Sunday, January 17, 2016

Unconventional Monetary Policy and Valuations of Risk Financial Assets, Recovery without Hiring, United States Industrial Production, Collapse of United States Dynamism of Income Growth and Employment Creation, World Cyclical Slow Growth and Global Recession Risk: Part III

 

Unconventional Monetary Policy and Valuations of Risk Financial Assets, Recovery without Hiring, United States Industrial Production, Collapse of United States Dynamism of Income Growth and Employment Creation, World Cyclical Slow Growth and Global Recession Risk

Carlos M. Pelaez

© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016

IA Unconventional Monetary Policy and Valuations of Risk Financial Assets

I Recovery without Hiring

IA1 Hiring Collapse

IA2 Labor Underutilization

ICA3 Ten Million Fewer Full-time Jobs

IA4 Theory and Reality of Cyclical Slow Growth Not Secular Stagnation: Youth and Middle-Age Unemployment

IIB United States Industrial Production

II IB Collapse of United States Dynamism of Income Growth and Employment Creation

III World Financial Turbulence

IIIA Financial Risks

IIIE Appendix Euro Zone Survival Risk

IIIF Appendix on Sovereign Bond Valuation

IV Global Inflation

V World Economic Slowdown

VA United States

VB Japan

VC China

VD Euro Area

VE Germany

VF France

VG Italy

VH United Kingdom

VI Valuation of Risk Financial Assets

VII Economic Indicators

VIII Interest Rates

IX Conclusion

References

Appendixes

Appendix I The Great Inflation

IIIB Appendix on Safe Haven Currencies

IIIC Appendix on Fiscal Compact

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

IIIG Appendix on Deficit Financing of Growth and the Debt Crisis

IIIGA Monetary Policy with Deficit Financing of Economic Growth

IIIGB Adjustment during the Debt Crisis of the 1980s

IIA United States Industrial Production. There is socio-economic stress in the combination of adverse events and cyclical performance:

Industrial production decreased 0.4 percent in Dec 2015 and decreased 0.9 percent in Nov 2015 after decreasing 0.2 percent in Oct 2015, with all data seasonally adjusted, as shown in Table I-1. The Board of Governors of the Federal Reserve System conducted the annual revision of industrial production released on Jul 21, 2015 (http://www.federalreserve.gov/releases/g17/revisions/Current/DefaultRev.htm):

“The Federal Reserve has revised its index of industrial production (IP) and the related measures of capacity and capacity utilization. Total IP is now reported to have increased slightly less than 2 1/2 percent per year, on average, from 2011 through 2013 before advancing about 4 1/2 percent in 2014 and falling back somewhat in the first half of 2015. Relative to earlier reports, the current rates of change are lower---especially for 2012 and 2013. For the most recent recession, total IP still shows a peak-to-trough decline of about 17 percent, and the dates for the peak and trough are unaltered. However, the lower rates of change for recent years indicate that the recovery in the industrial sector since the trough has been slower than reported earlier. Total IP is now estimated to have returned to its pre-recession peak in May 2014, seven months later than previously estimated.”

The report of the Board of Governors of the Federal Reserve System states (http://www.federalreserve.gov/releases/g17/Current/default.htm):

“Industrial production declined 0.4 percent in December, primarily as a result of cutbacks for utilities and mining. The decrease for total industrial production in November was larger than previously reported, but upward revisions to earlier months left the level of the index in November only slightly below its initial estimate. For the fourth quarter as a whole, industrial production fell at an annual rate of 3.4 percent. Manufacturing output edged down in December. The index for utilities dropped 2.0 percent, as continued warmer-than-usual temperatures reduced demand for heating. Mining production decreased 0.8 percent in December for its fourth consecutive monthly decline. At 106.0 percent of its 2012 average, total industrial production in December was 1.8 percent below its year-earlier level. Capacity utilization for the industrial sector decreased 0.4 percentage point in December to 76.5 percent, a rate that is 3.6 percentage points below its long-run (1972–2014) average.” In the six months ending in Dec 2015, United States national industrial production accumulated change of minus 0.6 percent at the annual equivalent rate of minus 1.2 percent, which is lower than decline of 1.8 percent in the 12 months ending in Dec 2015. Excluding growth of 0.8 percent in Jul 2015, growth in the remaining five months from Jul 2014 to Dec 2015 accumulated to minus 1.4 percent or minus 3.3 percent annual equivalent. Industrial production declined in three of the past six months and changed 0.0 percent in one month. Industrial production contracted at annual equivalent 5.8 percent in the most recent quarter from Oct 2015 to Dec 2015 and expanded at 3.7 percent in the prior quarter Jul 2015 to Sep 2015. Business equipment accumulated increase of minus 1.2 percent in the six months from Jul 2015 to Dec 2015, at the annual equivalent rate of minus 2.4 percent, which is higher than growth of minus 0.8 percent in the 12 months ending in Dec 2015. The Fed analyzes capacity utilization of total industry in its report (http://www.federalreserve.gov/releases/g17/Current/default.htm): “Capacity utilization for the industrial sector decreased 0.4 percentage point in December to 76.5 percent, a rate that is 3.6 percentage points below its long-run (1972–2014) average.” United States industry apparently decelerated to a lower growth rate followed by possible acceleration and weakening growth in past months.

