CMP Associates Regulation Blog

Chart I-1 shows the annual level of total nonfarm hiring (HNF) that collapsed during the global recession after 2007 in contrast with milder decline in the shallow recession of 2001. Nonfarm hiring has not recovered, remaining at a depressed level.

Chart I-1, US, Level Total Nonfarm Hiring (HNF), Annual, 2001-2013

Source: US Bureau of Labor Statistics

Chart I-2 shows the ratio or rate of nonfarm hiring to employment (RNF) that also fell much more in the recession of 2007 to 2009 than in the shallow recession of 2001. Recovery is weak in the current environment of cyclical slow growth.

Chart I-2, US, Rate Total Nonfarm Hiring (HNF), Annual, 2001-2015

Source: US Bureau of Labor Statistics

Yearly percentage changes of total nonfarm hiring (HNF) are provided in Table I-2. There were much milder declines in 2002 of 6.6 percent and 2.6 percent in 2003 followed by strong rebounds of 5.8 percent in 2004 and 4.5 percent in 2005. In contrast, the contractions of nonfarm hiring in the recession after 2007 were much sharper in percentage points: 1.9 in 2007, 11.8 in 2008 and 16.1 percent in 2009. On a yearly basis, nonfarm hiring grew 6.1 percent in 2010 relative to 2009, 3.2 percent in 2011, 4.1 percent in 2012 and 3.5 percent in 2013. The relatively large length of 18 quarters of the current expansion reduces the likelihood of significant recovery of hiring levels in the United States because lower rates of growth and hiring in the final phase of expansions.

Table I-2, US, Annual Total Nonfarm Hiring (HNF), Annual Percentage Change, 2002-2013

Year	Annual ∆%
2002	-6.6
2003	-2.6
2004	5.8
2005	4.5
2006	0.6
2007	-1.9
2008	-11.8
2009	-16.1
2010	6.1
2011	3.2
2012	4.1
2013	3.5

Source: US Bureau of Labor Statistics

Total private hiring (HP) 12-month percentage changes of annual data are provided in Chart I-4. There has been sharp contraction of total private hiring in the US and only milder recovery from 2010 to 2013.

Chart I-4, US, Total Nonfarm Hiring Level, Annual, ∆%, 2001-2013

Source: Bureau of Labor Statistics

Chart I-5 plots the rate of total private hiring relative to employment (RHP). The rate collapsed during the global recession after 2007 with insufficient recovery.

Chart I-5, US, Total Private Hiring, Annual, 2001-2013

Source: Bureau of Labor Statistics

Chart I-5A plots the rate of total private hiring relative to employment (RHP). The rate collapsed during the global recession after 2007 with insufficient recovery.

Chart I-5A, US, Rate Total Private Hiring Level, Annual, 2001-2013

Source: Bureau of Labor Statistics

http://www.bls.gov/jlt/ Total nonfarm hiring (HNF), total private hiring (HP) and their respective rates are provided for the month of Aug in the years from 2001 to 2014 in Table I-3. Hiring numbers are in thousands. There is recovery in HNF from 4178 thousand (or 4.2 million) in Aug 2009 to 4336 thousand in Aug 2010, 4646 thousand in Aug 2011, 4929 thousand in Aug 2012, 5135 thousand in Aug 2013 and 5095 thousand in Aug 2014 for cumulative gain of 21.9 percent at average rate of 4.0 percent per year. HP rose from 3720 thousand in Aug 2009 to 3911 thousand in Aug 2010, 4199 thousand in Aug 2011, 4401 thousand in Aug 2012, 4617 thousand in Aug 2013 and 4592 thousand in Aug 2014 for cumulative gain of 23.4 percent at the average yearly rate of 4.3 percent. HNF has fallen from 5886 thousand in Aug 2005 to 5095 thousand in Aug 2014 or by 13.4 percent. HP has fallen from 5375 thousand in Aug 2006 to 4592 thousand in Aug 2014 or by 14.6 percent. The civilian noninstitutional population of the US, or individuals in condition to work, rose from 228.815 million in 2006 to 245.679 million in 2013 or by 16.864 million and the civilian labor force from 151.428 million in 2006 to 155.389 million in 2013 or by 3.961 million (http://www.bls.gov/data/). The number of nonfarm hires in the US fell from 63.327 million in 2006 to 54.191 million in 2013 or by 9.136 million and the number of private hires fell from 59.128 million in 2006 to 50.718 million in 2013 or by 8.410 million (http://www.bls.gov/jlt/). Private hiring of 59.128 million in 2006 was equivalent to 25.8 percent of the civilian noninstitutional population of 228.815, or those in condition of working, falling to 50.718 million in 2013 or 20.6 percent of the civilian noninstitutional population of 245.679 million in 2013. The percentage of hiring in civilian noninstitutional population of 25.8 percent in 2006 would correspond to 63.385 million of hiring in 2013, which would be 12.667 million higher than actual 50.718 million in 2013. Cyclical slow growth over the entire business cycle from IVQ2007 to the present in comparison with earlier cycles and long-term trend (http://cmpassocregulationblog.blogspot.com/2014/09/financial-volatility-mediocre-cyclical.html) explains the fact that there are many million fewer hires in the US than before the global recession. The labor market continues to be fractured, failing to provide an opportunity to exit from unemployment/underemployment or to find an opportunity for advancement away from declining inflation-adjusted earnings

Table I-3, US, Total Nonfarm Hiring (HNF) and Total Private Hiring (HP) in the US in

Thousands and in Percentage of Total Employment Not Seasonally Adjusted

	HNF	Rate RNF	HP	Rate HP
2001 Aug	5429	4.1	4879	4.4
2002 Aug	5236	4.0	4699	4.3
2003 Aug	4962	3.8	4598	4.2
2004 Aug	5540	4.2	5054	4.5
2005 Aug	5886	4.4	5375	4.7
2006 Aug	5749	4.2	5115	4.4
2007 Aug	5669	4.1	5039	4.3
2008 Aug	5033	3.7	4576	4.0
2009 Aug	4178	3.2	3720	3.4
2010 Aug	4336	3.3	3911	3.6
2011 Aug	4646	3.5	4199	3.8
2012 Aug	4929	3.7	4401	3.9
2013 Aug	5135	3.8	4617	4.0
2014 Aug	5095	3.7	4592	3.9

Source: Bureau of Labor Statistics

Chart I-6 provides total nonfarm hiring on a monthly basis from 2001 to 2014. Nonfarm hiring rebounded in early 2010 but then fell and stabilized at a lower level than the early peak not-seasonally adjusted (NSA) of 4841 in May 2010 until it surpassed it with 4975 in Jun 2011 but declined to 3084 in Dec 2012. Nonfarm hiring fell to 3012 in Dec 2011 from 3810 in Nov and to revised 3614 in Feb 2012, increasing to 4220 in Mar 2012, 3084 in Dec 2012 and 4223 in Jan 2013 and declining to 3861 in Feb 2013. Nonfarm hires not seasonally adjusted increased to 4165 in Nov 2013 and 3271 in Dec 2013. Nonfarm hires reached 5095 in Aug 2014. Chart I-6 provides seasonally adjusted (SA) monthly data. The number of seasonally-adjusted hires in Oct 2011 was 4237 thousand, increasing to revised 4446 thousand in Feb 2012, or 4.9 percent, moving to 4343 in Dec 2012 for cumulative increase of 2.0 percent from 4256 in Dec 2011 and 4578 in Dec 2013 for increase of 5.4 percent relative to 4343 in Dec 2012. The number of hires not seasonally adjusted was 4975 in Jun 2011, falling to 3012 in Dec 2011 but increasing to 4112 in Jan 2012 and declining to 3084 in Dec 2012. The number of nonfarm hiring not seasonally adjusted fell by 39.5 percent from 4975 in Jun 2011 to 3012 in Dec 2011 and fell 38.7 percent from 5035 in Jun 2012 to 3084 in Dec 2012 in a yearly-repeated seasonal pattern. The number of nonfarm hires not seasonally adjusted fell from 5095 in Jun 2013 to 3271 in Dec 2013, or decline of 35.8 percent, showing strong seasonality.

Chart I-6, US, Total Nonfarm Hiring (HNF), 2001-2014 Month SA

Source: Bureau of Labor Statistics

Similar behavior occurs in the rate of nonfarm hiring in Chart I-7. Recovery in early 2010 was followed by decline and stabilization at a lower level but with stability in monthly SA estimates of 3.2 in Aug 2011 to 3.2 in Jan 2012, increasing to 3.3 in May 2012 and falling to 3.2 in Jun 2012. The rate stabilized at 3.2 in Jul 2012, increasing to 3.3 in Aug 2012 but falling to 3.2 in Dec 2012 and 3.3 in Dec 2013. The rate not seasonally adjusted fell from 3.7 in Jun 2011 to 2.3 in Dec 2011, climbing to 3.7 in Jun 2012 but falling to 2.3 in Dec 2012. The rate of nonfarm hires not seasonally adjusted fell from 3.7 in Jun 2013 to 2.4 in Dec 2013. Rates of nonfarm hiring NSA were in the range of 2.7 (Dec) to 4.4 (Jun) in 2006. The rate of nonfarm hiring SA stood at 3.3 in Aug 2014 and at 3.7 NSA.

Chart I-7, US, Rate Total Nonfarm Hiring, Month SA 2001-2014

Source: Bureau of Labor Statistics

There is only milder improvement in total private hiring shown in Chart I-8. Hiring private (HP) rose in 2010 with stability and renewed increase in 2011 followed by almost stationary series in 2012. The number of private hiring seasonally adjusted fell from 4057 thousand in Sep 2011 to 3962 in Dec 2011 or by 2.3 percent, decreasing to 3998 in Jan 2012 or decline by 1.5 percent relative to the level in Sep 2011. Private hiring fell to 3959 in Sep 2012 or lower by 2.4 percent relative to Sep 2011, moving to 4061 in Dec 2012 for increase of 1.6 percent relative to 3998 in Jan 2012. The number of private hiring not seasonally adjusted fell from 4600 in Jun 2011 to 2833 in Dec 2011 or by 38.4 percent, reaching 3853 in Jan 2012 or decline of 16.2 percent relative to Jun 2011 and moving to 2911 in Dec 2012 or 37.1 percent lower relative to 4629 in Jun 2012. Hires fell from 4706 in Jun 2013 to 3098 in Dec 2013. Companies reduce hiring in the latter part of the year that explains the high seasonality in year-end employment data. For example, NSA private hiring fell from 5567 in Jun 2006 to 3568 in Dec 2006 or by 35.9 percent. Private hiring NSA data are useful in showing the huge declines from the period before the global recession. In Aug 2006, private hiring NSA was 5115, declining to 4199 in Aug 2011 or by 17.9 percent and to 4401 in Aug 2012 or lower by 14.0 percent relative to Aug 2006. Private hiring NSA fell from 5501 in Jul 2006 to 5120 in Jul 2014 or 6.9 percent. Private hiring fell from 5115 in Aug 2006 to 4617 in Aug 2013 or 9.7 percent. The conclusion is that private hiring in the US is around 20 percent below the hiring before the global recession while the noninstitutional population of the United States has grown from 228.815 million in 2006 to 245.679 million in 2013, by 16.864 million or 7.4 percent. The main problem in recovery of the US labor market has been the low rate of GDP growth. 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.

Chart I-8, US, Total Private Hiring Month SA 2001-2014

Source: Bureau of Labor Statistics

Chart I-9 shows similar behavior in the rate of private hiring. The rate in 2011 in monthly SA data did not rise significantly above the peak in 2010. The rate seasonally adjusted fell from 3.7 in Sep 2011 to 3.6 in Dec 2011 and reached 3.6 in Dec 2012 and 3.7 in Dec 2013. The rate not seasonally adjusted (NSA) fell from 3.7 in Sep 2011 to 2.5 in Dec 2011, increasing to 3.8 in Oct 2012 but falling to 2.6 in Dec 2012 and 3.4 in Mar 2013. The NSA rate of private hiring fell from 4.8 in Jul 2006 to 3.4 in Aug 2009 but recovery was insufficient to only 3.9 in Aug 2012, 2.6 in Dec 2012 and 2.7 in Dec 2013. The NSA rate increased to 3.9 in Aug 2014.

Chart I-9, US, Rate Total Private Hiring Month SA 2001-2014

Source: Bureau of Labor Statistics

The JOLTS report of the Bureau of Labor Statistics also provides total nonfarm job openings (TNF JOB), TNF JOB rate and TNF LD (layoffs and discharges) shown in Table I-4 for the month of Aug from 2001 to 2014. The final column provides annual TNF LD for the years from 2001 to 2013. Nonfarm job openings (TNF JOB) increased from a peak of 4613 in Aug 2007 to 4986 in Aug 2014 or by 8.1 percent while the rate increased from 3.2 to 3.5. This was mediocre performance because the civilian noninstitutional population or those available for work increased 19.062 from 229.167 million in Aug 2007 to 248.229 million in Aug 2014 or 8.3 percent. Nonfarm layoffs and discharges (TNF LD) rose from 1753 in Aug 2006 to 2251 in Aug 2009 or by 28.4 percent. The annual data show layoffs and discharges rising from 20.9 million in 2006 to 26.4 million in 2009 or by 26.3 percent. Business pruned payroll jobs to survive the global recession but there has not been hiring because of the low rate of GDP growth. 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. The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. US economic growth has been at only 2.2 percent on average in the cyclical expansion in the 20 quarters from IIIQ2009 to IIQ2014. 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 third estimate of GDP for IIQ2014 (http://www.bea.gov/newsreleases/national/gdp/2014/pdf/gdp2q14_3rd.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 $14,745.9 billion in IIQ2010 by GDP of $14,355.6 billion in IIQ2009 {[$14,745.9/$14,355.6 -1]100 = 2.7%], or accumulating the quarter on quarter growth rates (http://cmpassocregulationblog.blogspot.com/2014/09/financial-volatility-mediocre-cyclical.html and earlier http://cmpassocregulationblog.blogspot.com/2014/09/geopolitical-and-financial-risks.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, 4.9 percent from IQ1983 to IIIQ1987, 5.0 percent from IQ1983 to IVQ1987 and at 7.8 percent from IQ1983 to IVQ1983 (http://cmpassocregulationblog.blogspot.com/2014/09/financial-volatility-mediocre-cyclical.html and earlier http://cmpassocregulationblog.blogspot.com/2014/09/geopolitical-and-financial-risks.html). The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. Growth at trend in the entire cycle from IVQ2007 to IIQ2014 would have accumulated to 22.1 percent. GDP in IIQ2014 would be $18,305.0 billion (in constant dollars of 2009) if the US had grown at trend, which is higher by $2,294.6 billion than actual $16,010.4 billion. There are about two trillion dollars of GDP less than at trend, explaining the 26.5 million unemployed or underemployed equivalent to actual unemployment of 16.1 percent of the effective labor force (http://cmpassocregulationblog.blogspot.com/2014/10/world-financial-turbulence-twenty-seven.html and earlier http://cmpassocregulationblog.blogspot.com/2014/09/competitive-monetary-policy-and.html). US GDP in IIQ2014 is 12.5 percent lower than at trend. US GDP grew from $14,991.8 billion in IVQ2007 in constant dollars to $16,010.4 billion in IIQ2014 or 6.8 percent at the average annual equivalent rate of 1.0 percent. Cochrane (2014Jul2) estimates US GDP at more than 10 percent below trend. The US missed the opportunity to grow at higher rates during the expansion and it is difficult to catch up because growth 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 is similar behavior in manufacturing. The long-term trend is growth at average 3.3 percent per year from Jan 1919 to Jul 2014. Growth at 3.3 percent per year would raise the NSA index of manufacturing output from 99.2392 in Dec 2007 to 123.2212 in Aug 2014. The actual index NSA in Aug 2014 is 101.5145, which is 17.6 percent below trend. Manufacturing output grew at average 2.3 percent between Dec 1986 and Dec 2013, raising the index at trend to 117.7603 in Aug 2014. The output of manufacturing at 101.5145 in Aug 2014 is 13.8 percent below trend under this alternative calculation

Table I-4, US, Total Nonfarm Job Openings and Total Nonfarm Layoffs and Discharges, Thousands NSA

	TNF JOB	TNF JOB Rate	TNF LD	TNF LD Annual
Aug 2001	4144	3.0	1975	24138
Aug 2002	3499	2.6	1942	22706
Aug 2003	3268	2.5	2101	23490
Aug 2004	3633	2.7	2114	22668
Aug 2005	4159	3.0	2044	22243
Aug 2006	4520	3.2	1753	20896
Aug 2007	4613	3.2	1995	21958
Aug 2008	3674	2.6	2311	24028
Aug 2009	2362	1.8	2251	26444
Aug 2010	2974	2.2	1932	21829
Aug 2011	3268	2.4	1875	20805
Aug 2012	3771	2.7	2043	20892
Aug 2013	4009	2.9	1871	19964
Aug 2014	4986	3.5	1721

Notes: TNF JOB: Total Nonfarm Job Openings; LD: Layoffs and Discharges

Source: Bureau of Labor Statistics

Chart I-10 shows monthly job openings rising from the trough in 2009 to a high in the beginning of 2010. Job openings then stabilized into 2011 but have surpassed the peak of 3080 seasonally adjusted in Apr 2010 with 3646 seasonally adjusted in Dec 2012, which is higher by 18.4 percent relative to Apr 2010 but lower by 2.9 percent relative to 3755 in Nov 2012 and lower by 4.7 percent than 3827 in Mar 2012. Nonfarm job openings increased from 3646 in Dec 2012 to 3914 in Dec 2013 or by 7.4 percent. The high of job openings not seasonally adjusted was 3428 in Apr 2010 that was surpassed by 3661 in Jul 2011, increasing to 3939 in Oct 2012 but declining to 3152 in Dec 2012 and decreasing to 3387 in Dec 2013. The level of job openings not seasonally adjusted fell to 3152 in Dec 2012 or by 21.3 percent relative to 4005 in Apr 2012. There is here again the strong seasonality of year-end labor data. Job openings fell from 4209 in Apr 2013 to 3387 in Dec 2013, showing strong seasonal effects. The level of job openings of 4986 in Aug 2014 NSA is higher by 8.1 percent relative to 4613 in Aug 2007. This was mediocre performance because the civilian noninstitutional population or those available for work increased 19.062 from 229.167 million in Aug 2007 to 248.229 million in Aug 2014 or 8.3 percent. The main problem in recovery of the US labor market has been the low rate of GDP growth. 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.

Chart I-10, US Job Openings, Thousands NSA, 2001-2014

Source: US Bureau of Labor Statistics

The rate of job openings in Chart I-11 shows similar behavior. The rate seasonally adjusted increased from 2.2 in Jan 2011 to 2.6 in Dec 2011, 2.6 in Dec 2012 and 2.8 in Dec 2013. The rate seasonally adjusted stood at 3.4 in Aug 2014. The rate not seasonally adjusted rose from the high of 2.6 in Apr 2010 to 3.0 in Apr 2013 and 2.6 in Nov 2013. The rate of job openings NSA fell from 3.3 in Jul 2007 to 1.6 in Nov-Dec 2009, recovering to 3.5 in Aug 2014.

Chart I-11, US, Rate of Job Openings, NSA, 2001-2014

Source: US Bureau of Labor Statistics

Total separations are shown in Chart I-12. Separations are much lower in 2012-14 than before the global recession but hiring has not recovered.

Chart I-12, US, Total Nonfarm Separations, Month Thousands SA, 2001-2014

Source: US Bureau of Labor Statistics

Annual total separations are shown in Chart I-13. Separations are much lower in 2011-2014 than before the global recession but without recovery in hiring.

Chart I-13, US, Total Separations, Annual, Thousands, 2001-2013

Source: US Bureau of Labor Statistics

Table I-5 provides total nonfarm total separations from 2001 to 2013. Separations fell from 61.1 million in 2006 to 47.8 million in 2010 or by 13.3 million and 48.2 million in 2011 or by 12.9 million. Total separations increased from 48.2 million in 2011 to 51.8 million in 2013 or by 3.6 million.

Table I-5, US, Total Nonfarm Total Separations, Thousands, 2001-2013

Year	Annual
2001	64472
2002	59003
2003	56970
2004	58238
2005	60494
2006	61117
2007	60838
2008	58227
2009	51127
2010	47750
2011	48220
2012	50070
2013	51837

Source: US Bureau of Labor Statistics

Monthly data of layoffs and discharges reach a peak in early 2009, as shown in Chart I-14. Layoffs and discharges dropped sharply with the recovery of the economy in 2010 and 2011 once employers reduced their job count to what was required for cost reductions and loss of business. Weak rates of growth of GDP (http://cmpassocregulationblog.blogspot.com/2014/09/financial-volatility-mediocre-cyclical.html) frustrated employment recovery. 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.

Chart I-14, US, Total Nonfarm Layoffs and Discharges, Monthly Thousands SA, 2001-2014

Source: US Bureau of Labor Statistics

Layoffs and discharges in Chart I-15 rose sharply to a peak in 2009. There was pronounced drop into 2010 and 2011 with mild increase into 2012 and renewed decline into 2013.

Chart I-15, US, Total Nonfarm Layoffs and Discharges, Annual, 2001-2012

Source: US Bureau of Labor Statistics

Table I-6 provides annual nonfarm layoffs and discharges from 2001 to 2013. Layoffs and discharges peaked at 26.4 million in 2009 and then fell to 20.8 million in 2011, by 5.6 million, or 21.2 percent. Total nonfarm layoffs and discharges increased mildly to 20.9 million in 2012, falling to 19.9 million in 2013.

Table I-6, US, Total Nonfarm Layoffs and Discharges, Thousands, 2001-2013

Year	Annual
2001	24138
2002	22706
2003	23490
2004	22668
2005	22243
2006	20896
2007	21958
2008	24028
2009	26444
2010	21829
2011	20805
2012	20892
2013	19964

Source: US Bureau of Labor Statistics

IA2 Labor Underutilization. The Bureau of Labor Statistics also provides alternative measures of labor underutilization shown in Table I-7. The most comprehensive measure is U6 that consists of total unemployed plus total employed part time for economic reasons plus all marginally attached workers as percent of the labor force. U6 not seasonally adjusted has risen from 8.2 percent in 2006 to 11.3 percent in Sep 2014.

