Rules, Discretionary Authorities and Slow Productivity Growth, Twenty Nine Million Unemployed or Underemployed, Stagnating Wages and Real Disposable Income per Capita, United States International Trade, World Cyclical Slow Growth and Global Recession Risk
Carlos M. Pelaez
© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013, 2014
Executive Summary
I Twenty Nine Million Unemployed or Underemployed
IA1 Summary of the Employment Situation
IA2 Number of People in Job Stress
IA3 Long-term and Cyclical Comparison of Employment
IA4 Job Creation
IB Stagnating Real Wages
IC Stagnating Real Disposable Income and Consumption Expenditures
IB1 Stagnating Real Disposable Income and Consumption Expenditures
IB2 Financial Repression
II Rules, Discretionary Authorities and Slow Productivity Growth
IIA United States International Trade
III World Financial Turbulence
IIIA Financial Risks
IIIE Appendix Euro Zone Survival Risk
IIIF Appendix on Sovereign Bond Valuation
IV Global Inflation
V World Economic Slowdown
VA United States
VB Japan
VC China
VD Euro Area
VE Germany
VF France
VG Italy
VH United Kingdom
VI Valuation of Risk Financial Assets
VII Economic Indicators
VIII Interest Rates
IX Conclusion
References
Appendixes
Appendix I The Great Inflation
IIIB Appendix on Safe Haven Currencies
IIIC Appendix on Fiscal Compact
IIID Appendix on European Central Bank Large Scale Lender of Last Resort
IIIG Appendix on Deficit Financing of Growth and the Debt Crisis
IIIGA Monetary Policy with Deficit Financing of Economic Growth
IIIGB Adjustment during the Debt Crisis of the 1980s
I Twenty Nine Million Unemployed or Underemployed. This section analyzes the employment situation report of the United States of the Bureau of Labor Statistics (BLS). There are four subsections: IA1 Summary of the Employment Situation; IA2 Number of People in Job Stress; IA3 Long-term and Cyclical Comparison of Employment; and IA4 Job Creation.
IA1 Summary of the Employment Situation. 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 175,000 in Feb 2014 and private payroll employment rose 162,000. The average number of nonfarm jobs created from Feb 2012 to Feb 2013 was 177,250, using seasonally adjusted data, while the average number of nonfarm jobs created from Feb 2013 to Feb 2014 was 179,833, or increase by 1.5 percent. The average number of private jobs created in the US from Feb 2012 to Feb 2013 was 182,000, using seasonally adjusted data, while the average from Feb 2013 to Feb 2014 was 182,500, or increase by 0.3 percent. This blog calculates the effective labor force of the US at 162.076 million in Feb 2013 and 163.570 million in Feb 2014 (Table I-4), for growth of 1.494 million at average 124,500 per month. The difference between the average increase of 182,500 new private nonfarm jobs per month in the US from Feb 2013 to Feb 2014 and the 124,500 average monthly increase in the labor force from Feb 2013 to Feb 2014 is 58,000 monthly new jobs net of absorption of new entrants in the labor force. There are 29.136 million in job stress in the US currently. Creation of 58,000 new jobs per month net of absorption of new entrants in the labor force would require 502 months to provide jobs for the unemployed and underemployed (29.136 million divided by 58,000) or 42 years (502 divided by 12). The civilian labor force of the US in Feb 2014 not seasonally adjusted stood at 155.027 million with 10.893 million unemployed or effectively 19.436 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 163.570 million. Reduction of one million unemployed at the current rate of job creation without adding more unemployment requires 1.4 years (1 million divided by product of 58,000 by 12, which is 696,000). Reduction of the rate of unemployment to 5 percent of the labor force would be equivalent to unemployment of only 7.751 million (0.05 times labor force of 155.027 million) for new net job creation of 3.142 million (10.893 million unemployed minus 7.751 million unemployed at rate of 5 percent) that at the current rate would take 4.5 years (3.142 million divided by 0.696000). Under the calculation in this blog, there are 19.436 million unemployed by including those who ceased searching because they believe there is no job for them and effective labor force of 163.570 million. Reduction of the rate of unemployment to 5 percent of the labor force would require creating 11.257 million jobs net of labor force growth that at the current rate would take 16.2 years (19.436 million minus 0.05(163.570 million) = 11.257 million divided by 0.696000, 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 Feb 2014 was 144.134 million (NSA) or 3.181 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 247.085 million in Feb 2014 or by 15.127 million. The number employed fell 2.2 percent from Jul 2007 to Feb 2014 while population increased 6.5 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 consideration to those factors and forces in our economy which tend to make business recoveries weak and anaemic (sic) and which tend to prolong and deepen the course of depressions. This is the essence of secular stagnation-sick recoveries 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 construction 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/2014/02/theory-and-reality-of-cyclical-slow.html). The proper explanation is not in secular stagnation but in cyclically slow growth. The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. Growth under trend in the entire cycle from IVQ2007 to IV2013 would have accumulated to 20.3 percent. GDP in IVQ2013 would be $18,040.3 billion if the US had grown at trend, which is higher by $2,107.4 billion than actual $15,932.9 billion. There are about two trillion dollars of GDP less than under trend, explaining the 30.3 million unemployed or underemployed equivalent to actual unemployment of 18.5 percent of the effective labor force (http://cmpassocregulationblog.blogspot.com/2014/02/financial-instability-rules.html). US GDP grew from $14,996.1 billion in IVQ2007 in constant dollars to $15,932.9 billion in IVQ2013 or 6.2 percent at the average annual equivalent rate of 1.0 percent. The US missed the opportunity to grow at higher rates during the expansion and it is difficult to catch up because rates in the final periods of expansions tend to decline. The US missed the opportunity for recovery of output and employment always afforded in the first four quarters of expansion from recessions. Zero interest rates and quantitative easing were not required or present in successful cyclical expansions and in secular economic growth at 3.0 percent per year and 2.0 percent per capita as measured by Lucas (2011May). There is cyclical uncommonly slow growth in the US instead of allegations of secular stagnation. 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 Feb 2014 were $24.31 seasonally adjusted (SA), increasing 2.8 percent not seasonally adjusted (NSA) relative to Feb 2013 and increasing 0.4 percent relative to Jan 2014 seasonally adjusted. In Jan 2014, average hourly earnings seasonally adjusted were $24.22, increasing 1.9 percent relative to Jan 2013 not seasonally adjusted and increasing 0.2 percent seasonally adjusted relative to Dec 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 Feb 2013 because the prices indexes of the BLS for Feb 2014 will only be released on Mar 18, 2014 (http://www.bls.gov/cpi/), which will be covered in this blog’s comment on Mar 23, 2014, together with world inflation. The second column provides changes in real wages for Jan 2014. Average hourly earnings adjusted for inflation or in constant dollars increased 0.4 percent in Jan 2014 relative to Jan 2013 but have been decreasing during multiple months. World inflation waves in bouts of risk aversion (http://cmpassocregulationblog.blogspot.com/2014/02/squeeze-of-economic-activity-by-carry.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 IB and earlier http://cmpassocregulationblog.blogspot.com/2014/02/financial-instability-rules.html) in a recovery without hiring (http://cmpassocregulationblog.blogspot.com/2014/02/theory-and-reality-of-cyclical-slow.html). The following section IB Stagnating Real Wages provides more detailed analysis. Average weekly hours of US workers seasonally adjusted remained virtually unchanged at 34.2. 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 increased from 6.6 percent in Jan 2014 to 6.7 percent in Feb 2014, 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 29.1 million in Feb 2014 and 30.3 million in Jan 2014. The final row in Table I-1 provides the number in job stress as percent of the actual labor force calculated at 17.8 percent in Feb 2014 and 18.5 percent in Jan 2014. Almost one in every five workers in the US is unemployed or underemployed. There is socio-economic stress in the combination of adverse events and cyclical performance:
- Mediocre economic growth below potential and about two trillion dollar below long-term trend, resulting in idle productive resources (http://cmpassocregulationblog.blogspot.com/2014/03/financial-risks-slow-cyclical-united.html and earlier http://cmpassocregulationblog.blogspot.com/2014/02/mediocre-cyclical-united-states.html)
- Private fixed investment declining 2.7 percent in the entire cycle from IVQ2007 to IVQ2013 (http://cmpassocregulationblog.blogspot.com/2014/03/financial-risks-slow-cyclical-united.html and earlier http://cmpassocregulationblog.blogspot.com/2014/02/mediocre-cyclical-united-states.html)
- Twenty nine million or 17.8 percent of the effective labor force unemployed or underemployed in involuntary part-time jobs with stagnating or declining real wages (Section I and earlier http://cmpassocregulationblog.blogspot.com/2014/02/financial-instability-rules.html)
- Stagnating real disposable income per person or income per person after inflation and taxes (Section IC and earlier http://cmpassocregulationblog.blogspot.com/2014/02/mediocre-cyclical-united-states.html)
- Depressed hiring that does not afford an opportunity for reducing unemployment/underemployment and moving to better-paid jobs (http://cmpassocregulationblog.blogspot.com/2014/02/theory-and-reality-of-cyclical-slow.html)
- Unsustainable government deficit/debt and balance of payments deficit (http://cmpassocregulationblog.blogspot.com/2013/12/tapering-quantitative-easing-mediocre.html)
- Worldwide waves of inflation (http://cmpassocregulationblog.blogspot.com/2014/02/squeeze-of-economic-activity-by-carry.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/2014/02/squeeze-of-economic-activity-by-carry.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 IC and earlier http://cmpassocregulationblog.blogspot.com/2014/02/mediocre-cyclical-united-states.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 increasing by total 1.9 percent after adjusting for inflation in the entire cycle from IVQ2007 to IIIQ2013 in contrast with growth at 3.0 percent per year in real terms from 1945 to 2012 (http://cmpassocregulationblog.blogspot.com/2013/12/collapse-of-united-states-dynamism-of.html)
Table I-1, US, Summary of the Employment Situation Report SA
| Feb 2014 | Jan 2014 | |
| New Nonfarm Payroll Jobs | 175,000 | 129,000 |
| New Private Payroll Jobs | 162,000 | 145,000 |
| Average Hourly Earnings | Feb 14 $24.31 SA ∆% Feb 14/ Feb 13 NSA: 2.8 ∆% Feb 14/Jan 14 SA: 0.4 | Jan 14 $24.22 SA ∆% Jan 14/Jan 13 NSA: 1.9 ∆% Jan 14/Dec 13 SA: 0.2 |
| Average Hourly Earnings in Constant Dollars | ∆% Jan 2014/Jan 2013: 0.4 | |
| Average Weekly Hours | 34.2 SA 34.3 NSA | 34.3 SA 34.0 NSA |
| Unemployment Rate Household Survey % of Labor Force SA | 6.7 | 6.6 |
| Number in Job Stress Unemployed and Underemployed Blog Calculation | 29.1 million NSA | 30.3 million NSA |
| In Job Stress as % Labor Force | 17.8 NSA | 18.5 NSA |
Source: US Bureau of Labor Statistics Source: US Bureau of Labor Statistics
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 2014 released on Feb 7, 2014:
“In accordance with annual practice, the establishment survey data released today [Feb 7, 2014] have been benchmarked to reflect comprehensive counts of payroll jobs for March 2013. These counts are derived principally from the Quarterly Census of Employment and Wages (QCEW), which enumerates jobs covered by the UI tax system. The benchmark process results in revisions to not seasonally adjusted data from April 2012 forward. Seasonally adjusted data from January 2009 forward are subject to revision. In addition, data for some series prior to 2009, both seasonally adjusted and unadjusted, incorporate revisions.”
The range of differences in total nonfarm employment in revisions in Table A of the employment situation report for Jan 2014 (page 5 at http://www.bls.gov/news.release/pdf/empsit.pdf) is from minus 1,000 for Mar 2013 to 274,000 for Nov 2013. There are also adjustments of population that affect comparability of labor statistics over time (page 6 at http://www.bls.gov/news.release/pdf/empsit.pdf):
“Effective with data for January 2014, 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 2013 and earlier months. To show the impact of the population adjustments, however, differences in selected December 2013 labor force series based on the old and new population estimates are shown in table B.
The adjustments increased the estimated size of the civilian noninstitutional population in December by 2,000, the civilian labor force by 24,000, employment by 22,000, and unemployment by 2,000. The number of persons not in the labor force was reduced by 22,000. The total unemployment rate, employment-population ratio, and labor force participation rate were unaffected.
Data users are cautioned that these annual population adjustments can 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 2013 and January 2014. Additional information on the population adjustments and their effect on national labor force estimates is available at www.bls.gov/cps/cps14adj.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. Also, household survey data for January 2014 reflect updated population estimates. See the notes beginning on page 4 for more information about these changes.”
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 Feb 7, 2014 (http://www.bls.gov/).
IA2 Number of People in Job Stress. There are two approaches to calculating the number of people in job stress. The first approach consists of calculating the number of people in job stress unemployed or underemployed with the raw data of the employment situation report as in Table I-2. The data are seasonally adjusted (SA). The first three rows provide the labor force and unemployed in millions and the unemployment rate of unemployed as percent of the labor force. There is decrease in the number unemployed from 10.351 million in Dec 2013 to 10.236 million in Jan 2014 and increase to 10.459 million in Feb 2014. The rate of unemployment decreased from 6.7 percent in Dec 2013 to 6.6 percent in Jan 2014 and increased to 6.7 percent in Feb 2014. An important aspect of unemployment is its persistence for more than 27 weeks with 3.646 million in Jan 2014, corresponding to 35.6 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 full-time work” (http://www.bls.gov/news.release/pdf/empsit.pdf 2). The number of part-time for economic reasons decreased from 7.771 million in Dec 2013 to 7.257 million in Jan 2014 and decreased to 7.186 million in Feb 2014. 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 19.948 million in Feb 2014 is composed of 10.459 million unemployed (of whom 3.849 million, or 36.8 percent, unemployed for 27 weeks or more) compared with 10.236 million unemployed in Jan 2014 (of whom 3.646 million, or 35.6 percent, unemployed for 27 weeks or more), 7.186 million employed part-time for economic reasons in Feb 2014 (who suffered reductions in their work hours or could not find full-time employment) compared with 7.257 million in Jan 2014 and 2.303 million who were marginally attached to the labor force in Feb 2014 (who were not in the labor force but wanted and were available for work) compared with 2.303 million in Jan 2014. The final row in Table I-2 provides the number in job stress as percent of the labor force: 12.8 percent in Feb 2014, which is close to 12.9 percent in Jan 2014 and 13.3 percent in Dec 2013.
Table I-2, US, People in Job Stress, Millions and % SA
| 2013-2014 | Feb 2014 | Jan 2014 | Dec 2013 |
| Labor Force Millions | 155.724 | 155.460 | 154.937 |
| Unemployed | 10.459 | 10.236 | 10.351 |
| Unemployment Rate (unemployed as % labor force) | 6.7 | 6.6 | 6.7 |
| Unemployed ≥27 weeks | 3.849 | 3.646 | 3.878 |
| Unemployed ≥27 weeks % | 36.8 | 35.6 | 37.5 |
| Part Time for Economic Reasons | 7.186 | 7.257 | 7.771 |
| Marginally | 2.303 | 2.592 | 2.427 |
| Job Stress | 19.948 | 20.085 | 20.549 |
| In Job Stress as % Labor Force | 12.8 | 12.9 | 13.3 |
Job Stress = Unemployed + Part Time Economic Reasons + Marginally Attached Labor Force
Source: US Bureau of Labor Statistics
Table I-3 repeats the data in Table I-2 but including Nov and additional data. What really matters is the number of people with jobs or the total employed, representing the opportunity for exit from unemployment. 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 Dec 2013 and increasing to 58.8 in Jan 2014 and 58.8 in Feb 2014. The employment to population ratio fell from an annual level of 63.1 percent in 2006 to 58.6 percent in 2012 and 58.6 percent in 2013 with the lowest level at 58.4 percent in 2011.
Table I-3, US, Unemployment and Underemployment, SA, Millions and Percent
| Feb 2014 | Jan 2014 | Dec 2013 | Nov 2013 | |
| Labor Force | 155.724 | 155.460 | 154.937 | 155.284 |
| Unemployed | 10.459 | 10.236 | 10.351 | 10.841 |
| UNE Rate % | 6.7 | 6.6 | 6.7 | 7.0 |
| Part Time Economic Reasons | 7.186 | 7.257 | 7.771 | 7.723 |
| Marginally Attached to Labor Force | 2.303 | 2.592 | 2.427 | 2.096 |
| In Job Stress | 19,948 | 20.085 | 20.549 | 20.660 |
| In Job Stress % Labor Force | 12.8 | 12.9 | 13.3 | 13.3 |
| Employed | 145.266 | 145.224 | 144.586 | 144.443 |
| Employment % Population | 58.8 | 58.8 | 58.6 | 58.6 |
Job Stress = Unemployed + Part Time Economic Reasons + Marginally Attached Labor Force
Source: US Bureau of Labor Statistics
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 2014. 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 Feb 2014 was 144.134 million (NSA) or 3.181 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 247.085 million in Feb 2014 or by 15.127 million. The number employed fell 2.2 percent from Jul 2007 to Feb 2014 while population increased 6.5 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, 2001-2014
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 2014. 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, 2001-2014
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 155.027 million in Feb 2014, 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 155.027 million in Feb 2014 to the noninstitutional population of 247.085 million in Feb 2014 was 62.7 percent. The labor force of the US in Feb 2014 corresponding to 66.8 percent of participation in the population would be 165.053 million (0.668 x 247.085). The difference between the measured labor force in Feb 2014 of 155.027 million and the labor force in Feb 2014 with participation rate of 66.8 percent (as in Jul 2007) of 165.053 million is 10.026 million. The level of the labor force in the US has stagnated and is 10.026 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, 2001-2014
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, 2001-2014
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 62.7 percent NSA in Feb 2014, 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, 2001-2014
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 11.741 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 9.984 million in Dec 2013. The level of unemployment reached 10.893 million in Feb 2014, all numbers not seasonally adjusted.
Chart I-6, US, Unemployed, Thousands, SA, 2001-2014
Source: US Bureau of Labor Statistics http://www.bls.gov/data/
Chart I-7 of the Bureau of Labor Statistics provides the rate of unemployment in the US or unemployed as percent of the labor force. The rate of unemployment of the US rose from 4.7 percent in Jan 2001 to 6.5 percent in Jun 2003, declining to 4.1 percent in Oct 2006. The rate of unemployment jumped to 10.6 percent in Jan 2010 and declined to 7.6 percent in Dec 2012 but increased to 8.5 percent in Jan 2013 and 8.1 percent in Feb 2013, falling back to 7.3 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 6.5 percent in Dec 2013 and 7.0 percent in Feb 2014.
Chart I-7, US, Unemployment Rate, SA, 2001-2014
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 and decrease of 9.0 percent in 2012. The annual rate of unemployment decreased 8.4 percent in 2013 and fell 12.9 percent in Feb 2014 relative to Feb 2013.
Chart I-8, US, Unemployed, 12-month Percentage Change, NSA, 2001-2014
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 9.114 million in Nov 2009, falling to 8.177 million in Dec 2011 but increasing to 8.228 million in Jan 2012 and 8.133 million in Feb 2012 but then falling to 7.929 million in Dec 2012 and increasing to 8.180 million in Jul 2013. The number employed part-time for economic reasons seasonally adjusted reached 7.771 million in Dec 2013 and 7.186 million in Feb 2014. 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 7.990 million in Dec 2013 and 7.397 million in Feb 2014. 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, 2001-2014
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 annual number of part-time for economic reasons decreased 2.3 percent in 2013. The number of part-time for economic reasons fell 10.9 percent in Feb 2014 relative to a year earlier.
Chart I-10, US, Part-Time for Economic Reasons NSA 12-Month Percentage Change, 2001-2014
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 2010 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, 2.529 million in Jul 2012 and 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 2.427 million in in Dec 2013. The number marginally attached to the labor force reached 2.303 million in Feb 2014.
Chart I-11, US, Marginally Attached to the Labor Force, Thousands, NSA, 2001-2014
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 2014. 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 annual number of marginally attached to the labor force fell 6.2 percent in 2013. The number marginally attached to the labor force fell 7.2 percent in the 12 months ending in Dec 2013 and 11.0 percent in the 12 months ending in Feb 2014.
Chart I-12, US, Marginally Attached to the Labor Force 12-Month Percentage Change, NSA, 2001-2014
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 11.9 percent and the number of people in job stress could be around 29.1 million, which is 17.8 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 Feb 2013, Jan 2014 and Feb 2014 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 2014. 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 Feb 2013, Jan 2014 and Feb 2014 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 63.2 percent by Feb 2013 and was 62.5 percent in Jan 2014 and 62.7 percent in Feb 2014, 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 8.543 million unemployed in Jan 2014 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 19.436 million (Total UEM) and not 10.893 million (UEM) of whom many have been unemployed long term
- the rate of unemployment is 11.9 percent (Total UEM%) and not 7.0 percent, not seasonally adjusted, or 6.7 percent seasonally adjusted
- the number of people in job stress is close to 29.1 million by adding the 8.543 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 29.136 million in Feb 2014, adding the total number of unemployed (“Total UEM”), plus those involuntarily in part-time jobs because they cannot find anything else (“Part Time Economic Reasons”) and the marginally attached to the labor force (“Marginally attached to LF”). The final row of Table I-4 shows that the number of people in job stress is equivalent to 17.8 percent of the labor force in Feb 2014. The employment population ratio “EMP/POP %” dropped from 62.9 percent on average in 2006 to 58.1 percent in Feb 2013, 58.1 percent in Jan 2014 and 58.3 percent in Feb 2014. The number employed in Feb 2014 was 144.134 million (NSA) or 3.181 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 247.085 million in Feb 2014 or by 15.127 million. The number employed fell 2.2 percent from Jul 2007 to Feb 2014 while population increased 6.5 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 2014 than in 2006 and the number employed is not increasing while population increased 15.127 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/2014/02/theory-and-reality-of-cyclical-slow.htm). 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/2014/02/theory-and-reality-of-cyclical-slow.htm). The US missed the opportunity for recovery of output and employment always afforded in the first four quarters of expansion from recessions. Zero interest rates and quantitative easing were not required or present in successful cyclical expansions and in secular economic growth at 3.0 percent per year and 2.0 percent per capita as measured by Lucas (2011May). The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. Growth on trend in the entire cycle from IVQ2007 to IV2013 would have accumulated to 20.3 percent. GDP in IVQ2013 would be $18,040.3 billion if the US had grown at trend, which is higher by $2,107.4 billion than actual $15,932.9 billion. There are about two trillion dollars of GDP less than on trend, explaining the 29.1 million unemployed or underemployed equivalent to actual unemployment of 17.8 percent of the effective labor force (http://cmpassocregulationblog.blogspot.com/2014/02/financial-instability-rules.html). US GDP grew from $14,996.1 billion in IVQ2007 in constant dollars to $15,932.9 billion in IVQ2013 or 6.2 percent at the average annual equivalent rate of 1.0 percent. The US missed the opportunity to grow at higher rates during the expansion and it is difficult to catch up because rates in the final periods of expansions tend to decline. The US missed the opportunity for recovery of output and employment always afforded in the first four quarters of expansion from recessions. Zero interest rates and quantitative easing were not required or present in successful cyclical expansions and in secular economic growth at 3.0 percent per year and 2.0 percent per capita as measured by Lucas (2011May). There is cyclical uncommonly slow growth in the US instead of allegations of secular stagnation. There are about two trillion dollars of GDP less than under trend, explaining the 29.1 million unemployed or underemployed equivalent to actual unemployment of 17.8 percent of the effective labor force (Section I and earlier http://cmpassocregulationblog.blogspot.com/2014/02/financial-instability-rules.html). The US missed the opportunity to grow at higher rates during the expansion and it is difficult to catch up because rates in the final periods of expansions tend to decline.
