adjusted at Annual Rates 1995-2013
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
Personal income and its disposition are shown in Table IB-3. The latest estimates and revisions have changed movements in four forms. (1) Decrease in Oct 2013 of personal income by $10.8 billion or 0.1 percent and disposable income of $23.6 billion or 0.2 percent with increase of wages and salaries of 0.1 percent. (2) Decrease of personal income of $130.1 billion from Dec 2012 to Oct 2013 or by 0.9 percent and decrease of disposable income of $217.9 billion or by 1.7 percent. Wages and salaries increased $2.4 billion from Dec 2012 to Oct 2013 or by 0.0 percent. In 2012, personal income increased $1060.8 billion or 7.9 percent while salaries increased 7.6 percent and disposable income 7.5 percent. Significant part of these gains occurred in Dec 2012 in anticipation of incomes because of tax increases beginning in Jan 2013. (3) Increase of $591.6 billion of personal income in 2011 or by 4.6 percent with increase of salaries of 2.8 percent and disposable income of 3.6 percent. (4) Decline of the rate of savings as percent of disposable income from 5.8 percent in Dec 2010 to 5.4 percent in Dec 2011 and 4.8 percent in Oct 2013.
Table IB-3, US, Personal Income and its Disposition, Seasonally Adjusted at Annual Rates USD Billions
| Personal | Wages & | Personal | DPI | Savings | |
| Oct 2013 | 14,290.1 | 7,203.2 | 1,678.9 | 12,611.3 | 4.8 |
| Sep 2013 | 14,300.9 | 7,194.1 | 1,666.1 | 12,634.9 | 5.2 |
| Change Oct 2013/ Sep 2013 | -10.8 ∆% -0.1 | 9.1 ∆% 0.1 | 12.8 ∆% 0.8 | -23.6 ∆% -0.2 | |
| Jan 2013 | 13,791.7 | 7,001.5 | 1,612.9 | 12,178.7 | 3.6 |
| Dec 2012 | 14,420.2 | 7,200.8 | 1,591.0 | 12,829.2 | 8.7 |
| Change Oct 2013/ Dec 2012 | -130.1 ∆% -0.9 | 2.4 ∆% 0.0 | 87.9 ∆% 5.5 | -217.9 ∆% -1.7 | |
| Change Dec 2012/ Dec 2011 | 1060.8 ∆% 7.9 | 510.7 ∆% 7.6 | 163.3 ∆% 11.4 | 897.6 ∆% 7.5 | |
| Dec 2011 | 13,359.4 | 6,690.1 | 1,427.7 | 11,931.6 | 5.4 |
| Dec 2010 | 12,767.8 | 6,506.0 | 1,254.2 | 11,513.7 | 5.8 |
| Change Dec 2011/ Dec 2010 | 591.6 ∆% 4.6 | 184.1 ∆% 2.8 | 173.5 ∆% 13.8 | 417.9 ∆% 3.6 |
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
The Bureau of Economic Analysis (BEA) provides a wealth of revisions and enhancements of US personal income and outlays since 1929 (http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0613.pdf http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0713.pdf http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0813.pdf http://www.bea.gov/iTable/index_nipa.cfm http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0913.pdf http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi1013.pdf). Table IB-4 provides growth rates of real disposable income and real disposable income per capita in the long-term and selected periods. Real disposable income consists of after-tax income adjusted for inflation. Real disposable income per capita is income per person after taxes and inflation. There is remarkable long-term trend of real disposable income of 3.2 percent per year on average from 1929 to 2012 and 2.0 percent in real disposable income per capita. Real disposable income increased at the average yearly rate of 3.7 percent from 1947 to 1999 and real disposable income per capita at 2.3 percent. These rates of increase broadly accompany rates of growth of GDP. Institutional arrangements in the United States provided the environment for growth of output and income after taxes, inflation and population growth. There is significant break of growth by much lower 2.4 percent for real disposable income on average from 1999 to 2012 and 1.5 percent in real disposable per capita income. Real disposable income grew at 3.5 percent from 1980 to 1989 and real disposable per capita income at 2.6 percent. In contrast, real disposable income grew at only 1.4 percent on average from 2006 to 2012 and real disposable income at 0.6 percent. The United States has interrupted its long-term and cyclical dynamism of output, income and employment growth. Recovery of this dynamism could prove to be a major challenge.
Table IB-4, Average Annual Growth Rates of Real Disposable Income (RDPI) and Real Disposable Income per Capita (RDPIPC), Percent per Year
| RDPI Average ∆% | |
| 1929-2012 | 3.2 |
| 1947-1999 | 3.7 |
| 1999-2012 | 2.4 |
| 1999-2006 | 3.2 |
| 1980-1989 | 3.5 |
| 2006-2012 | 1.4 |
| RDPIPC Average ∆% | |
| 1929-2012 | 2.0 |
| 1947-1999 | 2.3 |
| 1999-2012 | 1.5 |
| 1999-2006 | 2.2 |
| 1980-1989 | 2.6 |
| 2006-2012 | 0.6 |
Source: Bureau of Economic Analysis http://bea.gov/iTable/index_nipa.cfm
Chart IB-3 provides personal income in the US between 1980 and 1989. These data are not adjusted for inflation that was still high in the 1980s in the exit from the Great Inflation of the 1960s and 1970s. Personal income grew steadily during the 1980s after recovery from two recessions from Jan IQ1980 to Jul IIIQ1980 and from Jul IIIQ1981 to Nov IVQ1982.
Chart IB-3, US, Personal Income, Billion Dollars, Quarterly Seasonally Adjusted at Annual Rates, 1980-1989
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
A different evolution of personal income is shown in Chart IB-4. Personal income also fell during the recession from Dec IVQ2007 to Jun IIQ2009 (http://www.nber.org/cycles.html). Growth of personal income during the expansion has been tepid even with the new revisions. In IVQ2012, nominal disposable personal income grew at the SAAR of 11.3 percent and real disposable personal income at 9.0 percent (http://www.bea.gov/iTable/index_nipa.cfm http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0713.pdf http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0813.pdf http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0613.pdf http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0913.pdf http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi1013.pdf Table 6), which the BEA explains as: “Personal income in November and December 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/pi1212.pdf pages 1-2 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0113.pdf). The Bureau of Economic Analysis explains as (http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0213.pdf 2-3): “The January estimate of employee contributions for government social insurance reflected the expiration of the “payroll tax holiday,” that increased the social security contribution rate for employees and self-employed workers by 2.0 percentage points, or $114.1 billion at an annual rate. For additional information, see FAQ on “How did the expiration of the payroll tax holiday affect personal income for January 2013?” at www.bea.gov. The January estimate of employee contributions for government social insurance also reflected an increase in the monthly premiums paid by participants in the supplementary medical insurance program, in the hospital insurance provisions of the Patient Protection and Affordable Care Act, and in the social security taxable wage base.”