Table I-1, US, Industrial Production and Capacity Utilization, SA, ∆% 

 

Dec 

15

Nov 

15

Oct 

15

Sep 

15

Aug 

15

Jul 

15

Dec 

15/

Dec     14 

Total

-0.4

-0.9

-0.2

0.0

0.1

0.8

-1.8

Market
Groups

              

Final Products

-0.5

-0.7

-0.3

-0.3

0.4

1.2

-1.2

Consumer Goods

-0.8

-0.6

-0.2

-0.1

0.2

1.8

0.3

Business Equipment

0.1

-1.0

-0.4

-0.6

0.6

0.1

-0.8

Non
Industrial Supplies

0.0

-0.6

1.1

0.3

0.5

-0.3

0.8

Construction

0.6

0.0

2.2

-1.1

0.5

0.1

1.6

Materials

-0.3

-1.2

-0.5

0.1

-0.3

0.7

-3.1

Industry Groups

              

Manufacturing

-0.1

-0.1

0.4

-0.1

-0.1

1.0

0.8

Mining

-0.8

-2.1

-2.0

-0.9

0.2

1.2

-11.2

Utilities

-2.0

-5.0

-1.8

1.7

1.5

-1.4

-6.9

Capacity

76.5

76.9

77.7

77.9

78.0

78.0

1.5

Sources: Board of Governors of the Federal Reserve System

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

Manufacturing decreased 0.1 percent in Dec 2015 after decreasing 0.1 percent in Nov 2015 and increasing 0.4 percent in Oct 2015 seasonally adjusted, increasing 0.7 percent not seasonally adjusted in the 12 months ending in Dec 2015, as shown in Table I-2. Manufacturing grew cumulatively 1.0 percent in the six months ending in Dec 2015 or at the annual equivalent rate of 2.0 percent. Excluding the increase of 1.0 percent in Jul 2015, manufacturing changed 0.0 percent from Jul 2015 to Dec 2015 or at the annual equivalent rate of 0.0 percent. Table I-2 provides a longer perspective of manufacturing in the US. There has been evident deceleration of manufacturing growth in the US from 2010 and the first three months of 2011 with recovery followed by renewed deterioration in more recent months as shown by 12 months rates of growth. Growth rates appeared to be increasing again closer to 5 percent in Apr-Jun 2012 but deteriorated. The rates of decline of manufacturing in 2009 are quite high with a drop of 18.4 percent in the 12 months ending in Apr 2009. Manufacturing recovered from this decline and led the recovery from the recession. Rates of growth appeared to be returning to the levels at 3 percent or higher in the annual rates before the recession but the pace of manufacturing fell steadily with some strength at the margin. There is renewed deterioration. The Board of Governors of the Federal Reserve System conducted the annual revision of industrial production released on Jul 21, 2015 (http://www.federalreserve.gov/releases/g17/revisions/Current/DefaultRev.htm):

“The Federal Reserve has revised its index of industrial production (IP) and the related measures of capacity and capacity utilization. Total IP is now reported to have increased slightly less than 2 1/2 percent per year, on average, from 2011 through 2013 before advancing about 4 1/2 percent in 2014 and falling back somewhat in the first half of 2015. Relative to earlier reports, the current rates of change are lower---especially for 2012 and 2013. For the most recent recession, total IP still shows a peak-to-trough decline of about 17 percent, and the dates for the peak and trough are unaltered. However, the lower rates of change for recent years indicate that the recovery in the industrial sector since the trough has been slower than reported earlier. Total IP is now estimated to have returned to its pre-recession peak in May 2014, seven months later than previously estimated.”