Table I-7, US, Alternative Measures of Labor Underutilization NSA %

	U1	U2	U3	U4	U5	U6
2014
Sep	2.7	2.7	5.7	6.2	7.1	11.3
Aug	2.8	3.0	6.3	6.7	7.5	12.0
Jul	2.8	3.1	6.5	7.0	7.8	12.6
Jun	2.8	3.0	6.3	6.7	7.5	12.4
May	3.1	3.0	6.1	6.5	7.3	11.7
Apr	3.3	3.2	5.9	6.3	7.2	11.8
Mar	3.7	3.7	6.8	7.2	8.1	12.8
Feb	3.6	3.9	7.0	7.5	8.4	13.1
Jan	3.5	4.0	7.0	7.5	8.6	13.5
2013
Dec	3.5	3.5	6.5	7.0	7.9	13.0
Nov	3.7	3.5	6.6	7.1	7.9	12.7
Oct	3.7	3.6	7.0	7.4	8.3	13.2
Sep	3.7	3.5	7.0	7.5	8.4	13.1
Aug	3.7	3.8	7.3	7.9	8.7	13.6
Jul	3.7	3.8	7.7	8.3	9.1	14.3
Jun	3.9	3.8	7.8	8.4	9.3	14.6
May	4.1	3.7	7.3	7.7	8.5	13.4
Apr	4.3	3.9	7.1	7.6	8.5	13.4
Mar	4.3	4.3	7.6	8.1	9.0	13.9
Feb	4.3	4.6	8.1	8.6	9.6	14.9
Jan	4.3	4.9	8.5	9.0	9.9	15.4
2012
Dec	4.2	4.3	7.6	8.3	9.2	14.4
Nov	4.2	3.9	7.4	7.9	8.8	13.9
Oct	4.3	3.9	7.5	8.0	9.0	13.9
Sep	4.2	4.0	7.6	8.0	9.0	14.2
Aug	4.3	4.4	8.2	8.7	9.7	14.6
Jul	4.3	4.6	8.6	9.1	10.0	15.2
Jun	4.5	4.4	8.4	8.9	9.9	15.1
May	4.7	4.3	7.9	8.4	9.3	14.3
Apr	4.8	4.3	7.7	8.3	9.1	14.1
Mar	4.9	4.8	8.4	8.9	9.7	14.8
Feb	4.9	5.1	8.7	9.3	10.2	15.6
Jan	4.9	5.4	8.8	9.4	10.5	16.2
2011
Dec	4.8	5.0	8.3	8.8	9.8	15.2
Nov	4.9	4.7	8.2	8.9	9.7	15.0
Oct	5.0	4.8	8.5	9.1	10.0	15.3
Sep	5.2	5.0	8.8	9.4	10.2	15.7
Aug	5.2	5.1	9.1	9.6	10.6	16.1
Jul	5.2	5.2	9.3	10.0	10.9	16.3
Jun	5.1	5.1	9.3	9.9	10.9	16.4
May	5.5	5.1	8.7	9.2	10.0	15.4
Apr	5.5	5.2	8.7	9.2	10.1	15.5
Mar	5.7	5.8	9.2	9.7	10.6	16.2
Feb	5.6	6.0	9.5	10.1	11.1	16.7
Jan	5.6	6.2	9.8	10.4	11.4	17.3
Dec 2010	5.4	5.9	9.1	9.9	10.7	16.6
Annual
2013	3.9	3.9	7.4	7.9	8.8	13.8
2012	4.5	4.4	8.1	8.6	9.5	14.7
2011	5.3	5.3	8.9	9.5	10.4	15.9
2010	5.7	6.0	9.6	10.3	11.1	16.7
2009	4.7	5.9	9.3	9.7	10.5	16.2
2008	2.1	3.1	5.8	6.1	6.8	10.5
2007	1.5	2.3	4.6	4.9	5.5	8.3
2006	1.5	2.2	4.6	4.9	5.5	8.2
2005	1.8	2.5	5.1	5.4	6.1	8.9
2004	2.1	2.8	5.5	5.8	6.5	9.6
2003	2.3	3.3	6.0	6.3	7.0	10.1
2002	2.0	3.2	5.8	6.0	6.7	9.6
2001	1.2	2.4	4.7	4.9	5.6	8.1
2000	0.9	1.8	4.0	4.2	4.8	7.0

Note: LF: labor force; U1, persons unemployed 15 weeks % LF; U2, job losers and persons who completed temporary jobs %LF; U3, total unemployed % LF; U4, total unemployed plus discouraged workers, plus all other marginally attached workers; % LF plus discouraged workers; U5, total unemployed, plus discouraged workers, plus all other marginally attached workers % LF plus all marginally attached workers; U6, total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons % LF plus all marginally attached workers

Source: US Bureau of Labor Statistics

Monthly seasonally adjusted measures of labor underutilization are provided in Table I-8. U6 climbed from 16.1 percent in Aug 2011 to 16.3 percent in Sep 2011 and then fell to 14.5 percent in Mar 2012, reaching 12.0 percent in Sep 2014. Unemployment is an incomplete measure of the stress in US job markets. A different calculation in this blog is provided by using the participation rate in the labor force before the global recession. This calculation shows 26.5 million in job stress of unemployment/underemployment in Jul 2013, not seasonally adjusted, corresponding to 16.1 percent of the labor force (http://cmpassocregulationblog.blogspot.com/2014/10/world-financial-turbulence-twenty-seven.html).

Table I-8, US, Alternative Measures of Labor Underutilization SA %

	U1	U2	U3	U4	U5	U6
Sep 2014	2.8	2.9	5.9	6.4	7.3	11.8
Aug	2.9	3.1	6.1	6.6	7.4	12.0
July	2.9	3.1	6.2	6.6	7.5	12.2
Jun	2.9	3.1	6.1	6.5	7.3	12.1
May	3.1	3.2	6.3	6.7	7.6	12.2
Apr	3.2	3.4	6.3	6.7	7.6	12.3
Mar	3.5	3.5	6.7	7.1	8.0	12.7
Feb	3.5	3.5	6.7	7.2	8.1	12.6
Jan	3.4	3.5	6.6	7.1	8.1	12.7
Dec 2013	3.6	3.5	6.7	7.2	8.1	13.1
Nov	3.7	3.7	7.0	7.4	8.2	13.1
Oct	3.8	4.0	7.2	7.7	8.6	13.7
Sep	3.8	3.7	7.2	7.7	8.6	13.6
Aug	3.8	3.8	7.2	7.8	8.6	13.6
Jul	3.9	3.8	7.3	7.9	8.7	13.9
Jun	4.0	3.9	7.5	8.1	9.0	14.2
May	4.0	3.9	7.5	8.0	8.8	13.8
Apr	4.1	4.1	7.5	8.0	8.9	13.9
Mar	4.1	4.1	7.5	8.0	8.9	13.8
Feb	4.2	4.2	7.7	8.3	9.3	14.3
Jan	4.2	4.3	7.9	8.4	9.3	14.4
Dec 2012	4.3	4.2	7.9	8.5	9.4	14.4
Nov	4.2	4.1	7.8	8.3	9.2	14.4
Oct	4.4	4.2	7.8	8.3	9.2	14.4
Sep	4.3	4.2	7.8	8.3	9.3	14.7
Aug	4.4	4.5	8.1	8.6	9.6	14.7
Jul	4.5	4.6	8.2	8.7	9.7	14.9
Jun	4.6	4.6	8.2	8.7	9.6	14.8
May	4.6	4.5	8.2	8.7	9.6	14.8
Apr	4.6	4.4	8.2	8.7	9.5	14.6
Mar	4.7	4.6	8.2	8.7	9.6	14.5
Feb	4.8	4.6	8.3	8.9	9.8	15.0
Jan	4.8	4.7	8.2	8.8	9.8	15.1
Dec 2011	4.9	4.9	8.5	9.1	10.0	15.2
Nov	5.0	5.0	8.6	9.3	10.2	15.6
Oct	5.1	5.1	8.8	9.4	10.3	15.9
Sep	5.4	5.2	9.0	9.6	10.5	16.3
Aug	5.3	5.2	9.0	9.6	10.5	16.1
Jul	5.3	5.3	9.0	9.7	10.6	16.0
Jun	5.3	5.3	9.1	9.7	10.7	16.1
May	5.3	5.4	9.0	9.5	10.3	15.8
Apr	5.2	5.4	9.1	9.7	10.5	16.1
Mar	5.3	5.4	9.0	9.5	10.4	15.9
Feb	5.4	5.5	9.0	9.6	10.6	16.0
Jan	5.5	5.5	9.1	9.7	10.7	16.1

Source: US Bureau of Labor Statistics

Chart I-16 provides U6 on a monthly basis from 2001 to 2014. There was a steep climb from 2007 into 2009 and then this measure of unemployment and underemployment stabilized at that high level but declined into 2012. The low of U6 SA was 8.0 percent in Mar 2007 and the peak was 17.1 percent in Apr 2010. The low NSA was 7.6 percent in Oct 2006 and the peak was 18.0 percent in Jan 2010.

Chart I-16, US, U6, total unemployed, plus all marginally attached workers, plus total employed Part-Time for Economic Reasons, Month, SA, 2001-2014

Source: US Bureau of Labor Statistics

Chart I-17 provides the number employed part-time for economic reasons or who cannot find full-time employment. There are sharp declines at the end of 2009, 2010 and 2011 but an increase in 2012 followed by stability in 2013-2014.

Chart I-17, US, Working Part-time for Economic Reasons

Thousands, Month SA 2001-2014

Sources: US Bureau of Labor Statistics

ICA3 Ten Million Fewer Full-time Jobs. There is strong seasonality in US labor markets around the end of the year.

Seasonally adjusted part-time for economic reasons. The number employed part-time for economic reasons because they could not find full-time employment fell from 9.068 million in Sep 2011 to 7.780 million in Mar 2012, seasonally adjusted, or decline of 1.288 million in six months, as shown in Table I-9. The number employed part-time for economic reasons rebounded to 8.572 million in Sep 2012 for increase of 527,000 in one month from Aug to Sep 2012. The number employed part-time for economic reasons declined to 8.231 million in Oct 2012 or by 341,000 again in one month, further declining to 8.164 million in Nov 2012 for another major one-month decline of 67,000 and 7.929 million in Dec 2012 or fewer 235,000 in just one month. The number employed part-time for economic reasons increased to 7.983 million in Jan 2013 or 54,000 more than in Dec 2012 and to 7,991 million in Feb 2013, declining to 7.917 million in May 2013 but increasing to 8.194 million in Jun 2013. The number employed part-time for economic reasons fell to 7.898 million in Aug 2013 for decline of 282,000 in one month from 8.180 million in Jul 2013. The number employed part-time for economic reasons increased 16,000 from 7.898 million in Aug 2013 to 7.914 million in Sep 2013. The number part-time for economic reasons rose to 8.016 million in Oct 2013, falling by 293,000 to 7.723 million in Nov 2013. The number part-time for economic reasons increased to 7.771 million in Dec 2013, decreasing to 7.257 million in Jan 2014. The number employed part-time for economic reasons fell from 7.257 million in Jan 2014 to 7.186 million in Feb 2014. The number employed part-time for economic reasons increased to 7.411 million in Mar 2014 and 7.465 million in Apr 2014. The number employed part-time for economic reasons fell to 7.269 million in May 2014, increasing to 7.544 million in Jun 2014. The level employed part-time for economic reasons fell to 7.511 million in Jul 2014 and 7.277 million in Aug 2014. The level employed part-time for economic reasons fell to 7.103 million in Sep 2014. There is an increase of 186,000 in part-time for economic reasons from Aug 2012 to Oct 2012 and of 119,000 from Aug 2012 to Nov 2012.
Seasonally adjusted full-time. The number employed full-time increased from 112.906 million in Oct 2011 to 115.114 million in Mar 2012 or 2.208 million but then fell to 114.279 million in May 2012 or 0.835 million fewer full-time employed than in Mar 2012. The number employed full-time increased from 114.626 million in Aug 2012 to 115.531 million in Oct 2012 or increase of 0.905 million full-time jobs in two months and further to 115.821 million in Jan 2013 or increase of 1.195 million more full-time jobs in five months from Aug 2012 to Jan 2013. The number of full time jobs decreased slightly to 115.785 million in Feb 2013, increasing to 116.288 million in May 2013 and 116.087 million in Jun 2013. Then number of full-time jobs increased to 116.156 million in Jul 2013, 116.301 million in Aug 2013 and 116.883 million in Sep 2013. The number of full-time jobs fell to 116.306 million in Oct 2013 and increased to 116.951 in Nov 2013. The level of full-time jobs fell to 117.278 million in Dec 2013, increasing to 117.656 million in Jan 2014 and 117.819 million in Feb 2014. The level of employment full-time increased to 118.003 million in Mar 2014 and 118.415 million in Apr 2014. The level of full-time employment reached 118.727 million in May 2014, decreasing to 118.204 million in Jun 2014. The level of full-time jobs increased to 118.489 in Jul 2014 and 118.616 million in Aug 2014. The level of full-time jobs increased to 119.287 million in Sep 2014. Adjustments of benchmark and seasonality-factors at the turn of every year could affect comparability of labor market indicators (http://cmpassocregulationblog.blogspot.com/2014/02/financial-instability-rules.html http://cmpassocregulationblog.blogspot.com/2013/02/thirty-one-million-unemployed-or.html).
Not seasonally adjusted part-time for economic reasons. The number of employed part-time for economic reasons actually increased without seasonal adjustment from 8.271 million in Nov 2011 to 8.428 million in Dec 2011 or by 157,000 and then to 8.918 million in Jan 2012 or by an additional 490,000 for cumulative increase from Nov 2011 to Jan 2012 of 647,000. The level of employed part-time for economic reasons then fell from 8.918 million in Jan 2012 to 7.867 million in Mar 2012 or by 1.051 million and to 7.694 million in Apr 2012 or 1.224 million fewer relative to Jan 2012. In Aug 2012, the number employed part-time for economic reasons reached 7.842 million NSA or 148,000 more than in Apr 2012. The number employed part-time for economic reasons increased from 7.842 million in Aug 2012 to 8.110 million in Sep 2012 or by 3.4 percent. The number part-time for economic reasons fell from 8.110 million in Sep 2012 to 7.870 million in Oct 2012 or by 240.000 in one month. The number employed part-time for economic reasons NSA increased to 8.628 million in Jan 2013 or 758,000 more than in Oct 2012. The number employed part-time for economic reasons fell to 8.298 million in Feb 2013, which is lower by 330,000 relative to 8.628 million in Jan 2013 but higher by 428,000 relative to 7.870 million in Oct 2012. The number employed part time for economic reasons fell to 7.734 million in Mar 2013 or 564,000 fewer than in Feb 2013 and fell to 7.709 million in Apr 2013. The number employed part-time for economic reasons reached 7.618 million in May 2013. The number employed part-time for economic reasons jumped from 7.618 million in May 2013 to 8.440 million in Jun 2013 or 822,000 in one month. The number employed part-time for economic reasons fell to 8.324 million in Jul 2013 and 7.690 million in Aug 2013. The number employed part-time for economic reasons NSA fell to 7.522 million in Sep 2013, increasing to 7.700 million in Oct 2013. The number employed part-time for economic reasons fell to 7.563 million in Nov 2013 and increased to 7.990 million in Dec 2013. The number employed part-time for economic reasons fell to 7.771 million in Jan 2014 and 7.397 million in Feb 2014. The level of part-time for economic reasons increased to 7.455 million in Mar 2014 and fell to 7.243 million in Apr 2014. The number of part-time for economic reasons fell to 6.960 million in May 2014, increasing to 7.805 million in Jun 2014. The level of part-time for economic reasons fell to 7.665 million in Jul 2014 and 7.083 million in Aug 2014. The level of part-time for economic reasons fell to 6.711 million in Sep 2014.
Not seasonally adjusted full-time. The number employed full time without seasonal adjustment fell from 113.138 million in Nov 2011 to 113.050 million in Dec 2011 or by 88,000 and fell further to 111.879 in Jan 2012 for cumulative decrease of 1.259 million. The number employed full-time not seasonally adjusted fell from 113.138 million in Nov 2011 to 112.587 million in Feb 2012 or by 551.000 but increased to 116.214 million in Aug 2012 or 3.076 million more full-time jobs than in Nov 2011. The number employed full-time not seasonally adjusted decreased from 116.214 million in Aug 2012 to 115.678 million in Sep 2012 for loss of 536,000 full-time jobs and rose to 116.045 million in Oct 2012 or by 367,000 full-time jobs in one month relative to Sep 2012. The number employed full-time NSA fell from 116.045 million in Oct 2012 to 115.515 million in Nov 2012 or decline of 530.000 in one month. The number employed full-time fell from 115.515 in Nov 2012 to 115.079 million in Dec 2012 or decline by 436,000 in one month. The number employed full time fell from 115.079 million in Dec 2012 to 113.868 million in Jan 2013 or decline of 1.211 million in one month. The number of full time jobs increased to 114.191 in Feb 2012 or by 323,000 in one month and increased to 114.796 million in Mar 2013 for cumulative increase from Jan by 928,000 full-time jobs but decrease of 283,000 from Dec 2012. The number employed full time reached 117.400 million in Jun 2013 and increased to 117.688 in Jul 2013 or by 288,000. The number employed full-time reached 117.868 million in Aug 2013 for increase of 180,000 in one month relative to Jul 2013. The number employed full-time fell to 117.308 million in Sep 2013 or by 560,000. The number employed full-time fell to 116.798 million in Oct 2013 or decline of 510.000 in one month. The number employed full-time rose to 116.875 million in Nov 2013, falling to 116.661 million in Dec 2013. The number employed full-time fell to 115.744 million in Jan 2014 but increased to 116.323 million in Feb 2014. The level of full-time jobs increased to 116.985 in Mar 2014 and 118.073 million in Apr 2014. The number of full-time jobs increased to 119.179 million in May 2014, increasing to 119.472 million in Jun 2014. The level of full-time jobs increased to 119.900 million in Jul 2014. Comparisons over long periods require use of NSA data. The number with full-time jobs fell from a high of 123.219 million in Jul 2007 to 108.777 million in Jan 2010 or by 14.442 million. The number with full-time jobs in Sep 2014 is 119.791 million, which is lower by 3.428 million relative to the peak of 123.219 million in Jul 2007.
Loss of full-time jobs. The magnitude of the stress in US labor markets is magnified by the increase in the civilian noninstitutional population of the United States from 231.958 million in Jul 2007 to 248.446 million in Sep 2014 or by 16.448 million (http://www.bls.gov/data/) while in the same period the number of full-time jobs fell 3.428 million. The ratio of full-time jobs of 123.219 million Jul 2007 to civilian noninstitutional population of 231.958 million was 53.1 percent. If that ratio had remained the same, there would be 131.925 million full-time jobs with population of 248.229 million in Aug 2014 (0.531 x 248.446) or 12.134 million fewer full-time jobs relative to actual 119.791 million. There appear to be around 10 million fewer full-time jobs in the US than before the global recession while population increased around 15 million. Mediocre GDP growth is the main culprit of the fractured US labor market. Long-term economic performance in the United States consisted of trend growth of GDP at 3 percent per year and of per capita GDP at 2 percent per year as measured for 1870 to 2010 by Robert E Lucas (2011May). The economy returned to trend growth after adverse events such as wars and recessions. The key characteristic of adversities such as recessions was much higher rates of growth in expansion periods that permitted the economy to recover output, income and employment losses that occurred during the contractions. Over the business cycle, the economy compensated the losses of contractions with higher growth in expansions to maintain trend growth of GDP of 3 percent and of GDP per capita of 2 percent. US economic growth has been at only 2.2 percent on average in the cyclical expansion in the 20 quarters from IIIQ2009 to IIQ2014. 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 third estimate of GDP for IIQ2014 (http://www.bea.gov/newsreleases/national/gdp/2014/pdf/gdp2q14_3rd.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 $14,745.9 billion in IIQ2010 by GDP of $14,355.6 billion in IIQ2009 {[$14,745.9/$14,355.6 -1]100 = 2.7%], or accumulating the quarter on quarter growth rates (http://cmpassocregulationblog.blogspot.com/2014/09/financial-volatility-mediocre-cyclical.html and earlier http://cmpassocregulationblog.blogspot.com/2014/09/geopolitical-and-financial-risks.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, 4.9 percent from IQ1983 to IIIQ1987, 5.0 percent from IQ1983 to IVQ1987 and at 7.8 percent from IQ1983 to IVQ1983 (http://cmpassocregulationblog.blogspot.com/2014/09/financial-volatility-mediocre-cyclical.html and earlier http://cmpassocregulationblog.blogspot.com/2014/09/geopolitical-and-financial-risks.html). The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. Growth at trend in the entire cycle from IVQ2007 to IIQ2014 would have accumulated to 22.1 percent. GDP in IIQ2014 would be $18,305.0 billion (in constant dollars of 2009) if the US had grown at trend, which is higher by $2,294.6 billion than actual $16,010.4 billion. There are about two trillion dollars of GDP less than at trend, explaining the 26.5 million unemployed or underemployed equivalent to actual unemployment of 16.1 percent of the effective labor force (http://cmpassocregulationblog.blogspot.com/2014/10/world-financial-turbulence-twenty-seven.html and earlier http://cmpassocregulationblog.blogspot.com/2014/09/competitive-monetary-policy-and.html). US GDP in IIQ2014 is 12.5 percent lower than at trend. US GDP grew from $14,991.8 billion in IVQ2007 in constant dollars to $16,010.4 billion in IIQ2014 or 6.8 percent at the average annual equivalent rate of 1.0 percent. Cochrane (2014Jul2) estimates US GDP at more than 10 percent below trend. The US missed the opportunity to grow at higher rates during the expansion and it is difficult to catch up because growth 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 is similar behavior in manufacturing. The long-term trend is growth at average 3.3 percent per year from Jan 1919 to Jul 2014. Growth at 3.3 percent per year would raise the NSA index of manufacturing output from 99.2392 in Dec 2007 to 123.2212 in Aug 2014. The actual index NSA in Aug 2014 is 101.5145, which is 17.6 percent below trend. Manufacturing output grew at average 2.3 percent between Dec 1986 and Dec 2013, raising the index at trend to 117.7603 in Aug 2014. The output of manufacturing at 101.5145 in Aug 2014 is 13.8 percent below trend under this alternative calculation.

Focus is shifting from tapering quantitative easing by the Federal Open Market Committee (FOMC). There is sharp distinction between the two measures of unconventional monetary policy: (1) fixing of the overnight rate of fed funds at 0 to ¼ percent; and (2) outright purchase of Treasury and agency securities and mortgage-backed securities for the balance sheet of the Federal Reserve. Markets overreacted to the so-called “paring” of outright purchases to $25 billion of securities per month for the balance sheet of the Fed. What is truly important is the fixing of the overnight fed funds at 0 to ¼ percent for which there is no end in sight as evident in the FOMC statement for Sep 17, 2014 (http://www.federalreserve.gov/newsevents/press/monetary/20140917a.htm):

“To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate. In determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored” (emphasis added).

