CMP Associates Regulation Blog: “The case for an increase in the federal funds rate has continued to strengthen,” Twenty Three Million Unemployed or Underemployed, Job Creation, Stagnating Real Wages, Stagnating Real Disposable Income per Capita, Financial Repression, Rules, Discretionary Authority and Slow Productivity Growth, World Cyclical Slow Growth and Global Recession Risk: Part VII

“The case for an increase in the federal funds rate has continued to strengthen,” Twenty Three Million Unemployed or Underemployed, Job Creation, Stagnating Real Wages, Stagnating Real Disposable Income per Capita, Financial Repression, Rules, Discretionary Authority and Slow Productivity Growth, World Cyclical Slow Growth and Global Recession Risk

Carlos M. Pelaez

I Twenty Three Million Unemployed or Underemployed

IA1 Summary of the Employment Situation

IA2 Number of People in Job Stress

IA3 Long-term and Cyclical Comparison of Employment

IA4 Job Creation

IB Stagnating Real Wages

II Stagnating Real Disposable Income and Consumption Expenditures

IB1 Stagnating Real Disposable Income and Consumption Expenditures

IB2 Financial Repression

IIA Rules, Discretionary Authorities and Slow Productivity Growth

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

IX Conclusion. The departing theoretical framework of Bordo and Haubrich (2012DR) is the plucking model of Friedman (1964, 1988). Friedman (1988, 1) recalls, “I was led to the model in the course of investigating the direction of influence between money and income. Did the common cyclical fluctuation in money and income reflect primarily the influence of money on income or of income on money?” Friedman (1964, 1988) finds useful for this purpose to analyze the relation between expansions and contractions. Analyzing the business cycle in the United States between 1870 and 1961, Friedman (1964, 15) found that “a large contraction in output tends to be followed on the average by a large business expansion; a mild contraction, by a mild expansion.” The depth of the contraction opens up more room in the movement toward full employment (Friedman 1964, 17):

“Output is viewed as bumping along the ceiling of maximum feasible output except that every now and then it is plucked down by a cyclical contraction. Given institutional rigidities and prices, the contraction takes in considerable measure the form of a decline in output. Since there is no physical limit to the decline short of zero output, the size of the decline in output can vary widely. When subsequent recovery sets in, it tends to return output to the ceiling; it cannot go beyond, so there is an upper limit to output and the amplitude of the expansion tends to be correlated with the amplitude of the contraction.”

Kim and Nelson (1999) test the asymmetric plucking model of Friedman (1964, 1988) relative to a symmetric model using reference cycles of the NBER and find evidence supporting the Friedman model. Bordo and Haubrich (2012DR) analyze 27 cycles beginning in 1872, using various measures of financial crises while considering different regulatory and monetary regimes. The revealing conclusion of Bordo and Haubrich (2012DR, 2) is that:

“Our analysis of the data shows that steep expansions tend to follow deep contractions, though this depends heavily on when the recovery is measured. In contrast to much conventional wisdom, the stylized fact that deep contractions breed strong recoveries is particularly true when there is a financial crisis. In fact, on average, it is cycles without a financial crisis that show the weakest relation between contraction depth and recovery strength. For many configurations, the evidence for a robust bounce-back is stronger for cycles with financial crises than those without.”

The average rate of growth of real GDP in expansions after recessions with financial crises was 8 percent but only 6.9 percent on average for recessions without financial crises (Bordo 2012Sep27). Real GDP declined 12 percent in the Panic of 1907 and increased 13 percent in the recovery, consistent with the plucking model of Friedman (Bordo 2012Sep27). Bordo (2012Sep27) finds two probable explanations for the weak recovery during the current economic cycle: (1) collapse of United States housing; and (2) uncertainty originating in fiscal policy, regulation and structural changes. There are serious doubts if monetary policy is adequate to recover the economy under these conditions.