The bottom part of Table I-2 shows decline of manufacturing by 22.2 from the peak in Jun 2007 to the trough in Apr 2009 and increase 20.0 percent from the trough in Apr 2009 to Dec 2015. Manufacturing grew 20.0 percent from the trough in Apr 2009 to Dec 2015. Manufacturing in Dec 2015 is lower by 6.6 percent relative to the peak in Jun 2007. 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 IIIQ2015 would have accumulated to 25.7 percent. GDP in IIIQ2015 would be $18,844.7 billion (in constant dollars of 2009) if the US had grown at trend, which is higher by $2,430.7 billion than actual $16,414.0 billion. There are about two trillion dollars of GDP less than at trend, explaining the 25.1 million unemployed or underemployed equivalent to actual unemployment/underemployment of 15.0 percent of the effective labor force (http://cmpassocregulationblog.blogspot.com/2016/01/weakening-equities-with-exchange-rate.html and earlier http://cmpassocregulationblog.blogspot.com/2015/12/liftoff-of-fed-funds-rate-followed-by.html). US GDP in IIIQ2015 is 12.9 percent lower than at trend. US GDP grew from $14,991.8 billion in IVQ2007 in constant dollars to $16,414.0 billion in IIIQ2015 or 9.5 percent at the average annual equivalent rate of 1.2 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. There is classic research on analyzing deviations of output from trend (see for example Schumpeter 1939, Hicks 1950, Lucas 1975, Sargent and Sims 1977). The long-term trend is growth of manufacturing at average 3.2 percent per year from Dec 1919 to Dec 2015. Growth at 3.2 percent per year would raise the NSA index of manufacturing output from 107.6075 in Dec 2007 to 138.4909 in Dec 2015. The actual index NSA in Dec 2015 is 104.4893, which is 24.6 percent below trend. Manufacturing output grew at average 2.2 percent between Dec 1986 and Dec 2015. Using trend growth of 2.2 percent per year, the index would increase to 128.0529 in Dec 2015. The output of manufacturing at 104.4893 in Dec 2015 is 18.4 percent below trend under this alternative calculation.

Table I-2, US, Monthly and 12-Month Rates of Growth of Manufacturing ∆%

 

Month SA ∆%

12-Month NSA ∆%

Dec 2015

-0.1

0.7

Nov

-0.1

0.9

Oct

0.4

1.9

Sep

-0.1

1.1

Aug

-0.1

1.9

Jul

1.0

1.9

Jun

-0.1

1.5

May

0.0

2.2

Apr

0.4

2.3

Mar

0.2

2.4

Feb

-0.4

2.9

Jan

-0.3

4.2

Dec 2014

0.0

3.8

Nov

0.9

3.8

Oct

0.3

2.8

Sep

0.2

2.8

Aug

-0.4

2.9

Jul

0.7

3.6

Jun

0.4

2.7

May

0.2

2.5

Apr

0.3

1.9

Mar

0.7

2.3

Feb

1.1

0.9

Jan

-0.8

0.0

Dec 2013

0.0

0.5

Nov

-0.1

1.3

Oct

0.2

1.9

Sep

0.2

1.3

Aug

0.9

1.3

Jul

-0.8

0.2

Jun

0.2

0.7

May

0.2

0.8

Apr

-0.3

0.8

Mar

-0.3

0.5

Feb

0.4

0.6

Jan

-0.2

0.8

Dec 2012

0.7

1.6

Nov

0.7

1.9

Oct

-0.2

0.9

Sep

0.0

1.6

Aug

-0.3

2.2

Jul

0.0

2.6

Jun

0.1

3.4

May

-0.5

3.5

Apr

0.7

3.9

Mar

-0.6

2.8

Feb

0.3

4.2

Jan

1.0

3.5

Dec 2011

0.7

3.0

Nov

-0.3

2.6

Oct

0.6

2.7

Sep

0.4

2.6

Aug

0.3

2.1

Jul

0.7

2.3

Jun

0.0

1.9

May

0.2

1.6

Apr

-0.6

2.9

Mar

0.5

4.6

Feb

0.0

5.1

Jan

0.3

5.2

Dec 2010

0.4

5.9

Nov

0.0

5.0

Oct

0.1

6.2

Sep

0.1

6.6

Aug

0.2

7.1

Jul

0.7

7.6

Jun

-0.1

9.4

May

1.4

8.9

Apr

0.9

7.2

Mar

1.2

4.9

Feb

-0.1

1.4

Jan

1.1

1.3

Dec 2009

-0.2

-3.2

Nov

0.9

-6.1

Oct

0.2

-9.1

Sep

0.8

-10.5

Aug

1.1

-13.5

Jul

1.4

-15.3

Jun

-0.4

-17.8

May

-1.1

-17.8

Apr

-0.8

-18.4

Mar

-1.9

-17.3

Feb

-0.2

-16.2

Jan

-3.0

-16.5

Dec 2008

-3.4

-14.0

Nov

-2.4

-11.3

Oct

-0.6

-8.8

Sep

-3.4

-8.5

Aug

-1.2

-5.1

Jul

-1.1

-3.6

Jun

-0.5

-3.2

May

-0.5

-2.5

Apr

-1.1

-1.2

Mar

-0.3

-0.7

Feb

-0.6

0.8

Jan

-0.4

2.1

Dec 2007

0.1

1.8

Nov

0.5

3.3

Oct

-0.4

2.7

Sep

0.4

2.9

Aug

-0.3

2.7

Jul

0.1

3.6

Jun

0.3

3.1

May

-0.1

3.2

Apr

0.7

3.7

Mar

0.8

2.6

Feb

0.4

1.7

Jan

-0.5

1.3

Dec 2006

  

2.8

Dec 2005

  

3.6

Dec 2004

  

3.8

Dec 2003

  

2.1

Dec 2002

  

2.4

Dec 2001

  

-5.6

Dec 2000

  

0.8

Dec 1999

  