Table I-9, US, Employed Part-time for Economic Reasons, Thousands, and Full-time, Millions

	Part-time Thousands	Full-time Millions
Seasonally Adjusted
Sep 2014	7,103	119.287
Aug 2014	7,277	118.616
Jul 2014	7,511	118.489
Jun 2014	7,544	118.204
May 2014	7,269	118.727
Apr 2014	7,465	118.415
Mar 2014	7,411	118.003
Feb 2014	7,186	117.819
Jan 2014	7,257	117.656
Dec 2013	7,771	117.278
Nov 2013	7,723	116.951
Oct 2013	8,016	116.306
Sep 2013	7,914	116.883
Aug 2013	7,898	116.301
Jul 2013	8,180	116.156
Jun 2013	8,194	116.087
May 2013	7,917	116.288
Apr 2013	7,929	116.062
Mar 2013	7,663	115.901
Feb 2013	7,991	115.785
Jan 2013	7,983	115.821
Dec 2012	7,929	115.735
Nov 2012	8,164	115.581
Oct 2012	8,231	115.531
Sep 2012	8,572	115.229
Aug 2012	8,045	114.626
Jul 2012	8,163	114.589
Jun 2012	8,154	114.728
May 2012	8,138	114.279
Apr 2012	7,913	114.398
Mar 2012	7,780	115.114
Feb 2012	8,133	114.210
Jan 2012	8,228	113.790
Dec 2011	8,177	113.740
Nov 2011	8,457	113.158
Oct 2011	8,675	112.906
Sep 2011	9,068	112.523
Aug 2011	8,820	112.643
Jul 2011	8,342	112.209
Not Seasonally Adjusted
Sep 2014	6,711	119.791
Aug 2014	7,083	120.110
Jul 2014	7,665	119.900
Jun 2014	7,805	119.472
May 2014	6,960	119.179
Apr 2014	7,243	118.073
Mar 2014	7,455	116.985
Feb 2014	7,397	116.323
Jan 2014	7,771	115.744
Dec 2013	7,990	116.661
Nov 2013	7,563	116.875
Oct 2013	7,700	116.798
Sep 2013	7,522	117.308
Aug 2013	7,690	117.868
Jul 2013	8,324	117.688
Jun 2013	8,440	117.400
May 2013	7,618	116.643
Apr 2013	7,709	115.674
Mar 2013	7,734	114.796
Feb 2013	8,298	114.191
Jan 2013	8,628	113.868
Dec 2012	8,166	115.079
Nov 2012	7,994	115.515
Oct 2012	7,870	116.045
Sep 2012	8,110	115.678
Aug 2012	7,842	116.214
Jul 2012	8,316	116.131
Jun 2012	8,394	116.024
May 2012	7,837	114.634
Apr 2012	7,694	113.999
Mar 2012	7,867	113.916
Feb 2012	8,455	112.587
Jan 2012	8,918	111.879
Dec 2011	8,428	113.050
Nov 2011	8,271	113.138
Oct 2011	8,258	113.456
Sep 2011	8,541	112.980
Aug 2011	8,604	114.286
Jul 2011	8,514	113.759
Jun 2011	8,738	113.255
May 2011	8,270	112.618
Apr 2011	8,425	111.844
Mar 2011	8,737	111.186
Feb 2011	8,749	110.731
Jan 2011	9,187	110.373
Dec 2010	9,205	111.207
Nov 2010	8,670	111.348
Oct 2010	8,408	112.342
Sep 2010	8,628	112.385
Aug 2010	8,628	113.508
Jul 2010	8,737	113.974
Jun 2010	8,867	113.856
May 2010	8,513	112.809
Apr 2010	8,921	111.391
Mar 2010	9,343	109.877
Feb 2010	9,282	109.100
Jan 2010	9,290	108.777 (low)
Dec 2009	9,354 (high)	109.875
Nov 2009	8,894	111.274
Oct 2009	8,474	111.599
Sep 2009	8,255	111.991
Aug 2009	8,835	113.863
Jul 2009	9,103	114.184
Jun 2009	9,301	114.014
May 2009	8,785	113.083
Apr 2009	8,648	112.746
Mar 2009	9,305	112.215
Feb 2009	9,170	112.947
Jan 2009	8,829	113.815
Dec 2008	8,250	116.422
Nov 2008	7,135	118.432
Oct 2008	6,267	120.020
Sep 2008	5,701	120.213
Aug 2008	5,736	121.556
Jul 2008	6,054	122.378
Jun 2008	5,697	121.845
May 2008	5,096	120.809
Apr 2008	5,071	120.027
Mar 2008	5,038	119.875
Feb 2008	5,114	119.452
Jan 2008	5,340	119.332
Dec 2007	4,750	121.042
Nov 2007	4,374	121.846
Oct 2007	4,028	122.006
Sep 2007	4,137	121.728
Aug 2007	4,494	122.870
Jul 2007	4,516	123.219 (high)
Jun 2007	4,469	122.150
May 2007	4,315	120.846
Apr 2007	4,205	119.609
Mar 2007	4,384	119.640
Feb 2007	4,417	119.041
Jan 2007	4,726	119.094
Dec 2006	4,281	120.371
Nov 2006	4,054	120.507
Oct 2006	4,010	121.199
Sep 2006	3,735 (low)	120.780
Aug 2006	4,104	121.979
Jul 2006	4,450	121.951
Jun 2006	4,456	121.070
May 2006	3,968	118.925
Apr 2006	3,787	118.559
Mar 2006	4,097	117.693
Feb 2006	4,403	116.823
Jan 2006	4,597	116.395

Source: US Bureau of Labor Statistics

People lose their marketable job skills after prolonged unemployment and face increasing difficulty in finding another job. Chart I-18 shows the sharp rise in unemployed over 27 weeks and stabilization at an extremely high level.

Chart I-18, US, Number Unemployed for 27 Weeks or Over, Thousands SA Month 2001-2014

Sources: US Bureau of Labor Statistics

Another segment of U6 consists of people marginally attached to the labor force who continue to seek employment but less frequently on the frustration there may not be a job for them. Chart I-19 shows the sharp rise in people marginally attached to the labor force after 2007 and subsequent stabilization.

Chart I-19, US, Marginally Attached to the Labor Force, NSA Month, Thousands, 2001-2014

Sources: US Bureau of Labor Statistics

The number with full-time jobs in Sep 2014 is 119.791 million, which is lower by 3.428 million relative to the peak of 123.219 million in Jul 2007. The magnitude of the stress in US labor markets is magnified by the increase in the civilian noninstitutional population of the United States from 231.958 million in Jul 2007 to 248.446 million in Sep 2014 or by 16.448 million (http://www.bls.gov/data/) while in the same period the number of full-time jobs fell 3.428 million. The ratio of full-time jobs of 123.219 million Jul 2007 to civilian noninstitutional population of 231.958 million was 53.1 percent. If that ratio had remained the same, there would be 131.925 million full-time jobs with population of 248.229 million in Aug 2014 (0.531 x 248.446) or 12.134 million fewer full-time jobs relative to actual 119.791 million. There appear to be around 10 million fewer full-time jobs in the US than before the global recession while population increased around 15 million. Mediocre GDP growth is the main culprit of the fractured US labor market.

Chart I-20 provides unadjusted full-time jobs in the US from 2001 to 2014 with sharp drop and incomplete recovery. 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.”

Inferior performance of the US economy and labor markets, during cyclical slow growth not secular stagnation, is the critical current issue of analysis and policy design.

Chart I-20, US, Full-time Employed, Thousands, NSA, 2001-2014

Sources: US Bureau of Labor Statistics

Chart I-20A provides the noninstitutional civilian population of the United States from 2001 to 2014. There is clear trend of increase of the population while the number of full-time jobs collapsed after 2008 without sufficient recovery as shown in the preceding Chart I-20.

Chart I-20A, US, Noninstitutional Civilian Population, Thousands, 2001-2014

Sources: US Bureau of Labor Statistics

Chart I-20B provides number of full-time jobs in the US from 1968 to 2014. There were multiple recessions followed by expansions without contraction of full-time jobs and without recovery as during the period after 2008. The problem is specific of the current cycle and not secular.

Chart I-20B, US, Full-time Employed, Thousands, NSA, 1968-2014

Sources: US Bureau of Labor Statistics

Chart I-20C provides the noninstitutional civilian population of the United States from 1968 to 2013. Population expanded at a relatively constant rate of increase with the assurance of creation of full-time jobs that has been broken since 2008.

Chart I-20C, US, Noninstitutional Civilian Population, Thousands, 1968-2014

Sources: US Bureau of Labor Statistics

IA4 Theory and Reality of Secular Stagnation: Youth and Middle-Age Unemployment. Three tables support the argument that the proper comparison of the business cycle is between the recessions of the 1980s and the global recession after IVQ2007 and not as argued erroneously with the Great Depression of the 1930s.

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 4.2 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, 3.5 percent in 1986 and 3.5 percent in 1987. In contrast, GDP grew 2.5 percent in 2010, 1.6 percent in 2011, 2.3 percent in 2012 and 2.2 percent in 2013. Actual annual equivalent GDP growth in the four quarters of 2012, and six quarters from IQ2013 to IIQ2014 is 2.1 percent and 2.6 percent in the four quarters ending in IIQ2014. GDP grew at 4.2 percent in 1985, 3.5 percent in 1986 and 3.5 percent in 1987 while the forecasts of the central tendency of participants of the Federal Open Market Committee (FOMC) are in the range of 2.0 to 2.2 percent in 2014 (http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20140917.pdf) with less reliable forecast of 2.6 to 3.0 percent in 2015 (http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20140917.pdf ). Growth of GDP in the expansion from IIIQ2009 to IIQ2014 has been at average 2.2 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	3.3
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	1.6
1942	18.9	1992	3.6	2012	2.3
1943	17.0	1993	2.7	2013	2.2

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 4.2 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	-4.2	-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 2.2 percent of the US economy in the twenty quarters of the current cyclical expansion from IIIQ2009 to IIQ2014. 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
5.0 percent in the first eighteen quarters of expansion from IQ1983 to IIQ1987
4.9 percent in the first nineteen quarters of expansion from IQ1983 to IIIQ1987
5.0 percent in the first twenty quarters of expansion from IQ1983 to IVQ1987

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 2.5 percent in 2010 decelerating to 1.6 percent annual growth in 2011, 2.3 percent in 2012 and 2.2 percent in 2013 (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, 4.9 percent from IQ1983 to IIIQ1987, 5.0 percent from IQ1983 to IVQ1987 and at 7.8 percent from IQ1983 to IVQ1983. GDP growth in the four quarters of 2012, the four quarters of 2013 and the first two quarters of 2014 accumulated to 5.4 percent. This growth is equivalent to 2.1 percent per year, obtained by dividing GDP in IIQ2014 of $16,010.4 billion by GDP in IVQ2011 of $15,190.3 billion and compounding by 4/10: {[($16,010.4/$15,190.3)^4/10 -1]100 = 2.1 percent. The rate of growth of GDP in the revision of the third estimate of IIIQ2013 is 4.5 percent in seasonally adjusted annual rate (SAAR). Inventory accumulation contributed 1.49 percentage points to this rate of growth. The actual rate without this impulse of unsold inventories would have been 3.0 percent, or 0.74 percent in IIIQ2013, such that annual equivalent growth in 2013 is closer to 2.8 percent {[(1.007)(1.004)(1.0074)(1.009)^4/4-1]100 = 2.8%}, compounding the quarterly rates and converting into annual equivalent. Inventory divestment deducted 1.16 percentage points from GDP growth in IQ2014. Without this deduction of inventory divestment, GDP growth would have been minus 0.9 percent in IQ2014, such that the actual growth rates in the four quarters ending in IQ2014 is closer to 2.2 percent {[(1.004)(1.011)(1.009)(0.9977)]^4/4 -1]100 = 2.2%}.

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

	Number of Quarters	Cumulative Growth ∆%	Average Annual Equivalent Growth Rate
IIIQ 1954 to IQ1957	11	12.8	4.5
First Four Quarters IIIQ1954 to IIQ1955	4	7.8
IIQ1958 to IIQ1959	5	10.0	7.9
First Four Quarters IIIQ1958 to IIQ1959	4	9.2
IIQ1975 to IVQ1976	8	8.3	4.1
First Four Quarters IIIQ1975 to IIQ1976	4	6.1
IQ1983-IQ1986 IQ1983-IIIQ1986 IQ1983-IVQ1986 IQ1983-IQ1987 IQ1983-IIQ1987 IQ1983 to IIIQ1987 IQ1983 to IVQ1987	13 15 16 17 18 19 20	19.9 21.6 22.3 23.1 24.5 25.6 27.7	5.7 5.4 5.2 5.0 5.0 4.9 5.0
First Four Quarters IQ1983 to IVQ1983	4	7.8
Average First Four Quarters in Four Expansions*		7.7
IIIQ2009 to IIQ2014	20	11.5	2.2
First Four Quarters IIIQ2009 to IIQ2010		2.7

*First Four Quarters: 7.8% IIIQ1954-IIQ1955; 9.2% IIIQ1958-IIQ1959; 6.1% IIIQ1975-IQ1976; 7.8% IQ1983-IVQ1983

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

Table EMP provides the comparison between the labor market in the current whole cycle from 2007 to 2013 and the whole cycle from 1979 to 1986. In the entire cycle from 2007 to 2013, the number employed fell 2.118 million, full-time employed fell 4.777 million, part-time for economic reasons increased 3.534 and population increased 13.812 million. The number employed fell 1.5 percent, full-time employed fell 3.9 percent, part-time for economic reasons increased 80.3 percent and population increased 6.0 percent. There is sharp contrast with the contractions of the 1980s and with most economic history of the United States. In the whole cycle from 1979 to 1986, the number employed increased 10.773 million, full-time employed increased 7.875 million, part-time for economic reasons 2.011 million and population 15.724 million. In the entire cycle from 1979 to 1986, the number employed increased 10.9 percent, full-time employed 9.5 percent, part-time for economic reasons 56.2 percent and population 9.5 million. The difference between the 1980s and the current cycle after 2007 is in the high rate of growth after the contraction that maintained trend growth around 3.0 percent for the entire cycle and per capital growth at 2.0 percent. The evident fact is that current weakness in labor markets originates in cyclical slow growth and not in imaginary secular stagnation.

Table EMP, US, Annual Level of Employed, Full-Time Employed, Employed Part-Time for Economic Reasons and Noninstitutional Civilian Population, Millions

	Employed	Full-Time Employed	Part Time Economic Reasons	Noninstitutional Civilian Population
2000s
2000	136.891	113.846	3.227	212.577
2001	136.933	113.573	3.715	215.092
2002	136.485	112.700	4.213	217.570
2003	137.736	113.324	4.701	221.168
2004	139.252	114.518	4.567	223.357
2005	141.730	117.016	4.350	226.082
2006	144.427	119.688	4.162	228.815
2007	146.047	121.091	4.401	231.867
2008	145.362	120.030	5.875	233.788
2009	139.877	112.634	8.913	235.801
2010	139.064	111.714	8.874	237.830
2011	139.869	112.556	8.560	239.618
2012	142.469	114.809	8.122	243.284
2013	143.929	116.314	7.935	245.679
∆2007-2013	-2.118	-4.777	3.534	13.812
∆% 2007-2013	-1.5	-3.9	80.3	6.0
1980s
1979	98.824	82.654	3.577	164.863
1980	99.303	82.562	4.321	167.745
1981	100.397	83.243	4.768	170.130
1982	99.526	81.421	6.170	172.271
1983	100.834	82.322	6.266	174.215
1984	105.005	86.544	5.744	176.383
1985	107.150	88.534	5.590	178.206
1986	109.597	90.529	5.588	180.587
1987	112.440	92.957	5.401	182.753
1988	114.968	95.214	5.206	184.613
1989	117.342	97.369	4.894	186.393
∆1979-1986	10.773	7.875	2.011	15.724
∆% 1979-86	10.9	9.5	56.2	9.5

Source: Bureau of Labor Statistics

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:

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). Youth workers would obtain employment at a premium in an economy with declining population. In fact, 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. This is merely another case of theory without reality with dubious policy proposals. Inferior performance of the US economy and labor markets is the critical current issue of analysis and policy design.

In revealing research, Edward P. Lazear and James R. Spletzer (2012JHJul22) use the wealth of data in the valuable database and resources of the Bureau of Labor Statistics (http://www.bls.gov/data/) in providing clear thought on the nature of the current labor market of the United States. The critical issue of analysis and policy currently is whether unemployment is structural or cyclical. Structural unemployment could occur because of (1) industrial and demographic shifts and (2) mismatches of skills and job vacancies in industries and locations. Consider the aggregate unemployment rate, Y, expressed in terms of share s_i of a demographic group in an industry i and unemployment rate y_i of that demographic group (Lazear and Spletzer 2012JHJul22, 5-6):

Y = ∑_is_iy_i (1)

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

∆Y = ∑_i∆s_iy*_i+ ∑_i∆y_is*_i (2)

The first term in (2) captures changes in the demographic and industrial composition of the economy ∆s_i multiplied by the average rate of unemployment y*_i, or structural factors. The second term in (2) captures changes in the unemployment rate specific to a group, or ∆y_i, multiplied by the average share of the group s*_i,or cyclical factors. There are also mismatches in skills and locations relative to available job vacancies. A simple observation by Lazear and Spletzer (2012JHJul22) casts intuitive doubt on structural factors: the rate of unemployment jumped from 4.4 percent in the spring of 2007 to 10 percent in October 2009. By nature, structural factors should be permanent or occur over relative long periods. The revealing result of the exhaustive research of Lazear and Spletzer (2012JHJul22) is:

“The analysis in this paper and in others that we review do not provide any compelling evidence that there have been changes in the structure of the labor market that are capable of explaining the pattern of persistently high unemployment rates. The evidence points to primarily cyclic factors.”

The theory of secular stagnation cannot explain sudden collapse of the US economy and labor markets. There are accentuated cyclic factors for both the entire population and the young population of ages 16 to 24 years. Table Summary Total provides the total noninstitutional population (ICP) of the US, full-time employment level (FTE), employment level (EMP), civilian labor force (CLF), civilian labor force participation rate (CLFP), employment/population ratio (EPOP) and unemployment level (UNE). Secular stagnation would spread over long periods instead of immediately. All indicators of the labor market weakened sharply during the contraction and did not recover. Population continued to grow but all other variables collapsed and did not recover. 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). Hansen (1938, 1939) finds secular stagnation in lower growth of an aging population. In the current US economy, Table Summary shows that population is dynamic while the labor market is fractured. There is key explanation in the behavior of the civilian labor force participation rate (CLFP) and the employment population ratio (EPOP) that collapsed during the global recession with inadequate recovery. Abandoning job searches are difficult to capture in labor statistics but likely explain the decline in the participation of the population in the labor force. Allowing for abandoning job searches, the total number of people unemployed or underemployed is 26.5 million or 16.1 percent of the effective labor force (http://cmpassocregulationblog.blogspot.com/2014/10/world-financial-turbulence-twenty-seven.html).

Table Summary Total, US, Total Noninstitutional Civilian Population, Full-time Employment, Employment, Civilian Labor Force, Civilian Labor Force Participation Rate, Employment Population Ratio, Unemployment, NSA, Millions and Percent

	ICP	FTE	EMP	CLF	CLFP	EPOP	UNE
2006	228.8	119.7	144.4	151.4	66.2	63.1	7.0
2009	235.8	112.6	139.9	154.1	65.4	59.3	14.3
2012	243.3	114.8	142.5	155.0	63.7	58.6	12.5
2013	245.7	116.3	143.9	155.4	63.2	58.6	11.5
12/07	233.2	121.0	146.3	153.7	65.9	62.8	7.4
9/09	236.3	112.0	139.1	153.6	65.0	58.9	14.5
9/14	248.4	119.8	146.9	155.9	62.8	59.1	9.0

ICP: Total Noninstitutional Civilian Population; FT: Full-time Employment Level, EMP: Total Employment Level; CLF: Civilian Labor Force; CLFP: Civilian Labor Force Participation Rate; EPOP: Employment Population Ratio; UNE: Unemployment

Source: Bureau of Labor Statistics

The same situation is present in the labor market for young people in ages 16 to 24 years with data in Table Summary Youth. The youth noninstitutional civilian population (ICP) continued to increase during and after the global recession. There is the same disastrous labor market with decline for young people in employment (EMP), civilian labor force (CLF), civilian labor force participation rate (CLFP) and employment population ratio (EPOP). There are only increases for unemployment of young people (UNE) and youth unemployment rate (UNER). If aging were a factor of secular stagnation, growth of population of young people would attract a premium in remuneration in labor markets. The sad fact is that young people are also facing tough labor markets. The application of the theory of secular stagnation to the US economy and labor markets is void of reality in the form of key facts, which are best explained by accentuated cyclic factors analyzed by Lazear and Spletzer (2012JHJul22).