The increase was provided in the “fiscal cliff” law H.R. 8 American Taxpayer Relief Act of 2012 (http://www.gpo.gov/fdsys/pkg/BILLS-112hr8eas/pdf/BILLS-112hr8eas.pdf).
In IQ2013, personal income fell at the SAAR of minus 4.1 percent; real personal income excluding current transfer receipts at minus 7.2 percent; and real disposable personal income at minus 7.9 percent (Table 6 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0913.pdf). The BEA explains as follows (page 3 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0313.pdf):
“The February and January changes in disposable personal income (DPI) mainly reflected the effect of special factors in January, such as the expiration of the “payroll tax holiday” and the acceleration of bonuses and personal dividends to November and to December in anticipation of changes in individual tax rates.”
In IIQ2013, personal income grew at 4.7 percent, real personal income excluding current transfer receipts at 5.6 percent and real disposable income at 4.1 percent (http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi1013.pdf). In IIIQ2013, personal income grew at 4.2 percent, real personal income excluding current transfers at 1.9 percent and real disposable income at 2.9 percent (Table 6 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi1013.pdf).
Chart IB-4, US, Personal Income, Current Billions of Dollars, Quarterly Seasonally Adjusted at Annual Rates, 2007-2013
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
Real or inflation-adjusted disposable personal income is provided in Chart IB-5 from 1980 to 1989. Real disposable income after allowing for taxes and inflation grew steadily at high rates during the entire decade.
Chart IB-5, US, Real Disposable Income, Billions of Chained 2009 Dollars, Quarterly Seasonally Adjusted at Annual Rates 1980-1989
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
In IQ2013, personal income fell at the SAAR of minus 4.1 percent; real personal income excluding current transfer receipts at minus 7.2 percent; and real disposable personal income at minus 7.9 percent (Table 6 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi1013.pdf). The BEA explains as follows (page 3 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0313.pdf):
“The February and January changes in disposable personal income (DPI) mainly reflected the effect of special factors in January, such as the expiration of the “payroll tax holiday” and the acceleration of bonuses and personal dividends to November and to December in anticipation of changes in individual tax rates.”
This is the explanation for the decline in IQ2013 in Chart IB-6. In IIQ2013, personal income increased at 4.7 percent, real disposable income excluding current transfer receipts at 5.6 percent and real disposable income at 4.1 percent. In IIIQ2013, personal income increased at 4.2 percent, real personal income excluding current transfer receipts at 1.9 percent and real disposable income at 2.9 percent (http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi1013.pdf).
Chart IB-6, US, Real Disposable Income, Billions of Chained 2009 Dollars, Quarterly Seasonally Adjusted at Annual Rates, 2007-2013
http://www.bea.gov/iTable/index_nipa.cfm
Chart IB-7 provides percentage quarterly changes in real disposable income from the preceding period at seasonally adjusted annual rates from 1980 to 1989. Rates of changes were high during the decade with few negative changes.
Chart IB-7, US, Real Disposable Income Percentage Change from Preceding Period at Quarterly Seasonally-Adjusted Annual Rates, 1980-1989
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
Chart IB-8 provides percentage quarterly changes in real disposable income from the preceding period at seasonally adjusted annual rates from 2007 to 2013. There has been a period of positive rates followed by decline of rates and then negative and low rates in 2011. Recovery in 2012 has not reproduced the dynamism of the brief early phase of expansion. In IVQ2012, nominal disposable personal income grew at the SAAR of 11.3 percent and real disposable personal income at 9.0 percent (http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi1013.pdf), which the BEA explains as: “Personal income in November and December 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/pi1212.pdf). In IQ2013, personal income fell at the SAAR of minus 4.1 percent; real personal income excluding current transfer receipts at minus 7.2 percent; and real disposable personal income at minus 7.9 percent (Table 6 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi1013.pdf). The BEA explains as follows (page 3 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0313.pdf):
“The February and January changes in disposable personal income (DPI) mainly reflected the effect of special factors in January, such as the expiration of the “payroll tax holiday” and the acceleration of bonuses and personal dividends to November and to December in anticipation of changes in individual tax rates.”
In IIQ2013, personal income grew at 4.7 percent, real personal income excluding current transfer receipts at 5.6 percent and real disposable personal income at 4.1 percent. In IIIQ2013, personal income grew at 4.2 percent, real personal income excluding current transfers at 1.9 percent and real disposable personal income at 2.9 percent (http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi1013.pdf).
Chart, IB-8, US, Real Disposable Income, Percentage Change from Preceding Period at Seasonally-Adjusted Annual Rates, 2007-2013
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
In the latest available report, the Bureau of Economic Analysis (BEA) estimates US personal income in Oct 2013 at the seasonally adjusted annual rate of $14,290.1 billion, as shown in Table IB-3 above (see Table 1 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi1013.pdf). The major portion of personal income is compensation of employees of $8,935.0 billion, or 62.5 percent of the total. Wages and salaries are $7,203.2 billion, of which $6,005.9 billion by private industries and supplements to wages and salaries of $1,731.7 billion (employer contributions to pension and insurance funds are $1,197.2 billion and contributions to social insurance are $534.6 billion). In Oct 1985, US personal income was $3,575.1 billion at SAAR (http://www.bea.gov/iTable/index_nipa.cfm). Compensation of employees was $2,439.8billion, or 68.2 percent of the total. Wages and salaries were $2,022.9 billion of which $1642.6 billion by private industries. Supplements to wages and salaries were $416.9 billion with employer contributions to pension and insurance funds of $266.6 billion and $150.3 billion to government social insurance. Chart IB-9 provides US wages and salaries by private industries in the 1980s. Growth was robust after the interruption of the recessions.
Chart IB-9, US, Wages and Salaries, Private Industries, Quarterly, Seasonally Adjusted at Annual Rates Billions of Dollars, 1980-1989
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
Chart II-10 shows US wages and salaries of private industries from 2007 to 2012. There is a drop during the contraction followed by initial recovery in 2010 and then the current much weaker relative performance in 2011, 2012 and 2013.
Chart IB-10, US, Wage and Salary Disbursement, Private Industries, Quarterly, Seasonally Adjusted at Annual Rates, Billions of Dollars 2007-2013
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
Chart IB-11 provides finer detail with monthly wages and salaries of private industries from 2007 to 2013. Total wages and salaries changed 0.0 percent from Dec 2012 to Oct 2013, as shown in Table IB-3.