Table I-4, US, Population, Labor Force and Unemployment, NSA
| 2006 | Feb 2013 | Jan 2014 | Feb 2014 | |
| POP | 229 | 244.828 | 246,915 | 247,085 |
| LF | 151 | 154,727 | 154,381 | 155,027 |
| PART% | 66.2 | 63.2 | 62.5 | 62.7 |
| EMP | 144 | 142,228 | 143,526 | 144,134 |
| EMP/POP% | 62.9 | 58.1 | 58.1 | 58.3 |
| UEM | 7 | 12,500 | 10,855 | 10,893 |
| UEM/LF Rate% | 4.6 | 8.1 | 7.0 | 7.0 |
| NLF | 77 | 90,100 | 92,534 | 92,058 |
| LF PART 66.2% | 162,076 | 163,458 | 163,570 | |
| ∆NLF UEM | 7,349 | 9,077 | 8,543 | |
| Total UEM | 19,849 | 19,932 | 19,436 | |
| Total UEM% | 12.2 | 12.2 | 11.9 | |
| Part Time Economic Reasons | 8,298 | 7,771 | 7,397 | |
| Marginally Attached to LF | 2,588 | 2,592 | 2,303 | |
| In Job Stress | 30,735 | 30,295 | 29,136 | |
| People in Job Stress as % Labor Force | 19.0 | 18.5 | 17.8 |
Pop: population; LF: labor force; PART: participation; EMP: employed; UEM: unemployed; NLF: not in labor force; ∆NLF UEM: additional unemployed; Total UEM is UEM + ∆NLF UEM; Total UEM% is Total UEM as percent of LF PART 66.2%; In Job Stress = Total UEM + Part Time Economic Reasons + Marginally Attached to LF
Note: the first column for 2006 is in average millions; the remaining columns are in thousands; NSA: not seasonally adjusted
The labor force participation rate of 66.2% in 2006 is applied to current population to obtain LF PART 66.2%; ∆NLF UEM is obtained by subtracting the labor force with participation of 66.2 percent from the household survey labor force LF; Total UEM is household data unemployment plus ∆NLF UEM; and total UEM% is total UEM divided by LF PART 66.2%
Source: US Bureau of Labor Statistics
In the analysis of Hansen (1939, 3) of secular stagnation, economic progress consists of growth of real income per person driven by growth of productivity. The “constituent elements” of economic progress are “(a) inventions, (b) the discovery and development of new territory and new resources, and (c) the growth of population” (Hansen 1939, 3). Secular stagnation originates in decline of population growth and discouragement of inventions. According to Hansen (1939, 2), US population grew by 16 million in the 1920s but grew by one half or about 8 million in the 1930s with forecasts at the time of Hansen’s writing in 1938 of growth of around 5.3 million in the 1940s. Hansen (1939, 2) characterized demography in the US as “a drastic decline in the rate of population growth. Hansen’s plea was to adapt economic policy to stagnation of population in ensuring full employment. In the analysis of Hansen (1939, 8), population caused half of the growth of US GDP per year. Growth of output per person in the US and Europe was caused by “changes in techniques and to the exploitation of new natural resources.” In this analysis, population caused 60 percent of the growth of capital formation in the US. Declining population growth would reduce growth of capital formation. Residential construction provided an important share of growth of capital formation. Hansen (1939, 12) argues that market power of imperfect competition discourages innovation with prolonged use of obsolete capital equipment. Trade unions would oppose labor-savings innovations. The combination of stagnating and aging population with reduced innovation caused secular stagnation. Hansen (1939, 12) concludes that there is role for public investments to compensate for lack of dynamism of private investment but with tough tax/debt issues.
The current application of Hansen’s (1938, 1939, 1941) proposition argues that secular stagnation occurs because full employment equilibrium can be attained only with negative real interest rates between minus 2 and minus 3 percent. Professor Lawrence H. Summers (2013Nov8) finds that “a set of older ideas that went under the phrase secular stagnation are not profoundly important in understanding Japan’s experience in the 1990s and may not be without relevance to America’s experience today” (emphasis added). Summers (2013Nov8) argues there could be an explanation in “that the short-term real interest rate that was consistent with full employment had fallen to -2% or -3% sometime in the middle of the last decade. Then, even with artificial stimulus to demand coming from all this financial imprudence, you wouldn’t see any excess demand. And even with a relative resumption of normal credit conditions, you’d have a lot of difficulty getting back to full employment.” The US economy could be in a situation where negative real rates of interest with fed funds rates close to zero as determined by the Federal Open Market Committee (FOMC) do not move the economy to full employment or full utilization of productive resources. Summers (2013Oct8) finds need of new thinking on “how we manage an economy in which the zero nominal interest rates is a chronic and systemic inhibitor of economy activity holding our economies back to their potential.”
Former US Treasury Secretary Robert Rubin (2014Jan8) finds three major risks in prolonged unconventional monetary policy of zero interest rates and quantitative easing: (1) incentive of delaying action by political leaders; (2) “financial moral hazard” in inducing excessive exposures pursuing higher yields of risker credit classes; and (3) major risks in exiting unconventional policy. Rubin (2014Jan8) proposes reduction of deficits by structural reforms that could promote recovery by improving confidence of business attained with sound fiscal discipline.
Professor John B. Taylor (2014Jan01, 2014Jan3) provides clear thought on the lack of relevance of Hansen’s contention of secular stagnation to current economic conditions. The application of secular stagnation argues that the economy of the US has attained full-employment equilibrium since around 2000 only with negative real rates of interest of minus 2 to minus 3 percent. At low levels of inflation, the so-called full-employment equilibrium of negative interest rates of minus 2 to minus 3 percent cannot be attained and the economy stagnates. Taylor (2014Jan01) analyzes multiple contradictions with current reality in this application of the theory of secular stagnation:
- Secular stagnation would predict idle capacity, in particular in residential investment when fed fund rates were fixed at 1 percent from Jun 2003 to Jun 2004. Taylor (2014Jan01) finds unemployment at 4.4 percent with house prices jumping 7 percent from 2002 to 2003 and 14 percent from 2004 to 2005 before dropping from 2006 to 2007. GDP prices doubled from 1.7 percent to 3.4 percent when interest rates were low from 2003 to 2005.
- Taylor (2014Jan01, 2014Jan3) finds another contradiction in the application of secular stagnation based on low interest rates because of savings glut and lack of investment opportunities. Taylor (2009) shows that there was no savings glut. The savings rate of the US in the past decade is significantly lower than in the 1980s.
- Taylor (2014Jan01, 2014Jan3) finds another contradiction in the low ratio of investment to GDP currently and reduced investment and hiring by US business firms.
- Taylor (2014Jan01, 2014Jan3) argues that the financial crisis and global recession were caused by weak implementation of existing regulation and departure from rules-based policies.
- Taylor (2014Jan01, 2014Jan3) argues that the recovery from the global recession was constrained by a change in the regime of regulation and fiscal/monetary policies.
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 62.6 percent in Dec 2013 and 62.7 percent in Feb 2014. 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/2014/02/theory-and-reality-of-cyclical-slow.html). “Secular stagnation” would be a process over many years and not from one year to another. 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, 1979-2014
| Year | Jan | Feb | Jul | Aug | Sep | Oct | Nov | Dec | Annual |
| 1979 | 62.9 | 63.0 | 64.9 | 64.5 | 63.8 | 64.0 | 63.8 | 63.8 | 63.7 |
| 1980 | 63.3 | 63.2 | 65.1 | 64.5 | 63.6 | 63.9 | 63.7 | 63.4 | 63.8 |
| 1981 | 63.2 | 63.2 | 65.0 | 64.6 | 63.5 | 64.0 | 63.8 | 63.4 | 63.9 |
| 1982 | 63.0 | 63.2 | 65.3 | 64.9 | 64.0 | 64.1 | 64.1 | 63.8 | 64.0 |
| 1983 | 63.3 | 63.2 | 65.4 | 65.1 | 64.3 | 64.1 | 64.1 | 63.8 | 64.0 |
| 1984 | 63.3 | 63.4 | 65.9 | 65.2 | 64.4 | 64.6 | 64.4 | 64.3 | 64.4 |
| 1985 | 64.0 | 64.0 | 65.9 | 65.4 | 64.9 | 65.1 | 64.9 | 64.6 | 64.8 |
| 1986 | 64.2 | 64.4 | 66.6 | 66.1 | 65.3 | 65.5 | 65.4 | 65.0 | 65.3 |
| 1987 | 64.7 | 64.8 | 66.8 | 66.5 | 65.5 | 65.9 | 65.7 | 65.5 | 65.6 |
| 1988 | 65.1 | 65.2 | 67.1 | 66.8 | 65.9 | 66.1 | 66.2 | 65.9 | 65.9 |
| 1989 | 65.8 | 65.6 | 67.7 | 67.2 | 66.3 | 66.6 | 66.7 | 66.3 | 66.5 |
| 1990 | 66.0 | 66.0 | 67.7 | 67.1 | 66.4 | 66.5 | 66.3 | 66.1 | 66.5 |
| 1991 | 65.5 | 65.7 | 67.3 | 66.6 | 66.1 | 66.1 | 66.0 | 65.8 | 66.2 |
| 1992 | 65.7 | 65.8 | 67.9 | 67.2 | 66.3 | 66.2 | 66.2 | 66.1 | 66.4 |
| 1993 | 65.6 | 65.8 | 67.5 | 67.0 | 66.1 | 66.4 | 66.3 | 66.2 | 66.3 |
| 1994 | 66.0 | 66.2 | 67.5 | 67.2 | 66.5 | 66.8 | 66.7 | 66.5 | 66.6 |
| 1995 | 66.1 | 66.2 | 67.7 | 67.1 | 66.5 | 66.7 | 66.5 | 66.2 | 66.6 |
| 1996 | 65.8 | 66.1 | 67.9 | 67.2 | 66.8 | 67.1 | 67.0 | 66.7 | 66.8 |
| 1997 | 66.4 | 66.5 | 68.1 | 67.6 | 67.0 | 67.1 | 67.1 | 67.0 | 67.1 |
| 1998 | 66.6 | 66.7 | 67.9 | 67.3 | 67.0 | 67.1 | 67.1 | 67.0 | 67.1 |
| 1999 | 66.7 | 66.8 | 67.9 | 67.3 | 66.8 | 67.0 | 67.0 | 67.0 | 67.1 |
| 2000 | 66.8 | 67.0 | 67.6 | 67.2 | 66.7 | 66.9 | 66.9 | 67.0 | 67.1 |
| 2001 | 66.8 | 66.8 | 67.4 | 66.8 | 66.6 | 66.7 | 66.6 | 66.6 | 66.8 |
| 2002 | 66.2 | 66.6 | 67.2 | 66.8 | 66.6 | 66.6 | 66.3 | 66.2 | 66.6 |
| 2003 | 66.1 | 66.2 | 66.8 | 66.3 | 65.9 | 66.1 | 66.1 | 65.8 | 66.2 |
| 2004 | 65.7 | 65.7 | 66.8 | 66.2 | 65.7 | 66.0 | 66.1 | 65.8 | 66.0 |
| 2005 | 65.4 | 65.6 | 66.8 | 66.5 | 66.1 | 66.2 | 66.1 | 65.9 | 66.0 |
| 2006 | 65.5 | 65.7 | 66.9 | 66.5 | 66.1 | 66.4 | 66.4 | 66.3 | 66.2 |
| 2007 | 65.9 | 65.8 | 66.8 | 66.1 | 66.0 | 66.0 | 66.1 | 65.9 | 66.0 |
| 2008 | 65.7 | 65.5 | 66.8 | 66.4 | 65.9 | 66.1 | 65.8 | 65.7 | 66.0 |
| 2009 | 65.4 | 65.5 | 66.2 | 65.6 | 65.0 | 64.9 | 64.9 | 64.4 | 65.4 |
| 2010 | 64.6 | 64.6 | 65.3 | 65.0 | 64.6 | 64.4 | 64.4 | 64.1 | 64.7 |
| 2011 | 63.9 | 63.9 | 64.6 | 64.3 | 64.2 | 64.1 | 63.9 | 63.8 | 64.1 |
| 2012 | 63.4 | 63.6 | 64.3 | 63.7 | 63.6 | 63.8 | 63.5 | 63.4 | 63.7 |
| 2013 | 63.3 | 63.2 | 64.0 | 63.4 | 63.2 | 62.9 | 62.9 | 62.6 | 63.2 |
| 2014 | 62.5 | 62.7 |
Source: US Bureau of Labor Statistics
Chart I-12b, US, Labor Force Participation Rate, Percent of Labor Force in Population, NSA, 1979-2014
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, 1948-2014
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, 1948-2014
Sources: US Bureau of Labor Statistics
IA3 Long-term and Cyclical Comparison of Employment. There is initial discussion here of long-term employment trends followed by cyclical comparison. Growth and employment creation have been mediocre in the expansion beginning in Jul IIIQ2009 from the contraction between Dec IVQ2007 and Jun IIQ2009 (http://www.nber.org/cycles.html). A series of charts from the database of the Bureau of Labor Statistics (BLS) provides significant insight. Chart I-13 provides the monthly employment level of the US from 1948 to 2014. The number of people employed has trebled. There are multiple contractions throughout the more than six decades but followed by resumption of the strong upward trend. The contraction after 2007 is deeper and followed by a flatter curve of job creation. The United States missed this opportunity of high growth in the initial phase of recovery that historically eliminated unemployment and underemployment created during the contraction. Inferior performance of the US economy and labor markets is the critical current issue of analysis and policy design. Long-term economic performance in the United States consisted of trend growth of GDP at 3 percent per year and of per capita GDP at 2 percent per year as measured for 1870 to 2010 by Robert E Lucas (2011May). The economy returned to trend growth after adverse events such as wars and recessions. The key characteristic of adversities such as recessions was much higher rates of growth in expansion periods that permitted the economy to recover output, income and employment losses that occurred during the contractions. Over the business cycle, the economy compensated the losses of contractions with higher growth in expansions to maintain trend growth of GDP of 3 percent and of GDP per capita of 2 percent. US economic growth has been at only 2.3 percent on average in the cyclical expansion in the 18 quarters from IVQ2009 to IVQ2013. Boskin (2010Sep) measures that the US economy grew at 6.2 percent in the first four quarters and 4.5 percent in the first 12 quarters after the trough in the second quarter of 1975; and at 7.7 percent in the first four quarters and 5.8 percent in the first 12 quarters after the trough in the first quarter of 1983 (Professor Michael J. Boskin, Summer of Discontent, Wall Street Journal, Sep 2, 2010 http://professional.wsj.com/article/SB10001424052748703882304575465462926649950.html). There are new calculations using the revision of US GDP and personal income data since 1929 by the Bureau of Economic Analysis (BEA) (http://bea.gov/iTable/index_nipa.cfm) and the second estimate of GDP for IVQ2013 (http://www.bea.gov/newsreleases/national/gdp/2014/pdf/gdp4q13_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/2014/02/mediocre-cyclical-united-states.html). The expansion from IQ1983 to IVQ1985 was at the average annual growth rate of 5.9 percent, 5.4 percent from IQ1983 to IIIQ1986, 5.2 percent from IQ1983 to IVQ1986, 5.0 percent from IQ1983 to IQ1987, 5.0 percent from IQ1983 to IIQ1987 and at 7.8 percent from IQ1983 to IVQ1983 (Section I and earlier http://cmpassocregulationblog.blogspot.com/2014/02/mediocre-cyclical-united-states.html). The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. Growth on trend in the entire cycle from IVQ2007 to IV2013 would have accumulated to 20.3 percent. GDP in IVQ2013 would be $18,040.3 billion if the US had grown at trend, which is higher by $2,107.4 billion than actual $15,932.9 billion. There are about two trillion dollars of GDP less than on trend, explaining the 29.1 million unemployed or underemployed equivalent to actual unemployment of 17.8 percent of the effective labor force (Section I and earlier http://cmpassocregulationblog.blogspot.com/2014/02/financial-instability-rules.html). US GDP grew from $14,996.1 billion in IVQ2007 in constant dollars to $15,932.9 billion in IVQ2013 or 6.2 percent at the average annual equivalent rate of 1.0 percent. The US missed the opportunity to grow at higher rates during the expansion and it is difficult to catch up because rates in the final periods of expansions tend to decline. The US missed the opportunity for recovery of output and employment always afforded in the first four quarters of expansion from recessions. Zero interest rates and quantitative easing were not required or present in successful cyclical expansions and in secular economic growth at 3.0 percent per year and 2.0 percent per capita as measured by Lucas (2011May). There is cyclical uncommonly slow growth in the US instead of allegations of secular stagnation.
Chart I-13, US, Employment Level, Thousands, SA, 1948-2014
Source: US Bureau of Labor Statistics
The steep and consistent curve of growth of the US labor force is shown in Chart I-14. The contraction beginning in Dec 2007 flattened the path of the US civilian labor force and is now followed by a flatter curve during the current expansion.
Chart I-14, US, Civilian Labor Force, SA, 1948-2014, Thousands
Source: US Bureau of Labor Statistics
Chart I-15 for the period from 1948 to 2014. The labor force participation rate is influenced by numerous factors such as the age of the population. There is no comparable episode in the postwar economy to the sharp collapse of the labor force participation rate in Chart I-15 during the contraction and subsequent expansion after 2007. Aging can reduce the labor force participation rate as many people retire but many may have decided to work longer as their wealth and savings have been significantly reduced. There is an important effect of many people just exiting the labor force because they believe there is no job available for them.
Chart I-15, US, Civilian Labor Force Participation Rate, SA, 1948-2014, %
Source: US Bureau of Labor Statistics
The number of unemployed in the US jumped seasonally adjusted from 5.8 million in May 1979 to 12.1 million in Dec 1982, by 6.3 million, or 108.6 percent. The jump not seasonally adjusted was from 5.4 million in May 1979 to 12.5 million in Jan 1983, by 7.1 million or 131.5 percent. The number of unemployed seasonally adjusted jumped from 6.7 million in Mar 2007 to 15.4 million in Oct 2009, by 8.7 million, or 129.9 percent. The number of unemployed not seasonally adjusted jumped from 6.5 million in Apr 2007 to 16.1 million in Jan 2010, by 9.6 million or 147.7 percent. These are the two episodes with steepest increase in the level of unemployment in Chart I-16.
Chart I-16, US, Unemployed, SA, 1948-2014, Thousands
Source: US Bureau of Labor Statistics
Chart I-17 provides the rate of unemployment of the US from 1948 to 2014. The peak of the series is 10.8 percent in both Nov and Dec 1982. The second highest rates are 10.0 percent in Oct 2009 and 9.9 percent in both Nov and Dec 2009. The unadjusted rate of unemployment reached 10.6 percent in Jan 2010.
Chart I-17, US, Unemployment Rate, SA, 1948-2014
Source: US Bureau of Labor Statistics
Chart I-18 provides the number unemployed for 27 weeks and over from 1948 to 2013. The number unemployed for 27 weeks and over jumped from 510,000 in Dec 1978 to 2.885 million in Jun 1983, by 2.4 million, or 465.7 percent. The number of unemployed 27 weeks or over jumped from 1.132 million in May 2007 to 6.604 million in Jun 2010, by 5.472 million, or 483.4 percent.
Chart I-18, US, Unemployed for 27 Weeks or More, SA, 1948-2014, Thousands
Source: US Bureau of Labor Statistics
The employment-population ratio in Chart I-19 is an important indicator of wellbeing in labor markets, measuring the number of people with jobs. The US employment-population ratio fell from 63.5 in Dec 2006 to 58.6 in Jul 2011 and stands at 58.3 NSA in Feb 2014. There is no comparable decline followed by stabilization during an expansion in Chart I-19.
Chart I-19, US, Employment-Population Ratio, 1948-2014
Source: US Bureau of Labor Statistics
The number employed part-time for economic reasons in Chart I-20 increased in the recessions and declined during the expansions. In the current cycle, the number employed part-time for economic reasons increased sharply and has not returned to normal levels. Lower growth of economic activity in the expansion after IIIQ2009 failed to reduce the number desiring to work full time but finding only part-time occupations.