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

Table IB-1 provides the data required for broader comparison of long-term and cyclical performance of the United States economy. Revisions and enhancements of United States GDP and personal income accounts by the Bureau of Economic Analysis (BEA) (http://bea.gov/iTable/index_nipa.cfm) provide important information on long-term growth and cyclical behavior. First, Long-term performance. Using annual data, US GDP grew at the average rate of 3.2 percent per year from 1929 to 2015 and at 3.2 percent per year from 1947 to 2015. Real disposable income grew at the average yearly rate of 3.2 percent from 1929 to 2015 and at 3.7 percent from 1947 to 1999. Real disposable income per capita grew at the average yearly rate of 2.0 percent from 1929 to 2015 and at 2.3 percent from 1947 to 1999. US economic growth was much faster during expansions, compensating contractions in maintaining trend growth for whole cycles. Using annual data, US real disposable income grew at the average yearly rate of 3.5 percent from 1980 to 1989 and real disposable income per capita at 2.6 percent. The US economy has lost its dynamism in the current cycle: real disposable income grew at the yearly average rate of 1.7 percent from 2006 to 2015 and real disposable income per capita at 0.9 percent. Real disposable income grew at the average rate of 1.7 percent from 2007 to 2015 and real disposable income per capita at 0.8 percent. Table IB-1 illustrates the contradiction of long-term growth with the proposition of secular stagnation (Hansen 1938, 1938, 1941 with early critique by Simons (1942). Secular stagnation would occur over long periods. Table IB-1 also provides the corresponding rates of population growth that is only marginally lower at 0.8 to 0.9 percent recently from 1.1 percent over the long-term. GDP growth fell abruptly from 2.6 percent on average from 2000 to 2006 to 1.3 percent from 2006 to 2015 and 1.2 percent from 2007 to 2015 and real disposable income growth fell from 2.9 percent on average from 2000 to 2006 to 1.7 percent from 2006 to 2015. The decline of growth of real per capita disposable income is even sharper from average 2.0 percent from 2000 to 2006 to 0.9 percent from 2006 to 2015 and 0.8 percent from 2007 to 2015 while population growth was 0.8 percent on average. Lazear and Spletzer (2012JHJul122) provide theory and measurements showing that cyclic factors explain currently depressed labor markets. This is also the case of the overall economy. Second, first four quarters of expansion. Growth in the first four quarters of expansion is critical in recovering loss of output and employment occurring during the contraction. In the first four quarters of expansion from IQ1983 to IVQ1983: GDP increased 7.8 percent, real disposable personal income 5.3 percent and real disposable income per capita 4.4 percent. In the first four quarters of expansion from IIIQ2009 to IIQ2010: GDP increased 2.7 percent, real disposable personal income 0.2 percent and real disposable income per capita decreased 0.7 percent. Third, first 28 quarters of expansion. In the expansion from IQ1983 to IVQ1989: GDP grew 36.3 percent at the annual equivalent rate of 4.5 percent; real disposable income grew 30.7 percent at the annual equivalent rate of 3.9 percent; and real disposable income per capita grew 22.6 percent at the annual equivalent rate of 3.0 percent. In the expansion from IIIQ2009 to IIQ2016: GDP grew 15.5 percent at the annual equivalent rate of 2.1 percent; real disposable income grew 14.5 percent at the annual equivalent rate of 1.9 percent; and real disposable personal income per capita grew 8.5 percent at the annual equivalent rate of 1.2 percent. Fourth, entire quarterly cycle. In the entire cycle combining contraction and expansion from IQ1980 to IVQ1989: GDP grew 36.1 percent at the annual equivalent rate of 3.1 percent; real disposable personal income grew 38.2 percent at the annual equivalent rate of 3.2 percent; and real disposable personal income per capita 25.8 percent at the annual equivalent rate of 2.3 percent. In the entire cycle combining contraction and expansion from IVQ2007 to IIQ2016: GDP grew 10.6 percent at the annual equivalent rate of 1.2 percent; real disposable personal income increased 16.4 percent at the annual equivalent rate of 1.8 percent; and real disposable personal income per capita grew 8.8 percent at the annual equivalent rate of 1.0 percent. The United States grew during its history at high rates of per capita income that made its economy the largest in the world. That dynamism is disappearing. Bordo (2012 Sep27) and Bordo and Haubrich (2012DR) provide strong evidence that recoveries have been faster after deeper recessions and recessions with financial crises, casting serious doubts on the conventional explanation of weak growth during the current expansion allegedly because of the depth of the contraction of 4.2 percent from IVQ2007 to IIQ2009 and the financial crisis. The proposition of secular stagnation should explain a long-term process of decay and not the actual abrupt collapse of the economy and labor markets currently.

Table IB-1, US, GDP, Real Disposable Personal Income, Real Disposable Income per Capita and Population Long-term and in 1983-89 and 2007-2016, %

Long-term Average ∆% per Year	GDP	Population
1929-2015	3.2	1.1
1947-2015	3.2	1.2
1947-1999	3.6	1.3
1980-1989	3.5	0.9
2000-2015	1.8	0.9
2000-2006	2.6	0.9
2006-2015	1.3	0.8
2007-2015	1.2	0.8
Long-term Average ∆% per Year	Real Disposable Income	Real Disposable Income per Capita	Population
1929-2015	3.2	2.0	1.1
1947-1999	3.7	2.3	1.3
2000-2015	2.2	1.3	0.9
2000-2006	2.9	2.0	0.9
2006-2015	1.7	0.9	0.8
2007-2015	1.7	0.8	0.8
Whole Cycles Average ∆% per Year
1980-1989	3.5	2.6	0.9
2006-2015	1.7	0.9	0.8
2007-2015	1.7	0.8	0.8
Comparison of Cycles	# Quarters	∆%	∆% Annual Equivalent
GDP
I83 to IV83 I83 to IQ87 I83 to II87 I83 to III87 I83 to IV87 I83 to I88 I83 to II88 I83 to III88 I83 to IV88 I83 to I89 I83 to II89 I83 to III89 I83 to IV89	4 17 18 19 20 21 22 23 24 25 26 27 28	7.8 23.1 24.5 25.6 27.7 28.4 30.1 30.9 32.6 34.0 35.0 36.0 36.3	7.8 5.0 5.0 4.9 5.0 4.9 4.9 4.8 4.8 4.8 4.7 4.7 4.5
RDPI
I83 to IV83 I83 to I87 I83 to III87 I83 to IV87 I83 to I88 I83 to II88 I83 to III88 I83 to IV88 I83 to I89 I83 to II89 I83 to III89 I83 to IV89	4 17 19 20 21 22 23 24 25 26 27 28	5.3 19.5 20.5 22.1 23.8 25.1 26.3 27.5 29.1 28.7 29.6 30.7	5.3 4.3 4.0 4.1 4.2 4.2 4.1 4.1 4.2 4.0 3.9 3.9
RDPI Per Capita
I83 to IV83 I83 to I87 I83 to III87 I83 to IV87 I83 to I88 I83 to II88 I83 to III88 I83 to IV88 I83 to I89 I83 to II89 I83 to III89 I83 to IV89	4 17 19 20 21 22 23 24 25 26 27 28	4.4 15.1 15.5 16.7 18.2 19.2 20.0 20.9 22.1 21.5 22.0 22.6	4.4 3.4 3.1 3.1 3.2 3.2 3.2 3.2 3.2 3.0 3.0 3.0
Whole Cycle IQ1980 to IVQ1989
GDP	41	36.1	3.1
RDPI	41	38.2	3.2
RDPI per Capita	41	25.8	2.3
Population	41	9.8	0.9
GDP
III09 to II10 III09 to II16	4 28	2.7 15.5	2.7 2.1
RDPI
III09 to II10 III09 to II16	4 28	0.2 14.5	0.2 1.9
RDPI per Capita
III09 to II10 III09 to II16	4 28	-0.7 8.5	-0.7 1.2
Population
III09 to II10 III09 to II16	4 28	0.8 5.5	0.8 0.8
IVQ2007 to IIQ2016	34
GDP	34	10.6	1.2
RDPI	34	16.4	1.8
RDPI per Capita	34	8.8	1.0
Population	34	6.9	0.8