Chart IB-11, US, Wages and Salaries, Private Industries, Monthly, Seasonally Adjusted at Annual Rates, Billions of Dollars 2007-2013
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
Chart IB-12 provides monthly real disposable personal income per capita from 1980 to 1989. This is the ultimate measure of wellbeing in receiving income by obtaining the value per inhabitant. The measure cannot adjust for the distribution of income. Real disposable personal income per capita grew rapidly during the expansion after 1983 and continued growing during the rest of the decade.
Chart IB-12, US, Real Disposable Per Capita Income, Monthly, Seasonally Adjusted at Annual Rates, Chained 2009 Dollars 1980-1989
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
Chart IB-13 provides monthly real disposable personal per capita from 2007 to 2013. There was initial recovery from the drop during the global recession followed by stagnation. Real per capita disposable income increased 1.2 percent from $36,580 in chained dollars of 2009 in Oct 2012 to $37,030 in Nov 2012 and 3.1 percent to $38,170 in Dec 2012 for cumulative increase of 4.3 percent from Oct 2012 to Dec 2012. Real per capita disposable income fell 5.2 percent from $38,170 in Dec 2012 to $36,190 in Jan 2013, increasing marginally 0.8 percent to $36,497 in Feb 2013 for cumulative change of minus 0.2 percent from Oct 2012 (data at http://www.bea.gov/iTable/index_nipa.cfm). This increase is shown in a jump in the final segment in Chart II-13 with Nov-Dec 2012, decline in Jan 2013 and recovery in Feb 2013. Real per capita disposable income increased 0.4 percent from $36,497 in Feb 2013 in chained dollars of 2009 to $36,626 in Mar 2013 for cumulative increase of 0.1 percent relative to Oct 2012. Real per capita disposable income increased to $36,786 in May 2013 for gain of 0.2 percent relative to $36,708 in Apr 2013 and 0.6 percent from Oct 2012. Real disposable per capita income eased to $36,736 in Jun 2013 for decrease of 0.1 percent relative to May 2013 and increase of 0.4 percent relative to Oct 2012. Real disposable income per capita increased 0.2 percent from $36,736 in Jun 2013 to $36,796 in Jul 2013 and 0.6 percent relative to $36,580 in Oct 2013. Real per capita disposable income increased to $36,952 in Aug 2013 or 0.4 percent higher than in Jul 2013 and 1.0 percent above Oct 2012. Real per capita disposable income increased 0.3 percent from $36,952 in Aug 2013 to $37,068 in Sep 2013 and increased 1.3 percent relative to $36,580 in Oct 2012. Real per capita disposable income decreased 0.2 percent from $37,068 in Sep 2013 to $36,985 in Oct 2013 and increased 1.1 percent relative to $36,580 in Oct 2012. BEA explains as: “Personal income in November and December 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/pi1212.pdf pages 1-2 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0113.pdf). The Bureau of Economic Analysis explains as (http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0213.pdf 2-3): “The January estimate of employee contributions for government social insurance reflected the expiration of the “payroll tax holiday,” that increased the social security contribution rate for employees and self-employed workers by 2.0 percentage points, or $114.1 billion at an annual rate. For additional information, see FAQ on “How did the expiration of the payroll tax holiday affect personal income for January 2013?” at www.bea.gov. The January estimate of employee contributions for government social insurance also reflected an increase in the monthly premiums paid by participants in the supplementary medical insurance program, in the hospital insurance provisions of the Patient Protection and Affordable Care Act, and in the social security taxable wage base.”
The increase was provided in the “fiscal cliff” law H.R. 8 American Taxpayer Relief Act of 2012 (http://www.gpo.gov/fdsys/pkg/BILLS-112hr8eas/pdf/BILLS-112hr8eas.pdf).
The BEA explains as follows (page 3 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0313.pdf):
“The February and January changes in disposable personal income (DPI) mainly reflected the effect of special factors in January, such as the expiration of the “payroll tax holiday” and the acceleration of bonuses and personal dividends to November and to December in anticipation of changes in individual tax rates.”
Chart IB-13, US, Real Disposable Per Capita Income, Monthly, Seasonally Adjusted at Annual Rates, Chained 2009 Dollars 2007-2013
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
IB2 Financial Repression. McKinnon (1973) and Shaw (1974) argue that legal restrictions on financial institutions can be detrimental to economic development. “Financial repression” is the term used in the economic literature for these restrictions (see Pelaez and Pelaez, Globalization and the State, Vol. II (2008b), 81-6; for historical analysis see Pelaez 1975). Interest rate ceilings on deposits and loans have been commonly used. The Banking Act of 1933 imposed prohibition of payment of interest on demand deposits and ceilings on interest rates on time deposits. These measures were justified by arguments that the banking panic of the 1930s was caused by competitive rates on bank deposits that led banks to engage in high-risk loans (Friedman, 1970, 18; see Pelaez and Pelaez, Regulation of Banks and Finance (2009b), 74-5). The objective of policy was to prevent unsound loans in banks. Savings and loan institutions complained of unfair competition from commercial banks that led to continuing controls with the objective of directing savings toward residential construction. Friedman (1970, 15) argues that controls were passive during periods when rates implied on demand deposit were zero or lower and when Regulation Q ceilings on time deposits were above market rates on time deposits. The Great Inflation or stagflation of the 1960s and 1970s changed the relevance of Regulation Q.
Most regulatory actions trigger compensatory measures by the private sector that result in outcomes that are different from those intended by regulation (Kydland and Prescott 1977). Banks offered services to their customers and loans at rates lower than market rates to compensate for the prohibition to pay interest on demand deposits (Friedman 1970, 24). The prohibition of interest on demand deposits was eventually lifted in recent times. In the second half of the 1960s, already in the beginning of the Great Inflation (DeLong 1997), market rates rose above the ceilings of Regulation Q because of higher inflation. Nobody desires savings allocated to time or savings deposits that pay less than expected inflation. This is a fact currently with zero interest rates and consumer price inflation of 1.0 percent in the 12 months ending in Oct 2013 (http://www.bls.gov/cpi/) but rising during waves of carry trades from zero interest rates to commodity futures exposures (http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-zero-interest-rates-world.html). Funding problems motivated compensatory measures by banks. Money-center banks developed the large certificate of deposit (CD) to accommodate increasing volumes of loan demand by customers. As Friedman (1970, 25) finds:
“Large negotiable CD’s were particularly hard hit by the interest rate ceiling because they are deposits of financially sophisticated individuals and institutions who have many alternatives. As already noted, they declined from a peak of $24 billion in mid-December, 1968, to less than $12 billion in early October, 1969.”