Chart I-20, US, Part-Time for Economic Reasons, NSA, 1955-2014, Thousands
Source: US Bureau of Labor Statistics
Table I-5 provides percentage change of real GDP in the United States in the 1930s, 1980s and 2000s. The recession in 1981-1982 is quite similar on its own to the 2007-2009 recession. In contrast, during the Great Depression in the four years of 1930 to 1933, GDP in constant dollars fell 26.4 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, 4.2 percent in 1985 and 3.5 percent in 1986 while GDP grew, 2.5 percent in 2010, 1.8 percent in 2011, 2.8 percent in 2012 and 1.9 percent in 2013. Actual annual equivalent GDP growth in the four quarters of 2012 and first four quarters of 2013 is 2.3 percent and 2.7 percent in the four quarters of 2013 but only 2.3 percent discounting contribution of 1.67 percentage points of inventory accumulation to growth in IIIQ2013. 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 2.2 to 2.3 percent in 2013 (http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20131218.pdf) with less reliable forecast of 2.8 to 3.2 percent in 2014 (http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20131218.pdf). Growth of GDP in the expansion from IIIQ2009 to IVQ2013 has been at average 2.3 percent in annual equivalent.
Table I-5, US, Percentage Change of GDP in the 1930s, 1980s and 2000s, ∆%
| Year | GDP ∆% | Year | GDP ∆% | Year | GDP ∆% |
| 1930 | -8.5 | 1980 | -0.2 | 2000 | 4.1 |
| 1931 | -6.4 | 1981 | 2.6 | 2001 | 1.0 |
| 1932 | -12.9 | 1982 | -1.9 | 2002 | 1.8 |
| 1933 | -1.3 | 1983 | 4.6 | 2003 | 2.8 |
| 1934 | 10.8 | 1984 | 7.3 | 2004 | 3.8 |
| 1935 | 8.9 | 1985 | 4.2 | 2005 | 3.4 |
| 1936 | 12.9 | 1986 | 3.5 | 2006 | 2.7 |
| 1937 | 5.1 | 1987 | 3.5 | 2007 | 1.8 |
| 1938 | -3.3 | 1988 | 4.2 | 2008 | -0.3 |
| 1930 | 8.0 | 1989 | 3.7 | 2009 | -2.8 |
| 1940 | 8.8 | 1990 | 1.9 | 2010 | 2.5 |
| 1941 | 17.7 | 1991 | -0.1 | 2011 | 1.8 |
| 1942 | 18.9 | 1992 | 3.6 | 2012 | 2.8 |
| 1943 | 17.0 | 1993 | 2.7 | 2013 | 1.9 |
Source: US Bureau of Economic Analysis http://www.bea.gov/iTable/index_nipa.cfm
Characteristics of the four cyclical contractions are provided in Table I-6 with the first column showing the number of quarters of contraction; the second column the cumulative percentage contraction; and the final column the average quarterly rate of contraction. There were two contractions from IQ1980 to IIIQ1980 and from IIIQ1981 to IVQ1982 separated by three quarters of expansion. The drop of output combining the declines in these two contractions is 4.7 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-6, US, Number of Quarters, GDP Cumulative Percentage Contraction and Average Percentage Annual Equivalent Rate in Cyclical Contractions
| Number of Quarters | Cumulative Percentage Contraction | Average Percentage Rate | |
| IIQ1953 to IIQ1954 | 3 | -2.4 | -0.8 |
| IIIQ1957 to IIQ1958 | 3 | -3.0 | -1.0 |
| IVQ1973 to IQ1975 | 5 | -3.1 | -0.6 |
| IQ1980 to IIIQ1980 | 2 | -2.2 | -1.1 |
| IIIQ1981 to IVQ1982 | 4 | -2.5 | -0.64 |
| IVQ2007 to IIQ2009 | 6 | -4.3 | -0.72 |
Sources: Source: Bureau of Economic Analysis http://www.bea.gov/iTable/index_nipa.cfm
Table I-7 shows the mediocre average annual equivalent growth rate of 2.3 percent of the US economy in the eighteen quarters of the current cyclical expansion from IIIQ2009 to IVQ2013. In sharp contrast, the average growth rate of GDP was: 5.7 percent in the first thirteen quarters of expansion from IQ1983 to IQ1986, 5.4 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, 5.0 percent in the first seventeen quarters of expansion from IQ1983 to IQ1987 and 5.0 percent in the eighteen quarters of expansion from IQ1983 to IIQ1987. 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. 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 IQ1986 was at the average annual growth rate of 5.7 percent, 5.2 percent from IQ1983 to IVQ1986, 5.0 percent from IQ1983 to IIQ1987 and at 7.8 percent from IQ1983 to IVQ1983. GDP growth in the four quarters of 2012 and 2013 accumulated to 4.5 percent that is equivalent to 2.2 percent in a year. This is obtained by dividing GDP in IVQ2013 of $15,932.9 billion by GDP in IVQ2011 of $15,242.1 billion and compounding by 4/8: {[($15,932.9/$15,242.1)4/8 -1]100 = 2.2%}. The US economy grew 2.5 percent in IVQ2013 relative to the same quarter a year earlier in IVQ2012. 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 third estimate of IIIQ2013 is 4.1 percent in seasonally adjusted annual rate (SAAR). Inventory accumulation contributed 1.67 percentage points to this rate of growth. The actual rate without this impulse of unsold inventories would have been 2.43 percent, or 0.6 percent in IIIQ2013, such that annual equivalent growth in 2013 is closer to 2.1 percent {[(1.003)(1.006)(1.006)(1.0064/4-1]100 = 2.1%}, compounding the quarterly rates and converting into annual equivalent.
Table I-7, US, Number of Quarters, Cumulative Growth and Average Annual Equivalent Growth Rate in Cyclical Expansions
| Number | Cumulative Growth ∆% | Average Annual Equivalent Growth Rate | |
| IIIQ 1954 to IQ1957 | 11 | 12.8 | 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 IQ1983-IIQ1987 | 13 15 16 17 18 | 19.9 21.6 22.3 23.1 24.5 | 5.7 5.4 5.2 5.0 5.0 |
| First Four Quarters IQ1983 to IVQ1983 | 4 | 7.8 | |
| Average First Four Quarters in Four Expansions* | 7.7 | ||
| IIIQ2009 to IVQ2013 | 18 | 11.0 | 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://www.bea.gov/iTable/index_nipa.cfm
A group of charts from the database of the Bureau of Labor Statistics facilitate the comparison of employment in the 1980s and 2000s. The long-term charts and tables from I-5 to I-7 in the discussion above confirm the view that the comparison of the current expansion should be with that in the 1980s because of similar dimensions. Chart I-21 provides the level of employment in the US between 1979 and 1989. Employment surged after the contraction and grew rapidly during the decade.
Chart I-21, US, Employed, Thousands, 1979-1989
Source: US Bureau of Labor Statistics
There is actually not sufficient job creation in merely absorbing new entrants in the labor force because of those dropping from job searches, worsening the stock of unemployed or underemployed in involuntary part-time jobs. The number employed in Feb 2014 was 144.134 million (NSA) or 3.181 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 247.085 million in Feb 2014 or by 15.127 million. The number employed fell 2.2 percent from Jul 2007 to Feb 2014 while population increased 6.5 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.
![clip_image001[1]](file:///C:\Users\cmpelaez\AppData\Local\Temp\WindowsLiveWriter393614076\supfiles2F2EF9B\image60.png "clip_image001[1]")
Chart I-22, US, Employed, Thousands, 2001-2014
Source: US Bureau of Labor Statistics
There was a steady upward trend in growth of the civilian labor force between 1979 and 1989 as shown in Chart I-23. There were fluctuations but strong long-term dynamism over an entire decade.
Chart I-23, US, Civilian Labor Force, Thousands, 1979-1989
Source: US Bureau of Labor Statistics
The civilian labor force in Chart I-24 grew steadily on an upward trend in the 2000s until it contracted together with the economy after 2007. There has not been recovery during the expansion but rather decline and marginal turn of the year 2011 into expansion in 2012 followed by stability and oscillation into 2013-2014. 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 155.027 million in Feb 2014, 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 155.027 million in Feb 2014 to the noninstitutional population of 247.085 million in Feb 2014 was 62.7 percent. The labor force of the US in Feb 2014 corresponding to 66.8 percent of participation in the population would be 165.053 million (0.668 x 247.085). The difference between the measured labor force in Feb 2014 of 155.027 million and the labor force in Feb 2014 with participation rate of 66.8 percent (as in Jul 2007) of 165.053 million is 10.026 million. The level of the labor force in the US has stagnated and is 10.026 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.
![clip_image003[1]](file:///C:\Users\cmpelaez\AppData\Local\Temp\WindowsLiveWriter393614076\supfiles2F2EF9B\image64.png "clip_image003[1]")
Chart I-24, US, Civilian Labor Force, Thousands, 2001-2014
Source: US Bureau of Labor Statistics
The rate of participation of the labor force in population stagnated during the stagflation and conquest of inflation in the late 1970s and early 1980s, as shown in Chart I-25. Recovery was vigorous during the expansion and lasted through the remainder of the decade.
Chart I-25, US, Civilian Labor Force Participation Rate, 1979-1989, %
Source: US Bureau of Labor Statistics
The rate of participation in the labor force declined after the recession of 2001 and stagnated until 2007, as shown in Chart I-26. The rate of participation in the labor force continued to decline both during the contraction after 2007 and the expansion after 2009 with marginal expansion at the turn of the year into 2012 followed by trend of decline and stability.
![clip_image005[1]](file:///C:\Users\cmpelaez\AppData\Local\Temp\WindowsLiveWriter393614076\supfiles2F2EF9B\image68.png "clip_image005[1]")
Chart I-26, US, Civilian Labor Force Participation Rate, 2001-2014, %
Source: US Bureau of Labor Statistics
Chart I-27 provides the number unemployed during the 1980s. The number unemployed peaked at 12.051 million in Dec 1982 seasonally adjusted and 12.517 in Jan 1983 million not seasonally adjusted, declining to 8.358 million in Dec 1984 seasonally adjusted and 7.978 in Dec 1984 million not seasonally adjusted during the first two years of expansion from the contraction. The number unemployed then fell to 6.667 million in Dec 1989 seasonally adjusted and 6.300 million not seasonally adjusted.
Chart I-27, US, Unemployed Thousands 1979-1989
Source: US Bureau of Labor Statistics
Chart I-28 provides the number unemployed from 2001 to 2014. Using seasonally adjusted data, the number unemployed rose from 6.727 million in Oct 2006 to 15.352 million in Oct 2009, declining to 13.090 million in Dec 2011 and to 10.459 million in Feb 2014. Using data not seasonally adjusted, the number unemployed rose from 6.272 million in Oct 2006 to 16.147 million in Jan 2010, declining to 11.844 million in Dec 2012, increasing to 13.181 million in Jan 2013 and declining to 9.984 million in Dec 2013. The level of unemployment was 10.893 million in Feb 2014.
![clip_image006[1]](file:///C:\Users\cmpelaez\AppData\Local\Temp\WindowsLiveWriter393614076\supfiles2F2EF9B\image72.png "clip_image006[1]")
Chart I-28, US, Unemployed Thousands 2001-2014
Source: US Bureau of Labor Statistics
The rate of unemployment peaked at 10.8 percent in both Nov and Dec 1982 seasonally adjusted, as shown in Chart I-29. The rate of unemployment dropped sharply during the expansion after 1984 and continued to decline during the rest of the decade to 5.4 percent in Dec 1989. Using not seasonally adjusted data, the rate of unemployment peaked at 11.4 percent in Jan 1983, declining to 7.0 percent in Dec 1984 and 5.1 percent in Dec 1989.
Chart I-29, US, Unemployment Rate, 1979-1989, %
Source: US Bureau of Labor Statistics
The rate of unemployment in the US seasonally adjusted jumped from 4.4 percent in May 2007 to 10.0 percent in Oct 2009 and 9.9 percent in both Nov and Dec 2009, as shown in Chart I-30. The rate of unemployment fluctuated at around 9.0 percent in 2011, declining to 7.9 percent in Dec 2012 and 6.7 percent in Dec 2013. The rate of unemployed eased to 6.7 percent in Feb 2014.
![clip_image007[1]](file:///C:\Users\cmpelaez\AppData\Local\Temp\WindowsLiveWriter393614076\supfiles2F2EF9B\image76.png "clip_image007[1]")
Chart I-30, US, Unemployment Rate, 2001-2014, %
Source: US Bureau of Labor Statistics
The employment population ratio seasonally adjusted fell from around 60.1 in Dec 1979 to 57.1 in both Feb and Mar 1983, as shown in Chart I-31. The employment population ratio seasonally adjusted rose back to 59.9 in Dec 1984 and reached 63.0 later in the decade in Dec 1989. Using not seasonally adjusted data, the employment population ratio dropped from 60.4 percent in Oct 1979 to 56.1 percent in Jan 1983, increasing to 59.8 in Dec 1984 and to 62.9 percent in Dec 1989.
Chart I-31, US, Employment Population Ratio, 1979-1989, %
Source: US Bureau of Labor Statistics
The US employment-population ratio seasonally adjusted has fallen from 63.4 in Dec 2006 to 58.5 in Dec 2011, 58.6 in Dec 2012 and 58.6 in Dec 2013, as shown in Chart I-32. The employment-population ratio reached 58.8 in Feb 2014. The employment population-ratio has stagnated during the expansion. Using not seasonally adjusted data, the employment population ratio fell from 63.6 percent in Jul 2006 to 57.6 percent in Jan 2011, 58.5 percent in Dec 2012 and 58.5 percent in Dec 2013. The employment population ratio eased to 58.3 in Feb 2014.
Chart I-32, US, Employment Population Ratio, 2001-2014, %
Source: US Bureau of Labor Statistics
The number unemployed for 27 weeks or over peaked at 2.885 million SA in Jun 1983 as shown in Chart I-33. The number unemployed for 27 weeks or over fell sharply during the expansion to 1.393 million in Dec 1984 and continued to decline throughout the 1980s to 0.635 million in Dec 1989 SA and 0.598 million NSA.
Chart I-33, US, Number Unemployed for 27 Weeks or More 1979-1989, SA, Thousands
Source: US Bureau of Labor Statistics
The number unemployed for 27 weeks or over, seasonally adjusted, increased sharply during the contraction as shown in Chart I-34 from 1.131 million in Nov 2006 to 6.770 million in Apr 2010 seasonally adjusted. The number of unemployed for 27 weeks remained at around 6 million during the expansion compared with somewhat above 1 million before the contraction, falling to 3.849 million in Feb 2014 seasonally adjusted and 3.886 million not seasonally adjusted.
Chart I-34, US, Number Unemployed for 27 Weeks or More, 2001-2014, SA, Thousands
Source: US Bureau of Labor Statistics
The number of persons working part-time for economic reasons because they cannot find full-time work peaked during the contraction at 6.857 million SA in Oct 1982, as shown in Chart I-35. The number of persons at work part-time for economic reasons fell sharply during the expansion to 5.797 million in Dec 1984 and continued to fall throughout the decade to 4.817 million in Dec 1989 SA and 4.709 million NSA.
Chart I-35, US, Part-Time for Economic Reasons, 1979-1989, Thousands
Source: US Bureau of Labor Statistics
The number of people working part-time because they cannot find full-time employment, not seasonally adjusted, increased sharply during the contraction from 3.787 million in Apr 2006, not seasonally adjusted, to 9.354 million in Dec 2009, as shown in Chart I-36. The number of people working part-time because of failure to find an alternative occupation stagnated at a very high level during the expansion, declining to 7.397 million not seasonally adjusted in Feb 2014.
![clip_image009[1]](file:///C:\Users\cmpelaez\AppData\Local\Temp\WindowsLiveWriter393614076\supfiles2F2EF9B\image96.png "clip_image009[1]")
Chart I-36, US, Part-Time for Economic Reasons, 2001-2014, Thousands
Source: US Bureau of Labor Statistics
The number marginally attached to the labor force in Chart I-37 jumped from 1.252 million in Dec 2006 to 2.800 million in Jan 2011, remaining at a high level of 2.540 million in Dec 2011, 2.809 million in Jan 2012, 2.614 million in Dec 2012 and 2.303 million in Feb 2014.
![clip_image011[1]](file:///C:\Users\cmpelaez\AppData\Local\Temp\WindowsLiveWriter393614076\supfiles2F2EF9B\image100.png "clip_image011[1]")
Chart I-37, US, Marginally Attached to the Labor Force, 2001-2014
Source: US Bureau of Labor Statistics
IA4 Job Creation. What is striking about the data in Table I-8 is that the numbers of monthly increases in jobs in 1983 and 1984 are several times higher than in 2010 to 2013. The civilian noninstitutional population grew by 41.0 percent from 174.215 million in 1983 to 245.679 million in 2013 and labor force higher by 39.3 percent, growing from 111.550 million in 1983 to 155.389 million in 2013. Total nonfarm payroll employment seasonally adjusted (SA) increased 175,000 in Feb 2014 and private payroll employment rose 162,000. The average number of nonfarm jobs created from Feb 2012 to Feb 2013 was 177,250, using seasonally adjusted data, while the average number of nonfarm jobs created from Feb 2013 to Feb 2014 was 179,833, or increase by 1.5 percent. The average number of private jobs created in the US from Feb 2012 to Feb 2013 was 182,000, using seasonally adjusted data, while the average from Feb 2013 to Feb 2014 was 182,500, or increase by 0.3 percent. This blog calculates the effective labor force of the US at 162.076 million in Feb 2013 and 163.570 million in Feb 2014 (Table I-4), for growth of 1.494 million at average 124,500 per month. The difference between the average increase of 182,500 new private nonfarm jobs per month in the US from Feb 2013 to Feb 2014 and the 124,500 average monthly increase in the labor force from Feb 2013 to Feb 2014 is 58,000 monthly new jobs net of absorption of new entrants in the labor force. There are 29.136 million in job stress in the US currently. Creation of 58,000 new jobs per month net of absorption of new entrants in the labor force would require 502 months to provide jobs for the unemployed and underemployed (29.136 million divided by 58,000) or 42 years (502 divided by 12). The civilian labor force of the US in Feb 2014 not seasonally adjusted stood at 155.027 million with 10.893 million unemployed or effectively 19.436 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 163.570 million. Reduction of one million unemployed at the current rate of job creation without adding more unemployment requires 1.4 years (1 million divided by product of 58,000 by 12, which is 696,000). Reduction of the rate of unemployment to 5 percent of the labor force would be equivalent to unemployment of only 7.751 million (0.05 times labor force of 155.027 million) for new net job creation of 3.142 million (10.893 million unemployed minus 7.751 million unemployed at rate of 5 percent) that at the current rate would take 4.5 years (3.142 million divided by 0.696000). Under the calculation in this blog, there are 19.436 million unemployed by including those who ceased searching because they believe there is no job for them and effective labor force of 163.570 million. Reduction of the rate of unemployment to 5 percent of the labor force would require creating 11.257 million jobs net of labor force growth that at the current rate would take 16.2 years (19.436 million minus 0.05(163.570 million) = 11.257 million divided by 0.696000, 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 Feb 2014 was 144.134 million (NSA) or 3.181 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 247.085 million in Feb 2014 or by 15.127 million. The number employed fell 2.2 percent from Jul 2007 to Feb 2014 while population increased 6.5 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 consideration to those factors and forces in our economy which tend to make business recoveries weak and anaemic (sic) and which tend to prolong and deepen the course of depressions. This is the essence of secular stagnation-sick recoveries 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 construction 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/2014/02/theory-and-reality-of-cyclical-slow.html). The proper explanation is not in secular stagnation but in cyclically slow growth. The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. Growth on trend in the entire cycle from IVQ2007 to IV2013 would have accumulated to 20.3 percent. GDP in IVQ2013 would be $18,040.3 billion if the US had grown at trend, which is higher by $2,107.4 billion than actual $15,932.9 billion. There are about two trillion dollars of GDP less than on trend, explaining the 29.1 million unemployed or underemployed equivalent to actual unemployment of 17.8 percent of the effective labor force (Section I and earlier http://cmpassocregulationblog.blogspot.com/2014/02/financial-instability-rules.html). US GDP grew from $14,996.1 billion in IVQ2007 in constant dollars to $15,932.9 billion in IVQ2013 or 6.2 percent at the average annual equivalent rate of 1.0 percent. The US missed the opportunity to grow at higher rates during the expansion and it is difficult to catch up because rates in the final periods of expansions tend to decline. The US missed the opportunity for recovery of output and employment always afforded in the first four quarters of expansion from recessions. Zero interest rates and quantitative easing were not required or present in successful cyclical expansions and in secular economic growth at 3.0 percent per year and 2.0 percent per capita as measured by Lucas (2011May). There is cyclical uncommonly slow growth in the US instead of allegations of secular stagnation.
Table I-8, US, Monthly Change in Jobs, Number SA
| Month | 1981 | 1982 | 1983 | 2008 | 2009 | 2010 | Private |
| Jan | 94 | -326 | 224 | 15 | -798 | 18 | 20 |
| Feb | 68 | -5 | -75 | -86 | -701 | -50 | -38 |
| Mar | 105 | -130 | 172 | -80 | -826 | 156 | 113 |
| Apr | 73 | -280 | 276 | -214 | -684 | 251 | 192 |
| May | 10 | -45 | 277 | -182 | -354 | 516 | 94 |
| Jun | 197 | -243 | 379 | -172 | -467 | -122 | 110 |
| Jul | 112 | -342 | 418 | -210 | -327 | -61 | 120 |
| Aug | -36 | -158 | -308 | -259 | -216 | -42 | 117 |
| Sep | -87 | -181 | 1115 | -452 | -227 | -57 | 107 |
| Oct | -99 | -277 | 271 | -474 | -198 | 241 | 199 |
| Nov | -209 | -123 | 353 | -765 | -6 | 137 | 149 |
| Dec | -278 | -14 | 356 | -697 | -283 | 71 | 94 |
| 1984 | 2011 | Private | |||||
| Jan | 446 | 70 | 72 | ||||
| Feb | 481 | 168 | 223 | ||||
| Mar | 275 | 212 | 231 | ||||
| Apr | 363 | 322 | 320 | ||||
| May | 308 | 102 | 166 | ||||
| Jun | 379 | 217 | 186 | ||||
| Jul | 313 | 106 | 219 | ||||
| Aug | 242 | 122 | 125 | ||||
| Sep | 310 | 183 | 268 | ||||
| Oct | 286 | 183 | 177 | ||||
| Nov | 349 | 164 | 191 | ||||
| Dec | 128 | 196 | 222 | ||||
| 1985 | 2012 | Private | |||||
| Jan | 266 | 360 | 364 | ||||
| Feb | 124 | 226 | 228 | ||||
| Mar | 346 | 243 | 246 | ||||
| Apr | 196 | 96 | 102 | ||||
| May | 274 | 110 | 131 | ||||
| Jun | 146 | 88 | 75 | ||||
| Jul | 190 | 160 | 172 | ||||
| Aug | 193 | 150 | 136 | ||||
| Sep | 203 | 161 | 159 | ||||
| Oct | 188 | 225 | 255 | ||||
| Nov | 209 | 203 | 211 | ||||
| Dec | 167 | 214 | 215 | ||||
| 1986 | 2013 | Private | |||||
| Jan | 125 | 197 | 219 | ||||
| Feb | 107 | 280 | 263 | ||||
| Mar | 94 | 141 | 164 | ||||
| Apr | 187 | 203 | 188 | ||||
| May | 127 | 199 | 222 | ||||
| Jun | -94 | 201 | 201 | ||||
| Jul | 318 | 149 | 170 | ||||
| Aug | 114 | 202 | 180 | ||||
| Sep | 347 | 164 | 153 | ||||
| Oct | 186 | 237 | 247 | ||||
| Nov | 186 | 274 | 272 | ||||
| Dec | 205 | 84 | 86 | ||||
| 1987 | 2014 | Private | |||||
| Jan | 172 | 129 | 145 | ||||
| Feb | 232 | 175 | 162 |
Source: US Bureau of Labor Statistics
Charts numbered from I-38 to I-41 from the database of the Bureau of Labor Statistics provide a comparison of payroll survey data for the contractions and expansions in the 1980s and after 2007. Chart I-38 provides total nonfarm payroll jobs from 2001 to 2013. The sharp decline in total nonfarm jobs during the contraction after 2007 has been followed by initial stagnation and then inadequate growth in 2012 and 2013-2014 while population growth continued.