5.3

Average ∆% Dec 1986-Dec 2015

  

2.2

Average ∆% Dec 1986-Dec 2014

  

2.2

Average ∆% Dec 1986-Dec 2013

  

2.2

Average ∆% Dec 1986-Dec 1999

  

4.3

Average ∆% Dec 1999-Dec 2006

  

1.4

Average ∆% Dec 1999-Dec 2015

  

0.5

∆% Peak 111.9005 in 06/2007 to 104.4893 in 12/2015

  

-6.6

∆% Peak 111.9005 in 06/2007 to Trough 87.0586 in 4/2009

  

-22.2

∆% Trough  87.0586 in 04/2009 to 104.4893 in 12/2015

  

20.0

∆% Trough  87.0586 in 04/2009 to 104.4893 in 12/2015

  

20.0

∆% Peak 111.9005 on 06/2007 to 104.4893 in 12/2015

  

-6.6

Source: Board of Governors of the Federal Reserve System

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

Chart I-1 of the Board of Governors of the Federal Reserve System provides industrial production, manufacturing and capacity since the 1970s. There was acceleration of growth of industrial production, manufacturing and capacity in the 1990s because of rapid growth of productivity in the US (Cobet and Wilson (2002); see Pelaez and Pelaez, The Global Recession Risk (2007), 135-44). The slopes of the curves flatten in the 2000s. Production and capacity have not recovered sufficiently above levels before the global recession, remaining like GDP below historical trend. There is classic research on analyzing deviations of output from trend (see for example Schumpeter 1939, Hicks 1950, Lucas 1975, Sargent and Sims 1977).

clip_image002

Chart I-1, US, Industrial Production, Capacity and Utilization

Source: Board of Governors of the Federal Reserve System

http://www.federalreserve.gov/releases/g17/Current/ipg1.gif

The modern industrial revolution of Jensen (1993) is captured in Chart I-2 of the Board of Governors of the Federal Reserve System (for the literature on M&A and corporate control see Pelaez and Pelaez, Regulation of Banks and Finance (2009a), 143-56, Globalization and the State, Vol. I (2008a), 49-59, Government Intervention in Globalization (2008c), 46-49). The slope of the curve of total industrial production accelerates in the 1990s to a much higher rate of growth than the curve excluding high-technology industries. Growth rates decelerate into the 2000s and output and capacity utilization have not recovered fully from the strong impact of the global recession. Growth in the current cyclical expansion has been more subdued than in the prior comparably deep contractions in the 1970s and 1980s. Chart I-2 shows that the past recessions after World War II are the relevant ones for comparison with the recession after 2007 instead of common comparisons with the Great Depression (http://cmpassocregulationblog.blogspot.com/2015/12/dollar-revaluation-and-decreasing.html). The bottom left-hand part of Chart II-2 shows the strong growth of output of communication equipment, computers and semiconductor that continued from the 1990s into the 2000s. Output of semiconductors has already surpassed the level before the global recession.

clip_image004

Chart I-2, US, Industrial Production, Capacity and Utilization of High Technology Industries

Source: Board of Governors of the Federal Reserve System

http://www.federalreserve.gov/releases/g17/Current/ipg3.gif

Additional detail on industrial production and capacity utilization is in Chart I-3 of the Board of Governors of the Federal Reserve System. Production of consumer durable goods fell sharply during the global recession by more than 30 percent and is oscillating above the level before the contraction. Output of nondurable consumer goods fell around 10 percent and is some 5 percent below the level before the contraction. Output of business equipment fell sharply during the contraction of 2001 but began rapid growth again after 2004. An important characteristic is rapid growth of output of business equipment in the cyclical expansion after sharp contraction in the global recession. Output of defense and space only suffered reduction in the rate of growth during the global recession and surged ahead of the level before the contraction. Output of construction supplies collapsed during the global recession and is well below the level before the contraction. Output of energy materials was stagnant before the contraction but recovered sharply above the level before the contraction.

clip_image006

Chart I-3, US, Industrial Production and Capacity Utilization

Source: Board of Governors of the Federal Reserve System

http://www.federalreserve.gov/releases/g17/Current/ipg2.gif

United States manufacturing output from 1919 to 2015 on a monthly basis is in Chart I-4 of the Board of Governors of the Federal Reserve System. The second industrial revolution of Jensen (1993) is quite evident in the acceleration of the rate of growth of output given by the sharper slope in the 1980s and 1990s. Growth was robust after the shallow recession of 2001 but dropped sharply during the global recession after IVQ2007. Manufacturing output recovered sharply but has not reached earlier levels and is losing momentum at the margin. Current output is well below extrapolation of trend. There is classic research on analyzing deviations of output from trend (see for example Schumpeter 1939, Hicks 1950, Lucas 1975, Sargent and Sims 1977). The long-term trend is growth of manufacturing at average 3.2 percent per year from Dec 1919 to Dec 2015. Growth at 3.2 percent per year would raise the NSA index of manufacturing output from 107.6075 in Dec 2007 to 138.4909 in Dec 2015. The actual index NSA in Dec 2015 is 104.4893, which is 24.6 percent below trend. Manufacturing output grew at average 2.2 percent between Dec 1986 and Dec 2015. Using trend growth of 2.2 percent per year, the index would increase to 128.0529 in Dec 2015. The output of manufacturing at 104.4893 in Dec 2015 is 18.4 percent below trend under this alternative calculation.