Banks created different liabilities to compensate for the decline in CDs. As Friedman (1970, 25; 1969) explains:
“The most important single replacement was almost surely ‘liabilities of US banks to foreign branches.’ Prevented from paying a market interest rate on liabilities of home offices in the United States (except to foreign official institutions that are exempt from Regulation Q), the major US banks discovered that they could do so by using the Euro-dollar market. Their European branches could accept time deposits, either on book account or as negotiable CD’s at whatever rate was required to attract them and match them on the asset side of their balance sheet with ‘due from head office.’ The head office could substitute the liability ‘due to foreign branches’ for the liability ‘due on CDs.”
Friedman (1970, 26-7) predicted the future:
“The banks have been forced into costly structural readjustments, the European banking system has been given an unnecessary competitive advantage, and London has been artificially strengthened as a financial center at the expense of New York.”
In short, Depression regulation exported the US financial system to London and offshore centers. What is vividly relevant currently from this experience is the argument by Friedman (1970, 27) that the controls affected the most people with lower incomes and wealth who were forced into accepting controlled-rates on their savings that were lower than those that would be obtained under freer markets. As Friedman (1970, 27) argues:
“These are the people who have the fewest alternative ways to invest their limited assets and are least sophisticated about the alternatives.”
Chart IB-14 of the Bureau of Economic Analysis (BEA) provides quarterly savings as percent of disposable income or the US savings rate from 1980 to 2013. There was a long-term downward sloping trend from 12 percent in the early 1980s to 2.0 percent in Jul 2005. The savings rate then rose during the contraction and in the expansion. In 2011 and into 2012 the savings rate declined as consumption is financed with savings in part because of the disincentive or frustration of receiving a few pennies for every $10,000 of deposits in a bank. The savings rate increased in the final segment of Chart IB-14 in 2012 followed by another decline because of the pain of the opportunity cost of zero remuneration for hard-earned savings. Swelling realization of income in Oct-Dec 2012 in anticipation of tax increases in Jan 2012 caused the jump of the savings rate to 8.7 percent in Dec 2012. The BEA explains as: Personal income in November and December 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/pi1212.pdf). The savings rate then collapsed to 3.6 percent in Jan 2013 in part because of the decline of 5.1 percent in real disposable personal income and to 4.2 percent with increase of real disposable income by 0.9 percent in Feb 2013. The savings rate increased to 4.3 percent in Mar 2013 with increase of real disposable income by 0.4 percent and at 4.6 percent in Apr 2013 with increase of real disposable income by 0.3 percent. The savings rate rose to 4.8 percent in May 2013 with increase of real disposable income by 0.3 percent. The savings rate fell to 4.6 percent in Jun 2013 with decline of real disposable personal income by 0.1 percent. The savings rate increased to 4.8 percent in Jul 2013 with increase of real disposable income by 0.2 percent. In Aug 2013, real disposable income increased 0.5 percent and the savings rate increased to 5.0 percent. In Sep 2013, the savings rate increased to 5.2 percent with increase of real disposable income of 0.4 percent. The savings rate fell to 4.8 percent in Oct 2013 with decrease of real disposable income by 0.2 percent.The decline of personal income was caused by increasing contributions to government social insurance (page 1 http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0113.pdf http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0213.pdf). The objective of monetary policy is to reduce borrowing rates to induce consumption but it has collateral disincentive of reducing savings and misallocating resources away from their best uses. The zero interest rate of monetary policy is a tax on saving. This tax is highly regressive, meaning that it affects the most people with lower income or wealth and retirees. The long-term decline of savings rates in the US has created a dependence on foreign savings to finance the deficits in the federal budget and the balance of payments (http://cmpassocregulationblog.blogspot.com/2013/09/duration-dumping-and-peaking-valuations.html).
Chart IB-14, US, Personal Savings as a Percentage of Disposable Personal Income, Quarterly, 1980-2013
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
Chart IB-15 of the US Bureau of Economic Analysis provides personal savings as percent of personal disposable income, or savings ratio, from Jan 2007 to Oct 2013. The uncertainties caused by the global recession resulted in sharp increase in the savings ratio that peaked at 8.0 percent in May 2008 (http://www.bea.gov/iTable/index_nipa.cfm). The second peak occurred at 8.1 percent in May 2009. There was another rising trend until 5.9 percent in Jun 2010 and then steady downward trend until 4.8 percent in Nov 2011. This was followed by an upward trend with 5.6 percent in Jun 2012 but decline to 4.9 percent in Aug 2012 followed by jump to 8.7 percent in Dec 2012. Swelling realization of income in Oct-Dec 2012 in anticipation of tax increases in Jan 2013 caused the jump of the savings rate to 8.7 percent in Dec 2012. The BEA explains as: Personal income in November and December 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/pi1212.pdf). There was a reverse effect in Jan 2013 with decline of the savings rate to 3.6 percent. Real disposable personal income fell 5.1 percent and real disposable per capita income fell from $38,170 in Dec 2012 to $36,190 in Jan 2013 or by 5.2 percent, which is explained by the Bureau of Economic Analysis as follows (page 3 http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0213.pdf):
“Contributions for government social insurance -- a subtraction in calculating personal income --increased $6.4 billion in February, compared with an increase of $126.8 billion in January. The
January estimate reflected increases in both employer and employee contributions for government social insurance. The January estimate of employee contributions for government social insurance reflected the expiration of the “payroll tax holiday,” that increased the social security contribution rate for employees and self-employed workers by 2.0 percentage points, or $114.1 billion at an annual rate. For additional information, see FAQ on “How did the expiration of the payroll tax holiday affect personal income for January 2013?” at www.bea.gov. The January estimate of employee contributions for government social insurance also reflected an increase in the monthly premiums paid by participants in the supplementary medical insurance program, in the hospital insurance provisions of the Patient Protection and Affordable Care Act, and in the social security taxable wage base; together, these changes added $12.9 billion to January. Employer contributions were boosted $5.9 billion in January, which reflected increases in the social security taxable wage base (from $110,100 to $113,700), in the tax rates paid by employers to state unemployment insurance, and in employer contributions for the federal unemployment tax and for pension guaranty. The total contribution of special factors to the January change in contributions for government social insurance was $132.9billion.”