Chart I-38, US, Total Nonfarm Payroll Jobs SA 2001-2014
Source: US Bureau of Labor Statistics
Chart I-39 provides total nonfarm jobs SA from 1979 to 1989. Recovery is strong throughout the decade with the economy growing at trend over the entire economic cycle.
Chart I-39, US, Total Nonfarm Payroll Jobs SA 1979-1989
Source: US Bureau of Labor Statistics
Most job creation in the US is by the private sector. Chart I-40 shows the sharp destruction of private payroll jobs during the contraction after 2007. There has been growth after 2010 but insufficient to recover higher levels of employment prevailing before the contraction. At current rates, recovery of employment may spread over several years in contrast with past expansions of the business cycle in the US.
Chart I-40, US, Total Private Payroll Jobs SA 2001-2014
Source: US Bureau of Labor Statistics
In contrast, growth of private payroll jobs in the US recovered vigorously during the expansion in 1983 through 1985, as shown in Chart I-41. Rapid growth of creation of private jobs continued throughout the 1980s.
Chart I-41, US, Total Private Payroll Jobs SA 1979-1989
Source: US Bureau of Labor Statistics
Types of jobs created, and not only the pace of job creation, may be important. Aspects of growth of payroll jobs from Feb 2013 to Feb 2014, not seasonally adjusted (NSA), are in Table I-9. Total nonfarm employment increased by 2,071,000 (row A, column Change), consisting of growth of total private employment by 2,126,000 (row B, column Change) and decrease by 55,000 of government employment (row C, column Change). Monthly average growth of private payroll employment has been 197,500, which is mediocre relative to 24 to 30 million in job stress, while total nonfarm employment has grown on average by only 177,167 per month, which barely keeps with 124,500 new entrants per month in the labor force. These monthly rates of job creation are insufficient to meet the demands of new entrants in the labor force and thus perpetuate unemployment and underemployment. Manufacturing employment increased by 63,000, at the monthly rate of 5,250 while private service providing employment grew by 1,894,000, at the monthly rate of 157,333. An important feature in Table I-9 is that jobs in professional and business services increased by 669,000 with temporary help services increasing by 244,000. This episode of jobless recovery is characterized by part-time jobs and creation of jobs that are inferior to those that have been lost. Monetary and fiscal stimuli fail to increase consumption in a fractured job market. The segment leisure and hospitality added 391,000 jobs in 12 months. An important characteristic is that the loss of government jobs has stabilized in federal government with loss of 55,000 jobs while states added 18,000 jobs and local government added 14,000 jobs. Local government provides the bulk of government jobs, 14.259 million, while federal government provides 2.705 million and states government 5.198 million.
Table I-9, US, Employees in Nonfarm Payrolls Not Seasonally Adjusted, in Thousands
| Feb 2013 | Feb 2014 | Change | |
| A Total Nonfarm | 134,112 | 136,183 | 2,071 |
| B Total Private | 111,895 | 114,021 | 2,126 |
| B1 Goods Producing | 18,131 | 18,363 | 232 |
| B1a Manufacturing | 11,901 | 11,964 | 63 |
| B2 Private service providing | 93,764 | 95,658 | 1,894 |
| B2a Wholesale Trade | 5,665 | 5,779 | 114 |
| B2b Retail Trade | 14,666 | 14,949 | 283 |
| B2c Transportation & Warehousing | 4,417 | 4,507 | 90 |
| B2d Financial Activities | 7,799 | 7,861 | 62 |
| B2e Professional and Business Services | 18,025 | 18,694 | 669 |
| B2e1 Temporary help services | 2,442 | 2,686 | 244 |
| B2f Health Care & Social Assistance | 17,606 | 17,866 | 260 |
| B2g Leisure & Hospitality | 13,470 | 13,861 | 391 |
| C Government | 22,217 | 22,162 | -55 |
| C1 Federal | 2,792 | 2,705 | -87 |
| C2 State | 5,180 | 5,198 | 18 |
| C3 Local | 14,245 | 14,259 | 14 |
Note: A = B+C, B = B1 + B2, C=C1 + C2 + C3
Source: US Bureau of Labor Statistics
Greater detail on the types of jobs created is provided in Table I-10 with data for Jan 2014 and Feb 2014. Strong seasonal effects are shown by the significant difference between seasonally adjusted (SA) and not-seasonally-adjusted (NSA) data. The purpose of adjusting for seasonality is to isolate nonseasonal effects. The 175,000 SA total nonfarm jobs created in Feb 2014 relative to Jan 2014 actually correspond to increase of 750,000 jobs NSA, as shown in row A. Most of this difference in Jan 2014 is due to the necessary benchmark and seasonal adjustments in the beginning of every year. The 162,000 total private payroll jobs SA created in Feb 2014relative to Jan 2014 actually correspond to increase of 300,000 jobs NSA. The analysis of NSA job creation in the prior Table I-9 does show improvement over the 12 months ending in Feb 2014 that is not clouded by seasonal variations but is inadequate number of jobs created. In fact, the 12-month rate of job creation without seasonal adjustment is stronger indication of marginal improvement in the US job market but that is insufficient in even making a dent in about 30 million people unemployed or underemployed. Benchmark and seasonal adjustments affect comparability of data over time.
Table I-10, US, Employees on Nonfarm Payrolls and Selected Industry Detail, Thousands, SA and NSA
| Jan 2014 SA | Feb 2014 SA | ∆ | Jan 2014 NSA | Feb 2014 NSA | ∆ | |
| A Total Nonfarm | 137,524 | 137,699 | 175 | 135,433 | 136,183 | 750 |
| B Total Private | 115,686 | 115,848 | 162 | 113,721 | 114,021 | 300 |
| B1 Goods Producing | 18,872 | 18,894 | 22 | 18,354 | 18,363 | 9 |
| B1a Constr. | 5,926 | 5,941 | 15 | 5,533 | 5,526 | -7 |
| B Mfg | 12,059 | 12,065 | 6 | 11,948 | 11,964 | 16 |
| B2 Private Service Providing | 96,814 | 96,954 | 140 | 95,367 | 95,658 | 291 |
| B2a Wholesale Trade | 5,817 | 5,832 | 15 | 5,766 | 5,779 | 13 |
| B2b Retail Trade | 15,239 | 15,235 | -4 | 15,161 | 14,949 | -212 |
| B2c Couriers & Mess. | 572 | 560 | -12 | 583 | 548 | -35 |
| B2d Health-care & Social Assistance | 17,888 | 17,903 | 15 | 17,855 | 17,866 | 11 |
| B2De Profess. & Business Services | 18,884 | 18,963 | 79 | 18,552 | 18,694 | 142 |
| B2De1 Temp Help Services | 2,776 | 2,800 | 24 | 2,651 | 2,686 | 35 |
| B2f Leisure & Hospit. | 14,461 | 14,437 | 24 | 13,782 | 14,095 | -313 |
Notes: ∆: Absolute Change; Constr.: Construction; Mess.: Messengers; Temp: Temporary; Hospit.: Hospitality. SA aggregates do not add because of seasonal adjustment.
Source: US Bureau of Labor Statistics
Chart I-42 of the Board of Governors of the Federal Reserve System shows that output of durable manufacturing accelerated in the 1980s and 1990s with slower growth in the 2000s perhaps because processes matured. Growth was robust after the major drop during the global recession but appears to vacillate in the final segment.
Chart I-42, US, Output of Durable Manufacturing, 1972-2014
Source: Board of Governors of the Federal Reserve
http://www.federalreserve.gov/releases/g17/Current/default.htm
Manufacturing jobs increased 6,000 in Feb 2014 relative to Jan 2014, seasonally adjusted. Manufacturing jobs not seasonally adjusted increased 63,000 from Feb 2013 to Feb 2014 or at the average monthly rate of 5,250. There are effects of the weaker economy and international trade together with the yearly adjustment of labor statistics. Industrial production decreased 0.3 percent in Jan 2014 after increasing 0.3 percent in Dec 2013 and increasing 0.7 percent in Nov 2013, 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 decreased 0.3 percent in January after having risen 0.3 percent in December. In January, manufacturing output fell 0.8 percent, partly because of the severe weather that curtailed production in some regions of the country. Additionally, manufacturing production is now reported to have been lower in the fourth quarter; the index is now estimated to have advanced at an annual rate of 4.6 percent in the fourth quarter rather than 6.2 percent. The output of utilities rose 4.1 percent in January, as demand for heating was boosted by unseasonably cold temperatures. The production at mines declined 0.9 percent following a gain of 1.8 percent in December. At 101.0 percent of its 2007 average, total industrial production in January was 2.9 percent above its level of a year earlier. The capacity utilization rate for total industry decreased in January to 78.5 percent, a rate that is 1.6 percentage points below its long-run (1972–2013) average.”
In the six months ending in Jan 2014, United States national industrial production accumulated increase of 2.1 percent at the annual equivalent rate of 4.3 percent, which is higher than growth of 2.9 percent in the 12 months ending in Jan 2014. Excluding growth of -0.3 percent in Jan 2014, growth in the remaining five months from Aug to Dec 2013 accumulated to 2.4 percent or 5.9 percent annual equivalent. Industrial production fell in one of the past six months. Business equipment accumulated growth of 0.6 percent in the six months from Aug 2013 to Jan 2014 at the annual equivalent rate of 1.2 percent, which is lower than growth of 2.4 percent in the 12 months ending in Jan 2014. The Fed analyzes capacity utilization of total industry in its report (http://www.federalreserve.gov/releases/g17/Current/default.htm): “The capacity utilization rate for total industry decreased in January to 78.5 percent, a rate that is 1.6 percentage points below its long-run (1972–2013) average.” United States industry apparently decelerated to a lower growth rate with possible acceleration in the past few months.
Manufacturing decreased 0.8 percent in Jan 2014 after increasing 0.3 percent in Dec 2013 and increasing 0.3 percent in Nov 2013 seasonally adjusted, increasing 1.3 percent not seasonally adjusted in 12 months ending in Jan 2014. Manufacturing grew cumulatively 1.2 percent in the six months ending in Jan 2014 or at the annual equivalent rate of 2.4 percent. Excluding the decrease of 0.3 percent in Jan 2014, manufacturing accumulated growth of 2.0 percent from Aug 2013 to Dec 2013 or at the annual equivalent rate of 4.9 percent. There has been evident deceleration of manufacturing growth in the US from 2010 and the first three months of 2011 into more recent months as shown by 12 months rates of growth. Growth rates appeared to be increasing again closer to 5 percent in Apr-Jun 2012 but deteriorated. The rates of decline of manufacturing in 2009 are quite high with a drop of 18.2 percent in the 12 months ending in Apr 2009. Manufacturing recovered from this decline and led the recovery from the recession. Rates of growth appeared to be returning to the levels at 3 percent or higher in the annual rates before the recession but the pace of manufacturing fell steadily in the past six months with some strength at the margin. Manufacturing increased 21.9 from the peak in Jun 2007 to the trough in Apr 2009 and increased by 19.1 percent from the trough in Apr 2009 to Dec 2013. Manufacturing grew 17.2 percent from the trough in Apr 2009 to Jan 2014. Manufacturing output in Jan 2013 is 8.5 percent below the peak in Jun 2007.
Table I-11 provides national income by industry without capital consumption adjustment (WCCA). “Private industries” or economic activities have share of 86.8 percent in IIIQ2013. Most of US national income is in the form of services. In Feb 2014, there were 136.183 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 114.021 million NSA in Feb 2014 accounted for 83.7 percent of total nonfarm jobs of 136.183 million, of which 11.964 million, or 10.5 percent of total private jobs and 8.8 percent of total nonfarm jobs, were in manufacturing. Private service-producing jobs were 96.658 million NSA in Feb 2014, or 71.0 percent of total nonfarm jobs and 84.8 percent of total private-sector jobs. Manufacturing has share of 10.8 percent in US national income in IIIQ2013, as shown in Table I-11. Most income in the US originates in services. Subsidies and similar measures designed to increase manufacturing jobs will not increase economic growth and employment and may actually reduce growth by diverting resources away from currently employment-creating activities because of the drain of taxation.
Table I-11, US, National Income without Capital Consumption Adjustment by Industry, Seasonally Adjusted Annual Rates, Billions of Dollars, % of Total
| SAAR | % Total | SAAR IIIQ2013 | % Total | |
| National Income WCCA | 14,495.5 | 100.0 | 14,642.3 | 100.0 |
| Domestic Industries | 14,248.7 | 98.3 | 14,379.4 | 98.2 |
| Private Industries | 12,568.6 | 86.7 | 12,704.3 | 86.8 |
| Agriculture | 220.3 | 1.5 | 224.2 | 1.5 |
| Mining | 254.3 | 1.8 | 253.3 | 1.7 |
| Utilities | 216.5 | 1.5 | 221.4 | 1.5 |
| Construction | 629.0 | 4.3 | 638.7 | 4.4 |
| Manufacturing | 1558.9 | 10.8 | 1575.6 | 10.8 |
| Durable Goods | 888.1 | 6.1 | 910.6 | 6.2 |
| Nondurable Goods | 670.1 | 4.6 | 665.0 | 4.5 |
| Wholesale Trade | 874.4 | 6.0 | 884.6 | 6.0 |
| Retail Trade | 995.8 | 6.9 | 998.0 | 6.8 |
| Transportation & WH | 436.3 | 3.0 | 442.3 | 3.0 |
| Information | 507.2 | 3.5 | 498.9 | 3.4 |
| Finance, Insurance, RE | 2448.1 | 16.9 | 2517.6 | 17.2 |
| Professional & Business Services | 2004.7 | 13.8 | 2008.0 | 13.7 |
| Education, Health Care | 1438.9 | 9.9 | 1445.7 | 9.8 |
| Arts, Entertainment | 577.1 | 4.0 | 585.6 | 4.0 |
| Other Services | 409.7 | 2.8 | 410.4 | 2.8 |
| Government | 1680.1 | 11.6 | 1675.1 | 11.4 |
| Rest of the World | 246.8 | 1.7 | 262.9 | 1.8 |
Notes: SSAR: Seasonally-Adjusted Annual Rate; WCCA: Without Capital Consumption Adjustment by Industry; WH: Warehousing; RE, includes rental and leasing: Real Estate; Art, Entertainment includes recreation, accommodation and food services; BS: business services
Source: US Bureau of Economic Analysis http://www.bea.gov/iTable/index_nipa.cfm
The NBER dates recessions in the US from peaks to troughs as: IQ80 to IIIQ80, IIIQ81 to IV82 and IVQ07 to IIQ09 (http://www.nber.org/cycles/cyclesmain.html). Table I-12 provides total annual level nonfarm employment in the US for the 1980s and the 2000s, which is different from 12 months comparisons. Nonfarm jobs rose by 4.859 million from 1982 to 1984, or 5.4 percent, and continued rapid growth in the rest of the decade. In contrast, nonfarm jobs are down by 7.661million in 2010 relative to 2007 and fell by 958,000 in 2010 relative to 2009 even after six quarters of GDP growth. Monetary and fiscal stimuli have failed in increasing growth to rates required for mitigating job stress. The initial growth impulse reflects a flatter growth curve in the current expansion. Nonfarm jobs declined from 137.936 million in 2007 to 136.368 million in 2013, by 1.568 million or 1.1 percent. The US noninstitutional population or in condition to work increased from 231.867 million in 2007 to 245.679 million in 2013, by 13.812 million or 6.0 percent. The ratio of nonfarm jobs in 2007 or 137.936 million in 2007 to the noninstitutional population of 231.867 was 59.5. Nonfarm jobs in 2013 corresponding to the ratio of 59.5 of nonfarm jobs/noninstitutional population would be 146.179 million (0.595x245.679). The difference between actual nonfarm jobs of 136.368 million in 2013 and nonfarm jobs of 146.179 million that are equivalent to 59.5 percent of the noninstitutional population as in 2007 is 9.811 million. The proper explanation for this loss of work opportunities is not in secular stagnation but in cyclically slow growth. The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. Growth on trend in the entire cycle from IVQ2007 to IV2013 would have accumulated to 20.3 percent. GDP in IVQ2013 would be $18,040.3 billion if the US had grown at trend, which is higher by $2,107.4 billion than actual $15,932.9 billion. There are about two trillion dollars of GDP less than on trend, explaining the 29.1 million unemployed or underemployed equivalent to actual unemployment of 17.8 percent of the effective labor force (Section I and earlier http://cmpassocregulationblog.blogspot.com/2014/02/financial-instability-rules.html). US GDP grew from $14,996.1 billion in IVQ2007 in constant dollars to $15,932.9 billion in IVQ2013 or 6.2 percent at the average annual equivalent rate of 1.0 percent. The US missed the opportunity to grow at higher rates during the expansion and it is difficult to catch up because rates in the final periods of expansions tend to decline. The US missed the opportunity for recovery of output and employment always afforded in the first four quarters of expansion from recessions. Zero interest rates and quantitative easing were not required or present in successful cyclical expansions and in secular economic growth at 3.0 percent per year and 2.0 percent per capita as measured by Lucas (2011May). There is cyclical uncommonly slow growth in the US instead of allegations of secular stagnation.
Table I-12, US, Total Nonfarm Employment in Thousands
| Year | Total Nonfarm | Year | Total Nonfarm |
| 1980 | 90,533 | 2000 | 132,019 |
| 1981 | 91,297 | 2001 | 132,074 |
| 1982 | 89,689 | 2002 | 130,628 |
| 1983 | 90,295 | 2003 | 130,318 |
| 1984 | 94,548 | 2004 | 131,749 |
| 1985 | 97,532 | 2005 | 134,005 |
| 1986 | 99,500 | 2006 | 136,398 |
| 1987 | 102,116 | 2007 | 137,936 |
| 1988 | 105,378 | 2008 | 137,170 |
| 1989 | 108,051 | 2009 | 131,233 |
| 1990 | 109,527 | 2010 | 130,275 |
| 1991 | 108,427 | 2011 | 131,842 |
| 1992 | 108,802 | 2012 | 134,104 |
| 1993 | 110,935 | 2013 | 136,368 |
Source: US Bureau of Labor Statistics http://www.bls.gov/
Chart I-43 provides annual nonfarm jobs in the US not seasonally adjusted from 2000 to 2013. Cyclically slow growth in the expansion since IIIQ2009 has not been sufficient to recover nonfarm jobs. Because of population growth, there are 9.811 million fewer nonfarm jobs in the US in 2013 than in 2007.
Chart I-43, US, Annual Nonfarm Jobs, NSA, Thousands, 2000-2013
Source: US Bureau of Labor Statistics http://www.bls.gov/
Chart I-44 provides annual nonfarm jobs in the US not seasonally adjusted from 1980 to 1993. Much more rapid cyclical growth as in other expansions historically allowed steady and rapid growth of nonfarm job opportunities even with similarly dynamic population growth.
Chart I-44, US, Annual Nonfarm Jobs, NSA, Thousands, 1980-1993
Source: US Bureau of Labor Statistics http://www.bls.gov
The highest average yearly percentage of unemployed to the labor force since 1940 was 14.6 percent in 1940 followed by 9.9 percent in 1941, 8.5 percent in 1975, 9.7 percent in 1982 and 9.6 percent in 1983 (ftp://ftp.bls.gov/pub/special.requests/lf/aa2006/pdf/cpsaat1.pdf). The rate of unemployment remained at high levels in the 1930s, rising from 3.2 percent in 1929 to 22.9 percent in 1932 in one estimate and 23.6 percent in another with real wages increasing by 16.4 percent (Margo 1993, 43; see Pelaez and Pelaez, Regulation of Banks and Finance (2009b), 214-5). There are alternative estimates of 17.2 percent or 9.5 percent for 1940 with real wages increasing by 44 percent. Employment declined sharply during the 1930s. The number of hours worked remained in 1939 at 29 percent below the level of 1929 (Cole and Ohanian 1999). Private hours worked fell in 1939 to 25 percent of the level in 1929. The policy of encouraging collusion through the National Industrial Recovery Act (NIRA), to maintain high prices, together with the National Labor Relations Act (NLRA), to maintain high wages, prevented the US economy from recovering employment levels until Roosevelt abandoned these policies toward the end of the 1930s (for review of the literature analyzing the Great Depression see Pelaez and Pelaez, Regulation of Banks and Finance (2009b), 198-217).
The Bureau of Labor Statistics (BLS) makes yearly revisions of its establishment survey (Harris 2011BA):
“With the release of data for January 2011, the Bureau of Labor Statistics (BLS) introduced its annual revision of national estimates of employment, hours, and earnings from the Current Employment Statistics (CES) monthly survey of nonfarm establishments. Each year, the CES survey realigns its sample-based estimates to incorporate universe counts of employment—a process known as benchmarking. Comprehensive counts of employment, or benchmarks, are derived primarily from unemployment insurance (UI) tax reports that nearly all employers are required to file with State Workforce Agencies.”