RDPI: Real Disposable Personal Income

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

There are seven basic facts illustrating the current economic disaster of the United States:

GDP maintained trend growth in the entire business cycle from IQ1980 to IVQI989, including contractions and expansions. GDP is well below trend in the entire business cycle from IVQ2007 to IIQ2016, including contractions and expansions
Per capita real disposable income exceeded trend growth in the 1980s but is substantially below trend in IIQ2016
Level of employed persons increased in the 1980s but declined/stagnated into IIQ2016
Level of full-time employed persons increased in the 1980s but declined/stagnated into IIQ2016
Level unemployed, unemployment rate and employed part-time for economic reasons fell in the recovery from the recessions in the 1980s but not substantially in the recovery since IIQ2009
Wealth of households and nonprofit organizations soared in the 1980s but stagnated in historically-relative real terms into IIQ2016
Gross private domestic investment increased sharply from IQ1980 to IVQ1989 but gross private domestic investment stagnated and private fixed investment stagnated from IVQ2007 into IIQ2016

There is a critical issue of the United States economy will be able in the future to attain again the level of activity and prosperity of projected trend growth. Growth at trend during the entire business cycles built the largest economy in the world but there may be an adverse, permanent weakness in United States economic performance and prosperity. Table IB-2 provides data for analysis of these seven basic facts. The seven blocks of Table IB-2 are separated initially after individual discussion of each one followed by the full Table IB-2.

1. Trend Growth.

i. As shown in Table IB-2, actual GDP grew cumulatively 35.6 percent from IQ1980 to IVQ1989, which is relatively close to what trend growth would have been at 35.4 percent. Real GDP grew 36.1 percent from IVQ1979 to IVQ1989. Rapid growth at the average annual rate of 4.5 percent per quarter during the expansion from IQ1983 to IVQ1989 erased the loss of GDP of 4.7 percent during the contractions and maintained trend growth at 3.1 percent for GDP and 3.2 percent for real disposable personal income over the entire cycle.

ii. In contrast, cumulative growth from IVQ2007 to IIQ2016 was 10.6 percent while trend growth would have been 28.6 percent. Growth at trend in the entire cycle from IVQ2007 to IIQ2016 would have accumulated to 28.6 percent. GDP in IIQ2016 would be $19,279.5 billion (in constant dollars of 2009) if the US had grown at trend, which is higher by $2696.4 billion than actual $16,583.1 billion. There are about two trillion dollars of GDP less than at trend, explaining the 23.6 million unemployed or underemployed equivalent to actual unemployment/underemployment of 14.0 percent of the effective labor force (http://cmpassocregulationblog.blogspot.com/2016/10/twenty-four-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2016/09/interest-rates-and-valuations-of-risk.html). US GDP in IIQ2016 is 14.0 percent lower than at trend. US GDP grew from $14,991.8 billion in IVQ2007 in constant dollars to $16,583.1 billion in IIQ2016 or 10.6 percent at the average annual equivalent rate of 1.2 percent. Professor John H. Cochrane (2014Jul2) estimates US GDP at more than 10 percent below trend. Cochrane (2016May02) measures GDP growth in the US at average 3.5 percent per year from 1950 to 2000 and only at 1.76 percent per year from 2000 to 2015 with only at 2.0 percent annual equivalent in the current expansion. Cochrane (2016May02) proposes drastic changes in regulation and legal obstacles to private economic activity. 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 3.1 percent per year from Sep 1919 to Sep 2016. Growth at 3.1 percent per year would raise the NSA index of manufacturing output from 108.2316 in Dec 2007 to 141.3505 in Sep 2016. The actual index NSA in Sep 2016 is 104.4917, which is 26.1 percent below trend. Manufacturing output grew at average 2.1 percent between Dec 1986 and Dec 2015. Using trend growth of 2.1 percent per year, the index would increase to 129.7697 in Sep 2016. The output of manufacturing at 104.4917 in Sep 2016 is 19.5 percent below trend under this alternative calculation.

The civilian labor force consists of people who are available and willing to work and who have searched for employment recently. The labor force of the US NSA grew 9.4 percent from 142.828 million in Jan 2001 to 156.255 million in Jul 2009. The civilian labor force is 2.2 percent higher at 159.636 million in Sep 2016 than in Jul 2009, all numbers not seasonally adjusted. Chart I-3 shows the flattening of the curve of expansion of the labor force and its decline in 2010 and 2011. The ratio of the labor force of 154.871 million in Jul 2007 to the noninstitutional population of 231.958 million in Jul 2007 was 66.8 percent while the ratio of the labor force of 159.636 million in Sep 2016 to the noninstitutional population of 254.091 million in Sep 2016 was 62.8 percent. The labor force of the US in Sep 2016 corresponding to 66.8 percent of participation in the population would be 169.733 million (0.668 x 254.091). The difference between the measured labor force in Sep 2016 of 159.636 million and the labor force in Sep 2016 with participation rate of 66.8 percent (as in Jul 2007) of 169.733 million is 9.774 million. The level of the labor force in the US has stagnated and is 10.097 million lower than what it would have been had the same participation rate been maintained. Millions of people have abandoned their search for employment because they believe there are no jobs available for them. The key issue is whether the decline in participation of the population in the labor force is the result of people giving up on finding another job.