clip_image007

Chart I-4, US, Manufacturing Output, 1919-2015

Source: Board of Governors of the Federal Reserve System

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

Manufacturing jobs not seasonally adjusted increased 35,000 from Dec 2014 to
Dec 2015 or at the average monthly rate of 2917. There are effects of the weaker economy and international trade together with the yearly adjustment of labor statistics. Industrial production decreased 0.4 percent in Dec 2015 and decreased 0.9 percent in Nov 2015 after decreasing 0.2 percent in Oct 2015, with all data seasonally adjusted. The Board of Governors of the Federal Reserve System conducted the annual revision of industrial production released on Jul 21, 2015 (http://www.federalreserve.gov/releases/g17/revisions/Current/DefaultRev.htm):

“The Federal Reserve has revised its index of industrial production (IP) and the related measures of capacity and capacity utilization. Total IP is now reported to have increased slightly less than 2 1/2 percent per year, on average, from 2011 through 2013 before advancing about 4 1/2 percent in 2014 and falling back somewhat in the first half of 2015. Relative to earlier reports, the current rates of change are lower---especially for 2012 and 2013. For the most recent recession, total IP still shows a peak-to-trough decline of about 17 percent, and the dates for the peak and trough are unaltered. However, the lower rates of change for recent years indicate that the recovery in the industrial sector since the trough has been slower than reported earlier. Total IP is now estimated to have returned to its pre-recession peak in May 2014, seven months later than previously estimated.”

Manufacturing declined 22.2 from the peak in Jun 2007 to the trough in Apr 2009 and increased 20.0 percent from the trough in Apr 2009 to Dec 2015. Manufacturing grew 20.0 percent from the trough in Apr 2009 to Dec 2015. Manufacturing in Dec 2015 is lower by 6.6 percent relative to the peak in Jun 2007. 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 IIIQ2015 would have accumulated to 25.7 percent. GDP in IIIQ2015 would be $18,844.7 billion (in constant dollars of 2009) if the US had grown at trend, which is higher by $2,430.7 billion than actual $16,414.0 billion. There are about two trillion dollars of GDP less than at trend, explaining the 25.1 million unemployed or underemployed equivalent to actual unemployment/underemployment of 15.0 percent of the effective labor force (http://cmpassocregulationblog.blogspot.com/2016/01/weakening-equities-with-exchange-rate.html and earlier http://cmpassocregulationblog.blogspot.com/2015/12/liftoff-of-fed-funds-rate-followed-by.html). US GDP in IIIQ2015 is 12.9 percent lower than at trend. US GDP grew from $14,991.8 billion in IVQ2007 in constant dollars to $16,414.0 billion in IIIQ2015 or 9.5 percent at the average annual equivalent rate of 1.2 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. There is classic research on analyzing deviations of output from trend (see for example Schumpeter 1939, Hicks 1950, Lucas 1975, Sargent and Sims 1977). The long-term trend is growth of manufacturing at average 3.2 percent per year from Dec 1919 to Dec 2015. Growth at 3.2 percent per year would raise the NSA index of manufacturing output from 107.6075 in Dec 2007 to 138.4909 in Dec 2015. The actual index NSA in Dec 2015 is 104.4893, which is 24.6 percent below trend. Manufacturing output grew at average 2.2 percent between Dec 1986 and Dec 2015. Using trend growth of 2.2 percent per year, the index would increase to 128.0529 in Dec 2015. The output of manufacturing at 104.4893 in Dec 2015 is 18.4 percent below trend under this alternative calculation.

Table I-13 provides national income by industry without capital consumption adjustment (WCCA). “Private industries” or economic activities have share of 87.3 percent in IIIQ2015. Most of US national income is in the form of services. In Dec 2015, there were 144.191 million nonfarm jobs NSA in the US, according to estimates of the establishment survey of the Bureau of Labor Statistics (BLS) (http://www.bls.gov/news.release/empsit.nr0.htm Table B-1). Total private jobs of 121.820 million NSA in Dec 2015 accounted for 84.5 percent of total nonfarm jobs of 144.191 million, of which 12.337 million, or 10.1 percent of total private jobs and 8.6 percent of total nonfarm jobs, were in manufacturing. Private service-providing jobs were 102.254 million NSA in Dec 2015, or 70.9 percent of total nonfarm jobs and 83.9 percent of total private-sector jobs. Manufacturing has share of 11.2 percent in US national income in IIIQ2015 and durable goods 6.4 percent, as shown in Table I-13. Most income in the US originates in services. Subsidies and similar measures designed to increase manufacturing jobs will not increase economic growth and employment and may actually reduce growth by diverting resources away from currently employment-creating activities because of the drain of taxation.