The savings rate then collapsed to 3.6 percent in Jan 2013 in part because of the decline of 5.1 percent in real disposable personal income and to 4.2 percent with increase of real disposable income by 0.9 percent in Feb 2013. The savings rate increased to 4.3 percent in Mar 2013 with increase of real disposable income by 0.4 percent and at 4.6 percent in Apr 2013 with increase of real disposable income by 0.3 percent. The savings rate rose to 4.8 percent in May 2013 with increase of real disposable income by 0.3 percent. The savings rate fell to 4.6 percent in Jun 2013 with decline of real disposable personal income by 0.1 percent. The savings rate increased to 4.8 percent in Jul 2013 with increase of real disposable income by 0.2 percent. In Aug 2013, real disposable income increased 0.5 percent and the savings rate increased to 5.0 percent. In Sep 2013, the savings rate increased to 5.2 percent with increase of real disposable income of 0.4 percent. The savings rate fell to 4.8 percent in Oct 2013 with decline of real disposable income by 0.2 percent. The decline of personal income was caused by increasing contributions to government social insurance (page 1 http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0113.pdf http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0213.pdf). Permanent manipulation of the entire spectrum of interest rates with monetary policy measures distorts the compass of resource allocation with inferior outcomes of future growth, employment and prosperity and dubious redistribution of income and wealth worsening the most the personal welfare of people without vast capital and financial relations to manage their savings.
Chart IB-15, US, Personal Savings as a Percentage of Disposable Income, Monthly 2007-2013
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
II Twenty Eight 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 203,000 in Nov 2013 and private payroll employment rose 196,000. The average number of nonfarm jobs created in Jan-Nov 2012 was 179,455 while the average number of nonfarm jobs created in Jan-Nov 2013 was 188,455, or increase by 5.0 percent. The average number of private jobs created in the US in Jan-Nov 2012 was 185,909 while the average in Jan-Nov 2013 was 190,091, or increase by 2.2 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 ten months from Jan to Nov 2013 was 188,455, 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 28.1 million unemployed or underemployed. The difference between the average increase of 188,455 new private nonfarm jobs per month in the US from Jan to Nov 2013 and the 113,167 average monthly increase in the labor force from 2011 to 2012 is 75,288 monthly new jobs net of absorption of new entrants in the labor force. There are 28.1 million in job stress in the US currently. Creation of 75,288 new jobs per month net of absorption of new entrants in the labor force would require 373 months to provide jobs for the unemployed and underemployed (28.111 million divided by 75,288) or 31 years (373 divided by 12). The civilian labor force of the US in Nov 2013 not seasonally adjusted stood at 155.046 million with 10.271 million unemployed or effectively 18.452 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 163.227 million. Reduction of one million unemployed at the current rate of job creation without adding more unemployment requires 1.1 years (1 million divided by product of 75,288 by 12, which is 903,456). Reduction of the rate of unemployment to 5 percent of the labor force would be equivalent to unemployment of only 7.752 million (0.05 times labor force of 155.046 million) for new net job creation of 2.499 million (10.271 million unemployed minus 7.772 million unemployed at rate of 5 percent) that at the current rate would take 2.8 years (2.499 million divided by 0.903456). Under the calculation in this blog, there are 18.452 million unemployed by including those who ceased searching because they believe there is no job for them and effective labor force of 163.227 million. Reduction of the rate of unemployment to 5 percent of the labor force would require creating 10.164 million jobs net of labor force growth that at the current rate would take 11.4 years (18.452 million minus 0.05(163.227 million) = 10.291 million divided by 0.903456, 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 Nov 2013 was 144.775 million (NSA) or 2.540 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 246.567 million in Nov 2013 or by 14.609 million. The number employed fell 1.7 percent from Jul 2007 to Nov 2013 while population increased 6.3 percent. 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.
There is current interest in past theories of “secular stagnation.” Alvin H. Hansen (1939, 4, 7; see Hansen 1938, 1941; for an early critique see Simons 1942) argues:
“Not until the problem of full employment of our productive resources from the long-run, secular standpoint was upon us, were we compelled to give serious con-sideration to those factors and forces in our economy which tend to make business recoveries weak and anaemic and which tend to prolong and deepen the course of depressions. This is the essence of secular stagnation-sick re-coveries which die in their infancy and depressions which feed on them-selves and leave a hard and seemingly immovable core of unemployment. Now the rate of population growth must necessarily play an important role in determining the character of the output; in other words, the com-position of the flow of final goods. Thus a rapidly growing population will demand a much larger per capita volume of new residential building con-struction than will a stationary population. A stationary population with its larger proportion of old people may perhaps demand more personal services; and the composition of consumer demand will have an important influence on the quantity of capital required. The demand for housing calls for large capital outlays, while the demand for personal services can be met without making large investment expenditures. It is therefore not unlikely that a shift from a rapidly growing population to a stationary or declining one may so alter the composition of the final flow of consumption goods that the ratio of capital to output as a whole will tend to decline.”