Period IQ1980 to IVQ1989
GDP SAAR USD Billions
IQ1980	6,524.9
IVQ1989	8,850.2
∆% IQ1980 to IVQ1989 (36.1 percent from IVQ1979 $6503.9 billion)	35.6
∆% Trend Growth IQ1980 to IVQ1989	35.4

Period IVQ2007 to IIQ2016
GDP SAAR USD Billions
IVQ2007	14,991.8
IIQ2016	16,583.1
∆% IVQ2007 to IIQ2016	10.6
∆% IVQ2007 to IIQ2016 Trend Growth	28.6

2. Real Disposable Income

i. In the entire business cycle from IQ1980 to IVQ1989, as shown in Table IB-2, per capita real disposable income, or what is left per person after inflation and taxes, grew cumulatively 25.8 percent, which is close to what would have been trend growth of 22.5 percent.

ii. In contrast, in the entire business cycle from IVQ2007 to IIQ2016, per capita real disposable income increased 8.8 percent while trend growth would have been 18.3 percent. Income available after inflation and taxes is about the same as before the contraction after 28 consecutive quarters of GDP growth at mediocre rates relative to those prevailing during historical cyclical expansions. Growth of personal income during the expansion has been tepid even with the new revisions. In IVQ2014, personal income grew at 5.0 percent in nominal terms and at 6.0 percent in real terms excluding current transfers while nominal disposable income grew at 4.2 percent in nominal terms and at 4.7 percent in real terms (Table 6 at http://www.bea.gov/newsreleases/national/pi/2016/pdf/pi0616.pdf). In IQ2015, nominal personal income grew at 2.1 percent and at 2.7 percent in real terms excluding current transfer receipts while nominal disposable income grew at 0.3 percent and at 2.0 percent in real terms (Table 6 at http://www.bea.gov/newsreleases/national/pi/2016/pdf/pi0816.pdf). In IIQ2015, nominal personal income grew at 5.8 percent and at 3.9 percent in real terms excluding current transfer receipts while nominal disposable income grew at 5.8 percent and real disposable income grew at 3.9 percent (Table 6 at http://www.bea.gov/newsreleases/national/pi/2016/pdf/pi0816.pdf). In IIIQ2015, nominal personal income grew at 4.1 percent and 3.2 percent excluding transfer receipts while nominal disposable income grew at 4.4 percent and real disposable income grew at 3.3 percent (Table 6 at http://www.bea.gov/newsreleases/national/pi/2016/pdf/pi0816.pdf). In IVQ2015, nominal personal income grew at 3.5 percent and 3.3 percent excluding transfer receipts while nominal disposable income grew at 3.4 percent and real disposable income at 3.0 percent (Table 6 at http://www.bea.gov/newsreleases/national/pi/2016/pdf/pi0816.pdf). In IQ2016, personal income grew at 1.3 percent and at 0.2 percent excluding transfer receipts while nominal disposable income grew at 2.4 percent and real disposable income grew at 2.1 percent (Table 6 at http://www.bea.gov/newsreleases/national/pi/2016/pdf/pi0816.pdf). In IIQ2016, personal income grew at 3.9 percent and at 2.1 percent excluding transfer receipts while nominal disposable income grew at 4.1 percent and real disposable income grew at 2.1 percent (Table 6 at http://www.bea.gov/newsreleases/national/pi/2016/pdf/pi0816.pdf).

Period IQ1980 to IVQ1989
Real Disposable Personal Income per Capita IQ1980 Chained 2009 USD	20,241
Real Disposable Personal Income per Capita IVQ1989 Chained 2009 USD	25,459
∆% IQ1980 to IVQ1989 (25.8 percent from IVQ1979 $20,230 billion)	25.8
∆% Trend Growth	22.5

Period IVQ2007 to IIQ2016
Real Disposable Personal Income per Capita IVQ2007 Chained 2009 USD	35,819
Real Disposable Personal Income per Capita IIQ2016 Chained 2009 USD	38,976
∆% IVQ2007 to IIQ2016	8.8
∆% Trend Growth	18.3

3. Number of Employed Persons

i. As shown in Table IB-2, the number of employed persons increased over the entire business cycle from 98.527 million not seasonally adjusted (NSA) in IQ1980 to 117.698 million NSA in IVQ1989 or by 19.5 percent.

ii. In contrast, during the entire business cycle the number employed stagnated from 146.334 million in IVQ2007 to 151.990 million in IIQ2016 or by 3.9 percent higher. There are 23.6 million persons unemployed or underemployed, which is 14.0 percent of the effective labor force (http://cmpassocregulationblog.blogspot.com/2016/10/twenty-four-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2016/09/interest-rates-and-valuations-of-risk.html). The number employed in Sep 2016 was 151.977 million (NSA) or 4.662 million more people with jobs relative to the peak of 147.315 million in Jul 2007 while the civilian noninstitutional population of ages 16 years and over increased from 231.958 million in Jul 2007 to 254.091 million in Sep 2016 or by 22.133 million. The number employed increased 3.2 percent from Jul 2007 to Sep 2016 while the noninstitutional civilian population of ages of 16 years and over, or those available for work, increased 9.5 percent. The ratio of employment to population in Jul 2007 was 63.5 percent (147.315 million employment as percent of population of 231.958 million). The same ratio in Sep 2016 would result in 161.348 million jobs (0.635 multiplied by noninstitutional civilian population of 254.091 million). There are effectively 9.371 million fewer jobs in Sep 2016 than in Jul 2007, or 161.348 million minus 151.977 million. There is actually not sufficient job creation in merely absorbing new entrants in the labor force because of those dropping from job searches, worsening the stock of unemployed or underemployed in involuntary part-time jobs.