Table Summary Youth, US, Youth, Ages 16 to 24 Years, Noninstitutional Civilian Population, Full-time Employment, Employment, Civilian Labor Force, Civilian Labor Force Participation Rate, Employment Population Ratio, Unemployment, NSA, Millions and Percent

	ICP	EMP	CLF	CLFP	EPOP	UNE	UNER
2006	36.9	20.0	22.4	60.6	54.2	2.4	10.5
2009	37.6	17.6	21.4	56.9	46.9	3.8	17.6
2012	38.7	17.8	21.3	54.9	46.0	3.5	16.2
2013	38.8	18.1	21.4	55.0	46.5	3.3	15.5
12/07	37.5	19.4	21.7	57.8	51.6	2.3	10.7
9/09	37.6	17.0	20.7	55.2	45.1	3.8	18.2
9/14	38.7	18.1	21.0	54.2	46.8	2.9	13.6

ICP: Youth Noninstitutional Civilian Population; EMP: Youth Employment Level; CLF: Youth Civilian Labor Force; CLFP: Youth Civilian Labor Force Participation Rate; EPOP: Youth Employment Population Ratio; UNE: Unemployment; UNER: Youth Unemployment Rate

Source: Bureau of Labor Statistics

The United States is experiencing high youth unemployment as in European economies. Table I-10 provides the employment level for ages 16 to 24 years of age estimated by the Bureau of Labor Statistics. On an annual basis, youth employment fell from 20.041 million in 2006 to 17.362 million in 2011 or 2.679 million fewer youth jobs and to 17.834 million in 2012 or 2.207 million fewer jobs. Youth employment fell from 20.041 million in 2006 to 18.057 million in 2013 or 1.984 million fewer jobs. The number of youth jobs fell from 19.604 million in Sep 2006 to 18.104 million in Sep 2014 for 1.500 million fewer youth jobs. During the seasonal peak months of youth employment in the summer from Jun to Aug, youth employment has fallen by more than two million jobs relative to 21.167 million in Aug 2006 to 18.972 million in Aug 2014 for 2.195 million fewer jobs. Youth employment fell from 21.914 million in Jul 2006 to 20.085 million in Jul 2014 for 1.829 million fewer youth jobs. The number of youth jobs fell from 21.268 million in Jun 2006 million to 19.421 million in Jun 2014 or 1.847 million fewer youth jobs. The number of jobs ages 16 to 24 years fell from 21.167 million in Aug 2006 to 18.636 million in Aug 2013 or by 2.531 million. The number of youth jobs fell from 19.604 million in Sep 2006 to 18.043 million in Sep 2013 or 1.561 million fewer youth jobs. The number of youth jobs fell from 20.129 million in Dec 2006 to 18.106 million in Dec 2013 or 2.023 million fewer jobs. The civilian noninstitutional population ages 16 to 24 years increased from 37.443 million in Jul 2007 to 38.861 million in Jul 2013 or by 1.418 million while the number of jobs for ages 16 to 24 years fell by 2.230 million from 21.914 million in Jul 2006 to 19.684 million in Jul 2013. The civilian noninstitutional population for ages 16 to 24 years increased from 37.455 million in Aug 2007 to 38.841 million in Aug 2013 or by 1.386 million while the number of youth jobs fell by 1.777 million. The civilian noninstitutional population increased from 37.467 million in Sep 2007 to 38.822 million in Sep 2013 or by 1.355 million while the number of youth jobs fell by 1.455 million. The civilian noninstitutional population increased from 37.480 million in Oct 2007 to 38.804 million in Oct 2013 or by 1.324 million while the number of youth jobs decreased 1.877 million from Oct 2006 to Oct 2013. The civilian noninstitutional population increased from 37.076 million in Nov 2006 to 38.798 million in Nov 2013 or by 1.722 million while the number of youth jobs fell 1.799 million. The civilian noninstitutional population increased from 37.518 million in Dec 2007 to 38.790 million in Dec 2013 or by 1.272 million while the number of youth jobs fell 2.023 million from Dec 2006 to Dec 2013. The youth civilian noninstitutional population increased 1.488 million from 37.282 million in in Jan 2007 to 38.770 million in Jan 2014 while the number of youth jobs fell 2.035 million. The youth civilian noninstitutional population increased 1.464 million from 37.302 in Feb 2007 to 38.766 million in Feb 2014 while the number of youth jobs decreased 2.058 million. The civilian noninstitutional population increased 1.437 million from 37.324 million in Mar 2007 to 38.761 million in Mar 2014 while jobs for ages 16 to 24 years decreased 1.599 million from 19.538 million in Mar 2007 to 17.939 million in Mar 2014. The civilian noninstitutional population ages 16 to 24 years increased 1.410 million from 37.349 million in Apr 2007 to 38.759 million in Apr 2014 while the number of youth jobs fell 1.347 million. The civilian noninstitutional population increased 1.370 million from 37.379 million in May 2007 to 38.749 million in May 2014 while the number of youth jobs decreased 1.128 million. The civilian noninstitutional population increased 1.330 million from 37.410 million in Jun 2007 to 38.740 million in Jun 2014 while the number of youth jobs fell 1.847 million from 21.268 million in Jun 2006 to 19.421 million in Jun 2014. The youth civilian noninstitutional population increased by 1.292 million from 37.443 million in Jul 2007 to 38.735 million in Jul 2014 while the number of youth jobs fell 1.632 million. The youth civilian noninstitutional population increased from 37.445 million in Aug 2007 to 38.706 million in Aug 2014 or 1.251 million while the number of youth jobs fell 1.441 million. The youth civilian noninstitutional population increased 1.652 million from 37.027 million in Sep 2006 to 38.679 million in Sep 2014 while the number of youth jobs fell 1.500 million. The hardship does not originate in low growth of population but in underperformance of the economy in the expansion from the business cycle. There are two hardships behind these data. First, young people cannot find employment after finishing high school and college, reducing prospects for achievement in older age. Second, students with more modest means cannot find employment to keep them in college.

Table I-10, US, Employment Level 16-24 Years, Thousands, NSA

Year	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep
2001	19678	19745	19800	19778	19648	21212	22042	20529	19706
2002	18653	19074	19091	19108	19484	20828	21501	20653	19466
2003	18811	18880	18709	18873	19032	20432	20950	20181	18909
2004	18852	18841	18752	19184	19237	20587	21447	20660	19158
2005	18858	18670	18989	19071	19356	20949	21749	20814	19503
2006	19003	19182	19291	19406	19769	21268	21914	21167	19604
2007	19407	19415	19538	19368	19457	21098	21717	20413	19498
2008	18724	18546	18745	19161	19254	20466	21021	20096	18818
2009	17467	17606	17564	17739	17588	18726	19304	18270	16972
2010	16166	16412	16587	16764	17039	17920	18564	18061	16874
2011	16512	16638	16898	16970	17045	18180	18632	18067	17238
2012	16944	17150	17301	17387	17681	18907	19461	18171	17687
2013	17183	17257	17271	17593	17704	19125	19684	18636	18043
2014	17372	17357	17939	18021	18329	19421	20085	18972	18104

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

Chart I-21 provides US employment level ages 16 to 24 years from 2002 to 2014. Employment level is sharply lower in Sep 2014 relative to the peak in 2007. The following Chart I-21A relates youth employment and youth civilian noninstitutional population.

Chart I-21, US, Employment Level 16-24 Years, Thousands SA, 2001-2014

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

Chart I-21A provides the US civilian noninstitutional population ages 16 to 24 years not seasonally adjusted from 2001 to 2014. The civilian noninstitutional population ages 16 to 24 years increased from 37.443 million in Jul 2007 to 38.861 million in Jul 2013 or by 1.418 million while the number of jobs for ages 16 to 24 years fell by 2.230 million from 21.914 million in Jul 2006 to 19.684 million in Jul 2013. The civilian noninstitutional population for ages 16 to 24 years increased from 37.455 million in Aug 2007 to 38.841 million in Aug 2013 or by 1.386 million while the number of youth jobs fell by 1.777 million. The civilian noninstitutional population increased from 37.467 million in Sep 2007 to 38.822 million in Sep 2013 or by 1.355 million while the number of youth jobs fell by 1.455 million. The civilian noninstitutional population increased from 37.480 million in Oct 2007 to 38.804 million in Oct 2013 or by 1.324 million while the number of youth jobs decreased 1.877 million from Oct 2006 to Oct 2013. The civilian noninstitutional population increased from 37.076 million in Nov 2006 to 38.798 million in Nov 2013 or by 1.722 million while the number of youth jobs fell 1.799 million. The civilian noninstitutional population increased from 37.518 million in Dec 2007 to 38.790 million in Dec 2013 or by 1.272 million while the number of youth jobs fell 2.023 million from Dec 2006 to Dec 2013. The youth civilian noninstitutional population increased 1.488 million from 37.282 million in in Jan 2007 to 38.770 million in Jan 2014 while the number of youth jobs fell 2.035 million. The youth civilian noninstitutional population increased 1.464 million from 37.302 in Feb 2007 to 38.766 million in Feb 2014 while the number of youth jobs decreased 2.058 million. The civilian noninstitutional population increased 1.437 million from 37.324 million in Mar 2007 to 38.761 million in Mar 2014 while jobs for ages 16 to 24 years decreased 1.599 million from 19.538 million in Mar 2007 to 17.939 million in Mar 2014. The civilian noninstitutional population ages 16 to 24 years increased 1.410 million from 37.349 million in Apr 2007 to 38.759 million in Apr 2014 while the number of youth jobs fell 1.347 million. The civilian noninstitutional population increased 1.370 million from 37.379 million in May 2007 to 38.749 million in May 2014 while the number of youth jobs decreased 1.128 million. The civilian noninstitutional population increased 1.330 million from 37.410 million in Jun 2007 to 38.740 million in Jun 2014 while the number of youth jobs fell 1.847 million from 21.268 million in Jun 2006 to 19.421 million in Jun 2014. The youth civilian noninstitutional population increased by 1.292 million from 37.443 million in Jul 2007 to 38.735 million in Jul 2014 while the number of youth jobs fell 1.632 million. The youth civilian noninstitutional population increased from 37.445 million in Aug 2007 to 38.706 million in Aug 2014 or 1.251 million while the number of youth jobs fell 1.441 million. The youth civilian noninstitutional population increased 1.652 million from 37.027 million in Sep 2006 to 38.679 million in Sep 2014 while the number of youth jobs fell 1.500 million. The hardship does not originate in low growth of population but in underperformance of the economy in the expansion from the business cycle. There are two hardships behind these data. First, young people cannot find employment after finishing high school and college, reducing prospects for achievement in older age. Second, students with more modest means cannot find employment to keep them in college.

Chart I-21A, US, Civilian Noninstitutional Population Ages 16 to 24 Years, Thousands NSA, 2001-2014

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

Chart I-21B provides the civilian labor force of the US ages 16 to 24 years NSA from 2001 to 2014. The US civilian labor force ages 16 to 24 years fell from 24.339 million in Jul 2007 to 23.506 million in Jul 2013, by 0.833 million or decline of 3.4 percent, while the civilian noninstitutional population NSA increased from 37.443 million in Jul 2007 to 38.861 million in Jul 2013, by 1.418 million or 3.8 percent. The US civilian labor force ages 16 to 24 fell from 22.801 million in Aug 2007 to 22.089 million in Aug 2013, by 0.712 million or 3.1 percent, while the noninstitutional population for ages 16 to 24 years increased from 37.455 million in Aug 2007 to 38.841 million in Aug 2013, by 1.386 million or 3.7 percent. The US civilian labor force ages 16 to 24 years fell from 21.917 million in Sep 2007 to 21.183 million in Sep 2013, by 0.734 million or 3.3 percent while the civilian noninstitutional youth population increased from 37.467 million in Sep 2007 to 38.822 million in Sep 2013 by 1.355 million or 3.6 percent. The US civilian labor force fell from 21.821 million in Oct 2007 to 21.003 million in Oct 2013, by 0.818 million or 3.7 percent while the noninstitutional youth population increased from 37.480 million in Oct 2007 to 38.804 million in Oct 2013, by 1.324 million or 3.5 percent. The US youth civilian labor force fell from 21.909 million in Nov 2007 to 20.825 million in Nov 2013, by 1.084 million or 4.9 percent while the civilian noninstitutional youth population increased from 37.076 million in Nov 2006 to 38.798 million in Nov 2013 or by 1.722 million. The US youth civilian labor force fell from 21.684 million in Dec 2007 to 20.642 million in Dec 2013, by 1.042 million or 4.8 percent, while the civilian noninstitutional population increased from 37.518 million in Dec 2007 to 38.790 million in Dec 2013, by 1.272 million or 3.4 percent. The youth civilian labor force of the US fell from 21.770 million in Jan 2007 to 20.423 million in Jan 2014, by 1.347 million or 6.2 percent while the youth civilian noninstitutional population increased 37.282 million in Jan 2007 to 38.770 million in Jan 2014, by 1.488 million or 4.0 percent. The youth civilian labor force of the US fell 1.255 million from 21.645 million in Feb 2007 to 20.390 million in Feb 2014 while the youth civilian noninstitutional population increased 1.464 million from 37.302 million in Feb 2007 to 38.766 million in Feb 2014. The youth civilian labor force of the US fell 0.693 million from 21.634 million in Mar 2007 to 20.941 million in Mar 2014 or 3.2 person while the youth noninstitutional civilian population 1.437 million from 37.324 million in Mar 2007 to 38.761 million in Mar 2014 or 3.9 percent. The US youth civilian labor force fell 981 thousand from 21.442 million in Apr 2007 to 20.461 million in Apr 2014 while the youth civilian noninstitutional population increased from 37.349 million in Apr 2007 to 38.759 million in Apr 2014 by 1.410 thousand or 3.8 percent. The youth civilian labor force decreased from 21.659 million in May 2007 to 21.160 million in May 2014 by 499 thousand or 2.3 percent while the youth civilian noninstitutional population increased 1.370 million from 37.739 million in May 2007 to 38.749 million in May 2007 or by 2.7 percent. The youth civilian labor force decreased from 24.128 million in Jun 2006 to 22.851 million in Jun 2014 by 1.277 million or 5.3 percent while the civilian noninstitutional population increased from 36.943 million in Jun 2006 to 38.740 million in Jun 2014 by 1.797 million or 4.9 percent. The youth civilian labor force fell from 24.664 million in Jul 2006 to 23.437 million in Jul 2014 while the civilian noninstitutional population increased from 36.989 million in Jul 2006 to 38.735 million in Jul 2014. The youth civilian labor force fell 1.818 million from 23.634 million in Aug 2006 to 21.816 million in Aug 2014 while the civilian noninstitutional population increased from 37.008 million in Aug 2006 to 38.706 million in Aug 2914 or 1.698 million. The youth civilian labor force fell 0.942 million from 21.901 million in Sep 2006 to 20.959 million in Sep 2014 while the noninstitutional population increased 1.652 million from 37.027 million in Sep 2006 to 38.679 million in Sep 2014. Youth in the US abandoned their participation in the labor force because of the frustration that there are no jobs available for them.

Chart I-21B, US, Civilian Labor Force Ages 16 to 24 Years, Thousands NSA, 2001-2014

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

Chart I-21C provides the ratio of labor force to noninstitutional population or labor force participation of ages 16 to 24 years not seasonally adjusted. The US labor force participation rates for ages 16 to 24 years fell from 66.7 in Jul 2006 to 60.5 in Jul 2013 because of the frustration of young people who believe there may not be jobs available for them. The US labor force participation rate of young people fell from 63.9 in Aug 2006 to 56.9 in Aug 2013. The US labor force participation rate of young people fell from 59.1 percent in Sep 2006 to 54.6 percent in Sep 2013. The US labor force participation rate of young people fell from 59.7 percent in Oct 2006 to 54.1 in Oct 2013. The US labor force participation rate of young people fell from 59.7 percent in Nov 2006 to 53.7 percent in Nov 2013. The US labor force participation rate fell from 57.8 in Dec 2007 to 53.2 in Dec 2013. The youth labor force participation rate fell from 58.4 in Jan 2007 to 52.7 in Jan 2014. The US youth labor force participation rate fell from 58.0 percent in Feb 2007 to 52.6 percent in Feb 2013. The labor force participation rate of ages 16 to 24 years fell from 58.0 in Mar 2007 to 54.0 in Mar 2014. The labor force participation rate of ages 16 to 24 years fell from 57.4 in Apr 2007 to 52.8 in Apr 2014. The labor force participation rate of ages 16 to 24 years fell from 57.9 in May 2007 to 54.6 in May 2014. The labor force participation rate of ages 16 to 24 years fell from 65.3 in Jun 2006 to 59.0 in Jun 2014. The labor force participation rate ages 16 to 24 years fell from 66.7 in Jul 2006 to 60.5 in Jul 2014. The labor force participation rate ages 16 to 24 years fell from 63.9 in Aug 2006 to 56.4 in Aug 2014. The labor force participation rate ages 16 to 24 years fell from 59.1 in Sep 2006 to 54.2 in Sep 2014. Many young people abandoned searches for employment, dropping from the labor force.

Chart I-21C, US, Labor Force Participation Rate Ages 16 to 24 Years, NSA, 2001-2014

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

An important measure of the job market is the number of people with jobs relative to population available for work (civilian noninstitutional population) or employment/population ratio. Chart I-21D provides the employment population ratio for ages 16 to 24 years. The US employment/population ratio NSA for ages 16 to 24 years collapsed from 59.2 in Jul 2006 to 50.7 in Jul 2013. The employment population ratio for ages 16 to 24 years dropped from 57.2 in Aug 2006 to 48.0 in Aug 2013. The employment population ratio for ages to 16 to 24 years declined from 52.9 in Sep 2006 to 46.5 in Sep 2013. The employment population ratio for ages 16 to 24 years fell from 53.6 in Oct 2006 to 46.3 in Oct 2013. The employment population ratio for ages 16 to 24 years fell from 53.7 in Nov 2007 to 46.7 in Nov 2013. The US employment population ratio for ages 16 to 24 years fell from 51.6 in Dec 2007 to 46.7 in Dec 2013. The US employment population ratio fell from 52.1 in Jan 2007 to 44.8 in Jan 2014. The US employment population ratio for ages 16 to 24 fell from 52.0 in Feb 2007 to 44.8 in Feb 2014. The US employment population ratio for ages 16 to 24 years fell from 52.3 in Mar 2007 to 46.3 in Mar 2014. The US employment population ratio for ages 16 to 24 years fell from 51.9 in Apr 2007 to 46.5 in Apr 2014. The US employment population ratio for ages 16 to 24 years fell from 52.1 in May 2007 to 47.3 in May 2014. The US employment population ratio for ages 16 to 24 years fell from 57.6 in Jun 2006 to 50.1 in Jun 2014. The US employment population ratio for ages 16 to 24 years fell from 59.2 in Jul 2006 to 50.1 in Jul 2014. The employment population ratio for ages 16 to 24 years fell from 57.2 in Aug 2006 to 49.0 in Aug 2014. The employment population ratio for ages 16 to 24 fell from 52.9 in Sep 2006 to 46.8 in Sep 2014. Chart I-21D shows vertical drop during the global recession without recovery.

Chart I-21D, US, Employment Population Ratio Ages 16 to 24 Years, Thousands NSA, 2001-2014

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

Table I-11 provides US unemployment level ages 16 to 24 years. The number unemployed ages 16 to 24 years increased from 2342 thousand in 2007 to 3634 thousand in 2011 or by 1.292 million and 3451 thousand in 2012 or by 1.109 million. The unemployment level ages 16 to 23 years increased from 2342 in 2007 to 3324 thousand in 2013 or by 0.982 million. The unemployment level ages 16 to 24 years rose from 2.419 million in Sep 2007 to 2.854 million in Sep 2014 or by 0.435 million. This situation may persist for many years.

Table I-11, US, Unemployment Level 16-24 Years, NSA, Thousands

Year	Mar	Apr	May	Jun	Jul	Aug	Sep	Annual
2001	2253	2095	2171	2775	2585	2461	2301	2371
2002	2822	2515	2568	3167	3034	2688	2506	2683
2003	2601	2572	2838	3542	3200	2724	2698	2746
2004	2588	2387	2684	3191	3018	2585	2493	2638
2005	2520	2398	2619	3010	2688	2519	2339	2521
2006	2216	2092	2254	2860	2750	2467	2297	2353
2007	2096	2074	2203	2883	2622	2388	2419	2342
2008	2347	2196	2952	3450	3408	2990	2904	2830
2009	3371	3321	3851	4653	4387	4004	3774	3760
2010	3748	3803	3854	4481	4374	3903	3604	3857
2011	3520	3365	3628	4248	4110	3820	3541	3634
2012	3294	3175	3438	4180	4011	3672	3174	3451
2013	3261	3129	3478	4198	3821	3453	3139	3324
2014	3002	2440	2831	3429	3353	2844	2854

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

Chart I-22 provides the unemployment level for ages 16 to 24 from 2001 to 2014. The level rose sharply from 2007 to 2010 with tepid improvement into 2012 and deterioration into 2013-2014 with recent marginal improvement alternating with deterioration.

Chart I-22, US, Unemployment Level 16-24 Years, Thousands SA, 2001-2014

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

Table I-12 provides the rate of unemployment of young peoples in ages 16 to 24 years. The annual rate jumped from 10.5 percent in 2007 to 18.4 percent in 2010, 17.3 percent in 2011 and 16.2 percent in 2012. The rate of youth unemployment fell marginally to 15.5 percent in 2013. During the seasonal peak in Jul, the rate of youth unemployed was 18.1 percent in Jul 2011, 17.1 percent in Jul 2012 and 16.3 percent in Jul 2013 compared with 10.8 percent in Jul 2007. The rate of youth unemployment rose from 11.2 percent in Jul 2006 to 16.3 percent in Jul 2013 and likely higher if adding those who ceased searching for a job in frustration none may be available. The rate of youth unemployment rose from 10.8 in Jul 2007 to 14.3 in Jul 2014. The rate of youth unemployment increased from 9.1 percent in Dec 2006 to 12.3 percent in Dec 2013. The rate of youth unemployment increased from 10.9 percent in Jan 2007 to 14.9 percent in Jan and Feb 2014. The rate of youth unemployment increased from 9.7 percent in Mar 2007 to 14.3 percent in Mar 2014. The rate of youth unemployment increased from 9.7 percent in Apr 2007 to 11.9 percent in Apr 2014. The rate of youth unemployment increased from 10.2 percent in May 2007 to 13.4 percent in May 2014. The rate of youth unemployment increased from 12.0 percent in Jun 2007 to 15.0 percent in Jun 2014. The rate of youth unemployment increased from 10.8 in Jul 2007 to 14.3 in Jul 2014. The rate of youth unemployment increased from 10.5 in Aug 2007 to 13.0 in Aug 2014. The rate of youth unemployment increased from 11.0 in Sep 2007 to 13.6 in Sep 2014. The actual rate is higher because of the difficulty in counting those dropping from the labor force because they believe there are no jobs available for them.

Table I-12, US, Unemployment Rate 16-24 Years, Thousands, NSA

Year	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Dec	Annual
2001	10.3	10.3	10.2	9.6	10.0	11.6	10.5	10.7	10.5	11.0	10.6
2002	12.9	12.5	12.9	11.6	11.6	13.2	12.4	11.5	11.4	10.9	12.0
2003	12.7	12.7	12.2	12.0	13.0	14.8	13.3	11.9	12.5	10.5	12.4
2004	12.8	12.3	12.1	11.1	12.2	13.4	12.3	11.1	11.5	10.5	11.8
2005	12.4	13.0	11.7	11.2	11.9	12.6	11.0	10.8	10.7	9.4	11.3
2006	11.1	11.3	10.3	9.7	10.2	11.9	11.2	10.4	10.5	9.1	10.5
2007	10.9	10.3	9.7	9.7	10.2	12.0	10.8	10.5	11.0	10.7	10.5
2008	12.3	11.8	11.1	10.3	13.3	14.4	14.0	13.0	13.4	13.7	12.8
2009	15.8	16.4	16.1	15.8	18.0	19.9	18.5	18.0	18.2	17.5	17.6
2010	19.8	19.2	18.4	18.5	18.4	20.0	19.1	17.8	17.6	16.7	18.4
2011	18.9	18.2	17.2	16.5	17.5	18.9	18.1	17.5	17.0	15.5	17.3
2012	16.8	17.0	16.0	15.4	16.3	18.1	17.1	16.8	15.2	15.2	16.2
2013	17.6	16.7	15.9	15.1	16.4	18.0	16.3	15.6	14.8	12.3	15.5
2014	14.9	14.9	14.3	11.9	13.4	15.0	14.3	13.0	13.6

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

Chart I-23 provides the BLS estimate of the not-seasonally-adjusted rate of youth unemployment for ages 16 to 24 years from 2001 to 2014. The rate of youth unemployment increased sharply during the global recession of 2008 and 2009 but has failed to drop to earlier lower levels because of low growth of GDP. 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.