The argument that anemic population growth causes “secular stagnation” in the US (Hansen 1938, 1939, 1941) is as misplaced currently as in the late 1930s (for early dissent see Simons 1942). There is currently population growth in the ages of 16 to 24 years but not enough job creation and discouragement of job searches for all ages (http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-zero-interest-rates-world.html). This is merely another case of theory without reality with dubious policy proposals. Subsection IA4 Job Creation analyzes the types of jobs created, which are lower paying than earlier. Average hourly earnings in Nov 2013 were $24.15 seasonally adjusted (SA), increasing 2.1 percent not seasonally adjusted (NSA) relative to Nov 2012 and increasing 0.2 percent relative to Oct 2013 seasonally adjusted. In Oct 2013, average hourly earnings seasonally adjusted were $24.11, increasing 2.2 percent relative to Oct 2012 not seasonally adjusted and increasing 0.1 percent seasonally adjusted relative to Sep 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 Nov 2013 because the prices indexes of the BLS for Nov 2013 will only be released on Dec 17, 2013 (http://www.bls.gov/cpi/), which will be covered in this blog’s comment on Dec 22, 2013, together with world inflation. The second column provides changes in real wages for Oct 2013. Average hourly earnings adjusted for inflation or in constant dollars increased 1.2 percent in Oct 2013 relative to Oct 2012 but have been decreasing during multiple months. World inflation waves in bouts of risk aversion (http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-zero-interest-rates-world.html and earlier athttp://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-world-inflation.html) mask declining trend of real wages. The fractured labor market of the US is characterized by high levels of unemployment and underemployment together with falling real wages or wages adjusted for inflation (Section IC and earlier http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html) in a recovery without hiring (http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-zero-interest-rates-world.html). The following section IB Stagnating Real Wages provides more detailed analysis. Average weekly hours of US workers seasonally adjusted remained virtually unchanged at 34.4. Another headline number widely followed is the unemployment rate or number of people unemployed as percent of the labor force. The unemployment rate calculated in the household survey decreased from 7.3 percent in Oct 2013 to 7.0 percent in Nov 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 28.1 million in Nov 2013 and 28.9 million in Oct 2013. The final row in Table I-1 provides the number in job stress as percent of the actual labor force calculated at 17.2 percent in Nov 2013 and 17.7 percent in Oct 2013. Almost one in every five workers in the US is unemployed or underemployed. There is socio-economic stress in the combination of adverse events:
- Mediocre economic growth below potential and long-term trend, resulting in idle productive resources (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html)
- Private fixed investment declining 3.7 percent in the entire cycle from IVQ2007 to IIIQ2013 (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html)
- Twenty eight million or 17.2 percent of the effective labor force unemployed or underemployed in involuntary part-time jobs with stagnating or declining real wages (Section II and earlier http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html)
- Stagnating real disposable income per person or income per person after inflation and taxes (Section IB and earlier http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html)
- Depressed hiring that does not afford an opportunity for reducing unemployment/underemployment and moving to better-paid jobs (http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-zero-interest-rates-world.html)
- Unsustainable government deficit/debt and balance of payments deficit (http://cmpassocregulationblog.blogspot.com/2013/09/duration-dumping-and-peaking-valuations.html)
- Worldwide waves of inflation (http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-zero-interest-rates-world.html and earlier http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-world-inflation.html http://cmpassocregulationblog.blogspot.com/2013/10/world-inflation-waves-regional-economic.html)
- Deteriorating terms of trade and net revenue margins in squeeze of economic activity by carry trades induced by zero interest rates (http://cmpassocregulationblog.blogspot.com/2013/10/world-inflation-waves-regional-economic.html)
- Financial repression of interest rates and credit affecting the most people without means and access to sophisticated financial investments with likely adverse effects on income distribution and wealth disparity (Section IB and earlier http /cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html)
- 47 million in poverty and 48 million without health insurance with family income adjusted for inflation regressing to 1995 levels (http://cmpassocregulationblog.blogspot.com/2013/09/duration-dumping-and-peaking-valuations.html
- Net worth of households and nonprofits organizations declining by 0.9 percent after adjusting for inflation in the entire cycle from IVQ2007 to IIQ2013 in contrast with growth at 3.0 percent in real terms from 1945 to 2012 (http://cmpassocregulationblog.blogspot.com/2013/09/mediocre-and-decelerating-united-states.html)
Table I-1, US, Summary of the Employment Situation Report SA
| Nov 2013 | Oct 2013 | |
| New Nonfarm Payroll Jobs | 203,000 | 200,000 |
| New Private Payroll Jobs | 196,000 | 214,000 |
| Average Hourly Earnings | Nov 13 $24.15 SA ∆% Nov 13/Nov 12 NSA: 2.1 ∆% Nov 13/Oct 13 SA: 0.2 | Oct 13 $24.11 SA ∆% Oct 13/Oct 12 NSA: 2.2 ∆% Oct 13/Sep 13 SA: 0.1 |
| Average Hourly Earnings in Constant Dollars | ∆% Oct 2013/Oct 2012: 1.2 | |
| Average Weekly Hours | 34.5 SA 34.4 NSA | 34.4 SA 34.4 NSA |
| Unemployment Rate Household Survey % of Labor Force SA | 7.0 | 7.3 |
| Number in Job Stress Unemployed and Underemployed Blog Calculation | 28.1 million NSA | 28.9 million NSA |
| In Job Stress as % Labor Force | 17.2 NSA | 17.7 NSA |
Source: US Bureau of Labor Statistics Source: US Bureau of Labor Statistics
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 increase in the number unemployed from 11.255 million in Sep 2013 to 11.272 million in Oct 2013 and decrease to 10.907 million in Nov 2013. The rate of unemployment increased from 7.2 in Sep 2013 to 7.3 percent in Oct 2013 and decreased to 7.0 percent in Nov 2013. An important aspect of unemployment is its persistence for more than 27 weeks with 4.066 million in Nov 2013, corresponding to 37.3 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 7.926 million in Sep 2013 to 8.050 million in Oct 2013 and decreased to 7.719 million in Nov 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 20.772 million in Nov 2013 is composed of 10.907 million unemployed (of whom 4.066 million, or 37.3 percent, unemployed for 27 weeks or more) compared with 11.272 million unemployed in Oct 2013 (of whom 4.063 million, or 36.0 percent, unemployed for 27 weeks or more), 7.719 million employed part-time for economic reasons in Nov 2013 (who suffered reductions in their work hours or could not find full-time employment) compared with 8.050 million in Oct 2013 and 2.096 million who were marginally attached to the labor force in Nov 2013 (who were not in the labor force but wanted and were available for work) compared with 2.283 million in Oct 2013. The final row in Table I-2 provides the number in job stress as percent of the labor force: 13.3 percent in Nov 2013, which is close to 14.0 percent in Oct 2013 and 13.8 percent in Sep 2013.
Table I-2, US, People in Job Stress, Millions and % SA
| 2013 | Nov 2013 | Oct 2013 | Sep 2013 |
| Labor Force Millions | 155.294 | 154.839 | 155.559 |
| Unemployed | 10.907 | 11.272 | 11.255 |
| Unemployment Rate (unemployed as % labor force) | 7.0 | 7.3 | 7.2 |
| Unemployed ≥27 weeks | 4.066 | 4.063 | 4.146 |
| Unemployed ≥27 weeks % | 37.3 | 36.0 | 36.8 |
| Part Time for Economic Reasons | 7.719 | 8.050 | 7.926 |
| Marginally | 2.096 | 2.283 | 2.302 |
| Job Stress | 20.722 | 21.605 | 21.483 |
| In Job Stress as % Labor Force | 13.3 | 14.0 | 13.8 |
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 Aug and additional data. What really matters is the number of people with jobs or the total employed. The final row of Table I-3 provides people employed as percent of the population or employment to population ratio. The number has remained relatively constant around 58.7 percent, declining to 58.6 percent in Nov 2013. 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
| Nov 2013 | Oct 2013 | Sep 2013 | Aug 2013 | |
| Labor Force | 155.294 | 154.839 | 155.559 | 155.486 |
| Unemployed | 10.907 | 11.272 | 11.255 | 11.316 |
| UNE Rate % | 7.0 | 7.3 | 7.2 | 7.3 |
| Part Time Economic Reasons | 7.719 | 8.050 | 7.926 | 7.911 |
| Marginally Attached to Labor Force | 2.096 | 2.283 | 2.302 | 2.342 |
| In Job Stress | 20.722 | 21,605 | 21.483 | 21.569 |
| In Job Stress % Labor Force | 13.3 | 14.0 | 13.8 | 13.9 |
| Employed | 144.386 | 143.568 | 144.303 | 144.170 |
| Employment % Population | 58.6 | 58.3 | 58.6 | 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 Nov 2013 was 144.775 million (NSA) or 2.540 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 246.567 million in Nov 2013 or by 14.609 million. The number employed fell 1.7 percent from Jul 2007 to Nov 2013 while population increased 6.3 percent. 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-1, US, Employed, Thousands, SA, 2001-2013
Source: Bureau of Labor Statistics
Chart I-2 of the Bureau of Labor Statistics provides 12-month percentage changes of the number of people employed in the US from 2001 to 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
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 lower at 155.046 million in Nov 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 155.046 million in Oct 2013 to the noninstitutional population of 246.567 million in Nov 2013 was 62.9 percent. The labor force of the US in Nov 2013 corresponding to 66.8 percent of participation in the population would be 164.706 million (0.668 x 246.567). The difference between the measured labor force in Nov 2013 of 155.046 million and the labor force in Nov 2013 with participation rate of 66.8 percent (as in Jul 2007) of 164.706 million is 9.661 million. The level of the labor force in the US has stagnated and is 9.661 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 62.9 percent NSA in Nov 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 NSA 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 10.271 million in Nov 2013, all numbers not seasonally adjusted.