The number of not seasonally adjusted total private jobs in the US in Dec 2010 is 108.464 million, declining to 106.079 million in Jan 2011, or by 2.385 million, because of the adjustment of a different benchmark and not actual job losses. The not seasonally adjusted number of total private jobs in Dec 1984 is 80.250 million, declining to 78.704 million in Jan 1985, or by 1.546 million for the similar adjustment. Table I-13 attempts to measure job losses and gains in the recessions and expansions of 1981-1985 and 2007-2011. The final ten rows provide job creation from May 1983 to May 1984 and from May 2010 to May 2011, that is, at equivalent stages of the recovery from two comparable strong recessions. The row “Change ∆%” for May 1983 to May 1984 shows an increase of total nonfarm jobs by 4.9 percent and of 5.9 percent for total private jobs. The row “Change ∆%” for May 2010 to May 2011 shows an increase of total nonfarm jobs by 0.7 percent and of 1.7 percent for total private jobs. The last two rows of Table 7 provide a calculation of the number of jobs that would have been created from May 2010 to May 2011 if the rate of job creation had been the same as from May 1983 to May 1984. If total nonfarm jobs had grown between May 2010 and May 2011 by 4.9 percent, as between May 1983 and May 1984, 6.409 million jobs would have been created in the past 12 months for a difference of 5.457 million more total nonfarm jobs relative to 0.952 million jobs actually created. If total private jobs had grown between May 2010 and May 2011 by 5.9 percent as between May 1983 and May 1984, 6.337 million private jobs would have been created for a difference of 4.539 million more total private jobs relative to 1.798 million jobs actually created.
Table I-13, US, Total Nonfarm and Total Private Jobs Destroyed and Subsequently Created in
Two Recessions IIIQ1981-IVQ1982 and IVQ2007-IIQ2009, Thousands and Percent
| Total Nonfarm Jobs | Total Private Jobs | |
| 06/1981 # | 92,288 | 75,969 |
| 11/1982 # | 89,482 | 73,260 |
| Change # | -2,806 | -2,709 |
| Change ∆% | -3.0 | -3.6 |
| 12/1982 # | 89,383 | 73,185 |
| 05/1984 # | 94,471 | 78,049 |
| Change # | 5,088 | 4,864 |
| Change ∆% | 5.7 | 6.6 |
| 11/2007 # | 139,090 | 116,291 |
| 05/2009 # | 131,626 | 108,601 |
| Change % | -7,464 | -7,690 |
| Change ∆% | -5.4 | -6.6 |
| 12/2009 # | 130,178 | 107,338 |
| 05/2011 # | 131,753 | 108,494 |
| Change # | 1,575 | 1,156 |
| Change ∆% | 1.2 | 1.1 |
| 05/1983 # | 90,005 | 73,667 |
| 05/1984 # | 94,471 | 78,049 |
| Change # | 4,466 | 4,382 |
| Change ∆% | 4.9 | 5.9 |
| 05/2010 # | 130,801 | 107,405 |
| 05/2011 # | 131,753 | 109,203 |
| Change # | 952 | 1,798 |
| Change ∆% | 0.7 | 1.7 |
| Change # by ∆% as in 05/1984 to 05/1985 | 6,409* | 6,337** |
| Difference in Jobs that Would Have Been Created | 5,457 = | 4,539 = |
*[(130,801x1.049)-130,801] = 6,409 thousand
**[(107,405)x1.059 – 107,405] = 6,337 thousand
Source: http://www.bls.gov/data/
IB Stagnating Real Wages. The wage bill is the product of average weekly hours times the earnings per hour. Table IB-1 provides the estimates by the Bureau of Labor Statistics (BLS) of earnings per hour seasonally adjusted, increasing from $24.22/hour in Jan 2014 to $24.31/hour in Feb 2013, or by 0.4 percent. There has been disappointment about the pace of wage increases because of rising food and energy costs that inhibit consumption and thus sales and similar concern about growth of consumption that accounts for about 68.1 percent of GDP (Table I-10 at
http://cmpassocregulationblog.blogspot.com/2014/02/mediocre-cyclical-united-states.html). Growth of consumption by decreasing savings by means of controlling interest rates in what is called financial repression may not be lasting and sound for personal finances (See Pelaez and Pelaez, Globalization and the State, Vol. II (2008c), 81-6, Pelaez (1975),
http://cmpassocregulationblog.blogspot.com/2014/02/mediocre-cyclical-united-states.html and earlier http://cmpassocregulationblog.blogspot.com/2013/12/collapse-of-united-states-dynamism-of.html http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html http://cmpassocregulationblog.blogspot.com/2013/09/mediocre-and-decelerating-united-states.html
http://cmpassocregulationblog.blogspot.com/2013/09/increasing-interest-rate-risk.html http://cmpassocregulationblog.blogspot.com/2013/08/risks-of-steepening-yield-curve-and.html http://cmpassocregulationblog.blogspot.com/2013/06/tapering-quantitative-easing-policy-and.html
http://cmpassocregulationblog.blogspot.com/2013/06/mediocre-united-states-economic-growth.html
http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states.html http://cmpassocregulationblog.blogspot.com/2013/03/mediocre-gdp-growth-at-16-to-20-percent.html http://cmpassocregulationblog.blogspot.com/2012/12/mediocre-and-decelerating-united-states_24.html http://cmpassocregulationblog.blogspot.com/2012/12/mediocre-and-decelerating-united-states.html http://cmpassocregulationblog.blogspot.com/2012/09/historically-sharper-recoveries-from.html http://cmpassocregulationblog.blogspot.com/2012/09/collapse-of-united-states-dynamism-of.html http://cmpassocregulationblog.blogspot.com/2012/07/recovery-without-jobs-stagnating-real.html http://cmpassocregulationblog.blogspot.com/2012/06/mediocre-recovery-without-jobs.html http://cmpassocregulationblog.blogspot.com/2012/04/mediocre-growth-with-high-unemployment.html http://cmpassocregulationblog.blogspot.com/2012/04/mediocre-economic-growth-falling-real.html http://cmpassocregulationblog.blogspot.com/2012/03/mediocre-economic-growth-flattening.html http://cmpassocregulationblog.blogspot.com/2012/01/mediocre-economic-growth-financial.html http://cmpassocregulationblog.blogspot.com/2011/12/slow-growth-falling-real-disposable.html http://cmpassocregulationblog.blogspot.com/2011/11/us-growth-standstill-falling-real.html http://cmpassocregulationblog.blogspot.com/2011/10/slow-growth-driven-by-reducing-savings.html). Average hourly earnings seasonally adjusted increased 0.2 percent from $24.17 in Dec 2013 to $24.22 in Jan 2014. Average private weekly earnings increased $10.64 from $820.76 in Feb 2013 to $831.40 in Feb 2014 or 1.3 percent and increased from $830.75 in Jan 2014 to $831.40 in Feb 2014 or 0.1 percent. The inflation-adjusted wage bill can only be calculated for Jan, which is the most recent month for which there are estimates of the consumer price index. Earnings per hour (not-seasonally-adjusted (NSA)) rose from $23.88 in Jan 2013 to $24.34 in Jan 2014 or by 1.9 percent (http://www.bls.gov/data/; see Table IB-3 below). Data NSA are more suitable for comparison over a year. Average weekly hours NSA were 34.0 in Jan 2013 and 34.0 in Jan 2014 (http://www.bls.gov/data/; see Table IB-2 below). The wage bill increased 1.9 percent in the 12 months ending in Jan 2014:
{[(wage bill in Jan 2014)/(wage bill in Jan 2013)]-1}100 =
{[($24.34x34.0)/($23.88x34.0)]-1]}100
= {[($827.56)/($811.92)]-1}100 = 1.9%
CPI inflation was 1.6 percent in the 12 months ending in Dec 2013 (http://www.bls.gov/cpi/) for an inflation-adjusted wage-bill change of 0.3 percent :{[(1.019/1.016)-1]100 = 0.3%} (see Table IB-5 below for Jan 2014). The wage bill for Feb 2014 before inflation adjustment increased 3.1 percent relative to the wage bill for Feb 2013:
{[(wage bill in Feb 2014)/(wage bill in Feb 2013)]-1}100 =
{[($24.58x34.3)/23.91x34.2)]-1]}100
= {[($843.09/$817.72)]-1}100 = 3.1%
Average hourly earnings increased 2.8 percent from Feb 2013 to Feb 2014 {[($24.58/$23.91) – 1]100 = 2.8%} while hours worked increased 0.3 percent {[(34.3/34.2) – 1]100 = 0.3%}. The increase of the wage bill is the product of the increase of hourly earnings of 2.8 percent and increase of hours worked of 0.3 percent {[(1.028x1.003) -1]100 = 3.1%}.
Energy and food price increases are similar to a “silent tax” that is highly regressive, harming the most those with lowest incomes. There are concerns that the wage bill would deteriorate in purchasing power because of renewed raw materials shocks in the form of increases in prices of commodities such as the 31.1 percent steady increase in the DJ-UBS Commodity Index from Jul 2, 2010 to Sep 2, 2011. The charts of four commodity price indexes by Bloomberg show steady increase since Jul 2, 2010 that was interrupted briefly only in Nov 2010 with the sovereign issues in Europe triggered by Ireland; in Mar 2011 by the earthquake and tsunami in Japan; and in the beginning of May 2011 by the decline in oil prices and sovereign risk difficulties in Europe (http://www.bloomberg.com/markets/commodities/futures/). Renewed risk aversion because of the sovereign risks in Europe had reduced the rate of increase of the DJ UBS commodity index to minus 0.3 percent on Jan 10, 2013, relative to Jul 2, 2010 (see Table VI-4) but there has been a shift in investor preferences into equities. Inflation has been rising in waves with carry trades driven by zero interest rates to commodity futures during periods of risk appetite with interruptions during risk aversion (http://cmpassocregulationblog.blogspot.com/2014/02/squeeze-of-economic-activity-by-carry.html). Inflation-adjusted wages fall sharply during carry trades from zero interest rates to long positions in commodity futures during periods of risk appetite.
Table IB-1, US, Earnings per Hour and Average Weekly Hours SA
| Earnings per Hour | Feb 2014 | Dec 2013 | Jan 2014 | Feb 2014 |
| Total Private | $23.79 | $24.17 | $24.22 | $24.31 |
| Goods Producing | $24.92 | $25.44 | $25.48 | $25.60 |
| Service Providing | $23.52 | $23.87 | $23.92 | $24.01 |
| Average Weekly Earnings | ||||
| Total Private | $820.76 | $829.03 | $830.75 | $831.40 |
| Goods Producing | $1,009.26 | $1,027.78 | $1,021.75 | $1,026.56 |
| Service Providing | $783.22 | $790.10 | $794.14 | $792.33 |
| Average Weekly Hours | ||||
| Total Private | 34.5 | 34.3 | 34.3 | 34.2 |
| Goods Producing | 40.5 | 40.4 | 40.1 | 40.1 |
| Service Providing | 33.3 | 33.1 | 33.2 | 33.0 |
Source: US Bureau of Labor Statistics
Average weekly hours in Table IB-2 fell from 34.9 in Dec 2007 at the beginning of the contraction to 33.8 in Jun 2009, which was the last month of the contraction. Average weekly hours rose to 34.4 in Dec 2011 and oscillated to 34.9 in Dec 2012 and 34.7 in Dec 2013. Average weekly hours of all employees eased to 34.3 in Feb 2014.
Table IB-2, US, Average Weekly Hours of All Employees, NSA 2006-2014
| Year | Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec |
| 2006 | 34.2 | 34.6 | 34.3 | 34.6 | 34.9 | 34.6 | 34.5 | 34.9 | 34.4 | 34.6 | ||
| 2007 | 34.1 | 34.1 | 34.3 | 34.7 | 34.4 | 34.7 | 34.9 | 34.7 | 35.0 | 34.5 | 34.5 | 34.9 |
| 2008 | 34.1 | 34.2 | 34.7 | 34.4 | 34.4 | 34.9 | 34.5 | 34.6 | 34.4 | 34.4 | 34.6 | 34.1 |
| 2009 | 33.8 | 34.2 | 33.9 | 33.6 | 33.7 | 33.8 | 33.8 | 34.3 | 33.7 | 33.8 | 34.2 | 33.9 |
| 2010 | 33.7 | 33.6 | 33.8 | 34.0 | 34.4 | 34.1 | 34.2 | 34.7 | 34.1 | 34.3 | 34.2 | 34.2 |
| 2011 | 34.2 | 34.0 | 34.1 | 34.2 | 34.6 | 34.4 | 34.4 | 34.4 | 34.4 | 34.8 | 34.3 | 34.4 |
| 2012 | 34.5 | 34.2 | 34.2 | 34.6 | 34.2 | 34.4 | 34.8 | 34.5 | 34.9 | 34.3 | 34.3 | 34.9 |
| 2013 | 34.0 | 34.2 | 34.3 | 34.3 | 34.3 | 34.9 | 34.3 | 34.5 | 34.9 | 34.4 | 34.4 | 34.7 |
| 2014 | 34.0 | 34.3 |
Source: US Bureau of Labor Statistics
Chart IB-1 provides average weekly hours monthly from Mar 2006 to Feb 2014. Average weekly hours remained relatively stable in the period before the contraction and fell sharply during the contraction as business could not support lower production with the same labor input. Average weekly hours rose rapidly during the expansion but have stabilized at a level below that prevailing before the contraction.
Chart IB-1, US, Average Weekly Hours of All Employees, SA 2006-2014
Source: US Bureau of Labor Statistics
Calculations using BLS data of inflation-adjusted average hourly earnings are in Table IB-3. The final column of Table IB-3 (“12 Month Real ∆%”) provides inflation-adjusted average hourly earnings of all employees in the US. Average hourly earnings rose above inflation throughout the first nine months of 2007 just before the global recession that began in the final quarter of 2007 when average hourly earnings began to lose to inflation. In contrast, average hourly earnings of all US workers have risen less than inflation in four months in 2010 and in all but the first month in 2011 and the loss accelerated at 1.8 percent in Sep 2011, declining to a real loss of 1.1 percent in Feb 2012 and 0.6 percent in Mar 2012. There was a gain of 0.5 percent in Apr 2012 in inflation-adjusted average hourly earnings but another fall of 0.6 percent in May 2012 followed by increases of 0.3 percent in Jun and 1.0 percent in Jul 2012. Real hourly earnings stagnated in the 12 months ending in Aug 2012 with increase of only 0.1 percent, and increased 0.7 percent in the 12 months ending in Sep 2012. Real hourly earnings fell 1.3 percent in Oct 2012 and gained 1.0 percent in Dec 2012 but declined 0.3 percent in Jan 2013 and stagnated at change of 0.1 percent in Feb 2013. Real hourly earnings increased 0.4 percent in the 12 months ending in Mar 2013 and 0.2 percent in Apr 2013, increasing 0.6 percent in May 2013. In Jun 2013, real hourly earnings increased 1.0 percent relative to Jun 2012. Real hourly earnings fell 0.6 percent in the 12 months ending in Jul 2013 and increased 0.7 percent in the 12 months ending in Aug 2013. Real hourly earnings increased 1.2 percent in the 12 months ending in Oct 2013 and 1.0 percent in Nov 2013. Real hourly earnings increased 0.4 percent in the 12 months ending in Dec 2013. Real hourly earnings increased 0.3 percent in the 12 months ending in Jan 2014. Real hourly earnings are oscillating in part because of world inflation waves caused by carry trades from zero interest rates to commodity futures (http://cmpassocregulationblog.blogspot.com/2014/02/squeeze-of-economic-activity-by-carry.html) and in part because of the collapse of hiring (http://cmpassocregulationblog.blogspot.com/2014/02/theory-and-reality-of-cyclical-slow.html) originating in weak economic growth (http://cmpassocregulationblog.blogspot.com/2014/02/mediocre-cyclical-united-states.html).
Table IB-3, US, Average Hourly Earnings Nominal and Inflation Adjusted, Dollars and % NSA
| AHE ALL | 12 Month | ∆% 12 Month CPI | 12 Month | |
| 2007 | ||||
| Jan* | $20.69* | 4.2* | 2.1 | 2.1* |
| Feb* | $20.77* | 4.1* | 2.4 | 1.7* |
| Mar | $20.80 | 3.6 | 2.8 | 0.8 |
| Apr | $21.03 | 3.3 | 2.6 | 0.7 |
| May | $20.82 | 3.8 | 2.7 | 1.1 |
| Jun | $20.81 | 3.8 | 2.7 | 1.1 |
| Jul | $20.97 | 3.4 | 2.4 | 1.0 |
| Aug | $20.83 | 3.5 | 2.0 | 1.5 |
| Sep | $21.17 | 4.0 | 2.8 | 1.2 |
| Oct | $21.05 | 2.6 | 3.5 | -0.9 |
| Nov | $21.12 | 3.3 | 4.3 | -1.0 |
| Dec | $21.35 | 3.6 | 4.1 | -0.5 |
| 2010 | ||||
| Jan | $22.53 | 2.0 | 2.6 | -0.6 |
| Feb | $22.59 | 1.4 | 2.1 | -0.7 |
| Mar | $22.49 | 1.1 | 2.3 | -1.2 |
| Apr | $22.54 | 1.8 | 2.2 | -0.4 |
| May | $22.61 | 2.5 | 2.0 | 0.5 |
| Jun | $22.35 | 1.7 | 1.1 | 0.6 |
| Jul | $22.42 | 1.8 | 1.2 | 0.6 |
| Aug | $22.55 | 1.7 | 1.1 | 0.6 |
| Sep | $22.61 | 1.8 | 1.1 | 0.7 |
| Oct | $22.70 | 1.9 | 1.2 | 0.7 |
| Nov | $22.70 | 1.1 | 1.1 | 0.0 |
| Dec | $22.77 | 1.7 | 1.5 | 0.2 |
| 2011 | ||||
| Jan | $23.17 | 2.8 | 1.6 | 1.2 |
| Feb | $23.00 | 1.8 | 2.1 | -0.3 |
| Mar | $22.91 | 1.9 | 2.7 | -0.8 |
| Apr | $22.97 | 1.9 | 3.2 | -1.3 |
| May | $23.07 | 2.0 | 3.6 | -1.5 |
| Jun | $22.82 | 2.1 | 3.6 | -1.4 |
| Jul | $22.95 | 2.4 | 3.6 | -1.2 |
| Aug | $22.86 | 1.4 | 3.8 | -2.3 |
| Sep | $23.06 | 2.0 | 3.9 | -1.8 |
| Oct | $23.31 | 2.7 | 3.5 | -0.8 |
| Nov | $23.16 | 2.0 | 3.4 | -1.4 |
| Dec | $23.22 | 2.0 | 3.0 | -1.0 |
| 2012 | ||||
| Jan | $23.57 | 1.7 | 2.9 | -1.2 |
| Feb | $23.41 | 1.8 | 2.9 | -1.1 |
| Mar | $23.40 | 2.1 | 2.7 | -0.6 |
| Apr | $23.62 | 2.8 | 2.3 | 0.5 |
| May | $23.33 | 1.1 | 1.7 | -0.6 |
| Jun | $23.28 | 2.0 | 1.7 | 0.3 |
| Jul | $23.49 | 2.4 | 1.4 | 1.0 |
| Aug | $23.27 | 1.8 | 1.7 | 0.1 |
| Sep | $23.68 | 2.7 | 2.0 | 0.7 |
| Oct | $23.52 | 0.9 | 2.2 | -1.3 |
| Nov | $23.59 | 1.9 | 1.8 | 0.1 |
| Dec | $23.85 | 2.7 | 1.7 | 1.0 |
| 2013 | ||||
| Jan | $23.88 | 1.3 | 1.6 | -0.3 |
| Feb | $23.91 | 2.1 | 2.0 | 0.1 |
| Mar | $23.84 | 1.9 | 1.5 | 0.4 |
| Apr | $23.92 | 1.3 | 1.1 | 0.2 |
| May | $23.80 | 2.0 | 1.4 | 0.6 |
| Jun | $23.93 | 2.8 | 1.8 | 1.0 |
| Jul | $23.81 | 1.4 | 2.0 | -0.6 |
| Aug | $23.79 | 2.2 | 1.5 | 0.7 |
| Sep | $24.16 | 2.0 | 1.2 | 0.8 |
| Oct | $24.04 | 2.2 | 1.0 | 1.2 |
| Nov | $24.11 | 2.2 | 1.2 | 1.0 |
| Dec | $24.30 | 1.9 | 1.5 | 0.4 |
| 2014 | ||||
| Jan | 24.34 | 1.9 | 1.6 | 0.3 |
| Feb | 24.58 | 2.8 |
Note: AHE ALL: average hourly earnings of all employees; CPI: consumer price index; Real: adjusted by CPI inflation; NA: not available
*AHE of production and nonsupervisory employees because of unavailability of data for all employees for Jan-Feb 2006
Source: US Bureau of Labor Statistics
Average hourly earnings of all US employees in the US in constant dollars of 1982-1984 from the dataset of the US Bureau of Labor Statistics (BLS) are provided in Table IB-4. Average hourly earnings fell 0.5 percent after adjusting for inflation in the 12 months ending in Mar 2012 and gained 0.6 percent in the 12 months ending in Apr 2012 but then lost 0.6 percent in the 12 months ending in May 2012. Average hourly earnings in the US in constant dollars of 1982-1984 increased 0.3 percent in the 12 months ending in Jun 2012 and 0.9 percent in Jul 2012 followed by 0.1 percent in Aug 2012 and 0.7 percent in Sep 2012. Average hourly earnings adjusted by inflation fell 1.2 percent in the 12 months ending in Oct 2012. Average hourly earnings adjusted by inflation increased 0.1 percent in the 12 months ending in Nov 2012 and 1.0 percent in the 12 months ending in Dec 2012 but fell 0.3 percent in the 12 months ending in Jan 2013 and stagnated with gain of 0.2 percent in the 12 months ending in Feb 2013. Average hourly earnings adjusted for inflation increased 0.4 percent in the 12 months ending in Mar 2013 and increased 0.2 percent in the 12 months ending in Apr 2013. Average hourly earnings adjusted for inflation increased 0.7 percent in the 12 months ending in May 2013 and 1.1 percent in the 12 months ending in Jun 2013. Average hourly earnings of all employees adjusted for inflation fell 0.6 percent in the 12 months ending in Jul 2013 and increased 0.7 percent in the 12 months ending in Aug 2013. Average hourly earnings adjusted for inflation increased 0.9 percent in the 12 months ending in Sep 2013 and increased 1.2 percent in the 12 months ending in Oct 2013. Average hourly earnings adjusted for inflation increased 0.9 percent in the 12 months ending in Nov 2013. Average hourly earnings increased 0.4 percent in the 12 months ending in Dec 2013 and 0.4 percent in the 12 months ending in Jan 2014. Table IB-4 confirms the trend of deterioration of purchasing power of average hourly earnings in 2011 and into 2012 with 12-month percentage declines in three of the first three months of 2012 (-1.1 percent in Jan, -1.1 percent in Feb and -0.5 percent in Mar), declines of 0.6 percent in May and 1.2 percent in Oct and increase in five (0.6 percent in Apr, 0.3 percent in Jun, 0.9 percent in Jul, 0.7 percent in Sep and 1.0 percent in Dec) and stagnation in two (0.1 percent in Aug and 0.1 percent in Nov). Average hourly earnings adjusted for inflation fell 0.3 percent in the 12 months ending in Jan 2013, virtually stagnated with gain of 0.2 percent in the 12 months ending in Feb 2013 and gained 0.4 percent in the 12 months ending Mar 2013. Real average hourly earnings increased 0.2 percent in the 12 months ending in Apr 2013 and 0.7 percent in the 12 months ending in May 2013. Average hourly earnings increased 1.1 percent in the 12 months ending in Jun 2013 and fell 0.6 percent in the 12 months ending in Jul 2013. Annual data are revealing: -0.7 percent in 2008 during carry trades into commodity futures in a global recession, 3.1 percent in 2009 with reversal of carry trades, muted change of 0.1 percent in 2010 and no change in 2012 and decline by 1.1 percent in 2011. Average hourly earnings adjusted for inflation increased 0.5 percent in 2013. Annual average hourly earnings of all employees in the United States adjusted for inflation increased 1.9 percent from 2007 to 2013 at the yearly average rate of 0.3 percent (from $10.10 in 2007 to $10.29 in 2013 in constant dollars of 1982-1984 using data in http://www.bls.gov/data/). Those who still work bring back home a paycheck that buys fewer goods than a year earlier and savings in bank deposits do not pay anything because of financial repression (Section IC and earlier http://cmpassocregulationblog.blogspot.com/2014/02/mediocre-cyclical-united-states.html).