Period IQ1980 to IVQ1989
Employed Millions IQ1980 NSA End of Quarter	98.527
Employed Millions IVQ1989 NSA End of Quarter	117.698
∆% Employed IQ1980 to IVQ1989	19.5

Period IVQ2007 to IQ2016
Employed Millions IVQ2007 NSA End of Quarter	146.334
Employed Millions IIQ2016 NSA End of Quarter	151.990
∆% Employed IVQ2007 to IIQ2016	3.9

4. Number of Full-Time Employed Persons

i. As shown in Table IB-2, during the entire business cycle in the 1980s, including contractions and expansion, the number of employed full-time rose from 81.280 million NSA in IQ1980 to 97.221 million NSA in IVQ1989 or 19.6 percent.

ii. In contrast, during the entire current business cycle, including contraction and expansion, the number of persons employed full-time increased from 121.042 million in IVQ2007 to 124.903 million in IIQ2016 or 3.2 percent. 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 254.091 million in Sep 2016 or by 22.133 million (http://www.bls.gov/data/). The number with full-time jobs in Sep 2016 is 124.278 million, which is higher by 1.059 million relative to the peak of 123.219 million in Jul 2007. The ratio of full-time jobs of 123.219 million in Jul 2007 to civilian noninstitutional population of 231.958 million was 53.1 percent. If that ratio had remained the same, there would be 134.922 million full-time jobs with population of 254.091 million in Sep 2016 (0.531 x 254.091) or 10.644 million fewer full-time jobs relative to actual 124.278 million. There appear to be around 10 million fewer full-time jobs in the US than before the global recession while population increased around 20 million. Mediocre GDP growth is the main culprit of the fractured US labor market.

Period IQ1980 to IVQ1989
Employed Full-time Millions IQ1980 NSA End of Quarter	81.280
Employed Full-time Millions IVQ1989 NSA End of Quarter	97.221
∆% Full-time Employed IQ1980 to IVQ1989	19.6

Period IVQ2007 to IIQ2016
Employed Full-time Millions IVQ2007 NSA End of Quarter	121.042
Employed Full-time Millions IIQ2016 NSA End of Quarter	124.903
∆% Full-time Employed IVQ2007 to IIQ2016	3.2

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

i. As shown in Table IB-2 and in the following block, in the cycle from IQ1980 to IVQ1989: (a) The rate of unemployment was lower at 5.1 percent in IVQ1989 relative to 6.6 percent in IQ1980. (b) The number unemployed decreased from 6.983 million in IQ1980 to 6.300 million in IVQ1989 or 9.8 percent. (c) The number employed part-time for economic reasons increased 29.9 percent from 3.624 million in IQ1980 to 4.709 million in IVQ1989.

ii. In contrast, in the economic cycle from IVQ2007 to IIQ2016: (a) The rate of unemployment increased from 4.8 percent in IVQ2007 to 5.1 percent in IIQ2016. (b) The number unemployed increased 10.5 percent from 7.371 million in IVQ2007 to 8.144 million in IIQ2016. (c) The number employed part-time for economic reasons because they could not find any other job increased 28.8 percent from 4.750 million in IVQ2007 to 6.119 million in IIQ2016. (d) U6 Total Unemployed plus all marginally attached workers plus total employed part time for economic reasons as percent of all civilian labor force plus all marginally attached workers NSA increased from 8.7 percent in IVQ2007 to 9.9 percent in IIQ2016.

Period IQ1980 to IVQ1989
Unemployment Rate IQ1980 NSA End of Quarter	6.6
Unemployment Rate IVQ1989 NSA End of Quarter	5.1
Unemployed IQ1980 Millions NSA End of Quarter	6.983
Unemployed IVQ1989 Millions NSA End of Quarter	6.300
∆%	-9.8
Employed Part-time Economic Reasons IQ1980 Millions NSA End of Quarter	3.624
Employed Part-time Economic Reasons Millions IVQ1989 NSA End of Quarter	4.709
∆%	29.9

Period IVQ2007 to IIQ2016
Unemployment Rate IVQ2007 NSA End of Quarter	4.8
Unemployment Rate IIQ2016 NSA End of Quarter	5.1
Unemployed IVQ2007 Millions NSA End of Quarter	7.371
Unemployed IIQ2016 Millions NSA End of Quarter	8.144
∆%	10.5
Employed Part-time Economic Reasons IVQ2007 Millions NSA End of Quarter	4.750
Employed Part-time Economic Reasons Millions IIQ2016 NSA End of Quarter	6.119
∆%	28.8
U6 Total Unemployed plus all marginally attached workers plus total employed part time for economic reasons as percent of all civilian labor force plus all marginally attached workers NSA
IVQ2007	8.7
IIQ2016	9.9

6. Wealth of Households and Nonprofit Organizations.

The comparison of net worth of households and nonprofit organizations in the entire economic cycle from IQ1980 (and from IVQ1979) to IVQ1989 and from IVQ2007 to IIQ2016 is in Table IIA-5. The data reveal the following facts for the cycles in the 1980s:

IVQ1979 to IVQ1989. Net worth increased 137.1 percent from IVQ1979 to IVQ1989, the all items CPI index increased 64.4 percent from 76.7 in Dec 1979 to 126.1 in Dec 1989 and real net worth increased 44.2 percent.
IQ1980 to IVQ1985. Net worth increased 65.4 percent, the all items CPI index increased 36.5 percent from 80.1 in Mar 1980 to 109.3 in Dec 1985 and real net worth increased 21.2 percent.
IVQ1979 to IVQ1985. Net worth increased 68.9 percent, the all items CPI index increased 42.5 percent from 76.7 in Dec 1979 to 109.3 in Dec 1985 and real net worth increased 18.5 percent.
IQ1980 to IQ1989. Net worth increased 117.9 percent, the all items CPI index increased 52.7 percent from 80.1 in Mar 1980 to 122.3 in Mar 1989 and real net worth increased 42.7 percent.
IQ1980 to IIQ1989. Net worth increased 122.2 percent, the all items CPI index increased 54.9 percent from 80.1 in Mar 1980 to 124.1 in Jun 1989 and real net worth increased 43.4 percent.
IQ1980 to IIIQ1989. Net worth increased 128.2 percent, the all items CPI index increased 56.1 percent from 80.1 in Mar 1980 to 125.0 in Sep 1989 and real net worth increased 46.3 percent.
IQ1980 to IVQ1989. Net worth increased 132.2 percent, the all items CPI index increased 57.4 from 80.1 in Mar 1980 to 126.1 in Dec 1989 and real net worth increased 47.5 percent.

There is disastrous performance in the current economic cycle:

IVQ2007 to IIQ2016. Net worth increased 34.0 percent, the all items CPI increased 14.8 percent from 210.036 in Dec 2007 to 241.038 in Jun 2016 and real or inflation adjusted net worth increased 16.7 percent. Real estate assets adjusted for inflation fell 4.1 percent. Growth of real net worth at the long-term average of 3.1 percent per year from IVQ1945 to IIQ2016 would have accumulated to 29.6 percent in the entire cycle from IVQ2007 to IIQ2016, much higher than actual 16.7 percent.

The explanation is partly in the sharp decline of wealth of households and nonprofit organizations and partly in the mediocre growth rates of the cyclical expansion beginning in IIIQ2009. 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 2.1 percent on average in the cyclical expansion in the 28 quarters from IIIQ2009 to IIQ2016. 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 IIQ2016 (http://www.bea.gov/newsreleases/national/gdp/2016/pdf/gdp2q16_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/2016/10/mediocre-cyclical-united-states.html and earlier http://cmpassocregulationblog.blogspot.com/2016/08/and-as-ever-economic-outlook-is.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, 4.9 percent from IQ1983 to IIQ1988, 4.8 percent from IQ1983 to IIIQ1988, 4.8 percent from IQ1983 to IVQ1988, 4.8 percent from IQ1983 to IQ1989, 4.7 percent from IQ1983 to IIQ1989, 4.7 percent from IQ1983 to IIIQ1989, 4.5 percent from IQ1983 to IVQ1989 and at 7.8 percent from IQ1983 to IVQ1983 (http://cmpassocregulationblog.blogspot.com/2016/10/mediocre-cyclical-united-states.html and earlier http://cmpassocregulationblog.blogspot.com/2016/08/and-as-ever-economic-outlook-is.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 IIQ2016 would have accumulated to 28.6 percent. GDP in IIQ2016 would be $19,279.5 billion (in constant dollars of 2009) if the US had grown at trend, which is higher by $2696.4 billion than actual $16,583.1 billion. There are about two trillion dollars of GDP less than at trend, explaining the 23.6 million unemployed or underemployed equivalent to actual unemployment/underemployment of 14.0 percent of the effective labor force (http://cmpassocregulationblog.blogspot.com/2016/10/twenty-four-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2016/09/interest-rates-and-valuations-of-risk.html). US GDP in IIQ2016 is 14.0 percent lower than at trend. US GDP grew from $14,991.8 billion in IVQ2007 in constant dollars to $16,583.1 billion in IIQ2016 or 10.6 percent at the average annual equivalent rate of 1.2 percent. Professor John H. Cochrane (2014Jul2) estimates US GDP at more than 10 percent below trend. Cochrane (2016May02) measures GDP growth in the US at average 3.5 percent per year from 1950 to 2000 and only at 1.76 percent per year from 2000 to 2015 with only at 2.0 percent annual equivalent in the current expansion. Cochrane (2016May02) proposes drastic changes in regulation and legal obstacles to private economic activity. 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 3.1 percent per year from Sep 1919 to Sep 2016. Growth at 3.1 percent per year would raise the NSA index of manufacturing output from 108.2316 in Dec 2007 to 141.3505 in Sep 2016. The actual index NSA in Sep 2016 is 104.4917, which is 26.1 percent below trend. Manufacturing output grew at average 2.1 percent between Dec 1986 and Dec 2015. Using trend growth of 2.1 percent per year, the index would increase to 129.7697 in Sep 2016. The output of manufacturing at 104.4917 in Sep 2016 is 19.5 percent below trend under this alternative calculation.