Chart I-6, US, Unemployed, Thousands, SA, 2001-2013
Source: US Bureau of Labor Stati 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 7.3 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 6.6 percent in Nov 2013.
Chart I-7, US, Unemployment Rate, SA, 2001-2013
Source: Bureau of Labor Statistics
Chart I-8 of the Bureau of Labor Statistics provides 12-month percentage changes of the level of unemployed. There was a jump of 81.8 percent in Apr 2009 with subsequent decline and negative rates since 2010. On an annual basis, the level of unemployed rose 59.8 percent in 2009 and 26.1 percent in 2008 with increase of 3.9 percent in 2010, decline of 7.3 percent in 2011, decrease of 9.0 percent in 2012 and decrease of 9.9 percent in Nov 2013 relative to Nov 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 7.719 million in Nov 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 7.563 million in Nov 2013. The longer the period in part-time jobs the lower 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 5.4 percent in Nov 2013 relative to Nov 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. The number marginally attached to the labor force fell to 2.352 million in Mar 2012, 2.363 million in Apr 2012, 2.423 million in May 2012, 2.483 million in Jun 2012 and 2.529 million in Jul 2012, 2.561 million in Aug 2012. The number marginally attached to the labor force fell to 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 2.096 million in Nov 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. The number marginally attached to the labor force fell 16.3 percent in the 12 months ending in Nov 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 11.3 percent and the number of people in job stress could be around 28.1 million, which is 17.2 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 Nov 2012, Oct 2013 and Nov 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 Nov 2012, Oct 2013 and Nov 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 63.5 percent by Nov 2012 and was 62.9 percent in Oct 2013 and 62.9 percent in Nov 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 8.181 million unemployed in Nov 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 18.452 million (Total UEM) and not 10.271 million (UEM) of whom many have been unemployed long term
- the rate of unemployment is 11.3 percent (Total UEM%) and not 6.6 percent, not seasonally adjusted, or 7.0 percent seasonally adjusted
- the number of people in job stress is close to 28.1 million by adding the 8.181 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 28.111 million in Sep 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 17.2 percent of the labor force in Nov 2013. The employment population ratio “EMP/POP %” dropped from 62.9 percent on average in 2006 to 58.8 percent in Nov 2012, 58.5 percent in Oct 2013 and 58.7 percent in Nov 2013. The number employed in Nov 2013 was 144.775 million (NSA) or 2.540 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 246.567 million in Nov 2013 or by 14.609 million. The number employed fell 1.7 percent from Jul 2007 to Nov 2013 while population increased 6.3 percent. 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 14.609 million. The argument that anemic population growth causes “secular stagnation” in the US (Hansen 1938, 1939, 1941) is as misplaced currently as in the late 1930s (for early dissent see Simons 1942). There is currently population growth in the ages of 16 to 24 years but not enough job creation and discouragement of job searches for all ages (http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-zero-interest-rates-world.html). This is merely another case of theory without reality with dubious policy proposals. 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/2013/11/risks-of-zero-interest-rates-world.html).
Table I-4, US, Population, Labor Force and Unemployment, NSA
| 2006 | Nov 2012 | Oct 2013 | Nov 2013 | |
| POP | 229 | 244.174 | 246,381 | 246,567 |
| LF | 151 | 154,953 | 154,918 | 155,046 |
| PART% | 66.2 | 63.5 | 62.9 | 62.9 |
| EMP | 144 | 143,549 | 144,144 | 144,775 |
| EMP/POP% | 62.9 | 58.8 | 58.5 | 58.7 |
| UEM | 7 | 11,404 | 10,773 | 10,271 |
| UEM/LF Rate% | 4.6 | 7.4 | 7.0 | 6.6 |
| NLF | 77 | 89,221 | 91,463 | 91,521 |
| LF PART 66.2% | 161,643 | 163,104 | 163,227 | |
| ∆NLF UEM | 6,690 | 8,186 | 8,181 | |
| Total UEM | 18,094 | 18,959 | 18,452 | |
| Total UEM% | 11.2 | 11.6 | 11.3 | |
| Part Time Economic Reasons | 7,994 | 7,700 | 7,563 | |
| Marginally Attached to LF | 2,505 | 2,283 | 2,096 | |
| In Job Stress | 28,593 | 28,942 | 28,111 | |
| People in Job Stress as % Labor Force | 17.7 | 17.7 | 17.2 |
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 si of a demographic group in an industry i and unemployment rate yi of that demographic group (Lazear and Spletzer 2012JHJul22, 5-6):
Y = ∑isiyi (1)
This equation can be decomposed for analysis as (Lazear and Spletzer 2012JHJul22, 6):
∆Y = ∑i∆siy*i + ∑i∆yis*i (2)
The first term in (2) captures changes in the demographic and industrial composition of the economy ∆si multiplied by the average rate of unemployment y*i , or structural factors. The second term in (2) captures changes in the unemployment rate specific to a group, or ∆yi, multiplied by the average share of the group s*i, or cyclical factors. There are also mismatches in skills and locations relative to available job vacancies. A simple observation by Lazear and Spletzer (2012JHJul22) casts intuitive doubt on structural factors: the rate of unemployment jumped from 4.4 percent in the spring of 2007 to 10 percent in October 2009. By nature, structural factors should be permanent or occur over relative long periods. The revealing result of the exhaustive research of Lazear and Spletzer (2012JHJul22) is:
“The analysis in this paper and in others that we review do not 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 62.9 percent in Nov 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. The argument that anemic population growth causes “secular stagnation” in the US (Hansen 1938, 1939, 1941) is as misplaced currently as in the late 1930s (for early dissent see Simons 1942). There is currently population growth in the ages of 16 to 24 years but not enough job creation and discouragement of job searches for all ages (http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-zero-interest-rates-world.html). This is merely another case of theory without reality with dubious policy proposals.