Table IB-4, US, Average Hourly Earnings of All Employees NSA in Constant Dollars of 1982-1984
| Year | Jan | Jul | Aug | Sep | Oct | Nov | Dec |
| 2006 | 9.97 | 9.87 | 10.03 | 10.16 | 10.14 | 10.21 | |
| 2007 | 10.22 | 10.07 | 10.02 | 10.15 | 10.07 | 10.05 | 10.16 |
| 2008 | 10.11 | 9.76 | 9.82 | 9.93 | 10.05 | 10.36 | 10.46 |
| 2009 | 10.46 | 10.23 | 10.28 | 10.29 | 10.31 | 10.38 | 10.37 |
| 2010 | 10.40 | 10.28 | 10.33 | 10.35 | 10.38 | 10.37 | 10.39 |
| 2011 | 10.52 | 10.16 | 10.09 | 10.16 | 10.29 | 10.24 | 10.29 |
| 2012 | 10.40 | 10.25 | 10.10 | 10.23 | 10.17 | 10.25 | 10.39 |
| ∆%12M | -1.1 | 0.9 | 0.1 | 0.7 | -1.2 | 0.1 | 1.0 |
| 2013 | 10.37 | 10.19 | 10.17 | 10.32 | 10.29 | 10.34 | 10.43 |
| ∆%12M | -0.3 | -0.6 | 0.7 | 0.9 | 1.2 | 0.9 | 0.4 |
| 2014 | 10.41 | ||||||
| ∆%12M | 0.4 |
Source: US Bureau of Labor Statistics
Chart IB-2 of the US Bureau of Labor Statistics plots average hourly earnings of all US employees in constant 1982-1984 dollars with evident decline from annual earnings of $10.34 in 2009 and $10.35 in 2010 to $10.24 in 2011 and $10.24 again in 2012 or loss of 1.1 percent (data in http://www.bls.gov/data/). Annual real hourly earnings increased 0.5 percent in 2013 relative to 2012. The economic welfare or wellbeing of United States workers deteriorated in a recovery without hiring (http://cmpassocregulationblog.blogspot.com/2014/02/theory-and-reality-of-cyclical-slow.html), stagnating/declining real wages and 29.1 million unemployed or underemployed (Section I and earlier http://cmpassocregulationblog.blogspot.com/2014/02/financial-instability-rules.html) because of mediocre economic growth (http://cmpassocregulationblog.blogspot.com/2014/03/financial-risks-slow-cyclical-united.html).
Chart IB-2, US, Average Hourly Earnings of All Employees in Constant Dollars of 1982-1984, SA 2006-2014
Source: US Bureau of Labor Statistics http://www.bls.gov/
Chart IB-3 provides 12-month percentage changes of average hourly earnings of all employees in constant dollars of 1982-1984, that is, adjusted for inflation. There was sharp contraction of inflation-adjusted average hourly earnings of US employees during parts of 2007 and 2008. Rates of change in 12 months became positive in parts of 2009 and 2010 but then became negative again in 2011 and into 2012 with temporary increase in Apr 2012 that was reversed in May with another gain in Jun and Jul 2012 followed by stagnation in Aug 2012. There was marginal gain in Sep 2012 with sharp decline in Oct 2012, stagnation in Nov 2012, increase in Dec 2012 and renewed decrease in Jan 2013 with near stagnation in Feb 2013 followed by mild increase in Mar-Apr 2013. Hourly earnings adjusted for inflation increased in Jun 2013 and fell in Jul 2013, increasing in Aug-Dec 2013 and Jan 2014.
Chart IB-3, Average Hourly Earnings of All Employees NSA 12-Month Percent Change, 1982-1984 Dollars, NSA 2007-2014
Source: US Bureau of Labor Statistics http://www.bls.gov/
Average weekly earnings of all US employees in the US in constant dollars of 1982-1984 from the dataset of the US Bureau of Labor Statistics (BLS) are provided in Table IB-5. Average weekly earnings fell 3.2 percent after adjusting for inflation in the 12 months ending in Aug 2011, decreased 0.9 percent in the 12 months ending in Sep 2011 and increased 0.6 percent in the 12 months ending in Oct 2011. Average weekly earnings fell 1.0 percent in the 12 months ending in Nov 2011 and 0.4 percent in the 12 months ending in Dec 2011. Average weekly earnings declined 0.3 percent in the 12 months ending in Jan 2012 and 0.5 percent in the 12 months ending in Feb 2012. Average weekly earnings in constant dollars were virtually flat in Mar 2012 relative to Mar 2011, decreasing 0.2 percent. Average weekly earnings in constant dollars increased 1.7 percent in Apr 2012 relative to Apr 2011 but fell 1.7 percent in May 2012 relative to May 2011, increasing 0.3 percent in the 12 months ending in Jun and 2.1 percent in Jul 2012. Real weekly earnings increased 0.4 percent in the 12 months ending in Aug 2012 and 2.1 percent in the 12 months ending in Sep 2012. Real weekly earnings fell 2.7 percent in the 12 months ending in Oct 2012 and increased 0.1 percent in the 12 months ending in Nov 2012 and 2.4 percent in the 12 months ending in Dec 2012. Real weekly earnings fell 1.7 percent in the 12 months ending in Jan 2013 and virtually stagnated with gain of 0.2 percent in the 12 months ending in Feb 2013, increasing 0.7 percent in the 12 months ending in Mar 2013. Real weekly earnings fell 0.7 percent in the 12 months ending in Apr 2013 and increased 0.9 percent in the 12 months ending in May 2013. Average weekly earnings increased 2.5 percent in the 12 months ending in Jun 2013 and fell 2.0 percent in the 12 months ending in Jul 2013. Real weekly earnings increased 0.7 percent in the 12 months ending in Aug 2013, 0.8 percent in the 12 months ending in Sep 2013 and 1.5 percent in the 12 months ending in Oct 2013. Average weekly earnings increased 1.2 percent in the 12 months ending in Nov 2013 and fell 0.2 percent in the 12 months ending in Dec 2013. Average weekly earnings increased 0.3 percent in the 12 months ending in Jan 2014. Table I-5 confirms the trend of deterioration of purchasing power of average weekly earnings in 2011 and into 2013 with oscillations according to carry trades causing world inflation waves (http://cmpassocregulationblog.blogspot.com/2014/02/squeeze-of-economic-activity-by-carry.html). On an annual basis, average weekly earnings in constant 1982-1984 dollars increased from $349.34 in 2007 to $354.16 in 2013, by 1.4 percent or at the average rate of 0.2 percent per year (data in http://www.bls.gov/data/). Annual average weekly earnings in constant dollars of $353.11 in 2010 were virtually unchanged at $353.00 in 2012. Those who still work bring back home a paycheck that buys fewer high-quality goods than a year earlier. The fractured US job market does not provide an opportunity for advancement as in past booms following recessions because of poor job creation with 29.1 million unemployed or underemployed (Section I and earlier http://cmpassocregulationblog.blogspot.com/2014/01/twenty-nine-million-unemployed-or.html) in a recovery without hiring (http://cmpassocregulationblog.blogspot.com/2014/01/capital-flows-exchange-rates-and.htm).
Table IB-5, US, Average Weekly Earnings of All Employees in Constant Dollars of 1982-1984, NSA 2007-2014
| Year | Jan | Aug | Sep | Oct | Nov | Dec |
| 2006 | 341.42 | 346.02 | 354.71 | 348.95 | 353.20 | |
| 2007 | 348.55 | 347.64 | 355.39 | 347.58 | 346.68 | 354.76 |
| 2008 | 344.58 | 339.86 | 341.51 | 345.63 | 358.50 | 356.85 |
| 2009 | 353.62 | 352.48 | 346.72 | 348.35 | 355.07 | 351.48 |
| 2010 | 350.39 | 358.43 | 352.96 | 356.00 | 354.81 | 355.29 |
| 2011 | 359.82 | 347.12 | 349.62 | 358.27 | 351.14 | 353.95 |
| 2012 | 358.75 | 348.48 | 357.13 | 348.76 | 351.46 | 362.53 |
| ∆%12M | -0.3 | 0.4 | 2.1 | -2.7 | 0.1 | 2.4 |
| 2013 | 352.58 | 350.94 | 360.10 | 354.10 | 355.85 | 361.82 |
| ∆%12M | -1.7 | 0.7 | 0.8 | 1.5 | 1.2 | -0.2 |
| 2014 | 353.79 | |||||
| ∆%12M | 0.3 |
Source: US Bureau of Labor Statistics http://www.bls.gov/
Chart IB-4 provides average weekly earnings of all employees in constant dollars of 1982-1984. The same pattern emerges of sharp decline during the contraction, followed by recovery in the expansion and continuing fall with oscillations caused by carry trades from zero interest rates into commodity futures from 2010 to 2011 and into 2012 and 2013.
Chart IB-4, US, Average Weekly Earnings of All Employees in Constant Dollars of 1982-1984, SA 2006-2014
Source: US Bureau of Labor Statistics http://www.bls.gov/
Chart IB-5 provides 12-month percentage changes of average weekly earnings of all employees in the US in constant dollars of 1982-1984. There is the same pattern of contraction during the global recession in 2008 and then again trend of deterioration in the recovery without hiring and inflation waves. (http://cmpassocregulationblog.blogspot.com/2014/01/world-inflation-waves-interest-rate.html http://cmpassocregulationblog.blogspot.com/2013/12/tapering-quantitative-easing-mediocre.html
http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-zero-interest-rates-world.html http://cmpassocregulationblog.blogspot.com/2013/10/world-inflation-waves-regional-economic.html http://cmpassocregulationblog.blogspot.com/2013/08/duration-dumping-and-peaking-valuations.html http://cmpassocregulationblog.blogspot.com/2013/07/tapering-quantitative-easing-policy-and.html
http://cmpassocregulationblog.blogspot.com/2013/06/paring-quantitative-easing-policy-and.html http://cmpassocregulationblog.blogspot.com/2013/05/word-inflation-waves-squeeze-of.html http://cmpassocregulationblog.blogspot.com/2013/04/world-inflation-waves-squeeze-of.html http://cmpassocregulationblog.blogspot.com/2013/04/recovery-without-hiring-ten-million.html http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states.html http://cmpassocregulationblog.blogspot.com/2013/02/world-inflation-waves-united-states.html http://cmpassocregulationblog.blogspot.com/2012/12/recovery-without-hiring-forecast-growth.html http://cmpassocregulationblog.blogspot.com/2012/11/united-states-unsustainable-fiscal.html http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html http://cmpassocregulationblog.blogspot.com/2012_09_01_archive.html http://cmpassocregulationblog.blogspot.com/2012/07/world-inflation-waves-financial.html http://cmpassocregulationblog.blogspot.com/2012/06/destruction-of-three-trillion-dollars.html http://cmpassocregulationblog.blogspot.com/2012/05/world-inflation-waves-monetary-policy.html http://cmpassocregulationblog.blogspot.com/2012/06/recovery-without-hiring-continuance-of.html http://cmpassocregulationblog.blogspot.com/2012/04/fractured-labor-market-with-hiring.html http://cmpassocregulationblog.blogspot.com/2012/03/global-financial-and-economic-risk.html http://cmpassocregulationblog.blogspot.com/2012/02/world-inflation-waves-united-states.html http://cmpassocregulationblog.blogspot.com/2012/01/world-inflation-waves-united-states.html http://cmpassocregulationblog.blogspot.com/2012/01/recovery-without-hiring-united-states.html
http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html http://cmpassocregulationblog.blogspot.com/2012_09_01_archive.html http://cmpassocregulationblog.blogspot.com/2012/07/world-inflation-waves-financial.html http://cmpassocregulationblog.blogspot.com/2012/05/world-inflation-waves-monetary-policy.html http://cmpassocregulationblog.blogspot.com/2012/06/recovery-without-hiring-continuance-of.html http://cmpassocregulationblog.blogspot.com/2012/04/fractured-labor-market-with-hiring.html http://cmpassocregulationblog.blogspot.com/2012/03/global-financial-and-economic-risk.html http://cmpassocregulationblog.blogspot.com/2012/02/world-inflation-waves-united-states.html http://cmpassocregulationblog.blogspot.com/2012/01/world-inflation-waves-united-states.html http://cmpassocregulationblog.blogspot.com/2012/01/recovery-without-hiring-united-states.html).
Chart IB-5, US, Average Weekly Earnings of All Employees NSA in Constant Dollars of 1982-1984 12-Month Percent Change, NSA 2007-2014
Source: US Bureau of Labor Statistics http://www.bls.gov/
IC 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/iTable/index_nipa.cfm). 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/2014/02/squeeze-of-economic-activity-by-carry.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 3.9 percent annual equivalent, nominal disposable income increased at annual equivalent 4.3 percent and nominal personal consumption expenditures at 2.8 percent. Real disposable income grew at 3.2 percent annual equivalent and real personal consumption expenditures at 1.6 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 2.4 percent annual equivalent and real personal consumption expenditures at 2.4 percent. In the twelfth wave, nominal personal income increased at 3.7 percent annual equivalent in Nov 2013, nominal disposable income at 2.4 percent and nominal personal consumption expenditures at 6.2 percent. Real disposable income increased at annual equivalent 1.2 percent and real personal consumption expenditures at 4.9 percent. In the thirteenth wave, nominal personal income changed 0.0 percent in Dec 2013 and nominal disposable income fell 1.2 percent while real disposable income fell at 2.4 percent annual equivalent. Nominal personal consumption expenditures increased at 1.2 percent annual equivalent and minus 1.2 percent for real personal consumption expenditures. In the fourteenth wave, nominal personal income increased at 3.7 percent, nominal disposable income at 4.9 percent and nominal consumption expenditures at 4.9 percent. Real disposable personal income increased at 3.7 percent and real personal consumption expenditures at 3.7 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 18 quarters from IVQ2009 to IVQ2013. Boskin (2010Sep) measures that the US economy grew at 6.2 percent in the first four quarters and 4.5 percent in the first 12 quarters after the trough in the second quarter of 1975; and at 7.7 percent in the first four quarters and 5.8 percent in the first 12 quarters after the trough in the first quarter of 1983 (Professor Michael J. Boskin, Summer of Discontent, Wall Street Journal, Sep 2, 2010 http://professional.wsj.com/article/SB10001424052748703882304575465462926649950.html). There are new calculations using the revision of US GDP and personal income data since 1929 by the Bureau of Economic Analysis (BEA) (http://bea.gov/iTable/index_nipa.cfm) and the second estimate of GDP for IVQ2013 (http://www.bea.gov/newsreleases/national/gdp/2014/pdf/gdp4q13_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/2014/02/mediocre-cyclical-united-states.html). The expansion from IQ1983 to IVQ1985 was at the average annual growth rate of 5.9 percent, 5.4 percent from IQ1983 to IIIQ1986, 5.2 percent from IQ1983 to IVQ1986, 5.0 percent from IQ1983 to IQ1987, 5.0 percent from IQ1983 to IIQ1987 and at 7.8 percent from IQ1983 to IVQ1983 (Section I and earlier http://cmpassocregulationblog.blogspot.com/2014/02/mediocre-cyclical-united-states.html). The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. Growth on trend in the entire cycle from IVQ2007 to IV2013 would have accumulated to 20.3 percent. GDP in IVQ2013 would be $18,040.3 billion if the US had grown at trend, which is higher by $2,107.4 billion than actual $15,932.9 billion. There are about two trillion dollars of GDP less than on trend, explaining the 29.1 million unemployed or underemployed equivalent to actual unemployment of 17.8 percent of the effective labor force (Section I and earlier http://cmpassocregulationblog.blogspot.com/2014/02/financial-instability-rules.html). US GDP grew from $14,996.1 billion in IVQ2007 in constant dollars to $15,932.9 billion in IVQ2013 or 6.2 percent at the average annual equivalent rate of 1.0 percent. The US missed the opportunity to grow at higher rates during the expansion and it is difficult to catch up because rates in the final periods of expansions tend to decline. The US missed the opportunity for recovery of output and employment always afforded in the first four quarters of expansion from recessions. Zero interest rates and quantitative easing were not required or present in successful cyclical expansions and in secular economic growth at 3.0 percent per year and 2.0 percent per capita as measured by Lucas (2011May). There is cyclical uncommonly slow growth in the US instead of allegations of secular stagnation.
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 3.9 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 1.6 percent annual equivalent in Apr-Sep 2013. There are similar oscillations in the remainder of 2013 and into 2014.
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 | |
| 2014 | |||||
| Jan | 0.3 | 0.4 | 0.3 | 0.4 | 0.3 |
| AE ∆% Jan | 3.7 | 4.9 | 3.7 | 4.9 | 3.7 |
| 2013 | |||||
| Dec | 0.0 | -0.1 | -0.2 | 0.1 | -0.1 |
| AE ∆% Dec | 0.0 | -1.2 | -2.4 | 1.2 | -1.2 |
| Nov | 0.3 | 0.2 | 0.1 | 0.5 | 0.4 |
| AE ∆% Nov | 3.7 | 2.4 | 1.2 | 6.2 | 4.9 |
| Oct | -0.1 | -0.2 | -0.2 | 0.2 | 0.2 |
| AE ∆% Oct | -1.2 | -2.4 | -2.4 | 2.4 | 2.4 |
| Sep | 0.4 | 0.5 | 0.4 | 0.3 | 0.2 |
| Aug | 0.5 | 0.6 | 0.5 | 0.3 | 0.2 |
| Jul | 0.1 | 0.3 | 0.2 | 0.2 | 0.1 |
| 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 | 3.9 | 4.3 | 3.2 | 2.8 | 1.6 |
| 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
The rates of growth of real disposable income decline in the final quarter of 2013 because of the increases in the last two months of 2012 in anticipation of the tax increases of the “fiscal cliff” episode. 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 12-month rate of increase of real disposable income fell to 1.8 percent in Oct 2013 and 0.6 percent in Nov 2013 partly because of the much higher level in late 2012 in anticipation of incomes to avoid increases in taxes in 2013. Real disposable income fell 2.7 percent in the 12 months ending in Dec 2013 primarily because of the much higher level in late 2012 in anticipation of income to avoid increases in taxes in 2013. Real disposable income increased 2.8 percent in the 12 months ending in Jan 2014, partly because of the low level in Jan 2013 after anticipation of incomes in late 2012 in avoiding the fiscal cliff episode.
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 2.1 percent in the 12 months ending in Aug 2013 and 1.9 percent in the 12 months ending in Sep 2013. RPCE increased 2.2 percent in the 12 months ending in Oct 2013. RPCE increased 2.2 percent in the 12 months ending in Nov 2013 and 2.0 percent in the 12 months ending in Dec 2013 because anticipations of income in late 2012 did not affect consumption sharply. RPCE increased 2.2 percent in the 12 months ending in Jan 2014. 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 3.1 to 9.1 percent from Jan 2012 to Jan 2014. There is evident downward trend of real personal consumption of durable goods (RPCEGD) since Nov 2013. RPCEG growth rates have fallen from around 5 percent late in 2010 and early Jan-Feb 2011 to the range of 2.5 to 4.4 percent from Jan 2012 to Jan 2014. Growth rates in 12 months of goods and durable goods increased again toward the end of 2012 with strength continuing into 2013. In Jan 2014, RPCEG increased 2.5 percent in 12 months and RPCEGD 3.1 percent while RPCES increased only 2.1 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 | |
| 2014 | |||||
| Jan | 2.8 | 2.2 | 2.5 | 3.1 | 2.1 |
| 2013 | |||||
| Dec | -2.7 | 2.0 | 3.2 | 3.2 | 1.4 |
| Nov | 0.6 | 2.2 | 3.8 | 6.5 | 1.5 |
| Oct | 1.8 | 2.2 | 3.9 | 7.2 | 1.3 |
| Sep | 2.2 | 1.9 | 3.5 | 5.9 | 1.1 |
| Aug | 2.0 | 2.1 | 3.9 | 8.9 | 1.2 |
| Jul | 1.2 | 1.8 | 3.9 | 8.0 | 0.7 |
| 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 eighteen 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) Increase in Jan 2014 of personal income by $43.9 billion or 0.3 percent and increase of disposable income of $45.2 billion or 0.4 percent with increase of wages and salaries of 0.2 percent. (2) Decrease of personal income of $108 billion from Dec 2012 to Dec 2013 or by 0.7 percent and decrease of disposable income of $207.1 billion or by 1.6 percent. Wages and salaries increased $40.2 billion from Dec 2012 to Dec 2013 or by 0.6 percent. Large part of these declines occurred because of the comparison of high levels in late 2012 in anticipation of tax increases in 2013. 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 4.3 percent in Dec 2013.