Table IIA-5, Net Worth of Households and Nonprofit Organizations in Billions of Dollars, IVQ1979 to IIIQ1989 and IVQ2007 to IQ2016

Period IQ1980 to IVQ1989
Net Worth of Households and Nonprofit Organizations USD Millions
IVQ1979 IQ1980	9,047.8 9,238.6
IVQ1985 IIIQ1986 IVQ1986 IQ1987 IIQ1987 IIIQ1987 IVQ1987 IQ1988 IIQ1988 IIIQ1988 IVQ1988 IQ1989 IIQ1989 IIIQ1989 IVQ1989	15,278.3 16,292.1 16,841.0 17,494.9 17,782.0 18,192.4 18,019.7 18,492.6 18,902.6 19,212.5 19,690.1 20,133.2 20,530.8 21,085.8 21,447.9
∆ USD Billions IVQ1985 IVQ1979 to IVQ1989 IQ1980-IVQ1985 IQ1980-IIIQ1986 IQ1980-IVQ1986 IQ1980-IQ1987 IQ1980-IIQ1987 IQ1980-IIIQ1987 IQ1980-IVQ1987 IQ1980-IQ1988 IQ1980-IIQ1988 IQ1980-IIIQ1988 IQ1980-IVQ1988 IQ1980-IQ1989 IQ1980-IIQ1989 IQ1980-IIIQ1989 IQ1980-IVQ1989	+6,230.5 ∆%68.9 R∆%18.5 +12,400.1 ∆%137.1 R∆%44.2 +6,039.7 ∆%65.4 R∆%21.2 +7,053.5 ∆%76.3 R∆%28.2 +7,602.4 ∆%82.3 R∆%32.1 +8,256.3 ∆%89.4 R∆%35.3 +8,543.4 ∆%92.5 R∆%35.8 +8,953.8 ∆%96.9 R∆%37.2 +8781.1 ∆%95.0 R∆%35.4 +9254.0 ∆%100.2 R∆%37.6 +9664.0 ∆%104.6 R∆%38.9 +9973.9 ∆%108.0 R∆%39.0 +10451.5 ∆%113.1 R∆%41.7 +10894.6 ∆%117.9 R∆%42.7 +11,292.2 ∆%122.2 R∆% 43.4 +11,847.2 ∆%128.2 R∆% 46.3 +12,209.3 ∆%132.2 R∆%47.5
Period IVQ2007 to IIQ2016
Net Worth of Households and Nonprofit Organizations USD Millions
IVQ2007	66,485.3
IIQ2016	89,062.7
∆ USD Billions	+22,577.4 ∆%34.0 R∆%16.7

Net Worth = Assets – Liabilities. R∆% real percentage change or adjusted for CPI percentage change.

Source: Board of Governors of the Federal Reserve System. 2016. Flow of funds, balance sheets and integrated macroeconomic accounts: second quarter 2016. Washington, DC, Federal Reserve System, Sep 16. http://www.federalreserve.gov/releases/z1/.

7. Gross Private Domestic Investment.

i. The comparison of gross private domestic investment in the entire economic cycles from IQ1980 to IVQ1989 and from IVQ2007 to IIQ2016 is in the following block and in Table IB-2. Gross private domestic investment increased from $951.6 billion in IQ1980 to $1,257.7 billion in IVQ1989 or by 32.2 percent.

ii In the current cycle, gross private domestic investment increased from $2,605.2 billion in IVQ2007 to $2,783.8 billion in IIQ2016, or 6.9 percent. Private fixed investment edged from $2,586.3 billion in IVQ2007 to $2,778.8 billion in IIQ2016, or increase by 7.4 percent.

Period IQ1980-IVQ1989
Gross Private Domestic Investment USD 2009 Billions
IQ1980	951.6
IVQ1989	1257.7
∆%	32.2

Period IVQ2007 to IIQ2016
Gross Private Domestic Investment USD Billions
IVQ2007	2,605.2
IIQ2016	2,783.8
∆%	6.9
Private Fixed Investment USD 2009 Billions
IVQ2007	2,586.3
IIQ2016	2,778.8
∆%	7.4

Table IB-2, US, GDP and Real Disposable Personal Income per Capita Actual and Trend Growth and Employment, 1980-1989 and 2007-2015, SAAR USD Billions, Millions of Persons and ∆%


Period IQ1980 to IVQ1989
GDP SAAR USD Billions
IQ1980	6,524.9
IVQ1989	8,850.2
∆% IQ1980 to IVQ1989 (36.1 percent from IVQ1979 $6503.9 billion)	35.6
∆% Trend Growth IQ1980 to IVQ1989	35.4
Real Disposable Personal Income per Capita IQ1980 Chained 2009 USD	20,241
Real Disposable Personal Income per Capita IVQ1989 Chained 2009 USD	25,459
∆% IQ1980 to IVQ1989 (25.8 percent from IVQ1979 $20,230 billion)	25.8
∆% Trend Growth	22.5
Employed Millions IQ1980 NSA End of Quarter	98.527
Employed Millions IVQ1989 NSA End of Quarter	117.698
∆% Employed IQ1980 to IVQ1989	19.5
Employed Full-time Millions IQ1980 NSA End of Quarter	81.280
Employed Full-time Millions IVQ1989 NSA End of Quarter	97.221
∆% Full-time Employed IIQ1980 to IVQ1989	19.6
Unemployment Rate IQ1980 NSA End of Quarter	6.6
Unemployment Rate IVQ1989 NSA End of Quarter	5.1
Unemployed IQ1980 Millions NSA End of Quarter	6.983
Unemployed IVQ1989 Millions NSA End of Quarter	6.300
∆%	-9.8
Employed Part-time Economic Reasons IQ1980 Millions NSA End of Quarter	3.624
Employed Part-time Economic Reasons Millions IVQ1989 NSA End of Quarter	4.709
∆%	29.9
Net Worth of Households and Nonprofit Organizations USD Billions
IVQ1979	9,047.8
IVQ1989	21,447.9
∆ USD Billions	+12,400.1
∆% CPI Adjusted	44.2
Gross Private Domestic Investment USD 2009 Billions
IQ1980	951.6
IVQ1989	1257.7
∆%	32.2
Period IVQ2007 to IIQ2016
GDP SAAR USD Billions
IVQ2007	14,991.8
IIQ2016	16,583.1
∆% IVQ2007 to IIQ2016	10.6
∆% IVQ2007 to IIQ2016 Trend Growth	28.6
Real Disposable Personal Income per Capita IVQ2007 Chained 2009 USD	35,819
Real Disposable Personal Income per Capita IIQ2016 Chained 2009 USD	38,976
∆% IVQ2007 to IIQ2016	8.8
∆% Trend Growth	18.3
Employed Millions IVQ2007 NSA End of Quarter	146.334
Employed Millions IIQ2016 NSA End of Quarter	151,990
∆% Employed IVQ2007 to IIQ2016	3.9
Employed Full-time Millions IVQ2007 NSA End of Quarter	121.042
Employed Full-time Millions IiQ2016 NSA End of Quarter	124.903
∆% Full-time Employed IVQ2007 to IIQ2016	3.2
Unemployment Rate IVQ2007 NSA End of Quarter	4.8
Unemployment Rate IIQ2016 NSA End of Quarter	5.1
Unemployed IVQ2007 Millions NSA End of Quarter	7.371
Unemployed IIQ2016 Millions NSA End of Quarter	8.144
∆%	10.5
Employed Part-time Economic Reasons IVQ2007 Millions NSA End of Quarter	4.750
Employed Part-time Economic Reasons Millions IIQ2016 NSA End of Quarter	6.119
∆%	28.8
U6 Total Unemployed plus all marginally attached workers plus total employed part time for economic reasons as percent of all civilian labor force plus all marginally attached workers NSA
IVQ2007	8.7
IIQ2016	9.9
Net Worth of Households and Nonprofit Organizations USD Billions
IVQ2007	66,485.3
IIQ2016	89,062.7
∆ USD Billions	+22,577.4 ∆%34.0 R∆%16.7
Gross Private Domestic Investment USD Billions
IVQ2007	2,605.2
IIQ2016	2,783.8
∆%	6.9
Private Fixed Investment USD 2009 Billions
IVQ2007	2,586.3
IIQ2016	2,778.8
∆%	7.4