Table I-4b, US, Labor Force Participation Rate, Percent of Labor Force in Population, NSA, 1979-2013
| Year | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec | Annual |
| 1979 | 62.9 | 62.9 | 64.5 | 64.9 | 64.5 | 63.8 | 64.0 | 63.8 | 63.8 | 63.7 |
| 1980 | 63.2 | 63.5 | 64.6 | 65.1 | 64.5 | 63.6 | 63.9 | 63.7 | 63.4 | 63.8 |
| 1981 | 63.6 | 63.9 | 64.6 | 65.0 | 64.6 | 63.5 | 64.0 | 63.8 | 63.4 | 63.9 |
| 1982 | 63.3 | 63.9 | 64.8 | 65.3 | 64.9 | 64.0 | 64.1 | 64.1 | 63.8 | 64.0 |
| 1983 | 63.2 | 63.4 | 65.1 | 65.4 | 65.1 | 64.3 | 64.1 | 64.1 | 63.8 | 64.0 |
| 1984 | 63.7 | 64.3 | 65.5 | 65.9 | 65.2 | 64.4 | 64.6 | 64.4 | 64.3 | 64.4 |
| 1985 | 64.3 | 64.6 | 65.5 | 65.9 | 65.4 | 64.9 | 65.1 | 64.9 | 64.6 | 64.8 |
| 1986 | 64.6 | 65.0 | 66.3 | 66.6 | 66.1 | 65.3 | 65.5 | 65.4 | 65.0 | 65.3 |
| 1987 | 64.9 | 65.6 | 66.3 | 66.8 | 66.5 | 65.5 | 65.9 | 65.7 | 65.5 | 65.6 |
| 1988 | 65.3 | 65.5 | 66.7 | 67.1 | 66.8 | 65.9 | 66.1 | 66.2 | 65.9 | 65.9 |
| 1989 | 65.9 | 66.2 | 67.4 | 67.7 | 67.2 | 66.3 | 66.6 | 66.7 | 66.3 | 66.5 |
| 1990 | 66.1 | 66.5 | 67.4 | 67.7 | 67.1 | 66.4 | 66.5 | 66.3 | 66.1 | 66.5 |
| 1991 | 66.0 | 66.0 | 67.2 | 67.3 | 66.6 | 66.1 | 66.1 | 66.0 | 65.8 | 66.2 |
| 1992 | 66.0 | 66.4 | 67.6 | 67.9 | 67.2 | 66.3 | 66.2 | 66.2 | 66.1 | 66.4 |
| 1993 | 65.6 | 66.3 | 67.3 | 67.5 | 67.0 | 66.1 | 66.4 | 66.3 | 66.2 | 66.3 |
| 1994 | 66.0 | 66.5 | 67.2 | 67.5 | 67.2 | 66.5 | 66.8 | 66.7 | 66.5 | 66.6 |
| 1995 | 66.4 | 66.4 | 67.2 | 67.7 | 67.1 | 66.5 | 66.7 | 66.5 | 66.2 | 66.6 |
| 1996 | 66.2 | 66.7 | 67.4 | 67.9 | 67.2 | 66.8 | 67.1 | 67.0 | 66.7 | 66.8 |
| 1997 | 66.7 | 67.0 | 67.8 | 68.1 | 67.6 | 67.0 | 67.1 | 67.1 | 67.0 | 67.1 |
| 1998 | 66.6 | 67.0 | 67.7 | 67.9 | 67.3 | 67.0 | 67.1 | 67.1 | 67.0 | 67.1 |
| 1999 | 66.7 | 67.0 | 67.7 | 67.9 | 67.3 | 66.8 | 67.0 | 67.0 | 67.0 | 67.1 |
| 2000 | 67.0 | 67.0 | 67.7 | 67.6 | 67.2 | 66.7 | 66.9 | 66.9 | 67.0 | 67.1 |
| 2001 | 66.7 | 66.6 | 67.2 | 67.4 | 66.8 | 66.6 | 66.7 | 66.6 | 66.6 | 66.8 |
| 2002 | 66.4 | 66.5 | 67.1 | 67.2 | 66.8 | 66.6 | 66.6 | 66.3 | 66.2 | 66.6 |
| 2003 | 66.2 | 66.2 | 67.0 | 66.8 | 66.3 | 65.9 | 66.1 | 66.1 | 65.8 | 66.2 |
| 2004 | 65.7 | 65.8 | 66.5 | 66.8 | 66.2 | 65.7 | 66.0 | 66.1 | 65.8 | 66.0 |
| 2005 | 65.8 | 66.0 | 66.5 | 66.8 | 66.5 | 66.1 | 66.2 | 66.1 | 65.9 | 66.0 |
| 2006 | 65.8 | 66.0 | 66.7 | 66.9 | 66.5 | 66.1 | 66.4 | 66.4 | 66.3 | 66.2 |
| 2007 | 65.7 | 65.8 | 66.6 | 66.8 | 66.1 | 66.0 | 66.0 | 66.1 | 65.9 | 66.0 |
| 2008 | 65.7 | 66.0 | 66.6 | 66.8 | 66.4 | 65.9 | 66.1 | 65.8 | 65.7 | 66.0 |
| 2009 | 65.4 | 65.5 | 66.2 | 66.2 | 65.6 | 65.0 | 64.9 | 64.9 | 64.4 | 65.4 |
| 2010 | 64.9 | 64.8 | 65.1 | 65.3 | 65.0 | 64.6 | 64.4 | 64.4 | 64.1 | 64.7 |
| 2011 | 63.9 | 64.1 | 64.5 | 64.6 | 64.3 | 64.2 | 64.1 | 63.9 | 63.8 | 64.1 |
| 2012 | 63.4 | 63.8 | 64.3 | 64.3 | 63.7 | 63.6 | 63.8 | 63.5 | 63.4 | 63.7 |
| 2013 | 63.1 | 63.5 | 64.0 | 64.0 | 63.4 | 63.2 | 62.9 | 62.9 |
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
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
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.bea.gov/iTable/index_nipa.cfm
© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013
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