Table I-13, US, National Income without Capital Consumption Adjustment by Industry, Seasonally Adjusted Annual Rates, Billions of Dollars, % of Total

 

SAAR
IIQ2015

% Total

SAAR IIIQ2015

% Total

National Income WCCA

15,758.9

100.0

15,883.7

100.0

Domestic Industries

15,528.3

98.5

15,680.1

98.7

Private Industries

13,732.1

87.1

13,870.9

87.3

    Agriculture

156.5

1.0

167.5

1.1

    Mining

251.8

1.6

249.7

1.6

    Utilities

193.8

1.2

180.6

1.1

    Construction

713.4

4.5

729.4

4.6

    Manufacturing

1767.2

11.2

1776.6

11.2

       Durable Goods

1030.6

6.5

1021.7

6.4

       Nondurable Goods

736.7

4.7

754.9

4.8

    Wholesale Trade

947.1

6.0

956.4

6.0

     Retail Trade

1072.6

6.8

1090.8

6.9

     Transportation & WH

498.7

3.2

514.0

3.2

     Information

591.0

3.8

592.2

3.7

     Finance, Insurance, RE

2763.6

17.5

2777.0

17.5

     Professional & Business Services

2130.4

13.5

2151.7

13.5

     Education, Health Care

1549.7

9.8

1572.8

9.9

     Arts, Entertainment

651.1

4.1

660.1

4.2

     Other Services

445.2

2.8

452.1

2.8

Government

1796.2

11.4

1809.2

11.4

Rest of the World

230.6

1.5

203.6

1.3

Notes: SSAR: Seasonally-Adjusted Annual Rate; WCCA: Without Capital Consumption Adjustment by Industry; WH: Warehousing; RE, includes rental and leasing: Real Estate; Art, Entertainment includes recreation, accommodation and food services; BS: business services

Source: US Bureau of Economic Analysis

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

Motor vehicle sales and production in the US have been in long-term structural change. Table VA-1 provides the data on new motor vehicle sales and domestic car production in the US from 1990 to 2010. New motor vehicle sales grew from 14,137 thousand in 1990 to the peak of 17,806 thousand in 2000 or 29.5 percent. In that same period, domestic car production fell from 6,231 thousand in 1990 to 5,542 thousand in 2000 or -11.1 percent. New motor vehicle sales fell from 17,445 thousand in 2005 to 11,772 in 2010 or 32.5 percent while domestic car production fell from 4,321 thousand in 2005 to 2,840 thousand in 2010 or 34.3 percent. In Dec 2015, light vehicle sales accumulated to 17,470,499 million, which is higher by 5.7 percent relative to 16,522,000 a year earlier (http://motorintelligence.com/m_frameset.html). The seasonally adjusted annual rate of light vehicle sales in the US reached 17.34 million in Dec 2015, lower than 18.19 million in Nov 2015 and higher than 16.92 million in Dec 2014 (http://motorintelligence.com/m_frameset.html).

Table VA-1, US, New Motor Vehicle Sales and Car Production, Thousand Units

 

New Motor Vehicle Sales

New Car Sales and Leases

New Truck Sales and Leases

Domestic Car Production

1990

14,137

9,300

4,837

6,231

1991

12,725

8,589

4,136

5,454

1992

13,093

8,215

4,878

5,979

1993

14,172

8,518

5,654

5,979

1994

15,397

8,990

6,407

6,614

1995

15,106

8,536

6,470

6,340

1996

15,449

8,527

6,922

6,081

1997

15,490

8,273

7,218

5,934

1998

15,958

8,142

7,816

5,554

1999

17,401

8,697

8,704

5,638

2000

17,806

8,852

8,954

5,542

2001

17,468

8,422

9,046

4,878

2002

17,144

8,109

9,036

5,019

2003

16,968

7,611

9,357

4,510

2004

17,298

7,545

9,753

4,230

2005

17,445

7,720

9,725

4,321

2006

17,049

7,821

9,228

4,367

2007

16,460

7,618

8,683

3,924

2008

13,494

6,814

6.680

3,777

2009

10,601

5,456

5,154

2,247

2010

11,772

5,729

6,044

2,840

Source: US Census Bureau

http://www.census.gov/compendia/statab/cats/wholesale_retail_trade/motor_vehicle_sales.html

Chart 1-5 of the Board of Governors of the Federal Reserve provides output of motor vehicles and parts in the United States from 1972 to 2015. Output virtually stagnated since the late 1990s.

clip_image008

Chart 1-5, US, Motor Vehicles and Parts Output, 1972-2015

Source: Board of Governors of the Federal Reserve System

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

Chart I-6 of the Board of Governors of the Federal Reserve System provides output of computers and electronic products in the United States from 1972 to 2015. Output accelerated sharply in the 1990s and 2000s and surpassed the level before the global recession beginning in IVQ2007.