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

Source: US Bureau of Economic Analysis http://www.bea.gov/iTable/index_nipa.cfm US Bureau of Labor Statistics http://www.bls.gov/data/. Board of Governors of the Federal Reserve System. 2016. Flow of funds, balance sheets and integrated macroeconomic accounts: first quarter 2016. Washington, DC, Federal Reserve System, Jun 9. http://www.federalreserve.gov/releases/z1/.

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 2015 at 3.2 percent per year. The projected path is significantly lower at 2.0 percent per year from 2016 to 2026. The legacy of the economic cycle expansion from IIIQ2009 to IIQ2016 at 2.1 percent on average is in contrast with 4.5 percent on average in the expansion from IQ1983 to IVQ1989 (http://cmpassocregulationblog.blogspot.com/2016/10/mediocre-cyclical-united-states.html and earlier http://cmpassocregulationblog.blogspot.com/2016/08/and-as-ever-economic-outlook-is.html). Subpar economic growth may perpetuate unemployment and underemployment estimated at 23.6 million or 14.0 percent of the effective labor force in Sep 2016 (http://cmpassocregulationblog.blogspot.com/2016/10/twenty-four-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2016/09/interest-rates-and-valuations-of-risk.html) with much lower hiring than in the period before the current cycle (http://cmpassocregulationblog.blogspot.com/2016/10/imf-view-of-world-economy-and-finance.html and earlier http://cmpassocregulationblog.blogspot.com/2016/09/interest-rate-uncertainty-and-valuation.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	4.0	1.6	2.4
1974-1981	3.2	2.5	0.7
1982-1990	3.2	1.6	1.5
1991-2001	3.3	1.3	2.0
2002-2007	2.7	1.1	1.6
2008-2015	1.4	0.5	0.9
Total 1950-2015	3.2	1.5	1.7
Projected Average Annual ∆%
2016-2020	1.8	0.4	1.4
2021-2026	2.1	0.6	1.5
2016-2026	2.0	0.5	1.4

*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. CBO, The budget and economic outlook: 2015 to 2025. Washington, DC, Congressional Budget Office, Jan 26, 2015. https://www.cbo.gov/about/products/budget_economic_data#3

Chart IB-1A of the Congressional Budget Office provides historical and projected potential and actual US GDP. The gap between actual and potential output closes by 2017. Potential output expands at a lower rate than historically. Growth is even weaker relative to trend.

Chart IB-1A, Congressional Budget Office, Estimate of Potential GDP and Gap

Source: Congressional Budget Office

https://www.cbo.gov/publication/49890

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 2.1 percent on average from IIIQ2009 to IQ2016 during the current economic expansion in contrast with 4.5 percent on average in the cyclical expansion from IQ1983 to IIIQ1989 (http://cmpassocregulationblog.blogspot.com/2016/10/mediocre-cyclical-united-states.html and earlier http://cmpassocregulationblog.blogspot.com/2016/08/and-as-ever-economic-outlook-is.html) cannot be explained by the contraction of 4.2 percent of GDP from IVQ2007 to IIQ2009 and the financial crisis. Weakness of growth in the expansion is perpetuating unemployment and underemployment of 23.6 million or 14.0 percent of the labor force as estimated for Sep 2016 (http://cmpassocregulationblog.blogspot.com/2016/10/twenty-four-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2016/09/interest-rates-and-valuations-of-risk.html). There is no exit from unemployment/underemployment and stagnating real wages because of the collapse of hiring (http://cmpassocregulationblog.blogspot.com/2016/10/imf-view-of-world-economy-and-finance.html and earlier http://cmpassocregulationblog.blogspot.com/2016/09/interest-rate-uncertainty-and-valuation.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.

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