Table IB-3, US, Personal Income and its Disposition, Seasonally Adjusted at Annual Rates USD Billions
| Personal | Wages & | Personal | DPI | Savings | |
| Jan 2014 | 14,356.1 | 7,256.4 | 1,688.7 | 12,667.3 | 4.3 |
| Dec 2013 | 14,312.2 | 7,241.0 | 1,690.2 | 12,622.1 | 4.3 |
| Change Jan 2014/ Dec 2013 | 43.9 ∆% 0.3 | 15.4 ∆% 0.2 | -1.5 ∆% -0.1 | 45.2 ∆% 0.4 | |
| Jan 2013 | 13,791.7 | 7,001.5 | 1,612.9 | 12,178.7 | 3.6 |
| Change Jan 2014/Jan 2013 | 564.4 ∆% 4.1 | 254.9 ∆% 3.6 | 75.8 ∆% 4.7 | 488.6 ∆% 4.0 | |
| Dec 2012 | 14,420.2 | 7,200.8 | 1,591.0 | 12,829.2 | 8.7 |
| Change Dec 2013/ Dec 2012 | -108.0 ∆% -0.7 | 40.2 ∆% 0.6 | 99.2 ∆% 6.2 | -207.1 ∆% -1.6 | |
| 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/iTable/index_nipa.cfm). 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 2013 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 2.3 percent for real disposable income on average from 1999 to 2013 and 1.4 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 1.3 percent on average from 2006 to 2013 and real disposable income at 0.5 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. Cyclical uncommonly slow growth explains weakness in the current whole cycle instead of the allegation of secular stagnation.
Table IB-4, Average Annual Growth Rates of Real Disposable Income (RDPI) and Real Disposable Income per Capita (RDPIPC), Percent per Year
| RDPI Average ∆% | |
| 1929-2013 | 3.2 |
| 1947-1999 | 3.7 |
| 1999-2013 | 2.3 |
| 1999-2006 | 3.2 |
| 1980-1989 | 3.5 |
| 2006-2013 | 1.3 |
| RDPIPC Average ∆% | |
| 1929-2013 | 2.0 |
| 1947-1999 | 2.3 |
| 1999-2013 | 1.4 |
| 1999-2006 | 2.2 |
| 1980-1989 | 2.6 |
| 2006-2013 | 0.5 |
Source: Bureau of Economic Analysis http://www.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 10.7 percent and real disposable personal income at 9.0 percent http://www.bea.gov/newsreleases/national/pi/2014/pdf/pi0114.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/2014/pdf/pi0114.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/2014/pdf/pi0114.pdf). In IIIQ2013, personal income grew at 4.0 percent, real personal income excluding current transfers at 1.9 percent and real disposable income at 3.0 percent (Table 6 athttp://www.bea.gov/newsreleases/national/pi/2014/pdf/pi0114.pdf). In IVQ2013, personal income grew at 2.2 percent and real disposable income at 0.7 percent.
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 (http://www.bea.gov/newsreleases/national/pi/2014/pdf/pi0114.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 4.0 percent, real personal income excluding current transfer receipts at 1.9 percent and real disposable income at 3.0 percent (http://www.bea.gov/newsreleases/national/pi/2014/pdf/pi0114.pdf). In IVQ2013, personal income increased at 2.2 percent, real personal income excluding current transfers at 1.4 percent and real disposable personal income at 0.7 percent (http://www.bea.gov/newsreleases/national/pi/2014/pdf/pi0114.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 10.7 percent and real disposable personal income at 9.0 percent (http://www.bea.gov/newsreleases/national/pi/2014/pdf/pi0114.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). 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.”
Personal income fell at 4.1 percent in IQ2013, nominal disposable personal income fell at 7.0 percent while real disposable income fell at 7.2 percent. In IIQ2013, personal income increased at 4.7 percent, real personal income excluding current transfer receipts at 5.6 percent and real disposable income at 4.1 percent. In IIIQ2013, personal income increased at 4.0 percent, real personal income excluding current transfer receipts at 1.9 percent and real disposable income at 3.0 percent. In IVQ2013, nominal personal income increased at 2.2 percent, nominal disposable income at 1.7 percent, real personal income excluding current transfers at 1.4 percent and real disposable income at 0.7 percent.
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
The Bureau of Economic Analysis (BEA) estimates US personal income in Jan 2014 at the seasonally adjusted annual rate of $14,356.1 billion, as shown in Table IB-3 above (see Table 1 at http://www.bea.gov/newsreleases/national/pi/2014/pdf/pi0114.pdf). The major portion of personal income is compensation of employees of $8,999.9 billion, or 62.7 percent of the total. Wages and salaries are $7,256.4 billion, of which $6,055.1 billion by private industries and supplements to wages and salaries of $1,743.5 billion (employer contributions to pension and insurance funds are $1,203.8 billion and contributions to social insurance are $539.7 billion). In Jan 1986, US personal income was $3,637.1 billion at SAAR (http://www.bea.gov/iTable/index_nipa.cfm). Compensation of employees was $2,479.6 billion, or 68.2 percent of the total. Wages and salaries were $2,052.8 billion of which $1666.9 billion by private industries. Supplements to wages and salaries were $426.8 billion with employer contributions to pension and insurance funds of $272.7 billion and $154.1 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 IB-10 shows US wages and salaries of private industries from 2007 to 2013. 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 decreased 2.8 percent from Dec 2012 to Dec 2013, as shown in Table IB-3. Anticipations of income in late 2012 to avoid tax increases in 2013 cloud comparisons.
Chart IB-11, US, Wages and Salaries, Private Industries, Monthly, Seasonally Adjusted at Annual Rates, Billions of Dollars 2007-2014
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 income 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 $36,584 in chained dollars of 2009 in Oct 2012 to $37,035 in Nov 2012 and 3.1 percent to $38,175 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 $38,175 in Dec 2012 to $36,195 in Jan 2013, increasing marginally 0.9 percent to $36,503 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 $36,503 in Feb 2013 in chained dollars of 2009 to $36,633 in Mar 2013 for cumulative increase of 0.1 percent relative to Oct 2012. Real per capita disposable income increased to $36,794 in May 2013 for gain of 0.2 percent relative to $36,715 in Apr 2013 and 0.6 percent from Oct 2012. Real disposable per capita income eased to $36,743 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 $36,743 in Jun 2013 to $36,801 in Jul 2013 and 0.6 percent relative to $36,580 in Oct 2013. Real per capita disposable income increased to $36,966 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 $36,966 in Aug 2013 to $37,076 in Sep 2013 and increased 1.3 percent relative to $36,584 in Oct 2012. Real per capita disposable income decreased 0.3 percent from $37,076 in Sep 2013 to $36,967 in Oct 2013 and increased 1.0 percent relative to $36,584 in Oct 2012. Real per capita disposable income changed 0.0 percent from $36,967 in Oct 2013 to $36,982 in Nov 2013 and increased 1.1 percent relative to $36,584 in Oct 2012. Real per capita income fell 0.3 percent in Dec 2013 to $36,873 and increased 0.8 percent from $36,584 in Oct 2012. Real disposable income per capita increased 0.2 percent from $36,873 in Dec 2013 to $36,948 and increased 1.0 percent from $36,584 in Oct 2012. Real disposable income fell 3.4 percent from $38,175 in Dec 2012 to $36,873 in Dec 2013, largely because of anticipations of income in late 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 2007-2014
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
IA2 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 1.2 percent in the 12 months ending in Nov 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/2013/12/tapering-quantitative-easing-mediocre.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 4.7 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 4.9 percent. In Sep 2013, the savings rate increased to 5.1 percent with increase of real disposable income of 0.4 percent. The savings rate fell to 4.7 percent in Oct 2013 with decrease of real disposable income by 0.2 percent. The savings rate fell to 4.4 percent in Nov 2013 with increase of real disposable income of 0.1 percent. In Dec 2013, the savings rate fell to 4.3 percent 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 savings rate remained at 4.3 percent in Jan 2014 with increase of real disposable income by 0.3 percent. 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/2013/12/tapering-quantitative-easing-mediocre.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 Nov 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 $38,175 in Dec 2012 to $36,195 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 $132.9 billion.”
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 4.7 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 4.9 percent. In Sep 2013, the savings rate increased to 5.1 percent with increase of real disposable income of 0.4 percent. The savings rate fell to 4.7 percent in Oct 2013 with decrease of real disposable income by 0.2 percent. The savings rate fell to 4.3 percent in Nov 2013 with increase of real disposable income of 0.1 percent. In Dec 2013, the savings rate fell to 4.3 percent 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). In Jan 2014, the savings rate stood at 4.3 percent with increase of real disposable income by 0.3 percent. 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 2007-2014
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
II Rules, Discretionary Authorities and Slow Productivity Growth. The Bureau of Labor Statistics (BLS) of the Department of Labor provides the quarterly report on productivity and costs. The operational definition of productivity used by the BLS is (http://www.bls.gov/news.release/pdf/prod2.pdf 1): “Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked of all persons, including employees, proprietors, and unpaid family workers.” The BLS has revised the estimates for productivity and unit costs. Table II-1 provides the new estimate for IVQ2013 and revised data for nonfarm business sector productivity and unit labor costs for IIIQ2013 and IIQ2013 in seasonally adjusted annual equivalent (SAAE) rate and the percentage change from the same quarter a year earlier. Reflecting increases in output of 3.4 percent and of 1.6 percent in hours worked, nonfarm business sector labor productivity increased at a SAAE rate of 1.8 percent in IVQ2013, as shown in column 2 “IVQ2013 SAEE.” The earlier estimate was 3.2 percent. The increase of labor productivity from IVQ2012 to IVQ2013 was 1.3 percent, reflecting increases in output of 2.9 percent and of hours worked of 1.7 percent, as shown in column 3 “IVQ2013 YoY.” Hours worked increased from 1.5 percent in IIQ2013 in SAAE to 1.9 percent in IIIQ2013 and 1.6 percent in IVQ2013 while output growth increased from 3.3 percent in IIQ2013 to 5.4 percent in IIIQ2013 and 3.4 percent in IVQ2013. The BLS defines unit labor costs as (http://www.bls.gov/news.release/pdf/prod2.pdf 1): “BLS defines unit labor costs as the ratio of hourly compensation to labor productivity; increases in hourly compensation tend to increase unit labor costs and increases in output per hour tend to reduce them.” Unit labor costs decreased at the SAAE rate of 0.1 percent in IVQ2013 and fell 0.9 percent in IVQ2013 relative to IVQ2012. Hourly compensation increased at the SAAE rate of 1.7 percent in IVQ2013, which deflating by the estimated consumer price increase SAAE rate in IVQ2013 results in increase of real hourly compensation at 0.8 percent. Real hourly compensation decreased 0.9 percent in IVQ2013 relative to IVQ2012.
Table II-1, US, Nonfarm Business Sector Productivity and Costs %
| IVQ 2013 SAAE | IVQ 2013 YoY | IIIQ 2013 SSAE | IIIQ 2013 YOY | IIQ | IIQ | |
| Productivity | 1.8 | 1.3 | 3.5 | 0.5 | 1.8 | 0.1 |
| Output | 3.4 | 2.9 | 5.4 | 2.3 | 3.3 | 1.9 |
| Hours | 1.6 | 1.7 | 1.9 | 1.8 | 1.5 | 1.8 |
| Hourly | 1.7 | 0.3 | 1.3 | 2.4 | 3.8 | 2.1 |
| Real Hourly Comp. | 0.8 | -0.9 | -1.2 | 0.8 | 3.8 | 0.6 |
| Unit Labor Costs | -0.1 | -0.9 | -2.1 | 1.9 | 2.0 | 1.9 |
| Unit Nonlabor Payments | 3.5 | 4.4 | 8.5 | 0.3 | -0.7 | 0.1 |
| Implicit Price Deflator | 1.4 | 1.3 | 2.4 | 1.2 | 0.8 | 1.2 |
Notes: SAAE: seasonally adjusted annual equivalent; Comp.: compensation; YoY: Quarter on Same Quarter Year Earlier
Source: US Bureau of Labor Statistics
The analysis by Kydland (http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2004/kydland-bio.html) and Prescott (http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2004/prescott-bio.html) (1977, 447-80, equation 5) uses the “expectation augmented” Phillips curve with the natural rate of unemployment of Friedman (1968) and Phelps (1968), which in the notation of Barro and Gordon (1983, 592, equation 1) is:
Ut = Unt – α(πt – πe) α > 0 (1)
Where Ut is the rate of unemployment at current time t, Unt is the natural rate of unemployment, πt is the current rate of inflation and πe is the expected rate of inflation by economic agents based on current information. Equation (1) expresses unemployment net of the natural rate of unemployment as a decreasing function of the gap between actual and expected rates of inflation. The system is completed by a social objective function, W, depending on inflation, π, and unemployment, U:
W = W(πt, Ut) (2)
The policymaker maximizes the preferences of the public, (2), subject to the constraint of the tradeoff of inflation and unemployment, (1). The total differential of W set equal to zero provides an indifference map in the Cartesian plane with ordered pairs (πt, Ut - Un) such that the consistent equilibrium is found at the tangency of an indifference curve and the Phillips curve in (1). The indifference curves are concave to the origin. The consistent policy is not optimal. Policymakers without discretionary powers following a rule of price stability would attain equilibrium with unemployment not higher than with the consistent policy. The optimal outcome is obtained by the rule of price stability, or zero inflation, and no more unemployment than under the consistent policy with nonzero inflation and the same unemployment. Taylor (1998LB) attributes the sustained boom of the US economy after the stagflation of the 1970s to following a monetary policy rule instead of discretion (see Taylor 1993, 1999). It is not uncommon for effects of regulation differing from those intended by policy. Professors Edward C. Prescott and Lee E. Ohanian (2014Feb), writing on “US productivity growth has taken a dive,” on Feb 3, 2014, published in the Wall Street Journal (http://online.wsj.com/news/articles/SB10001424052702303942404579362462611843696?KEYWORDS=Prescott), argue that impressive productivity growth over the long-term constructed US prosperity and wellbeing. Prescott and Ohanian (2014Feb) measure US productivity growth at 2.5 percent per year since 1948. Average US productivity growth has been only 1.1 percent on average since 2011. Prescott and Ohanian (2014Feb) argue that living standards in the US increased at 28 percent in a decade but with current slow growth of productivity will only increase 12 percent by 2024. There may be collateral effects on productivity growth from policy design similar to those in Kydland and Prescott (1977). The Bureau of Labor Statistics important report on productivity and costs released on Mar 6, 2014 (http://www.bls.gov/lpc/) supports the argument of decline of productivity in the US analyzed by Prescott and Ohanian (2014Feb). Table II-2 provides the annual percentage changes of productivity, real hourly compensation and unit labor costs for the entire economic cycle from 2007 to 2013. The data confirm the argument of Prescott and Ohanian (2014Feb): productivity increased cumulatively 2.5 percent from 2011 to 2013 at the average annual rate of 0.8 percent. The situation is direr by excluding growth of 1.5 percent in 2013, which leaves an average of 0.5 percent for 2011 and 2013. Average productivity growth for the entire economic cycle from 2007 to 2013 is only 1.6 percent. The argument by Prescott and Ohanian (2014Feb) is proper in choosing the tail of the business cycle because the increase in productivity in 2009 of 3.1 percent and 3.3 percent in 2013 consisted on reducing labor hours.
Table II-2, US, Revised Nonfarm Business Sector Productivity and Costs Annual Average, ∆% Annual Average
| 2013 ∆% | 2012 ∆% | 2011 ∆% | 2010 ∆% | 2009 ∆% | 2008 ∆% | 2007 ∆% | |
| Productivity | 0.5 | 1.5 | 0.5 | 3.3 | 3.1 | 0.8 | 1.6 |
| Real Hourly Compensation | 0.1 | 0.5 | -0.7 | 0.4 | 1.5 | -1.1 | 1.4 |
| Unit Labor Costs | 1.1 | 1.2 | 2.0 | -1.2 | -2.0 | 2.0 | 2.6 |
Source: US Bureau of Labor Statistics
Productivity jumped in the recovery after the recession from Mar IQ2001 to Nov IVQ2001 (http://www.nber.org/cycles.html). Table II-3 provides quarter on quarter and annual percentage changes in nonfarm business output per hour, or productivity, from 1999 to 2013. The annual average jumped from 2.7 percent in 2001 to 4.3 percent in 2002. Nonfarm business productivity increased at the SAAE rate of 9.5 percent in the first quarter after the recession in IQ2002. Productivity increases decline later in the expansion period. Productivity increases were mediocre during the recession from Dec IVQ2007 to Jun IIIQ2009 (http://www.nber.org/cycles.html) and increased during the first phase of expansion from IIQ2009 to IQ2010, trended lower and collapsed in 2011 and 2012 with sporadic jumps and declines. Productivity increased at 1.8 percent in IVQ2013.
Table II-3, US, Nonfarm Business Output per Hour, Percent Change from Prior Quarter at Annual Rate, 1999-2013
| Year | Qtr1 | Qtr2 | Qtr3 | Qtr4 | Annual |
| 1999 | 4.5 | 0.8 | 3.5 | 6.8 | 3.5 |
| 2000 | -1.4 | 8.6 | 0.1 | 3.9 | 3.3 |
| 2001 | -1.2 | 6.8 | 2.3 | 4.8 | 2.7 |
| 2002 | 9.5 | 0.3 | 3.1 | -0.7 | 4.3 |
| 2003 | 4.0 | 5.7 | 9.0 | 3.7 | 3.7 |
| 2004 | 0.0 | 4.2 | 1.2 | 1.2 | 3.1 |
| 2005 | 4.6 | -0.3 | 2.9 | 0.1 | 2.1 |
| 2006 | 2.6 | -0.3 | -1.8 | 3.2 | 0.9 |
| 2007 | 0.4 | 2.7 | 4.6 | 1.8 | 1.6 |
| 2008 | -3.9 | 4.0 | 0.9 | -2.7 | 0.8 |
| 2009 | 3.2 | 8.0 | 5.9 | 4.8 | 3.1 |
| 2010 | 2.0 | 1.2 | 2.4 | 1.9 | 3.3 |
| 2011 | -2.7 | 1.6 | -0.3 | 3.2 | 0.5 |
| 2012 | 1.7 | 1.1 | 2.1 | -1.5 | 1.5 |
| 2013 | -1.8 | 1.8 | 3.5 | 1.8 | 0.5 |
Source: US Bureau of Labor Statistics
Chart II-1 of the Bureau of Labor Statistics (BLS) provides SAAE rates of nonfarm business productivity from 1999 to 2013. There is a clear pattern in both episodes of economic cycles in 2001 and 2007 of rapid expansion of productivity in the transition from contraction to expansion followed by more subdued productivity expansion. Part of the explanation is the reduction in labor utilization resulting from adjustment of business to the sudden shock of collapse of revenue. Productivity rose briefly in the expansion after 2009 but then collapsed and moved to negative change with some positive changes recently at lower rates.
Chart II-1, US, Nonfarm Business Output per Hour, Percent Change from Prior Quarter at Annual Rate, 1999-2013
Source: US Bureau of Labor Statistics http://www.bls.gov/lpc/
Percentage changes from prior quarter at SAAE rates and annual average percentage changes of nonfarm business unit labor costs are provided in Table II-4. Unit labor costs fell during the contractions with continuing negative percentage changes in the early phases of the recovery. Weak labor markets partly explain the decline in unit labor costs. As the economy moves toward full employment, labor markets tighten with increase in unit labor costs. The expansion beginning in IIIQ2009 has been characterized by high unemployment and underemployment. Table II-4 shows continuing subdued increases in unit labor costs in 2011 but with increase of 7.4 percent in IQ2012 followed by increase of 0.7 percent in IIQ2012, decline of 1.8 percent in IIIQ2012 and increase of 11.8 percent in IVQ2012. Unit labor costs decreased at 3.5 percent in IQ2013 and increased 2.0 percent in IIQ2013. Unit labor costs decreased at 2.1 percent in IIIQ2013 and at 0.1 percent in IVQ2013.
Table II-4, US, Nonfarm Business Unit Labor Costs, Percent Change from Prior Quarter at Annual Rate 1999-2013
| Year | Qtr1 | Qtr2 | Qtr3 | Qtr4 | Annual |
| 1999 | 2.0 | 0.1 | -0.1 | 1.7 | 0.7 |
| 2000 | 17.5 | -6.8 | 8.2 | -1.6 | 4.0 |
| 2001 | 11.4 | -5.4 | -1.7 | -1.3 | 1.6 |
| 2002 | -6.7 | 3.3 | -1.1 | 1.8 | -1.9 |
| 2003 | -1.4 | 1.5 | -2.7 | 1.7 | 0.1 |
| 2004 | -0.6 | 3.7 | 5.8 | 0.6 | 1.4 |
| 2005 | -1.5 | 2.5 | 2.1 | 2.4 | 1.5 |
| 2006 | 6.0 | 0.4 | 2.3 | 4.0 | 3.0 |
| 2007 | 9.8 | -2.7 | -3.2 | 2.6 | 2.6 |
| 2008 | 8.2 | -3.6 | 2.5 | 7.3 | 2.0 |
| 2009 | -12.3 | 1.9 | -2.9 | -2.2 | -2.0 |
| 2010 | -4.4 | 3.5 | -0.1 | -0.1 | -1.2 |
| 2011 | 10.2 | -2.9 | 3.0 | -7.3 | 2.0 |
| 2012 | 7.4 | 0.7 | -1.8 | 11.8 | 1.2 |
| 2013 | -3.5 | 2.0 | -2.1 | -0.1 | 1.1 |
Source: US Bureau of Labor Statistics http://www.bls.gov/lpc/
Chart II-2 provides percentage change from prior quarter at annual rate of nonfarm business real hourly compensation from 1999 to 2013. There are significant fluctuations in quarterly percentage changes oscillating between positive and negative. There is no clear pattern in the two contractions in the 2000s.