Chart I-23, US, Unemployment Rate 16-24 Years, Percent, NSA, 2001-2014

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

Chart I-24 provides longer perspective with the rate of youth unemployment in ages 16 to 24 years from 1948 to 2014. The rate of youth unemployment rose to 20 percent during the contractions of the early 1980s and also during the contraction of the global recession in 2008 and 2009. The data illustrate again the argument in this blog that the contractions of the early 1980s are the valid framework for comparison with the global recession of 2008 and 2009 instead of misleading comparisons with the 1930s. During the initial phase of recovery, the rate of youth unemployment 16 to 24 years NSA fell from 18.9 percent in Jun 1983 to 14.5 percent in Jun 1984. In contrast, the rate of youth unemployment 16 to 24 years was nearly the same during the expansion after IIIQ2009: 17.5 percent in Dec 2009, 16.7 percent in Dec 2010, 15.5 percent in Dec 2011, 15.2 percent in Dec 2012, 17.6 percent in Jan 2013, 16.7 percent in Feb 2013, 15.9 percent in Mar 2013, 15.1 percent in Apr 2013. The rate of youth unemployment was 16.4 percent in May 2013, 18.0 percent in Jun 2013, 16.3 percent in Jul 2013 and 15.6 percent in Aug 2013. In Sep 2006, the rate of youth unemployment was 10.5 percent, increasing to 14.8 percent in Sep 2013. The rate of youth unemployment was 10.3 in Oct 2007, increasing to 14.4 percent in Oct 2013. The rate of youth unemployment was 10.3 percent in Nov 2007, increasing to 13.1 percent in Nov 2013. The rate of youth unemployment was 10.7 percent in Dec 2013, increasing to 12.3 percent in Dec 2013. The rate of youth unemployment was 10.9 percent in Jan 2007, increasing to 14.9 percent in Jan 2014. The rate of youth unemployment was 10.3 percent in Feb 2007, increasing to 14.9 percent in Feb 2014. The rate of youth unemployment was 9.7 percent in Mar 2007, increasing to 14.3 percent in Mar 2014. The rate of youth unemployment was 9.7 percent in Apr 2007, increasing to 11.9 percent in Apr 2014. The rate of youth unemployment was 10.2 percent in May 2007, increasing to 13.4 percent in May 2014. The rate of youth unemployment was 12.0 percent in Jun 2007, increasing to 15.0 percent in Jun 2014. The rate of youth unemployment was 10.8 percent in Jul 2007, increasing to 14.3 percent in Jul 2014. The rate of youth unemployment was 10.5 percent in Aug 2007, increasing to 13.0 percent in Aug 2014. The rate of youth unemployment was 11.0 percent in Sep 2007, increasing to 13.6 percent in Sep 2014. The difference originates in the vigorous seasonally-adjusted annual equivalent average rate of GDP growth of 5.9 percent during the recovery from IQ1983 to IVQ1985 and 4.9 percent from IQ1983 to IIIQ1987 compared with 2.2 percent on average during the first 20 quarters of expansion from IIIQ2009 to IIQ2014 (http://cmpassocregulationblog.blogspot.com/2014/09/financial-volatility-mediocre-cyclical.html). US economic growth has been at only 2.2 percent on average in the cyclical expansion in the 20 quarters from IIIQ2009 to IIQ2014. 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 third estimate of GDP for IIQ2014 (http://www.bea.gov/newsreleases/national/gdp/2014/pdf/gdp2q14_3rd.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 $14,745.9 billion in IIQ2010 by GDP of $14,355.6 billion in IIQ2009 {[$14,745.9/$14,355.6 -1]100 = 2.7%], or accumulating the quarter on quarter growth rates (http://cmpassocregulationblog.blogspot.com/2014/09/financial-volatility-mediocre-cyclical.html and earlier http://cmpassocregulationblog.blogspot.com/2014/09/geopolitical-and-financial-risks.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, 4.9 percent from IQ1983 to IIIQ1987, 5.0 percent from IQ1983 to IVQ1987 and at 7.8 percent from IQ1983 to IVQ1983 (http://cmpassocregulationblog.blogspot.com/2014/09/financial-volatility-mediocre-cyclical.html and earlier http://cmpassocregulationblog.blogspot.com/2014/09/geopolitical-and-financial-risks.html). The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. Growth at trend in the entire cycle from IVQ2007 to IIQ2014 would have accumulated to 22.1 percent. GDP in IIQ2014 would be $18,305.0 billion (in constant dollars of 2009) if the US had grown at trend, which is higher by $2,294.6 billion than actual $16,010.4 billion. There are about two trillion dollars of GDP less than at trend, explaining the 26.5 million unemployed or underemployed equivalent to actual unemployment of 16.1 percent of the effective labor force (http://cmpassocregulationblog.blogspot.com/2014/10/world-financial-turbulence-twenty-seven.html and earlier http://cmpassocregulationblog.blogspot.com/2014/09/competitive-monetary-policy-and.html). US GDP in IIQ2014 is 12.5 percent lower than at trend. US GDP grew from $14,991.8 billion in IVQ2007 in constant dollars to $16,010.4 billion in IIQ2014 or 6.8 percent at the average annual equivalent rate of 1.0 percent. Cochrane (2014Jul2) estimates US GDP at more than 10 percent below trend. The US missed the opportunity to grow at higher rates during the expansion and it is difficult to catch up because growth 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 is similar behavior in manufacturing. The long-term trend is growth at average 3.3 percent per year from Jan 1919 to Jul 2014. Growth at 3.3 percent per year would raise the NSA index of manufacturing output from 99.2392 in Dec 2007 to 123.2212 in Aug 2014. The actual index NSA in Aug 2014 is 101.5145, which is 17.6 percent below trend. Manufacturing output grew at average 2.3 percent between Dec 1986 and Dec 2013, raising the index at trend to 117.7603 in Aug 2014. The output of manufacturing at 101.5145 in Aug 2014 is 13.8 percent below trend under this alternative calculation.

Chart I-24, US, Unemployment Rate 16-24 Years, Percent NSA, 1948-2014

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

It is more difficult to move to other jobs after a certain age because of fewer available opportunities for mature individuals than for new entrants into the labor force. Middle-aged unemployed are less likely to find another job. Table I-13 provides the unemployment level ages 45 years and over. The number unemployed ages 45 years and over rose from 1.607 million in Oct 2006 to 4.576 million in Oct 2010 or by 184.8 percent. The number of unemployed ages 45 years and over declined to 3.800 million in Oct 2012 that is still higher by 136.5 percent than in Oct 2006. The number unemployed age 45 and over increased from 1.704 million in Nov 2006 to 3.861 million in Nov 2012, or 126.6 percent. The number unemployed age 45 and over is still higher by 98.5 percent at 3.383 million in Nov 2013 than 1.704 million in Nov 2006. The number unemployed age 45 and over jumped from 1.794 million in Dec 2006 to 4.762 million in Dec 2010 or 165.4 percent. At 3.927 million in Dec 2012, mature unemployment is higher by 2.133 million or 118.9 percent higher than 1.794 million in Dec 2006. The level of unemployment of those aged 45 year or more of 3.632 million in Oct 2013 is higher by 2.025 million than 1.607 million in Oct 2006 or higher by 126.0 percent. The number of unemployed 45 years and over increased from 1.794 million in Dec 2006 to 3.378 million in Nov 2013 or 88.3 percent. The annual number of unemployed 45 years and over increased from 1.848 million in 2006 to 3.719 million in 2013 or 101.2 percent. The number of unemployed 45 years and over increased from 2.126 million in Jan 2006 to 4.394 million in Jan 2013, by 2.618 million or 106.7 percent. The number of unemployed 45 years and over rose from 2.126 million in Jan 2006 to 3.508 million in Jan 2014, by 1.382 million or 65.0 percent. The level of unemployed 45 years or older increased 2.051 million or 99.8 percent from 2.056 million in Feb 2006 to 4.107 million in Feb 2013 and at 3.490 million in Feb 2014 is higher by 69.7 percent than in Feb 2006. The number of unemployed 45 years and over increased 2.048 million or 108.9 percent from 1.881 million in Mar 2006 to 3.929 million in Mar 2013 and at 3.394 million in Mar 2014 is higher by 80.4 percent than in Mar 2006. The number of unemployed 45 years and over increased 1.846 million or 100.2 percent from 1.843 million in Apr 2006 to 3.689 million in Apr 2013 and at 3.006 million in Apr 2014 is higher by 1.163 million or 63.1 percent. The number of unemployed ages 45 years and over increased 102.1 percent from 1.784 million in May 2006 to 3.605 million in May 2014 and at 2.913 million in May 2014 is higher by 63.3 percent than in May 2007.

The number of unemployed ages 45 years and over increased 102.1 percent from 1.805 million in Jun 2007 to 3.648 million in Jun 2013 and at 2.832 million in Jun 2014 is higher by 56.9 percent than in Jun 2007. The number of unemployed ages 45 years and over increased 81.5 percent from 2.053 million in Jul 2007 to 3.727 million in Jul 2013 and at 3.083 million in Jul 2014 is higher by 50.2 percent than in Jul 2007. The level unemployed ages 45 years and over increased 84.4 percent from 1.956 million in Aug 2007 to 3.607 million in Aug 2013 and at 3.037 million in Aug 2014 is 55.2 percent higher than in Aug 2007. The level unemployed ages 45 years and over increased 90.7 percent from 1.854 million in Sep 2007 to 3.535 million in Sep 2013 and at 2.640 million in Sep 2014 is 42.4 percent higher than in Sep 2007. The actual number unemployed is likely much higher because many are not accounted who abandoned job searches in frustration there may not be a job for them. Recent improvements may be illusory.

Table I-13, US, Unemployment Level 45 Years and Over, Thousands NSA

Year	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Annual
2000	1498	1392	1291	1062	1074	1163	1253	1339	1254	1249
2001	1572	1587	1533	1421	1259	1371	1539	1640	1586	1576
2002	2235	2280	2138	2101	1999	2190	2173	2114	1966	2114
2003	2495	2415	2485	2287	2112	2212	2281	2301	2157	2253
2004	2453	2397	2354	2160	2025	2182	2116	2082	1951	2149
2005	2286	2286	2126	1939	1844	1868	2119	1895	1992	2009
2006	2126	2056	1881	1843	1784	1813	1985	1869	1710	1848
2007	2155	2138	2031	1871	1803	1805	2053	1956	1854	1966
2008	2336	2336	2326	2104	2095	2211	2492	2695	2595	2540
2009	4138	4380	4518	4172	4175	4505	4757	4683	4560	4500
2010	5314	5307	5194	4770	4565	4564	4821	5128	4640	4879
2011	5027	4837	4748	4373	4356	4559	4772	4592	4426	4537
2012	4458	4472	4390	4037	4083	4084	4405	4179	3899	4133
2013	4394	4107	3929	3689	3605	3648	3727	3607	3535	3719
2014	3508	3490	3394	3006	2913	2832	3083	3037	2640

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

Chart I-25 provides the level unemployed ages 45 years and over. There was an increase in the recessions of the 1980s, 1991 and 2001 followed by declines to earlier levels. The current expansion of the economy after IIIQ2009 has not been sufficiently vigorous to reduce significantly middle-age unemployment. Recent improvements could be illusory because many abandoned job searches in frustration that there may not be jobs for them and are not counted as unemployed.

Chart I-25, US, Unemployment Level Ages 45 Years and Over, Thousands, NSA, 1976-2014

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

IIA United States International Trade. Table IIA-1 provides the trade balance of the US and monthly growth of exports and imports seasonally adjusted with the latest release and revisions (http://www.census.gov/foreign-trade/). Because of heavy dependence on imported oil, fluctuations in the US trade account originate largely in fluctuations of commodity futures prices caused by carry trades from zero interest rates into commodity futures exposures in a process similar to world inflation waves (http://cmpassocregulationblog.blogspot.com/2014/09/world-inflation-waves-squeeze-of.html). The Census Bureau revised data for 2014, 2013 and 2012. Exports increased 1.2 percent from Jun to Aug 2014 while imports fell 0.4 percent. The trade deficit fell from $43.465 million in May 2014 to $40.109 million in Aug 2014. The US trade balance improved from deficits of $39,083 million in Oct 2013 and $42,263 million in Sep 2013 to deficit of $35,972 million in Nov 2013 but higher deficit of $37,393 million in Dec 2013. The trade deficit increased to $39,181 million in Jan 2014 and deficit of $42,230 million in Feb 2014. The trade deficit increased to $43,124 million in Mar 2014 and $45,977 million in Apr 2014. The deficit improved to $43,465 million in May 2014 and $40,810 million in Jun 2014. The trade deficit improved to $40,321 million in Jul 2014 and $40,109 million in Aug 2014. Exports increased 2.9 percent from Dec 2013 to Aug 2014 while imports increased 3.6 percent. The trade balance deteriorated from cumulative deficit of $494,658 million in Jan-Dec 2010 to deficit of $548,625 million in Jan-Dec 2011 and improved to marginally lower deficit of $537,605 million in Jan-Dec 2012. The trade deficit improved to $476,392 million in Jan-Dec 2013.

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

	Trade Balance	Exports	Month ∆%	Imports	Month ∆%
Aug 2014	-40,109	198,459	0.2	238,568	-0.1
Jul	-40,321	198,025	0.9	238,346	0.6
Jun	-40,810	196,203	0.0	237,013	-1.1
May	-43,465	196,173	1.2	239,637	-0.1
Apr	-45,977	193,881	0.0	239,858	1.2
Mar	-43,124	193,940	3.3	237,064	3.1
Feb	-42,230	187,773	-2.4	230,003	-0.7
Jan	-39,181	192,475	-0.2	231,655	0.6
Dec 2013	-37,393	192,799	-1.1	230,193	-0.3
Nov	-35,972	194,922	0.5	230,894	-0.9
Oct	-39,083	193,971	2.0	233,053	0.2
Sep	-42,263	190,249	-0.2	232,512	1.0
Aug	-39,515	190,606	0.4	230,121	0.3
Jul	-39,419	189,902	-0.2	229,321	1.1
Jun	-36,552	190,366	1.7	226,918	-2.2
May	-44,831	187,206	-0.3	232,037	1.7
Apr	-40,417	187,763	0.5	228,180	1.9
Mar	-36,973	186,903	-0.6	223,876	-2.6
Feb	-41,770	188,030	0.3	229,800	0.1
Jan	-42,205	187,478	-1.2	229,683	1.0
Jan-Dec 2013	-476,392	2,280,194		2,756,586
Dec 2012	-37,634	189,765	1.9	227,399	-2.4
Nov	-46,604	186,286	1.5	232,891	3.1
Oct	-42,358	183,512	-2.7	225,870	-1.3
Sep	-40,150	188,696	3.2	228,846	0.6
Aug	-44,536	182,845	-0.5	227,380	-0.1
Jul	-43,834	183,673	-0.9	227,507	-0.4
Jun	-43,078	185,330	0.6	228,408	-1.3
May	-47,184	184,306	-0.1	231,490	-0.4
Apr	-47,773	184,543	-0.9	232,317	-1.6
Mar	-49,850	186,257	2.5	236,107	4.9
Feb	-43,338	181,720	1.2	225,058	-2.5
Jan	-51,266	179,606	0.2	230,873	0.2
Jan-Dec 2012	-537,605	2,216,540		2,754,145
Jan-Dec 2011	-548,625	2,127,021		2,675,646
Jan-Dec 2010	-494,658	1,853,606		2,348,263

Note: Trade Balance of Goods = Exports of Goods less Imports of Goods. Trade balance may not add exactly because of errors of rounding and seasonality. Source: US Census Bureau, Foreign Trade Division

Table IIA-1B provides US exports, imports and the trade balance of goods. The US has not shown a trade surplus in trade of goods since 1976. The deficit of trade in goods deteriorated sharply during the boom years from 2000 to 2007. The deficit improved during the contraction in 2009 but deteriorated in the expansion after 2009. The deficit could deteriorate sharply with growth at full employment.

Table IIA-1B, US, International Trade Balance of Goods, Exports and Imports of Goods, Millions of Dollars, Census Basis

	Balance	∆%	Exports	∆%	Imports	∆%
1960	4,608	(X)	19,626	(X)	15,018	(X)
1961	5,476	18.8	20,190	2.9	14,714	-2.0
1962	4,583	-16.3	20,973	3.9	16,390	11.4
1963	5,289	15.4	22,427	6.9	17,138	4.6
1964	7,006	32.5	25,690	14.5	18,684	9.0
1965	5,333	-23.9	26,699	3.9	21,366	14.4
1966	3,837	-28.1	29,379	10.0	25,542	19.5
1967	4,122	7.4	30,934	5.3	26,812	5.0
1968	837	-79.7	34,063	10.1	33,226	23.9
1969	1,289	54.0	37,332	9.6	36,043	8.5
1970	3,224	150.1	43,176	15.7	39,952	10.8
1971	-1,476	-145.8	44,087	2.1	45,563	14.0
1972	-5,729	288.1	49,854	13.1	55,583	22.0
1973	2,389	-141.7	71,865	44.2	69,476	25.0
1974	-3,884	-262.6	99,437	38.4	103,321	48.7
1975	9,551	-345.9	108,856	9.5	99,305	-3.9
1976	-7,820	-181.9	116,794	7.3	124,614	25.5
1977	-28,352	262.6	123,182	5.5	151,534	21.6
1978	-30,205	6.5	145,847	18.4	176,052	16.2
1979	-23,922	-20.8	186,363	27.8	210,285	19.4
1980	-19,696	-17.7	225,566	21.0	245,262	16.6
1981	-22,267	13.1	238,715	5.8	260,982	6.4
1982	-27,510	23.5	216,442	-9.3	243,952	-6.5
1983	-52,409	90.5	205,639	-5.0	258,048	5.8
1984	-106,702	103.6	223,976	8.9	330,678	28.1
1985	-117,711	10.3	218,815	-2.3	336,526	1.8
1986	-138,279	17.5	227,159	3.8	365,438	8.6
1987	-152,119	10.0	254,122	11.9	406,241	11.2
1988	-118,526	-22.1	322,426	26.9	440,952	8.5
1989	-109,399	-7.7	363,812	12.8	473,211	7.3
1990	-101,719	-7.0	393,592	8.2	495,311	4.7
1991	-66,723	-34.4	421,730	7.1	488,453	-1.4
1992	-84,501	26.6	448,164	6.3	532,665	9.1
1993	-115,568	36.8	465,091	3.8	580,659	9.0
1994	-150,630	30.3	512,626	10.2	663,256	14.2
1995	-158,801	5.4	584,742	14.1	743,543	12.1
1996	-170,214	7.2	625,075	6.9	795,289	7.0
1997	-180,522	6.1	689,182	10.3	869,704	9.4
1998	-229,758	27.3	682,138	-1.0	911,896	4.9
1999	-328,821	43.1	695,797	2.0	1,024,618	12.4
2000	-436,104	32.6	781,918	12.4	1,218,022	18.9
2001	-411,899	-5.6	729,100	-6.8	1,140,999	-6.3
2002	-468,263	13.7	693,103	-4.9	1,161,366	1.8
2003	-532,350	13.7	724,771	4.6	1,257,121	8.2
2004	-654,830	23.0	814,875	12.4	1,469,704	16.9
2005	-772,373	18.0	901,082	10.6	1,673,455	13.9
2006	-827,971	7.2	1,025,967	13.9	1,853,938	10.8
2007	-808,763	-2.3	1,148,199	11.9	1,956,962	5.6
2008	-816,199	0.9	1,287,442	12.1	2,103,641	7.5
2009	-503,582	-38.3	1,056,043	-18.0	1,559,625	-25.9
2010	-635,362	26.2	1,278,495	21.1	1,913,857	22.7
2011	-725,447	14.2	1,482,508	16.0	2,207,954	15.4
2012	-730,599	0.7	1,545,703	4.3	2,276,302	3.1
2013	-688,728	-5.7	1,579,593	2.2	2,268,321	-0.4

Source: US Census Bureau, Foreign Trade Division

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

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

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

Source: US Census Bureau

Table IIA-2B provides the US international trade balance, exports and imports of goods and services on an annual basis from 1992 to 2013. The trade balance deteriorated sharply over the long term. The US has a large deficit in goods or exports less imports of goods but it has a surplus in services that helps to reduce the trade account deficit or exports less imports of goods and services. The current account deficit of the US not seasonally adjusted increased from $81.0 billion in IQ2013 to $103.5 billion in IIQ2014 (http://www.bea.gov/international/index.htm). The current account deficit seasonally adjusted at annual rate fell from 2.6 percent of GDP in IQ2013 to 2.0 percent of GDP in IVQ2013, increasing to 2.4 percent of GDP in IQ2014 and 2.3 percent of GDP in IIQ2014 (http://www.bea.gov/international/index.htm http://www.bea.gov/iTable/index_nipa.cfm). The ratio of the current account deficit to GDP has stabilized around 3 percent of GDP compared with much higher percentages before the recession (see Pelaez and Pelaez, The Global Recession Risk (2007), Globalization and the State, Vol. II (2008b), 183-94, Government Intervention in Globalization (2008c), 167-71). The last row of Table IIA-2B shows marginal improvement of the trade deficit from $548,625 million in 2011 to lower $537,605 million in 2012 with exports growing 4.2 percent and imports 2.9 percent. The trade balance improved further to deficit of $476,392 million in 2013 with growth of exports of 2.9 percent while imports stagnated. Growth and commodity shocks under alternating inflation waves (http://cmpassocregulationblog.blogspot.com/2014/09/world-inflation-waves-squeeze-of.html) have deteriorated the trade deficit from the low of $383,774 million in 2009.