clip_image009

Chart I-6, US, Output of Computers and Electronic Products, 1972-2015

Source: Board of Governors of the Federal Reserve System

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

Chart I-7 of the Board of Governors of the Federal Reserve System shows that output of durable manufacturing accelerated in the 1980s and 1990s with slower growth in the 2000s perhaps because processes matured. Growth was robust after the major drop during the global recession but appears to vacillate in the final segment.

clip_image010

Chart I-7, US, Output of Durable Manufacturing, 1972-2015

Source: Board of Governors of the Federal Reserve System

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

Chart I-8 of the Board of Governors of the Federal Reserve System provides output of aerospace and miscellaneous transportation equipment from 1972 to 2015. There is long-term upward trend with oscillations around the trend and cycles of large amplitude.

clip_image011

Chart I-8, US, Output of Aerospace and Miscellaneous Transportation Equipment, 1972-2015

Source: Board of Governors of the Federal Reserve System

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

The Empire State Manufacturing Survey Index in Table VA-1 provides continuing deterioration that started in Jun 2012 well before Hurricane Sandy in Oct 2012. The current general index has been in negative contraction territory from minus 2.41 in Aug 2012 to minus 9.31 in Jan 2013 and minus 2.20 in May 2013. The current general index changed to minus 19.37 in Jan 2016. The index of current orders has also been in negative contraction territory from minus 2.85 in Aug 2012 to minus 10.62 in Jan 2013 and minus 6.11 in Jun 2013. The index of current new orders changed to minus 23.54 in Jan 2016. Number of workers and hours worked have registered negative or declining readings since Sep 2012 with minus 13.00 for number of workers in Jan 2016 and weakness of minus 6.00 for average workweek. There is weakness in the general index for the next six months at 9.51 in Jan 2016 and new orders at 12.18.

Table VA-1, US, New York Federal Reserve Bank Empire State Manufacturing Survey Index SA