Chart II-2, US, Nonfarm Business Unit Labor Costs, Percent Change from Prior Quarter at Annual Rate 1999-2013
Source: US Bureau of Labor Statistics http://www.bls.gov/lpc/
Table II-5 provides percentage change from prior quarter at annual rates for nonfarm business real hourly worker compensation. The expansion after the contraction of 2001 was followed by strong recovery of real hourly compensation. Real hourly compensation increased at the rate of 2.7 percent in IQ2011 but fell at annual rates of 5.7 percent in IIQ2011 and 5.6 percent in IVQ2011. Real hourly compensation increased at 6.7 percent in IQ2012 and at 0.8 percent in IIQ2012, declining at 1.7 percent in IIIQ2012 and increasing at 7.8 percent in IVQ2012. Real hourly compensation fell 0.7 percent in 2011 and increased 0.5 percent in 2012. Real hourly compensation fell at 6.7 percent in IQ2013 and increased at 3.8 percent in IIQ2013, falling at 1.2 percent in IIIQ2013. Real hourly compensation increased at 0.8 percent in IVQ2013. The annual rate of increase of real hourly compensation for 2013 is 0.1 percent.
Table II-5, Nonfarm Business Real Hourly Compensation, Percent Change from Prior Quarter at Annual Rate 1999-2013
| Year | Qtr1 | Qtr2 | Qtr3 | Qtr4 | Annual |
| 1999 | 5.0 | -2.0 | 0.3 | 5.5 | 2.0 |
| 2000 | 11.5 | -1.8 | 4.4 | -0.5 | 3.9 |
| 2001 | 6.0 | -1.8 | -0.7 | 4.0 | 1.5 |
| 2002 | 0.7 | 0.4 | -0.2 | -1.4 | 0.7 |
| 2003 | -1.5 | 8.0 | 2.9 | 3.9 | 1.5 |
| 2004 | -3.9 | 4.8 | 4.2 | -2.5 | 1.8 |
| 2005 | 1.2 | -0.6 | -1.1 | -1.2 | 0.3 |
| 2006 | 6.4 | -3.3 | -3.4 | 9.2 | 0.6 |
| 2007 | 6.0 | -4.5 | -1.2 | -0.5 | 1.4 |
| 2008 | -0.5 | -4.7 | -2.7 | 14.6 | -1.1 |
| 2009 | -7.1 | 8.1 | -0.7 | -0.7 | 1.5 |
| 2010 | -3.2 | 5.0 | 1.0 | -1.2 | 0.4 |
| 2011 | 2.7 | -5.7 | -0.2 | -5.6 | -0.7 |
| 2012 | 6.7 | 0.8 | -1.7 | 7.8 | 0.5 |
| 2013 | -6.7 | 3.8 | -1.2 | 0.8 | 0.1 |
Source: US Bureau of Labor Statistics http://www.bls.gov/lpc/
Chart II-3 provides percentage change from prior quarter at annual rate of nonfarm business real hourly compensation. There have been multiple negative percentage quarterly changes in the current cycle since IVQ2007.
Chart II-3, US, Nonfarm Business Real Hourly Compensation, Percent Change from Prior Quarter at Annual Rate 1999-2013
Source: US Bureau of Labor Statistics http://www.bls.gov/lpc/
Chart II-4 provides percentage change of nonfarm business output per hour in a quarter relative to the same quarter a year earlier. As in most series of real output, productivity increased sharply in 2010 but the momentum was lost after 2011 as with the rest of the real economy.
Chart II-4, US, Nonfarm Business Output per Hour, Percent Change from Same Quarter a Year Earlier 1999-2013
Source: US Bureau of Labor Statistics http://www.bls.gov/lpc/
Chart II-5 provides percentage changes of nonfarm business unit labor costs relative to the same quarter a year earlier. Softening of labor markets caused relatively high yearly percentage changes in the recession of 2001 repeated in the recession in 2009. Recovery was strong in 2010 but then weakened.
Chart II-5, US, Nonfarm Business Unit Labor Costs, Percent Change from Same Quarter a Year Earlier 1999-2013
Source: US Bureau of Labor Statistics http://www.bls.gov/lpc/
Chart II-6 provides percentage changes in a quarter relative to the same quarter a year earlier for nonfarm business real hourly compensation. Labor compensation eroded sharply during the recession with brief recovery in 2010 and another fall until recently.
Chart II-6, US, Nonfarm Business Real Hourly Compensation, Percent Change from Same Quarter a Year Earlier 1999-2013
Source: US Bureau of Labor Statistics http://www.bls.gov/lpc/
In the analysis of Hansen (1939, 3) of secular stagnation, economic progress consists of growth of real income per person driven by growth of productivity. The “constituent elements” of economic progress are “(a) inventions, (b) the discovery and development of new territory and new resources, and (c) the growth of population” (Hansen 1939, 3). Secular stagnation originates in decline of population growth and discouragement of inventions. According to Hansen (1939, 2), US population grew by 16 million in the 1920s but grew by one half or about 8 million in the 1930s with forecasts at the time of Hansen’s writing in 1938 of growth of around 5.3 million in the 1940s. Hansen (1939, 2) characterized demography in the US as “a drastic decline in the rate of population growth.” Hansen’s plea was to adapt economic policy to stagnation of population in ensuring full employment. In the analysis of Hansen (1939, 8), population caused half of the growth of US GDP per year. Growth of output per person in the US and Europe was caused by “changes in techniques and to the exploitation of new natural resources.” In this analysis, population caused 60 percent of the growth of capital formation in the US. Declining population growth would reduce growth of capital formation. Residential construction provided an important share of growth of capital formation. Hansen (1939, 12) argues that market power of imperfect competition discourages innovation with prolonged use of obsolete capital equipment. Trade unions would oppose labor-savings innovations. The combination of stagnating and aging population with reduced innovation caused secular stagnation. Hansen (1939, 12) concludes that there is role for public investments to compensate for lack of dynamism of private investment but with tough tax/debt issues.
The current application of Hansen’s (1938, 1939, 1941) proposition argues that secular stagnation occurs because full employment equilibrium can be attained only with negative real interest rates between minus 2 and minus 3 percent. Professor Lawrence H. Summers (2013Nov8) finds that “a set of older ideas that went under the phrase secular stagnation are not profoundly important in understanding Japan’s experience in the 1990s and may not be without relevance to America’s experience today” (emphasis added). Summers (2013Nov8) argues there could be an explanation in “that the short-term real interest rate that was consistent with full employment had fallen to -2% or -3% sometime in the middle of the last decade. Then, even with artificial stimulus to demand coming from all this financial imprudence, you wouldn’t see any excess demand. And even with a relative resumption of normal credit conditions, you’d have a lot of difficulty getting back to full employment.” The US economy could be in a situation where negative real rates of interest with fed funds rates close to zero as determined by the Federal Open Market Committee (FOMC) do not move the economy to full employment or full utilization of productive resources. Summers (2013Oct8) finds need of new thinking on “how we manage an economy in which the zero nominal interest rates is a chronic and systemic inhibitor of economy activity holding our economies back to their potential.”
Former US Treasury Secretary Robert Rubin (2014Jan8) finds three major risks in prolonged unconventional monetary policy of zero interest rates and quantitative easing: (1) incentive of delaying action by political leaders; (2) “financial moral hazard” in inducing excessive exposures pursuing higher yields of risker credit classes; and (3) major risks in exiting unconventional policy. Rubin (2014Jan8) proposes reduction of deficits by structural reforms that could promote recovery by improving confidence of business attained with sound fiscal discipline.
Professor John B. Taylor (2014Jan01, 2014Jan3) provides clear thought on the lack of relevance of Hansen’s contention of secular stagnation to current economic conditions. The application of secular stagnation argues that the economy of the US has attained full-employment equilibrium since around 2000 only with negative real rates of interest of minus 2 to minus 3 percent. At low levels of inflation, the so-called full-employment equilibrium of negative interest rates of minus 2 to minus 3 percent cannot be attained and the economy stagnates. Taylor (2014Jan01) analyzes multiple contradictions with current reality in this application of the theory of secular stagnation:
- Secular stagnation would predict idle capacity, in particular in residential investment when fed fund rates were fixed at 1 percent from Jun 2003 to Jun 2004. Taylor (2014Jan01) finds unemployment at 4.4 percent with house prices jumping 7 percent from 2002 to 2003 and 14 percent from 2004 to 2005 before dropping from 2006 to 2007. GDP prices doubled from 1.7 percent to 3.4 percent when interest rates were low from 2003 to 2005.
- Taylor (2014Jan01, 2014Jan3) finds another contradiction in the application of secular stagnation based on low interest rates because of savings glut and lack of investment opportunities. Taylor (2009) shows that there was no savings glut. The savings rate of the US in the past decade is significantly lower than in the 1980s.
- Taylor (2014Jan01, 2014Jan3) finds another contradiction in the low ratio of investment to GDP currently and reduced investment and hiring by US business firms.
- Taylor (2014Jan01, 2014Jan3) argues that the financial crisis and global recession were caused by weak implementation of existing regulation and departure from rules-based policies.
- Taylor (2014Jan01, 2014Jan3) argues that the recovery from the global recession was constrained by a change in the regime of regulation and fiscal/monetary policies.
The analysis by Kydland (http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2004/kydland-bio.html) and Prescott (http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2004/prescott-bio.html) (1977, 447-80, equation 5) uses the “expectation augmented” Phillips curve with the natural rate of unemployment of Friedman (1968) and Phelps (1968), which in the notation of Barro and Gordon (1983, 592, equation 1) is:
Ut = Unt – α(πt – πe) α > 0 (1)
Where Ut is the rate of unemployment at current time t, Unt is the natural rate of unemployment, πt is the current rate of inflation and πe is the expected rate of inflation by economic agents based on current information. Equation (1) expresses unemployment net of the natural rate of unemployment as a decreasing function of the gap between actual and expected rates of inflation. The system is completed by a social objective function, W, depending on inflation, π, and unemployment, U:
W = W(πt, Ut) (2)
The policymaker maximizes the preferences of the public, (2), subject to the constraint of the tradeoff of inflation and unemployment, (1). The total differential of W set equal to zero provides an indifference map in the Cartesian plane with ordered pairs (πt, Ut - Un) such that the consistent equilibrium is found at the tangency of an indifference curve and the Phillips curve in (1). The indifference curves are concave to the origin. The consistent policy is not optimal. Policymakers without discretionary powers following a rule of price stability would attain equilibrium with unemployment not higher than with the consistent policy. The optimal outcome is obtained by the rule of price stability, or zero inflation, and no more unemployment than under the consistent policy with nonzero inflation and the same unemployment. Taylor (1998LB) attributes the sustained boom of the US economy after the stagflation of the 1970s to following a monetary policy rule instead of discretion (see Taylor 1993, 1999). It is not uncommon for effects of regulation differing from those intended by policy. Professors Edward C. Prescott and Lee E. Ohanian (2014Feb), writing on “US productivity growth has taken a dive,” on Feb 3, 2014, published in the Wall Street Journal (http://online.wsj.com/news/articles/SB10001424052702303942404579362462611843696?KEYWORDS=Prescott), argue that impressive productivity growth over the long-term constructed US prosperity and wellbeing. Prescott and Ohanian (2014Feb) measure US productivity growth at 2.5 percent per year since 1948. Average US productivity growth has been only 1.1 since 2011. Prescott and Ohanian (2014Feb) argue that living standards in the US increased at 28 percent in a decade but with current slow growth of productivity will only increase 12 percent by 2024. There may be collateral effects on productivity growth from policy design similar to those in Kydland and Prescott (1977). The Bureau of Labor Statistics important report on productivity and costs released on Mar 6, 2014 (http://www.bls.gov/lpc/) supports the argument of decline of productivity in the US analyzed by Prescott and Ohanian (2014Feb). Table II-2 provides the annual percentage changes of productivity, real hourly compensation and unit labor costs for the entire economic cycle from 2007 to 2013. The data confirm the argument of Prescott and Ohanian (2014Feb): productivity increased cumulatively 2.5 percent from 2011 to 2013 at the average annual rate of 0.8 percent. The situation is direr by excluding growth of 1.5 percent in 2013, which leaves an average of 0.5 percent for 2011 and 2013. Average productivity growth for the entire economic cycle from 2007 to 2013 is only 1.6 percent. The argument by Prescott and Ohanian (2014Feb) is proper in choosing the tail of the business cycle because the increase in productivity in 2009 of 3.1 percent and 3.3 percent in 2013 consisted on reducing labor hours.
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.”
The theory of secular stagnation cannot explain sudden collapse of the US economy and labor markets. The theory of secular stagnation departs from an aggregate production function in which output grows with the use of labor, capital and technology (see Pelaez and Pelaez, Globalization and the State, Vol. I (2008a), 11-6). Simon Kuznets (1971) analyzes modern economic growth in his Lecture in Memory of Alfred Nobel:
“The major breakthroughs in the advance of human knowledge, those that constituted dominant sources of sustained growth over long periods and spread to a substantial part of the world, may be termed epochal innovations. And the changing course of economic history can perhaps be subdivided into economic epochs, each identified by the epochal innovation with the distinctive characteristics of growth that it generated. Without considering the feasibility of identifying and dating such economic epochs, we may proceed on the working assumption that modern economic growth represents such a distinct epoch - growth dating back to the late eighteenth century and limited (except in significant partial effects) to economically developed countries. These countries, so classified because they have managed to take adequate advantage of the potential of modern technology, include most of Europe, the overseas offshoots of Western Europe, and Japan—barely one quarter of world population.”
Chart II-7 provides nonfarm-business labor productivity, measured by output per hour, from 1947 to 2013. The rate of productivity increase continued in the early part of the 2000s but then softened and fell during the global recession. The interruption of productivity increases occurred exclusively in the current business cycle. Lazear and Spletzer (2012JHJul22) find “primarily cyclic” factors in explaining the frustration of currently depressed labor markets in the United States. Stagnation of productivity is another cyclic event and not secular trend. The theory and application of secular stagnation to current US economic conditions is void of reality.
Chart II-7, US, Nonfarm Business Labor Productivity, Output per Hour, 1947-2013, Index 2005=100
Source: US Bureau of Labor Statistics http://www.bls.gov/lpc/
Table II-6 expands Table II-2 providing more complete measurements of the Productivity and Cost research of the Bureau of Labor Statistics. The proper emphasis of Prescott and Ohanian (2014Feb) is on the low productivity increases from 2011 to 2013. Labor productivity increased 3.3 percent in 2010 and 3.1 percent in 2009. There is much stronger yet not sustained performance in 2010 with productivity growing 3.3 percent because of growth of output of 3.2 percent with decline of hours worked of 0.1 percent. Productivity growth of 3.1 percent in 2009 consists of decline of output by 4.3 percent while hours worked collapsed 7.2 percent, which is not a desirable route to progress. The expansion phase of the economic cycle concentrated in one year, 2010, with underperformance in the remainder of the expansion from 2011 to 2013 of productivity growth at average 0.8 percent per year.
Table II-6, US, Productivity and Costs, Annual Percentage Changes 2007-2013
| 2013 | 2012 | 2011 | 2010 | 2009 | 2008 | 2007 | |
| Productivity | 0.5 | 1.5 | 0.5 | 3.3 | 3.1 | 0.8 | 1.6 |
| Output | 2.2 | 3.7 | 2.5 | 3.2 | -4.3 | -1.3 | 2.3 |
| Hours Worked | 1.7 | 2.2 | 2.0 | -0.1 | -7.2 | -2.0 | 0.7 |
| Employment | 1.8 | 2.0 | 1.5 | -1.2 | -5.7 | -1.5 | 0.9 |
| Average Weekly Hours Worked | -0.1 | 0.2 | 0.5 | 1.1 | -1.6 | -0.6 | -0.2 |
| Hourly Compensation | 1.6 | 2.6 | 2.5 | 2.1 | 1.1 | 2.7 | 4.3 |
| Consumer Price Inflation | 1.5 | 2.1 | 3.2 | 1.6 | -0.4 | 3.8 | 2.8 |
| Real Hourly Compensation | 0.1 | 0.5 | -0.7 | 0.4 | 1.5 | -1.1 | 1.4 |
| Non-labor Payments | 3.7 | 6.5 | 4.0 | 7.3 | -0.1 | -0.4 | 3.4 |
| Output per Job | 0.3 | 1.7 | 1.0 | 4.4 | 1.5 | 0.2 | 1.4 |
Source: US Bureau of Labor Statistics http://www.bls.gov/lpc/
Productivity growth can bring about prosperity while productivity regression can jeopardize progress. Cobet and Wilson (2002) provide estimates of output per hour and unit labor costs in national currency and US dollars for the US, Japan and Germany from 1950 to 2000 (see Pelaez and Pelaez, The Global Recession Risk (2007), 137-44). The average yearly rate of productivity change from 1950 to 2000 was 2.9 percent in the US, 6.3 percent for Japan and 4.7 percent for Germany while unit labor costs in USD increased at 2.6 percent in the US, 4.7 percent in Japan and 4.3 percent in Germany. From 1995 to 2000, output per hour increased at the average yearly rate of 4.6 percent in the US, 3.9 percent in Japan and 2.6 percent in Germany while unit labor costs in USD fell at minus 0.7 percent in the US, 4.3 percent in Japan and 7.5 percent in Germany. There was increase in productivity growth in Japan and France within the G7 in the second half of the 1990s but significantly lower than the acceleration of 1.3 percentage points per year in the US. Table II-7 provides average growth rates of indicators in the research of productivity and growth of the US Bureau of Labor Statistics. There is dramatic decline of productivity growth in the whole cycle from 2.2 percent per year on average from 1947 to 2013 to 1.6 percent per year on average from 2007 to 2013. There is profound drop in the average rate of output growth from 3.4 percent on average from 1947 to 2013 to 1.0 percent from 2007 to 2013. The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. Growth on trend in the entire cycle from IVQ2007 to IV2013 would have accumulated to 20.3 percent. GDP in IVQ2013 would be $18,040.3 billion if the US had grown at trend, which is higher by $2,107.4 billion than actual $15,932.9 billion. There are about two trillion dollars of GDP less than on trend, explaining the 29.1 million unemployed or underemployed equivalent to actual unemployment of 17.8 percent of the effective labor force (Section I and earlier http://cmpassocregulationblog.blogspot.com/2014/02/financial-instability-rules.html). US GDP grew from $14,996.1 billion in IVQ2007 in constant dollars to $15,932.9 billion in IVQ2013 or 6.2 percent at the average annual equivalent rate of 1.0 percent. The US missed the opportunity to grow at higher rates during the expansion and it is difficult to catch up because rates in the final periods of expansions tend to decline. The US missed the opportunity for recovery of output and employment always afforded in the first four quarters of expansion from recessions. Zero interest rates and quantitative easing were not required or present in successful cyclical expansions and in secular economic growth at 3.0 percent per year and 2.0 percent per capita as measured by Lucas (2011May). There is cyclical uncommonly slow growth in the US instead of allegations of secular stagnation. Real hourly compensation collapsed from average 1.6 percent per year from 1947 to 2013 to 0.3 percent per year from 2007 to 2013. The antithesis of secular stagnation is cyclical slow growth. The policy design deserves consideration of Kydland and Prescott (1977) and Prescott and Ohanian (2014Feb) to induce productivity growth for future progress. Hourly compensation increased at the average yearly rate of 5.1 percent from 1947 to 2013 and consumer price inflation at 3.6 percent with real hourly compensation increasing at the average yearly rate of 1.6 percent. Hourly compensation increased at the average yearly rate of 2.1 percent from 2007 to 2013 while consumer price inflation increased at 2.0 percent with real hourly compensation changing at the average yearly rate of 0.0 percent. While hours worked increased at the average yearly rate of 1.2 percent from 1947 to 2013, hours worked fell 3.7 percent from 2007 to 2013. While employment increased at the average yearly rate of 1.4 percent from 1947 to 2013, employment fell 3.3 percent from 2007 to 2013.
Table II-7, US, Productivity and Costs, Average Annual Percentage Changes 2007-2013 and 1947-2013
| Average Annual Percentage Rate 2007-2013 | Average Annual Percentage Rate 1947-2013 | |
| Productivity | 1.6 | 2.2 |
| Output | 1.0 | 3.4 |
| Hours | -3.7* | 1.2 |
| Employment | -3.3* | 1.4 |
| Average Weekly Hours | -0.5* | -15.0* |
| Hourly Compensation | 2.1 | 5.1 |
| Consumer Price Inflation | 2.0 | 3.6 |
| Real Hourly Compensation | 0.0 | 1.6 |
| Unit Non-labor Payments | 2.5 | 3.4 |
| Output per Job | 1.5 | 2.0 |
* Percentage Change
Source: US Bureau of Labor Statistics http://www.bls.gov/lpc/
Unit labor costs increased sharply during the Great Inflation from the late 1960s to 1981 as shown by sharper slope in Chart II-8. Unit labor costs continued to increase but at a lower rate because of cyclic factors and not because of imaginary secular stagnation.
Chart II-8, US, Nonfarm Business, Unit Labor Costs, 1947-2013, Index 2005=100
Source: US Bureau of Labor Statistics http://www.bls.gov/lpc/
Real hourly compensation increased at relatively high rates after 1947 to the early 1970s but reached a plateau that lasted until the early 1990s, as shown in Chart VA-22. There were rapid increases until the global recession. Cyclic factors and not alleged secular stagnation explain the interruption of increases in real hourly compensation.
Chart II-9, US, Nonfarm Business, Real Hourly Compensation, 1947-2013, Index 2005=100
Source: US Bureau of Labor Statistics http://www.bls.gov/lpc/
© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013, 2014
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