Table IIA-2B, US, International Trade Balance of Goods and Services, Exports and Imports of Goods and Services, SA, Millions of Dollars, Balance of Payments Basis

	Balance	Exports	∆%	Imports	∆%
1960	3,508	25,940	NA	22,432	NA
1961	4,195	26,403	1.8	22,208	-1.0
1962	3,370	27,722	5.0	24,352	9.7
1963	4,210	29,620	6.8	25,410	4.3
1964	6,022	33,341	12.6	27,319	7.5
1965	4,664	35,285	5.8	30,621	12.1
1966	2,939	38,926	10.3	35,987	17.5
1967	2,604	41,333	6.2	38,729	7.6
1968	250	45,543	10.2	45,293	16.9
1969	91	49,220	8.1	49,129	8.5
1970	2,254	56,640	15.1	54,386	10.7
1971	-1,302	59,677	5.4	60,979	12.1
1972	-5,443	67,222	12.6	72,665	19.2
1973	1,900	91,242	35.7	89,342	23.0
1974	-4,293	120,897	32.5	125,190	40.1
1975	12,404	132,585	9.7	120,181	-4.0
1976	-6,082	142,716	7.6	148,798	23.8
1977	-27,246	152,301	6.7	179,547	20.7
1978	-29,763	178,428	17.2	208,191	16.0
1979	-24,565	224,131	25.6	248,696	19.5
1980	-19,407	271,834	21.3	291,241	17.1
1981	-16,172	294,398	8.3	310,570	6.6
1982	-24,156	275,236	-6.5	299,391	-3.6
1983	-57,767	266,106	-3.3	323,874	8.2
1984	-109,072	291,094	9.4	400,166	23.6
1985	-121,880	289,070	-0.7	410,950	2.7
1986	-138,538	310,033	7.3	448,572	9.2
1987	-151,684	348,869	12.5	500,552	11.6
1988	-114,566	431,149	23.6	545,715	9.0
1989	-93,141	487,003	13.0	580,144	6.3
1990	-80,864	535,233	9.9	616,097	6.2
1991	-31,135	578,344	8.1	609,479	-1.1
1992	-39,212	616,882	6.7	656,094	7.6
1993	-70,311	642,863	4.2	713,174	8.7
1994	-98,493	703,254	9.4	801,747	12.4
1995	-96,384	794,387	13.0	890,771	11.1
1996	-104,065	851,602	7.2	955,667	7.3
1997	-108,273	934,453	9.7	1,042,726	9.1
1998	-166,140	933,174	-0.1	1,099,314	5.4
1999	-258,617	969,867	3.9	1,228,485	11.8
2000	-372,517	1,075,321	10.9	1,447,837	17.9
2001	-361,511	1,005,654	-6.5	1,367,165	-5.6
2002	-418,955	978,706	-2.7	1,397,660	2.2
2003	-493,890	1,020,418	4.3	1,514,308	8.3
2004	-609,883	1,161,549	13.8	1,771,433	17.0
2005	-714,245	1,286,022	10.7	2,000,267	12.9
2006	-761,716	1,457,642	13.3	2,219,358	11.0
2007	-705,375	1,653,548	13.4	2,358,922	6.3
2008	-708,726	1,841,612	11.4	2,550,339	8.1
2009	-383,774	1,583,053	-14.0	1,966,827	-22.9
2010	-494,658	1,853,606	17.1	2,348,263	19.4
2011	-548,625	2,127,021	14.8	2,675,646	13.9
2012	-537,605	2,216,540	4.2	2,754,145	2.9
2013	-476,392	2,280,194	2.9	2,756,586	0.1

Source: US Census Bureau

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

Chart IIA-2 of the US Census Bureau provides the US trade account in goods and services SA from Jan 1992 to Aug 2014. There is long-term trend of deterioration of the US trade deficit shown vividly by Chart IIA-2. The global recession from IVQ2007 to IIQ2009 reversed the trend of deterioration. Deterioration resumed together with incomplete recovery and was influenced significantly by the carry trade from zero interest rates to commodity futures exposures (these arguments are elaborated in Pelaez and Pelaez, Financial Regulation after the Global Recession (2009a), 157-66, Regulation of Banks and Finance (2009b), 217-27, International Financial Architecture (2005), 15-18, The Global Recession Risk (2007), 221-5, Globalization and the State Vol. II (2008b), 197-213, Government Intervention in Globalization (2008c), 182-4 http://cmpassocregulationblog.blogspot.com/2011/07/causes-of-2007-creditdollar-crisis.html http://cmpassocregulationblog.blogspot.com/2011/01/professor-mckinnons-bubble-economy.html http://cmpassocregulationblog.blogspot.com/2011/01/world-inflation-quantitative-easing.html http://cmpassocregulationblog.blogspot.com/2011/01/treasury-yields-valuation-of-risk.html http://cmpassocregulationblog.blogspot.com/2010/11/quantitative-easing-theory-evidence-and.html http://cmpassocregulationblog.blogspot.com/2010/12/is-fed-printing-money-what-are.html). Earlier research focused on the long-term external imbalance of the US in the form of trade and current account deficits (Pelaez and Pelaez, The Global Recession Risk (2007), Globalization and the State Vol. II (2008b) 183-94, Government Intervention in Globalization (2008c), 167-71). US external imbalances have not been fully resolved and tend to widen together with improving world economic activity and commodity price shocks.

Chart IIA-2, US, Balance of Trade SA, Monthly, Millions of Dollars, Jan 1992-Aug 2014

Source: US Census Bureau

Chart IIA-3 of the US Census Bureau provides US exports SA from Jan 1992 to Jul 2014. There was sharp acceleration from 2003 to 2007 during worldwide economic boom and increasing inflation. Exports fell sharply during the financial crisis and global recession from IVQ2007 to IIQ2009. Growth picked up again together with world trade and inflation but stalled in the final segment with less rapid global growth and inflation.

Chart IIA-3, US, Exports SA, Monthly, Millions of Dollars Jan 1992-Aug 2014

Source: US Census Bureau

Chart IIA-4 of the US Census Bureau provides US imports SA from Jan 1992 to Jul 2014. Growth was stronger between 2003 and 2007 with worldwide economic boom and inflation. There was sharp drop during the financial crisis and global recession. There is stalling import levels in the final segment resulting from weaker world economic growth and diminishing inflation because of risk aversion and portfolio reallocations from commodity exposures to equities.

Chart IIA-4, US, Imports SA, Monthly, Millions of Dollars Jan 1992-Aug 2014

Source: US Census Bureau

There is deterioration of the US trade balance in goods from deficit of $58,527 million in Aug 2013 to deficit of $59,888 million in Jul 2014. The nonpetroleum deficit increased by $6,206 million while the petroleum deficit shrank by $5,585 million. Total exports of goods increased 4.5 percent in Aug 2014 relative to a year earlier while total imports increased 3.8 percent. Nonpetroleum exports increased 4.2 percent from Aug 2013 to Aug 2014 while nonpetroleum imports increased 7.1 percent. Petroleum imports fell 12.0 percent.

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

	Aug 2014	Aug 2013	∆%
Total Balance	-59,888	-58,527
Petroleum	-13,099	-18,684
Non Petroleum	-45,127	-38,921
Total Exports	138,812	132,829	4.5
Petroleum	14,135	12,251	15.4
Non Petroleum	124,243	119,273	4.2
Total Imports	198,700	191,356	3.8
Petroleum	27,234	30,935	-12.0
Non Petroleum	169,370	158,194	7.1

Details may not add because of rounding and seasonal adjustment

Source: US Census Bureau

US exports and imports of goods not seasonally adjusted in Jan-Aug 2014 and Jan-Aug 2013 are in Table IIA-4. The rate of growth of exports was 3.3 percent and 3.1 percent for imports. The US has partial hedge of commodity price increases in exports of agricultural commodities that increased 9.3 percent and of mineral fuels that increased 16.0 percent both because prices of raw materials and commodities increase and fall recurrently as a result of shocks of risk aversion and portfolio reallocations. The US exports an insignificant but growing amount of crude oil, increasing 15.4 percent in cumulative Jan-Aug 2014 relative to a year earlier. US exports and imports consist mostly of manufactured products, with less rapidly increasing prices. US manufactured exports increased 1.0 percent while manufactured imports rose 4.5 percent. Significant part of the US trade imbalance originates in imports of mineral fuels decreasing 5.9 percent and petroleum decreasing 7.2 percent with wide oscillations in oil prices. The limited hedge in exports of agricultural commodities and mineral fuels compared with substantial imports of mineral fuels and crude oil results in waves of deterioration of the terms of trade of the US, or export prices relative to import prices, originating in commodity price increases caused by carry trades from zero interest rates. These waves are similar to those in worldwide inflation (http://cmpassocregulationblog.blogspot.com/2014/09/world-inflation-waves-squeeze-of.html).

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

	Jan-Aug 2014 $ Millions	Jan-Aug 2014 $ Millions	∆%
Exports	1,075,122	1,040,691	3.3
Manufactured	794,255	786,274	1.0
Agricultural Commodities	96,670	88,421	9.3
Mineral Fuels	107,372	92,566	16.0
Petroleum	88,332	76,513	15.4
Imports	1,546,369	1,500,109	3.1
Manufactured	1,259,495	1,205,811	4.5
Agricultural Commodities	75,166	71,133	5.7
Mineral Fuels	243,237	258,387	-5.9
Petroleum	229,507	247,393	-7.2

Source: US Census Bureau

http://www.bea.gov/international/index.htm#bop

The current account of the US balance of payments is provided in Table IIA2-1 for IIQ2013 and IIQ2014. The US has a large deficit in goods or exports less imports of goods but it has a surplus in services that helps to reduce the trade account deficit or exports less imports of goods and services. The current account deficit of the US not seasonally adjusted decreased from $113.1 billion in IIQ2013 to $103.5 billion in IIQ2014. The current account deficit seasonally adjusted at annual rate fell from 2.6 percent of GDP in IIQ2013 to 2.4 percent of GDP in IQ2014, decreasing to 2.3 percent of GDP in IIQ2014. The ratio of the current account deficit to GDP has stabilized below 3 percent of GDP compared with much higher percentages before the recession but is combined now with much higher imbalance in the Treasury budget (see Pelaez and Pelaez, The Global Recession Risk (2007), Globalization and the State, Vol. II (2008b), 183-94, Government Intervention in Globalization (2008c), 167-71).

Table IIA2-1, US, Balance of Payments, Millions of Dollars NSA

	IIQ2013	IIQ2014	Difference
Goods Balance	-178,438	-190,161	-11,723
X Goods	386,924	396,135	2.4 ∆%
M Goods	-543,846	-554,881	2.0 ∆%
Services Balance	48,895	52,165	3,270
X Services	166,192	170,588	2.6 ∆%
M Services	-107,632	-113,023	5.0 ∆%
Balance Goods and Services	-129,543	-137,996	-8,453
Exports of Goods and Services and Income Receipts	788,600	831,942
Imports of Goods and Services and Income Payments	-901,693	-935,413
Current Account Balance	-113,093	-103,470	-9,623
% GDP	IIQ2013	IIQ2014	IQ2014
	2.6	2.3	2.4

X: exports; M: imports

Balance on Current Account = Exports of Goods and Services – Imports of Goods and Services and Income Payments

Source: Bureau of Economic Analysis

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

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

The alternative fiscal scenario of the CBO (2012NovCDR, 2013Sep17) resembles an economic world in which eventually the placement of debt reaches a limit of what is proportionately desired of US debt in investment portfolios. This unpleasant environment is occurring in various European countries.

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

First, Unpleasant Monetarist Arithmetic. Fiscal policy is described by Sargent and Wallace (1981, 3, equation 1) as a time sequence of D(t), t = 1, 2,…t, …, where D is real government expenditures, excluding interest on government debt, less real tax receipts. D(t) is the real deficit excluding real interest payments measured in real time t goods. Monetary policy is described by a time sequence of H(t), t=1,2,…t, …, with H(t) being the stock of base money at time t. In order to simplify analysis, all government debt is considered as being only for one time period, in the form of a one-period bond B(t), issued at time t-1 and maturing at time t. Denote by R(t-1) the real rate of interest on the one-period bond B(t) between t-1 and t. The measurement of B(t-1) is in terms of t-1 goods and [1+R(t-1)] “is measured in time t goods per unit of time t-1 goods” (Sargent and Wallace 1981, 3). Thus, B(t-1)[1+R(t-1)] brings B(t-1) to maturing time t. B(t) represents borrowing by the government from the private sector from t to t+1 in terms of time t goods. The price level at t is denoted by p(t). The budget constraint of Sargent and Wallace (1981, 3, equation 1) is:

D(t) = {[H(t) – H(t-1)]/p(t)} + {B(t) – B(t-1)[1 + R(t-1)]} (1)

Equation (1) states that the government finances its real deficits into two portions. The first portion, {[H(t) – H(t-1)]/p(t)}, is seigniorage, or “printing money.” The second part,

{B(t) – B(t-1)[1 + R(t-1)]}, is borrowing from the public by issue of interest-bearing securities. Denote population at time t by N(t) and growing by assumption at the constant rate of n, such that:

N(t+1) = (1+n)N(t), n>-1 (2)

The per capita form of the budget constraint is obtained by dividing (1) by N(t) and rearranging:

B(t)/N(t) = {[1+R(t-1)]/(1+n)}x[B(t-1)/N(t-1)]+[D(t)/N(t)] – {[H(t)-H(t-1)]/[N(t)p(t)]} (3)

On the basis of the assumptions of equal constant rate of growth of population and real income, n, constant real rate of return on government securities exceeding growth of economic activity and quantity theory equation of demand for base money, Sargent and Wallace (1981) find that “tighter current monetary policy implies higher future inflation” under fiscal policy dominance of monetary policy. That is, the monetary authority does not permanently influence inflation, lowering inflation now with tighter policy but experiencing higher inflation in the future.

Second, Unpleasant Fiscal Arithmetic. The tool of analysis of Cochrane (2011Jan, 27, equation (16)) is the government debt valuation equation:

(M_t + B_t)/P_t = E_t∫(1/R_t_{, t+τ})s_t_+τdτ (4)

Equation (4) expresses the monetary, M_t, and debt, B_t, liabilities of the government, divided by the price level, P_t, in terms of the expected value discounted by the ex-post rate on government debt, R_t_{, t+τ}, of the future primary surpluses s_t_+τ, which are equal to T_t_+τ – G_t_+τ or difference between taxes, T, and government expenditures, G. Cochrane (2010A) provides the link to a web appendix demonstrating that it is possible to discount by the ex post R_t_{, t+τ}. The second equation of Cochrane (2011Jan, 5) is:

M_tV(i_t, ·) = P_tY_t (5)

Conventional analysis of monetary policy contends that fiscal authorities simply adjust primary surpluses, s, to sanction the price level determined by the monetary authority through equation (5), which deprives the debt valuation equation (4) of any role in price level determination. The simple explanation is (Cochrane 2011Jan, 5):

“We are here to think about what happens when [4] exerts more force on the price level. This change may happen by force, when debt, deficits and distorting taxes become large so the Treasury is unable or refuses to follow. Then [4] determines the price level; monetary policy must follow the fiscal lead and ‘passively’ adjust M to satisfy [5]. This change may also happen by choice; monetary policies may be deliberately passive, in which case there is nothing for the Treasury to follow and [4] determines the price level.”

An intuitive interpretation by Cochrane (2011Jan 4) is that when the current real value of government debt exceeds expected future surpluses, economic agents unload government debt to purchase private assets and goods, resulting in inflation. If the risk premium on government debt declines, government debt becomes more valuable, causing a deflationary effect. If the risk premium on government debt increases, government debt becomes less valuable, causing an inflationary effect.

There are multiple conclusions by Cochrane (2011Jan) on the debt/dollar crisis and Global recession, among which the following three:

(1) The flight to quality that magnified the recession was not from goods into money but from private-sector securities into government debt because of the risk premium on private-sector securities; monetary policy consisted of providing liquidity in private-sector markets suffering stress

(2) Increases in liquidity by open-market operations with short-term securities have no impact; quantitative easing can affect the timing but not the rate of inflation; and purchase of private debt can reverse part of the flight to quality

(3) The debt valuation equation has a similar role as the expectation shifting the Phillips curve such that a fiscal inflation can generate stagflation effects similar to those occurring from a loss of anchoring expectations.

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

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

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

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

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

The BEA introduced new concepts and methods (http://www.bea.gov/international/concepts_methods.htm) in comprehensive restructuring on Jun 18, 2014 (http://www.bea.gov/international/modern.htm):

“BEA introduced a new presentation of the International Transactions Accounts on June 18, 2014 and will introduce a new presentation of the International Investment Position on June 30, 2014. These new presentations reflect a comprehensive restructuring of the international accounts that enhances the quality and usefulness of the accounts for customers and bring the accounts into closer alignment with international guidelines.”

Table IIA2-3 provides data on the US fiscal and balance of payments imbalances incorporating all revisions and methods. In 2007, the federal deficit of the US was $161 billion corresponding to 1.1 percent of GDP while the Congressional Budget Office estimates the federal deficit in 2012 at $1087 billion or 6.8 percent of GDP. The estimate of the deficit for 2013 is $680 billion or 4.1 percent of GDP. The combined record federal deficits of the US from 2009 to 2012 are $5090 billion or 31.6 percent of the estimate of GDP for fiscal year 2012 implicit in the CBO (CBO 2013Sep11) estimate of debt/GDP. The deficits from 2009 to 2012 exceed one trillion dollars per year, adding to $5.090 trillion in four years, using the fiscal year deficit of $1087 billion for fiscal year 2012, which is the worst fiscal performance since World War II. Federal debt in 2007 was $5035 billion, less than the combined deficits from 2009 to 2012 of $5090 billion. Federal debt in 2012 was 70.1 percent of GDP (CBO 2013Sep11) and 72.0 percent of GDP in 2013 (http://www.cbo.gov/).

On Jul 25, 2014, the CBO (http://www.cbo.gov/sites/default/files/45471-Long-TermBudgetOutlook_7-29.pdf) provides an update of the long-term budget outlook:

“The gap between federal spending and revenues would widen after 2015 under the assumptions of the extended baseline, CBO projects. By 2039, the deficit would equal 6½ percent of GDP, larger than in any year between 1947 and 2008, and federal debt held by the public would reach 106 percent of GDP, more than in any year except

1946—even without factoring in the economic effects of growing debt. Moreover, the harmful effects that such large debt would have on the economy would worsen the budget outlook. Under current law, the increase in debt relative to the size of the economy, combined with a gradual increase in marginal tax rates (the tax rates that would apply to an additional dollar of income), would reduce economic output an raise interest rates, compared with the benchmark economic projections that CBO uses in producing the extended baseline. Those economic effects in turn would lead to lower federal revenues and higher interest payments on the debt. With those effects included, federal debt held by the public under the extended baseline would rise to 111 percent of GDP in 20139. Beyond the next 25 years, the pressures caused by rising budget deficit would be growing faster than GDP, a path that would ultimately be unsustainable.”

Table IIA2-3, US, Current Account, NIIP, Fiscal Balance, Nominal GDP, Federal Debt and Direct Investment, Dollar Billions and %

	2007	2008	2009	2010	2011	2012	2013
Goods & Services	-705	-709	-384	-495	-549	-538	-476
Primary Income	101	146	124	178	221	203	200
Secondary Income	-114	-124	-121	-127	-132	-126	-124
Current Account	-719	-687	-381	-444	-459	-461	-400
NGDP	14478	14719	14419	14964	15518	16163	16768
Current Account % GDP	-5.0	-4.7	-2.6	-3.0	-3.0	-2.9	-2.4
NIIP	-1279	-3995	-2628	-2512	-4455	-4578	-5383
US Owned Assets Abroad	20705	19423	19426	21768	22209	22520	23710
Foreign Owned Assets in US	21984	23418	22054	24280	26664	27098	29093
NIIP % GDP	-8.8	-27.1	-18.2	-16.8	-28.7	-28.3	-32.1
Exports Goods, Services and Income	2569	2751	2286	2631	2988	3085	3179
NIIP % Exports Goods, Services and Income	-50	-145	-115	-95	-149	-148	-169
DIA MV	5858	3707	4945	5486	5215	5938	7080
DIUS MV	4134	3091	3619	4099	4199	4671	5791
Fiscal Balance	-161	-459	-1413	-1294	-1300	-1087	-680
Fiscal Balance % GDP	-1.1	-3.1	-9.8	-8.7	-8.4	-6.8	-4.1
Federal Debt	5035	5803	7545	9019	10128	11281	11983
Federal Debt % GDP	35.1	39.3	52.3	61.0	65.8	70.1	72.0
Federal Outlays	2729	2983	3518	3457	3603	3537	3455
∆%	2.8	9.3	17.9	-1.7	4.2	-1.8	-2.3
% GDP	19.0	20.2	24.4	23.4	23.4	22.0	20.8
Federal Revenue	2568	2524	2105	2163	2304	2450	2775
∆%	6.7	-1.7	-16.6	2.7	6.5	6.3	13.3
% GDP	17.9	17.1	14.6	14.6	15.0	15.2	16.7

Sources:

Notes: NGDP: nominal GDP or in current dollars; NIIP: Net International Investment Position; DIA MV: US Direct Investment Abroad at Market Value; DIUS MV: Direct Investment in the US at Market Value. There are minor discrepancies in the decimal point of percentages of GDP between the balance of payments data and federal debt, outlays, revenue and deficits in which the original number of the CBO source is maintained. See Bureau of Economic Analysis, US International Economic Accounts: Concepts and Methods. 2014. Washington, DC: BEA, Department of Commerce, Jun 2014 http://www.bea.gov/international/concepts_methods.htm These discrepancies do not alter conclusions. Budget http://www.cbo.gov/ Balance of Payments and NIIP http://www.bea.gov/international/index.htm#bop Gross Domestic Product, Bureau of Economic Analysis (BEA) http://www.bea.gov/iTable/index_nipa.cfm

Table IIA2-4 provides quarterly estimates NSA of the external imbalance of the United States. The current account deficit seasonally adjusted falls from 2.6 percent of GDP in IIQ2013 to 2.4 percent in IIIQ2013 and 2.0 percent of GDP in IVQ2013. The deficit increased to 2.4 percent of GDP in IQ2014 and 2.3 percent of GDP in IIQ2014. The net international investment position increases from $5.1 trillion in IIQ2013 to $5.3 trillion in IIIQ2013. The net international investment position increases to $5.8 trillion in IVQ2013 and decreases to $5.7 trillion in IQ2014, increasing to $5.9 trillion in IIQ2014.