Current

General Index

New Orders

Shipments

Number of Workers

Average Workweek

Sep-11

-4.23

-4.52

-6.92

-5.43

-2.17

Oct-11

-5.37

1.94

3.36

3.37

-4.49

Nov-11

4.62

0.79

12.44

-3.66

2.44

Dec-11

11.77

9.36

23.44

2.33

-2.33

Jan-12

10.34

8.67

18.11

12.09

6.59

Feb-12

16.62

6.26

17.73

11.76

7.06

Mar-12

16.12

5.52

15.64

13.58

18.52

Apr-12

8.33

6.26

6.42

19.28

6.02

May-12

13.52

7.34

21

20.48

12.05

Jun-12

2.74

2.93

11.44

12.37

3.09

Jul-12

2.94

-3.98

8.68

18.52

0

Aug-12

-2.41

-2.85

7.49

16.47

3.53

Sep-12

-6.7

-10.59

4.67

4.26

-1.06

Oct-12

-3.87

-6.56

-3.97

-1.08

-4.3

Nov-12

-1.13

5.11

15.98

-14.61

-7.87

Dec-12

-5.59

-0.96

11.34

-9.68

-10.75

Jan-13

-9.31

-10.62

-4.72

-4.3

-5.38

Feb-13

7.62

11.18

10.51

8.08

-4.04

Mar-13

6.45

6.8

7.84

3.23

0

Apr-13

5.12

3.83

3.48

6.82

5.68

May-13

-2.20

-2.96

-2.85

5.68

-1.14

Jun-13

6.22

-6.11

-6.56

0

-11.29

Jul-13

4.89

1.96

4.86

3.26

-7.61

Aug-13

10.34

2.58

2.92

10.84

4.82

Sep-13

7.67

2.24

13.24

7.53

1.08

Oct-13

4.71

8.63

18.18

3.61

3.61

Nov-13

1.77

-3.29

0.97

0

-5.26

Dec-13

3.3

-0.48

6.7

0

-10.84

Jan-14

10.52

8.06

14.14

12.2

1.22

Feb-14

4.41

0.89

2.57

11.25

3.75

Mar-14

5.16

4.42

7.19

5.88

4.71

Apr-14

4.67

-0.04

7.03

8.16

2.04

May-14

16.23

8.01

14.91

20.88

2.2

Jun-14

18.13

15.85

13.64

10.75

9.68

Jul-14

20.42

16.52

18.71

17.05

2.27

Aug-14

17.21

15.31

23.04

13.64

7.95

Sep-14

29.17

16.72

23.97

3.26

3.26

Oct-14

7.85

0.41

7.15

10.23

-1.14

Nov-14

11.47

9.39

11.01

8.51

-7.45

Dec-14

-2.61

-0.6

1.7

8.33

-11.46

Jan-15

9.69

5.53

10.17

13.68

-8.42

Feb-15

7.71

1.55

14.07

10.11

-1.12

Mar-15

6.22

-1.42

8.66

18.56

5.15

Apr-15

0.57

-4.37

14.53

9.57

-4.26

May-15

2.22

1.52

12.99

5.21

-2.08

Jun-15

-2.05

-3.02

9.97

8.65

3.85

Jul-15

0.94

-5.18

5.22

3.19

4.26

Aug-15

-12.79

-14.57

-12.65

1.82

-1.82

Sep-15

-12.86

-12.52

-8.07

-6.19

-10.31

Oct-15

-11.41

-16.98

-8.79

-8.49

-7.55

Nov-15

-10.06

-11.75

-3.03

-7.27

-14.55

Dec-15

-6.21

-6.18

4.62

-16.16

-27.27

Jan-16

-19.37

-23.54

-14.39

-13.00

-6.00

Six Months

General Index

New Orders

Shipments

Number of Workers

Average Workweek

Sep-11

22.6

23.32

22.05

0.00

-6.52

Oct-11

14.64

19.81

23.48

6.74

-2.25

Nov-11

35.31

30.4

32.92

14.63

8.54

Dec-11

46.17

43.52

40.6

24.42

22.09

Jan-12

51.25

44.1

44.09

28.57

17.58

Feb-12

46.26

38.25

41.46

29.41

18.82

Mar-12

44.07

38.7

40.22

32.1

20.99

Apr-12

40.06

38.13

37.99

27.71

10.84

May-12

32.45

31.43

25.89

12.05

8.43

Jun-12

28.36

28.99

24.27

16.49

2.06

Jul-12

23.83

20.93

22.49

6.17

-4.94

Aug-12

17.46

13.63

21.59

3.53

-8.24

Sep-12

27.07

27.77

22.41

8.51

2.13

Oct-12

20.5

22.93

18.45

0

-11.83

Nov-12

17.98

15.54

26.03

-1.12

0

Dec-12

19.93

19.41

22.39

10.75

5.38

Jan-13

21.77

22.92

24.31

7.53

3.23

Feb-13

31.87

27.73

27.68

15.15

11.11

Mar-13

35.2

34.39

40.01

19.35

2.15

Apr-13

30.02

35.29

36.22

25

7.95

May-13

26.25

29.45

25.66

11.36

1.14

Jun-13

28.69

23.2

23.06

1.61

-9.68

Jul-13

33.13

31.96

35.11

1.09

-1.09

Aug-13

34.44

29.61

30.82

8.43

-6.02

Sep-13

40.35

37.99

36.94

4.3

-2.15

Oct-13

41.53

37.49

33.89

7.23

2.41

Nov-13

37.81

39.83

37.79

22.37

-3.95

Dec-13

37.92

28.17

31.85

9.64

1.2

Jan-14

36.29

36.66

30.14

20.73

9.76

Feb-14

39.98

45.05

43.58

25

7.5

Mar-14

35.23

37.94

35.36

17.65

9.41

Apr-14

37.82

34.03

37.94

22.45

1.02

May-14

43.09

37.48

34.94

17.58

-3.3

Jun-14

42.46

45.18

46.42

20.43

0

Jul-14

29.41

25.84

25.55

17.05

-4.55

Aug-14

44.58

49.22

54.17

22.73

0

Sep-14

46.7

45.58

46.5

14.13

5.43

Oct-14

42.48

42.97

42.98

12.5

-2.27

Nov-14

47.44

48.02

45.33

24.47

8.51

Dec-14

37.19

36.27

36.24

20.83

12.5

Jan-15

47.23

39.91

39.56

31.58

11.58

Feb-15

27.58

30.73

31.59

24.72

1.12

Mar-15

31.01

28.1

28.71

28.87

3.09

Apr-15

36.24

33.27

31.7

22.34

-1.06

May-15

30.5

33.68

31.43

16.67

-1.04

Jun-15

27.68

28.04

25.2

13.46

0

Jul-15

27.87

31.55

25.81

9.57

-3.19

Aug-15

31.49

29.32

32.12

3.64

1.82

Sep-15

23.53

23.76

24.76

7.22

-9.28

Oct-15

23.34

24.05

24.65

10.38

0.94

Nov-15

22.4

21.16

22.13

16.36

5.45

Dec-15

35.65

25.37

32.34

15.15

10.1

Jan-16

9.51

12.18

16.97

4.00

11.00

Source: Federal Reserve Bank of New York

http://www.ny.frb.org/survey/empire/empiresurvey_overview.html

Chart VA-1 of the Federal Reserve Bank of New York provides indexes of current and expected economic activity. There were multiple contractions in current activity after the global recession shown in shade. Current activity is weakening relative to strong recovery in the initial expansion in 2010 and 2011.

clip_image012

Chart VA-1, US, US, Federal Reserve Bank of New York, Diffusion Index of Current and Expected Activity, Seasonally Adjusted

Source: Federal Reserve Bank of New York

http://www.ny.frb.org/survey/empire/empiresurvey_overview.html

© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016.

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