Table IIA2-4, US, Current Account, NIIP, Fiscal Balance, Nominal GDP, Federal Debt and Direct Investment, Dollar Billions and % NSA

	IIQ2013	IIIQ2013	IVQ2013	IQ2014	IIQ2014
Goods & Services	-130	-137	-111	-101	-98
Primary Income	47	51	53	47	48
Secondary Income	-30	-33	-29	-32	-31
Current Account	-113	-119	-87	-86	-81
Current Account % GDP	-2.6	-2.4	-2.0	-2.4	-2.3
NIIP	-5524	-4995	-5383	-5512	-5445
US Owned Assets Abroad	21904	22954	23710	24020	24933
Foreign Owned Assets in US	-27428	-27949	-29093	-29532	-30378
DIA MV	6147	6690	7080	7117	7442
DIA MV Equity	5162	5699	6070	6135	6431
DIUS MV	5132	5342	5791	5689	5950
DIUS MV Equity	3845	4041	4462	4387	4621

Notes: NIIP: Net International Investment Position; DIA MV: US Direct Investment Abroad at Market Value; DIUS MV: Direct Investment in the US at Market Value. See Bureau of Economic Analysis, US International Economic Accounts: Concepts and Methods. 2014. Washington, DC: BEA, Department of Commerce, Jun 2014 http://www.bea.gov/international/concepts_methods.htm

http://www.bea.gov/international/index.htm

Chart VI-10 of the Board of Governors of the Federal Reserve System provides the overnight Fed funds rate on business days from Jul 1, 1954 at 1.13 percent through Jan 10, 1979, at 9.91 percent per year, to Oct 9, 2014, at 0.08 percent per year. US recessions are in shaded areas according to the reference dates of the NBER (http://www.nber.org/cycles.html). In the Fed effort to control the “Great Inflation” of the 1930s (see http://cmpassocregulationblog.blogspot.com/2011/05/slowing-growth-global-inflation-great.html http://cmpassocregulationblog.blogspot.com/2011/04/new-economics-of-rose-garden-turned.html http://cmpassocregulationblog.blogspot.com/2011/03/is-there-second-act-of-us-great.html and Appendix I The Great Inflation; see Taylor 1993, 1997, 1998LB, 1999, 2012FP, 2012Mar27, 2012Mar28, 2012JMCB and http://cmpassocregulationblog.blogspot.com/2012/06/rules-versus-discretionary-authorities.html), the fed funds rate increased from 8.34 percent on Jan 3, 1979 to a high in Chart VI-10 of 22.36 percent per year on Jul 22, 1981 with collateral adverse effects in the form of impaired savings and loans associations in the United States, emerging market debt and money-center banks (see Pelaez and Pelaez, Regulation of Banks and Finance (2009b), 72-7; Pelaez 1986, 1987). Another episode in Chart VI-10 is the increase in the fed funds rate from 3.15 percent on Jan 3, 1994, to 6.56 percent on Dec 21, 1994, which also had collateral effects in impairing emerging market debt in Mexico and Argentina and bank balance sheets in a world bust of fixed income markets during pursuit by central banks of non-existing inflation (Pelaez and Pelaez, International Financial Architecture (2005), 113-5). Another interesting policy impulse is the reduction of the fed funds rate from 7.03 percent on Jul 3, 2000, to 1.00 percent on Jun 22, 2004, in pursuit of equally non-existing deflation (Pelaez and Pelaez, International Financial Architecture (2005), 18-28, The Global Recession Risk (2007), 83-85), followed by increments of 25 basis points from Jun 2004 to Jun 2006, raising the fed funds rate to 5.25 percent on Jul 3, 2006 in Chart VI-10. Central bank commitment to maintain the fed funds rate at 1.00 percent induced adjustable-rate mortgages (ARMS) linked to the fed funds rate. Lowering the interest rate near the zero bound in 2003-2004 caused the illusion of permanent increases in wealth or net worth in the balance sheets of borrowers and also of lending institutions, securitized banking and every financial institution and investor in the world. The discipline of calculating risks and returns was seriously impaired. The objective of monetary policy was to encourage borrowing, consumption and investment but the exaggerated stimulus resulted in a financial crisis of major proportions as the securitization that had worked for a long period was shocked with policy-induced excessive risk, imprudent credit, high leverage and low liquidity by the incentive to finance everything overnight at interest rates close to zero, from adjustable rate mortgages (ARMS) to asset-backed commercial paper of structured investment vehicles (SIV).

The consequences of inflating liquidity and net worth of borrowers were a global hunt for yields to protect own investments and money under management from the zero interest rates and unattractive long-term yields of Treasuries and other securities. Monetary policy distorted the calculations of risks and returns by households, business and government by providing central bank cheap money. Short-term zero interest rates encourage financing of everything with short-dated funds, explaining the SIVs created off-balance sheet to issue short-term commercial paper with the objective of purchasing default-prone mortgages that were financed in overnight or short-dated sale and repurchase agreements (Pelaez and Pelaez, Financial Regulation after the Global Recession, 50-1, Regulation of Banks and Finance, 59-60, Globalization and the State Vol. I, 89-92, Globalization and the State Vol. II, 198-9, Government Intervention in Globalization, 62-3, International Financial Architecture, 144-9). ARMS were created to lower monthly mortgage payments by benefitting from lower short-dated reference rates. Financial institutions economized in liquidity that was penalized with near zero interest rates. There was no perception of risk because the monetary authority guaranteed a minimum or floor price of all assets by maintaining low interest rates forever or equivalent to writing an illusory put option on wealth. Subprime mortgages were part of the put on wealth by an illusory put on house prices. The housing subsidy of $221 billion per year created the impression of ever-increasing house prices. The suspension of auctions of 30-year Treasuries was designed to increase demand for mortgage-backed securities, lowering their yield, which was equivalent to lowering the costs of housing finance and refinancing. Fannie and Freddie purchased or guaranteed $1.6 trillion of nonprime mortgages and worked with leverage of 75:1 under Congress-provided charters and lax oversight. The combination of these policies resulted in high risks because of the put option on wealth by near zero interest rates, excessive leverage because of cheap rates, low liquidity because of the penalty in the form of low interest rates and unsound credit decisions because the put option on wealth by monetary policy created the illusion that nothing could ever go wrong, causing the credit/dollar crisis and global recession (Pelaez and Pelaez, Financial Regulation after the Global Recession, 157-66, Regulation of Banks, and Finance, 217-27, International Financial Architecture, 15-18, The Global Recession Risk, 221-5, Globalization and the State Vol. II, 197-213, Government Intervention in Globalization, 182-4). A final episode in Chart VI-10 is the reduction of the fed funds rate from 5.41 percent on Aug 9, 2007, to 2.97 percent on October 7, 2008, to 0.12 percent on Dec 5, 2008 and close to zero throughout a long period with the final point at 0.08 percent on Oct 9, 2014. Evidently, this behavior of policy would not have occurred had there been theory, measurements and forecasts to avoid these violent oscillations that are clearly detrimental to economic growth and prosperity without inflation. Current policy consists of forecast mandate of maintaining policy accommodation until the forecast of the rate of unemployment reaches 6.5 percent and the rate of personal consumption expenditures excluding food and energy reaches 2.5 percent (http://www.federalreserve.gov/newsevents/press/monetary/20121212a.htm). The FOMC dropped the numbers but affirmed guidance (http://www.federalreserve.gov/newsevents/press/monetary/20140319a.htm): “With the unemployment rate nearing 6-1/2 percent, the Committee has updated its forward guidance. The change in the Committee's guidance does not indicate any change in the Committee's policy intentions as set forth in its recent statements.” It is a forecast mandate because of the lags in effect of monetary policy impulses on income and prices (Romer and Romer 2004). The intention is to reduce unemployment close to the “natural rate” (Friedman 1968, Phelps 1968) of around 5 percent and inflation at or below 2.0 percent. If forecasts were reasonably accurate, there would not be policy errors. A commonly analyzed risk of zero interest rates is the occurrence of unintended inflation that could precipitate an increase in interest rates similar to the Himalayan rise of the fed funds rate from 9.91 percent on Jan 10, 1979, at the beginning in Chart VI-10, to 22.36 percent on Jul 22, 1981. There is a less commonly analyzed risk of the development of a risk premium on Treasury securities because of the unsustainable Treasury deficit/debt of the United States (http://cmpassocregulationblog.blogspot.com/2014/09/world-inflation-waves-squeeze-of.html and earlier (http://cmpassocregulationblog.blogspot.com/2014/02/theory-and-reality-of-cyclical-slow.html and earlier (http://cmpassocregulationblog.blogspot.com/2013/02/united-states-unsustainable-fiscal.html). There is not a fiscal cliff or debt limit issue ahead but rather free fall into a fiscal abyss. The combination of the fiscal abyss with zero interest rates could trigger the risk premium on Treasury debt or Himalayan hike in interest rates.

Chart VI-10, US, Fed Funds Rate, Business Days, Jul 1, 1954 to Oct 9, 2014, Percent per Year

Source: Board of Governors of the Federal Reserve System

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

Chart VI-14 provides the overnight fed funds rate, the yield of the 10-year Treasury constant maturity bond, the yield of the 30-year constant maturity bond and the conventional mortgage rate from Jan 1991 to Dec 1996. In Jan 1991, the fed funds rate was 6.91 percent, the 10-year Treasury yield 8.09 percent, the 30-year Treasury yield 8.27 percent and the conventional mortgage rate 9.64 percent. Before monetary policy tightening in Oct 1993, the rates and yields were 2.99 percent for the fed funds, 5.33 percent for the 10-year Treasury, 5.94 for the 30-year Treasury and 6.83 percent for the conventional mortgage rate. After tightening in Nov 1994, the rates and yields were 5.29 percent for the fed funds rate, 7.96 percent for the 10-year Treasury, 8.08 percent for the 30-year Treasury and 9.17 percent for the conventional mortgage rate.

Chart VI-14, US, Overnight Fed Funds Rate, 10-Year Treasury Constant Maturity, 30-Year Treasury Constant Maturity and Conventional Mortgage Rate, Monthly, Jan 1991 to Dec 1996

Source: Board of Governors of the Federal Reserve System

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

Chart VI-15 of the Bureau of Labor Statistics provides the all items consumer price index from Jan 1991 to Dec 1996. There does not appear acceleration of consumer prices requiring aggressive tightening.

Chart VI-15, US, Consumer Price Index All Items, Jan 1991 to Dec 1996

Source: Bureau of Labor Statistics

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

Chart IV-16 of the Bureau of Labor Statistics provides 12-month percentage changes of the all items consumer price index from Jan 1991 to Dec 1996. Inflation collapsed during the recession from Jul 1990 (III) and Mar 1991 (I) and the end of the Kuwait War on Feb 25, 1991 that stabilized world oil markets. CPI inflation remained almost the same and there is no valid counterfactual that inflation would have been higher without monetary policy tightening because of the long lag in effect of monetary policy on inflation (see Culbertson 1960, 1961, Friedman 1961, Batini and Nelson 2002, Romer and Romer 2004). Policy tightening had adverse collateral effects in the form of emerging market crises in Mexico and Argentina and fixed income markets worldwide.

Chart VI-16, US, Consumer Price Index All Items, Twelve-Month Percentage Change, Jan 1991 to Dec 1996

Source: Bureau of Labor Statistics

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

The Congressional Budget Office (CBO 2014BEOFeb4) estimates potential GDP, potential labor force and potential labor productivity provided in Table IB-3. The CBO estimates average rate of growth of potential GDP from 1950 to 2012 at 3.3 percent per year. The projected path is significantly lower at 2.1 percent per year from 2013 to 2024. The legacy of the economic cycle expansion from IIIQ2009 to IIQ2014 at 2.2 percent on average is in contrast with 5.0 percent on average in the expansion from IQ1983 to IIQ1987 (http://cmpassocregulationblog.blogspot.com/2014/09/financial-volatility-mediocre-cyclical.html). Subpar economic growth may perpetuate unemployment and underemployment estimated at 26.9 million or 16.4 percent of the effective labor force in Aug 2014 (http://cmpassocregulationblog.blogspot.com/2014/10/world-financial-turbulence-twenty-seven.html) with much lower hiring than in the period before the current cycle (Section I and earlier http://cmpassocregulationblog.blogspot.com/2014/09/geopolitics-monetary-policy-and.html).

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

	Potential GDP	Potential Labor Force	Potential Labor Productivity*
Average Annual ∆%
1950-1973	3.9	1.6	2.3
1974-1981	3.2	2.5	0.8
1982-1990	3.2	1.6	1.6
1991-2001	3.2	1.3	1.9
2002-2012	2.2	0.8	1.4
2007-2012	1.7	0.6	1.1
Total 1950-2012	3.3	1.5	1.8
Projected Average Annual ∆%
2013-2018	2.1	0.6	1.5
2019-2024	2.1	0.5	1.6
2013-2024	2.1	0.5	1.6

*Ratio of potential GDP to potential labor force

Source: CBO (2014BEOFeb4), CBO, Key assumptions in projecting potential GDP—February 2014 baseline. Washington, DC, Congressional Budget Office, Feb 4, 2014.

Chart IB-1 of the Congressional Budget Office (CBO 2013BEOFeb5) provides actual and potential GDP of the United States from 2000 to 2011 and projected to 2024. Lucas (2011May) estimates trend of United States real GDP of 3.0 percent from 1870 to 2010 and 2.2 percent for per capita GDP. The United States successfully returned to trend growth of GDP by higher rates of growth during cyclical expansion as analyzed by Bordo (2012Sep27, 2012Oct21) and Bordo and Haubrich (2012DR). Growth in expansions following deeper contractions and financial crises was much higher in agreement with the plucking model of Friedman (1964, 1988). The unusual weakness of growth at 2.2 percent on average from IIIQ2009 to IIQ2014 during the current economic expansion in contrast with 5.0 percent on average in the cyclical expansion from IQ1983 to IQ1987 (http://cmpassocregulationblog.blogspot.com/2014/09/financial-volatility-mediocre-cyclical.html) cannot be explained by the contraction of 4.3 percent of GDP from IVQ2007 to IIQ2009 and the financial crisis. Weakness of growth in the expansion is perpetuating unemployment and underemployment of 26.5 million or 16.1 percent of the labor force as estimated for Sep 2014 (http://cmpassocregulationblog.blogspot.com/2014/10/world-financial-turbulence-twenty-seven.html). There is no exit from unemployment/underemployment and stagnating real wages because of the collapse of hiring Section I and earlier http://cmpassocregulationblog.blogspot.com/2014/09/geopolitics-monetary-policy-and.html). The US economy and labor markets collapsed without recovery. Abrupt collapse of economic conditions can be explained only with cyclic factors (Lazear and Spletzer 2012Jul22) and not by secular stagnation (Hansen 1938, 1939, 1941 with early dissent by Simons 1942).

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

Source: Congressional Budget Office, CBO (2013BEOFeb5). The last year in common in both projections is 2017. The revision lowers potential output in 2017 by 7.3 percent relative to the projection in 2007.

Chart IB-2 provides differences in the projections of potential output by the CBO in 2007 and more recently on Feb 4, 2014, which the CBO explains in CBO (2014Feb28).

Chart IB-2, Congressional Budget Office, Revisions of Potential GDP

Source: Congressional Budget Office, 2014Feb 28. Revisions to CBO’s Projection of Potential Output since 2007. Washington, DC, CBO, Feb 28, 2014.

Chart IB-3 provides actual and projected potential GDP from 2000 to 2024. The gap between actual and potential GDP disappears at the end of 2017 (CBO2014Feb4). GDP increases in the projection at 2.5 percent per year.

Chart IB-3, Congressional Budget Office, GDP and Potential GDP

Source: CBO (2013BEOFeb5), CBO, Key assumptions in projecting potential GDP—February 2014 baseline. Washington, DC, Congressional Budget Office, Feb 4, 2014.

Chart IIA2-3 of the Bureau of Economic Analysis of the Department of Commerce shows on the lower negative panel the sharp increase in the deficit in goods and the deficits in goods and services from 1960 to 2012. The upper panel shows the increase in the surplus in services that was insufficient to contain the increase of the deficit in goods and services. The adjustment during the global recession has been in the form of contraction of economic activity that reduced demand for goods.

Chart IIA2-3, US, Balance of Goods, Balance on Services and Balance on Goods and Services, 1960-2013, Millions of Dollars

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

Chart IIA2-4 of the Bureau of Economic Analysis shows exports and imports of goods and services from 1960 to 2012. Exports of goods and services in the upper positive panel have been quite dynamic but have not compensated for the sharp increase in imports of goods. The US economy apparently has become less competitive in goods than in services.

Chart IIA2-4, US, Exports and Imports of Goods and Services, 1960-2013, Millions of Dollars

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

Chart IIA2-5 of the Bureau of Economic Analysis shows the US balance on current account from 1960 to 2012. The sharp devaluation of the dollar resulting from unconventional monetary policy of zero interest rates and elimination of auctions of 30-year Treasury bonds did not adjust the US balance of payments. Adjustment only occurred after the contraction of economic activity during the global recession.

Chart IIA2-5, US, Balance on Current Account, 1960-2013, Millions of Dollars

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

Chart IIA2-6 of the Bureau of Economic Analysis provides real GDP in the US from 1960 to 2012. The contraction of economic activity during the global recession was a major factor in the reduction of the current account deficit as percent of GDP.

Chart IIA2-6, US, Real GDP, 1960-2013, Billions of Chained 2009 Dollars

Source: Bureau of Economic Analysis

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

Chart IIA-7 provides the US current account deficit on a quarterly basis from 1980 to IQ1983. The deficit is at a lower level because of growth below potential not only in the US but worldwide. The combination of high government debt and deficit with external imbalance restricts potential prosperity in the US.

Chart IIA-7, US, Balance on Current Account, Quarterly, 1980-2013

Source: Bureau of Economic Analysis

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

Risk aversion channels funds toward US long-term and short-term securities that finance the US balance of payments and fiscal deficits benefitting from risk flight to US dollar denominated assets. There are now temporary interruptions because of fear of rising interest rates that erode prices of US government securities because of mixed signals on monetary policy and exit from the Fed balance sheet of four trillion dollars of securities held outright. Net foreign purchases of US long-term securities (row C in Table VA-8) increased from $18.7 billion in Jun 2014 to minus $18.6 billion in Jul 2014. Foreign (residents) purchases minus sales of US long-term securities (row A in Table VA-8) in Jun 2014 of minus $18.4 billion increased to minus $3.9 billion in Jul 2014. Net US (residents) purchases of long-term foreign securities (row B in Table VA-4) decreased from minus $0.4 billion in Jun 2014 to minus $14.7 billion in Jul 2014. In Jul 2014,

C = A + B = -$3.9 billion - $14.7 billion = $18.6 billion

There are minor rounding errors. There is strengthening demand in Table VA-4 in Jun in A1 private purchases by residents overseas of US long-term securities of $1.9 billion of which improvement in A11 Treasury securities of $5.2 billion, improvement in A12 of $7.2 billion in agency securities, deterioration of minus $8.5 billion of corporate bonds and deterioration of $2.0 billion in equities. Worldwide risk aversion causes flight into US Treasury obligations with significant oscillations. Official purchases of securities in row A2 decreased $5.8 billion with decrease of Treasury securities of $6.0 billion in Jul 2014. Official purchases of agency securities increased $0.3 billion in Jul. Row D shows decrease in Jul 2014 of $6.0 billion in purchases of short-term dollar denominated obligations. Foreign private holdings of US Treasury bills increased $6.0 billion (row D11) with foreign official holdings decreasing $8.3 billion while the category “other” increased $0.9 billion. Foreign private holdings of US Treasury bills increased $1.5 billion in what could be arbitrage of duration exposures. Risk aversion of default losses in foreign securities dominates decisions to accept zero interest rates in Treasury securities with no perception of principal losses. In the case of long-term securities, investors prefer to sacrifice inflation and possible duration risk to avoid principal losses with significant oscillations in risk perceptions.

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

	Jun 2013 12 Months	Jun 2014 12 Months	Jun 2014	Jul 2014
A Foreign Purchases less Sales of US LT Securities	294.3	152.7	-18.4	-3.9
A1 Private	123.3	113.2	-44.6	1.9
A11 Treasury	8.3	139.5	-40.8	5.2
A12 Agency	55.2	7.5	-1.6	7.2
A13 Corporate Bonds	8.4	-31.7	-3.3	-8.5
A14 Equities	51.4	-2.2	1.1	-2.0
A2 Official	171.0	39.5	26.3	-5.8
A21 Treasury	62.3	27.0	20.0	-6.0
A22 Agency	81.7	21.3	5.0	0.3
A23 Corporate Bonds	18.9	8.1	-0.3	1.4
A24 Equities	8.1	-16.8	1.5	-1.5
B Net US Purchases of LT Foreign Securities	-169.5	-194.1	-0.4	-14.7
B1 Foreign Bonds	-43.7	-28.3	-13.2	-6.1
B2 Foreign Equities	-125.8	-165.8	12.8	-8.6
C Net Foreign Purchases of US LT Securities	124.8	-41.4	-18.7	-18.6
D Increase in Foreign Holdings of Dollar Denominated Short-term	37.5	-23.7	-5.7	-6.0
D1 US Treasury Bills	35.6	-33.9	-15.9	-6.8
D11 Private	29.5	-3.7	4.3	1.5
D12 Official	6.1	-30.2	-20.2	-8.3
D2 Other	1.9	10.2	10.2	0.9

C = A + B;

A = A1 + A2

A1 = A11 + A12 + A13 + A14

A2 = A21 + A22 + A23 + A24

B = B1 + B2

D = D1 + D2

Sources: United States Treasury

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

http://www.treasury.gov/press-center/press-releases/Pages/jl2609.aspx

Table VA-5 provides major foreign holders of US Treasury securities. China is the largest holder with $1264.9 billion in Jul 2014, decreasing 0.9 percent from $1279.3 billion in Jul 2013 while decreasing $3.5 billion from Jun 2014 or 0.3 percent. The United States Treasury estimates US government debt held by private investors at $9800 billion in Mar 2014. China’s holding of US Treasury securities represent 12.9 percent of US government marketable interest-bearing debt held by private investors (http://www.fms.treas.gov/bulletin/index.html). Min Zeng, writing on “China plays a big role as US Treasury yields fall,” on Jul 16, 2004, published in the Wall Street Journal (http://online.wsj.com/articles/china-plays-a-big-role-as-u-s-treasury-yields-fall-1405545034?tesla=y&mg=reno64-wsj), finds that acceleration in purchases of US Treasury securities by China has been an important factor in the decline of Treasury yields in 2014. Japan increased its holdings from $1135.4 billion in Jul 2013 to $1219.0 billion in Jul 2014 or 7.4 percent. The combined holdings of China and Japan in Jul 2014 add to $2484 billion, which is equivalent to 25.3 percent of US government marketable interest-bearing securities held by investors of $9800 billion in Mar 2014 (http://www.fms.treas.gov/bulletin/index.html). Total foreign holdings of Treasury securities rose from $5592.8 billion in Jul 2013 to $5997.2 billion in Jul 2014, or 7.2 percent. The US continues to finance its fiscal and balance of payments deficits with foreign savings (see Pelaez and Pelaez, The Global Recession Risk (2007)). A point of saturation of holdings of US Treasury debt may be reached as foreign holders evaluate the threat of reduction of principal by dollar devaluation and reduction of prices by increases in yield, including possibly risk premium. Shultz et al (2012) find that the Fed financed three-quarters of the US deficit in fiscal year 2011, with foreign governments financing significant part of the remainder of the US deficit while the Fed owns one in six dollars of US national debt. Concentrations of debt in few holders are perilous because of sudden exodus in fear of devaluation and yield increases and the limit of refinancing old debt and placing new debt. In their classic work on “unpleasant monetarist arithmetic,” Sargent and Wallace (1981, 2) consider a regime of domination of monetary policy by fiscal policy (emphasis added):

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

	Jul 2014	Jun 2014	Jul 2013
Total	5997.2	6013.2	5592.8
China	1264.9	1268.4	1279.3
Japan	1219.0	1219.5	1135.4
Belgium	352.6	364.1	167.7
Caribbean Banking Centers	313.5	308.3	286.6
Oil Exporters	261.3	262.1	257.7
Brazil	258.6	253.7	256.4
Switzerland	184.3	175.9	178.2
Taiwan	175.4	179.4	185.8
United Kingdom	173.1	173.7	157.0
Hong Kong	158.1	158.2	120.0
Luxembourg	145.6	146.2	146.8
Russia	114.5	113.9	131.6
Ireland	106.0	113.0	117.9
Foreign Official Holdings	4111.7	4108.2	3996.1
A. Treasury Bills	332.7	341.0	363.0
B. Treasury Bonds and Notes	3779.0	3767.2	3633.2

Source: United States Treasury

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

IIC United States Import and Export Prices. Chart IIA2-1 provides prices of total US imports 2001-2014. Prices fell during the contraction of 2001. Import price inflation accelerated after unconventional monetary policy of near zero interest rates in 2003-2004 and quantitative easing by withdrawing supply with the suspension of 30-year Treasury bond auctions. Slow pace of adjusting fed funds rates from 1 percent by increments of 25 basis points in 17 consecutive meetings of the Federal Open Market Committee (FOMC) between Jun 2004 and Jun 2006 continued to give impetus to carry trades. The reduction of fed funds rates toward zero in 2008 fueled a spectacular global hunt for yields that caused commodity price inflation in the middle of a global recession. After risk aversion in 2009 because of the announcement of TARP (Troubled Asset Relief Program) creating anxiety on “toxic assets” in bank balance sheets (see Cochrane and Zingales 2009), prices collapsed because of unwinding carry trades. Renewed price increases returned with zero interest rates and quantitative easing. Monetary policy impulses in massive doses have driven inflation and valuation of risk financial assets in wide fluctuations over a decade.

Chart IIA2-1, US, Prices of Total US Imports 2001=100, 2001-2014

Source: Bureau of Labor Statistics

Chart IIA2-2 provides 12-month percentage changes of prices of total US imports from 2001 to 2014. The only plausible explanation for the wide oscillations is by the carry trade originating in unconventional monetary policy. Import prices jumped in 2008 during deep and protracted global recession driven by carry trades from zero interest rates to long, leveraged positions in commodity futures. Carry trades were unwound during the financial panic in the final quarter of 2008 that resulted in flight to government obligations. Import prices jumped again in 2009 with subdued risk aversion because US banks did not have unsustainable toxic assets. Import prices then fluctuated as carry trades were resumed during periods of risk appetite and unwound during risk aversion resulting from the European debt crisis.

Chart IIA2-2, US, Prices of Total US Imports, 12-Month Percentage Changes, 2001-2014

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

Chart IIA2-3 provides prices of US imports from 1982 to 2014. There is no similar episode to that of the increase of commodity prices in 2008 during a protracted and deep global recession with subsequent collapse during a flight into government obligations. Trade prices have been driven by carry trades created by unconventional monetary policy in the past decade.

Chart IIA2-3, US, Prices of Total US Imports, 2001=100, 1982-2014

Source: Bureau of Labor Statistics

Chart IIA2-4 provides 12-month percentage changes of US total imports from 1982 to 2014. There have not been wide consecutive oscillations as the ones during the global recession of IVQ2007 to IIQ2009.

Chart IIA2-4, US, Prices of Total US Imports, 12-Month Percentage Changes, 1982-2014

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

Chart IIA2-5 provides the index of US export prices from 2001 to 2014. Import and export prices have been driven by impulses of unconventional monetary policy in massive doses. The most recent segment in Chart IIA2-5 shows declining trend resulting from a combination of the world economic slowdown and the decline of commodity prices as carry trade exposures are unwound because of risk aversion to the sovereign debt crisis in Europe and slowdown in the world economy.

Chart IIA2-5, US, Prices of Total US Exports, 2001=100, 2001-2014

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

Chart IIA2-6 provides prices of US total exports from 1982 to 2014. The rise before the global recession from 2003 to 2008, driven by carry trades, is also unique in the series and is followed by another steep increase after risk aversion moderated in IQ2009.

Chart IIA2-6, US, Prices of Total US Exports, 2001=100, 1982-2014

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

Chart IIA2-7 provides 12-month percentage changes of total US exports from 1982 to 2014. The uniqueness of the oscillations around the global recession of IVQ2007 to IIQ2009 is clearly revealed.

Chart IIA2-7, US, Prices of Total US Exports, 12-Month Percentage Changes, 1982-2014

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

Twelve-month percentage changes of US prices of exports and imports are provided in Table IIA2-1. Import prices have been driven since 2003 by unconventional monetary policy of near zero interest rates influencing commodity prices according to moods of risk aversion and portfolio reallocations. In a global recession without risk aversion until the panic of Sep 2008 with flight to government obligations, import prices increased 21.4 percent in the 12 months ending in Jul 2008, 18.1 percent in the 12 months ending in Aug 2008, 13.1 percent in the 12 months ending in Sep 2008, 4.9 percent in the twelve months ending in Oct 2008. Import prices fell 10.1 percent in the 12 months ending in Dec 2008 when risk aversion developed in 2008 until mid 2009 (http://www.bls.gov/mxp/data.htm). Import prices rose again sharply in Dec 2009 by 8.6 percent and in Dec 2010 by 5.3 percent in the presence of zero interest rates with relaxed mood of risk aversion. Carry trades were unwound in May 2011 and following months as shown by decrease of import prices by 2.0 percent in the 12 months ending in Dec 2012 and 1.1 percent in Dec 2013. Import prices increased 16.9 percent in the 12 months ending in Apr 2008, fell 16.4 percent in the 12 months ending in Apr 2009 and increased 11.2 percent in the 12 months ending in Apr 2010. Fluctuations are much sharper in imports because of the high content of oil that as all commodities futures contracts increases sharply with zero interest rates and risk appetite, contracting under risk aversion. There is similar behavior of prices of imports ex fuels, exports and exports ex agricultural goods but less pronounced than for commodity-rich prices dominated by carry trades from zero interest rates. A critical event resulting from unconventional monetary policy driving higher commodity prices by carry trades is the deterioration of the terms of trade, or export prices relative to import prices, that has adversely affected US real income growth relative to what it would have been in the absence of unconventional monetary policy. Europe, Japan and other advanced economies have experienced similar deterioration of their terms of trade. Because of unwinding carry trades of commodity futures resulting from risk aversion and portfolio reallocations, import prices decreased 0.9 percent in the 12 months ending in Sep 2014, export prices increased 0.2 percent and prices of nonagricultural exports changed 0.0 percent. Imports excluding fuel increased 0.5 percent in the 12 months ending in Sep 2014. At the margin, price changes over the year in world exports and imports are decreasing or increasing moderately because of unwinding carry trades in a temporary mood of risk aversion and relative allocation of asset classes toward equities that reverses exposures in commodity futures.

Table IIA2-1, US, Twelve-Month Percentage Rates of Change of Prices of Exports and Imports

	Imports	Imports Ex Fuels	Exports	Exports Non-Ag
Sep 2014	-0.9	0.5	0.2	0.0
Sep 2013	0.7	-1.2	-1.6	-0.9
Sep 2012	-0.6	-0.4	-0.6	-1.5
Sep 2011	12.7	5.4	9.4	7.9
Sep 2010	3.6	2.5	4.9	4.3
Sep 2009	-12.0	-4.2	-5.6	-4.4
Sep 2008	13.1	6.1	7.0	5.8
Sep 2007	4.8	2.1	4.5	2.9
Sep 2006	1.6	2.9	3.9	3.8
Sep 2005	9.9	1.4	3.6	3.6
Aug 2004	8.2	2.8	4.0	4.3
Sep 2003	0.7	0.5	1.0	0.6
Sep 2002	-0.4	NA	-0.2	-0.6
Sep 2001	-5.6	NA	-1.4	-1.9

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

Table IIA2-2 provides 12-month percentage changes of the import price index all commodities from 2001 to 2014. Interest rates moving toward zero during unconventional monetary policy in 2008 induced carry trades into highly leveraged commodity derivatives positions that caused increases in 12-month percentage changes of import prices of around 20 percent. The flight into dollars and Treasury securities by fears of toxic assets in banks in the proposal of TARP (Cochrane and Zingales 2009) caused reversion of carry trades and collapse of commodity futures explaining sharp declines in trade prices in 2009. Twelve-month percentage changes of import prices at the end of 2012 and into 2013 occurred during another bout of risk aversion and portfolio reallocation. There is a new shock of risk aversion in late 2013 with marginally increasing exposures in commodities followed by reversals of exposures into 2014.

Table IIA2-2, US, Twelve-Month Percentage Changes of Import Price Index All Commodities, 2001-2014

Year	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Dec
2001	2.8	0.2	-1.6	-0.7	-0.8	-2.6	-4.1	-4.4	-5.6	-9.1
2002	-8.9	-8.3	-5.6	-3.6	-3.7	-3.6	-1.7	-1.3	-0.4	4.2
2003	5.8	7.5	6.8	1.8	1.0	2.2	2.3	2.0	0.7	2.4
2004	2.2	0.9	1.1	4.6	6.9	5.7	5.6	7.1	8.2	6.7
2005	5.7	6.1	7.6	8.4	5.9	7.4	8.2	8.2	9.9	8.0
2006	8.7	6.9	4.5	5.8	8.6	7.4	7.0	6.0	1.6	2.5
2007	0.0	1.2	2.8	2.1	1.2	2.3	2.8	1.9	4.8	10.6
2008	13.6	13.5	15.2	16.9	19.1	21.3	21.4	18.1	13.1	-10.1
2009	-12.5	-12.7	-14.9	-16.4	-17.3	-17.5	-19.1	-15.3	-12.0	8.6
2010	11.4	11.3	11.2	11.2	8.5	4.3	4.9	3.8	3.6	5.3
2011	5.6	7.6	10.3	11.9	12.9	13.6	13.7	12.9	12.7	8.5
2012	6.9	5.1	3.5	0.8	-0.8	-2.5	-3.3	-1.8	-0.6	-2.0
2013	-1.5	-0.6	-2.1	-2.7	-1.8	0.1	0.9	0.0	-0.7	-1.1
2014	-1.3	-1.1	-0.5	-0.4	0.5	1.2	0.9	-0.1	-0.9

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

There is finer detail in one-month percentage changes of imports of the US in Table IIA2-3. Carry trades into commodity futures induced by interest rates moving to zero in unconventional monetary policy caused sharp monthly increases in import prices for cumulative increase of 13.8 percent from Mar to Jul 2008 at average rate of 2.6 percent per month or annual equivalent in five months of 36.4 percent (3.1 percent in Mar 2008, 2.8 percent in Apr 2008, 2.8 percent in May 2008, 3.0 percent in Jun 2008 and 1.4 percent in Jul 2008, data from http://www.bls.gov/mxp/data.htm). There is no other explanation for increases in import prices during sharp global recession and contracting world trade. Import prices then fell 23.4 percent from Aug 2008 to Jan 2009 or at the annual equivalent rate of minus 41.4 percent in the flight to US government securities in fear of the need to buy toxic assets from banks in the TARP program (Cochrane and Zingales 2009). Risk aversion during the first sovereign debt crisis of the euro area in May-Jun 2010 caused decline of US import prices at the annual equivalent rate of 11.4 percent. US import prices have been driven by combinations of carry trades induced by unconventional monetary policy and bouts of risk aversion and portfolio reallocation (http://cmpassocregulationblog.blogspot.com/2014/09/world-inflation-waves-squeeze-of.html). US import prices increased 0.5 percent in Jan 2013 and 0.9 percent in Feb 2013 for annual equivalent rate of 8.7 percent, similar to those in national price indexes worldwide, originating in carry trades from zero interest rates to commodity futures. Import prices fell 0.1 percent in Mar 2013, 0.7 percent in Apr 2013, 0.6 percent in May 2013 and 0.4 percent in Jun 2013. Import prices changed 0.1 percent in Jul 2013, increased 0.4 percent in Aug 2013 and increased 0.3 percent in Sep 2013. Portfolio reallocations into asset classes other than commodities explains declines of import prices by 0.6 percent in Oct 2013 and 0.9 percent in Nov 2013. Import prices increased 0.1 percent in Dec 2013, 0.4 percent in Jan 2014, 1.1 percent in Feb 2014 and 0.5 percent in Mar 2014. Import prices fell 0.6 percent in Apr 2014 and increased 0.3 percent in May 2014. Import prices increased 0.3 percent in Jun 2014 and contracted 0.3 percent in Jul 2014. Import prices fell 0.6 percent in Aug 2014 and fell 0.5 percent in Sep 2014.

Table IIA2-3, US, One-Month Percentage Changes of Import Price Index All Commodities, 2001-2014

Year	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Nov	Dec
2001	0.0	-0.6	-1.6	-0.5	0.2	-0.4	-1.5	-0.1	-0.1	-1.5	-1.0
2002	0.2	0.0	1.3	1.6	0.1	-0.3	0.4	0.3	0.7	-0.9	0.6
2003	1.8	1.7	0.6	-3.1	-0.7	0.9	0.5	0.0	-0.5	0.5	0.7
2004	1.5	0.4	0.8	0.2	1.5	-0.2	0.4	1.5	0.5	-0.3	-1.4
2005	0.6	0.9	2.2	0.9	-0.8	1.2	1.2	1.4	2.1	-1.9	0.0
2006	1.2	-0.8	-0.1	2.1	1.8	0.1	0.8	0.5	-2.2	0.4	1.1
2007	-1.2	0.4	1.6	1.4	0.9	1.2	1.3	-0.3	0.6	3.2	-0.2
2008	1.5	0.2	3.1	2.8	2.8	3.0	1.4	-3.1	-3.6	-7.4	-4.6
2009	-1.3	0.0	0.5	1.1	1.7	2.7	-0.6	1.5	0.2	1.5	0.2
2010	1.2	-0.1	0.4	1.1	-0.8	-1.2	0.0	0.4	0.0	1.7	1.4
2011	1.5	1.7	3.0	2.6	0.1	-0.6	0.1	-0.4	-0.1	0.7	0.0
2012	0.0	0.0	1.4	-0.1	-1.5	-2.3	-0.7	1.2	1.0	-0.7	-0.6
2013	0.5	0.9	-0.1	-0.7	-0.6	-0.4	0.1	0.4	0.3	-0.9	0.1
2014	0.4	1.1	0.5	-0.6	0.3	0.3	-0.3	-0.6	-0.5

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

Chart IIA2-8 shows the US monthly import price index of all commodities excluding fuels from 2001 to 2014. All curves of nominal values follow the same behavior under the influence of unconventional monetary policy. Zero interest rates without risk aversion result in jumps of nominal values while under strong risk aversion even with zero interest rates there are declines of nominal values.

Chart IIA2-8, US, Import Price Index All Commodities Excluding Fuels, 2001=100, 2001-2014

Source: US Bureau of Labor Statistics

Chart IIA2-9 provides 12-month percentage changes of the US import price index excluding fuels between 2001 and 2014. There is the same behavior of carry trades driving up without risk aversion and down with risk aversion prices of raw materials, commodities and food in international trade during the global recession of IVQ2007 to IIQ2009 and in previous and subsequent periods.

Chart IIA2-9, US, Import Price Index All Commodities Excluding Fuels, 12-Month Percentage Changes, 2002-2014

Source: US Bureau of Labor Statistics

Chart IIA2-10 provides the monthly US import price index ex petroleum from 2001 to 2014. Prices including or excluding commodities follow the same fluctuations and trends originating in impulses of unconventional monetary policy of zero interest rates.

Chart IIA2-10, US, Import Price Index ex Petroleum, 2001=100, 2000-2014

Source: US Bureau of Labor Statistics

Chart IIA2-11 provides the US import price index ex petroleum from 1985 to 2014. There is the same unique hump in 2008 caused by carry trades from zero interest rates to prices of commodities and raw materials.

Chart IIA2-11, US, Import Price Index ex Petroleum, 2001=100, 1985-2014

Source: US Bureau of Labor Statistics

Chart IIA2-12 provides 12-month percentage changes of the import price index ex petroleum from 1986 to 2014. The oscillations caused by the carry trade in increasing prices of commodities and raw materials without risk aversion and subsequently decreasing them during risk aversion are unique.

Chart IIA2-12, US, Import Price Index ex Petroleum, 12-Month Percentage Changes, 1986-2014

Source: US Bureau of Labor Statistics

http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=RCLC1&f=D

Chart IIA2-13 of the US Energy Information Administration shows the price of WTI crude oil since the 1980s. Chart IA2-13 captures commodity price shocks during the past decade. The costly mirage of deflation was caused by the decline in oil prices during the recession of 2001. The upward trend after 2003 was promoted by the carry trade from near zero interest rates. The jump above $140/barrel during the global recession in 2008 at $145.29/barrel on Jul 3, 2008, can only be explained by the carry trade promoted by monetary policy of zero fed funds rate. After moderation of risk aversion, the carry trade returned with resulting sharp upward trend of crude prices. Risk aversion resulted in another drop in recent weeks followed by some recovery and renewed deterioration/increase.

Chart IIA2-13, US, Crude Oil Futures Contract

Source: US Energy Information Administration

The price index of US imports of petroleum and petroleum products in shown in Chart IIA2-14. There is similar behavior of the curves all driven by the same impulses of monetary policy.

Chart IIA2-14, US, Import Price Index of Petroleum and Petroleum Products, 2001=100, 2001-2014

Source: US Bureau of Labor Statistics

Chart IIA2-15 provides the price index of petroleum and petroleum products from 1982 to 2014. The rise in prices during the global recession in 2008 and the decline after the flight to government obligations is unique in the history of the series. Increases in prices of trade in petroleum and petroleum products were induced by carry trades and declines by unwinding carry trades in flight to government obligations.

Chart IIA2-15, US, Import Price Index of Petroleum and Petroleum Products, 2001=100, 1982-2014

Source: US Bureau of Labor Statistics

Chart IIA2-16 provides 12-month percentage changes of the price index of US imports of petroleum and petroleum products from 1982 to 2014. There were wider oscillations in this index from 1999 to 2001 (see Barsky and Killian 2004 for an explanation).

Chart IIA2-16, US, Import Price Index of Petroleum and Petroleum Products, 12-Month Percentage Changes, 1982-2014

Source: US Bureau of Labor Statistics

The price index of US exports of agricultural commodities is in Chart IIA2-17 from 2001 to 2014. There are similar fluctuations and trends as in all other price index originating in unconventional monetary policy repeated over a decade. The most recent segment in 2011 has declining trend in a new flight from risk resulting from the sovereign debt crisis in Europe followed by declines in Jun 2012 and Nov 2012 with stability/decline in Dec 2012 into 2013. Prices rebounded into 2014.

Chart IIA2-17, US, Exports Price Index of Agricultural Commodities, 2001=100, 2001-2014

Source: US Bureau of Labor Statistics

Chart IIA2-18 provides the price index of US exports of agricultural commodities from 1982 to 2014. The increase in 2008 in the middle of deep, protracted contraction was induced by unconventional monetary policy. The decline from 2008 into 2009 was caused by unwinding carry trades in a flight to government obligations. The increase into 2011 and current pause with marginal rebound were also induced by unconventional monetary policy in waves of increases during relaxed risk aversion and declines during unwinding of positions because of aversion to financial risk.

Chart IIA2-18, US, Exports Price Index of Agricultural Commodities, 2001=100, 1982-2014

Source: US Bureau of Labor Statistics

Chart IIA2-19 provides 12-month percentage changes of the index of US exports of agricultural commodities from 1986 to 2014. The wide swings in 2008, 2009 and 2011 are only explained by unconventional monetary policy inducing carry trades from zero interest rates to commodity futures and reversals during risk aversion.

Chart IIA2-19, US, Exports Price Index of Agricultural Commodities, 12-Month Percentage Changes, 1986-2014

Source: US Bureau of Labor Statistics

Chart IIA2-20 shows the export price index of nonagricultural commodities from 2001 to 2014. Unconventional monetary policy of zero interest rates drove price behavior during the past decade. Policy has been based on the myth of stimulating the economy by climbing the negative slope of an imaginary short-term Phillips curve.

Chart IIA2-20, US, Exports Price Index of Nonagricultural Commodities, 2001=100, 2001-2014

Source: US Bureau of Labor Statistics

Chart IIA2-21 provides a longer perspective of the price index of US nonagricultural commodities from 1982 to 2014. Increases and decreases around the global contraction after 2007 were caused by carry trade induced by unconventional monetary policy.

Chart IIA2-21, US, Exports Price Index of Nonagricultural Commodities, 2001=100, 1982-2014

Source: US Bureau of Labor Statistics

Finally, Chart IIA2-22 provides 12-month percentage changes of the price index of US exports of nonagricultural commodities from 1986 to 2014. The wide swings before, during and after the global recession beginning in 2007 were caused by carry trades induced by unconventional monetary policy.

Chart IIA2-22, US, Exports Price Index of Nonagricultural Commodities, 12-Month Percentage Changes, 1986-2014

Source: US Bureau of Labor Statistics