Sunday, March 5, 2017

Rising Valuations of Risk Financial Assets with Likely Interest Rate Increase, Mediocre Cyclical United States Economic Growth with GDP Two Trillion Dollars below Trend, Stagnating Real Private Fixed Investment, Stagnating Real Disposable Income, Financial Repression, World Cyclical Slow Growth and Global Recession Risk: Part I

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Rising Valuations of Risk Financial Assets with Likely Interest Rate Increase, Mediocre Cyclical United States Economic Growth with GDP Two Trillion Dollars below Trend, Stagnating Real Private Fixed Investment, Stagnating Real Disposable Income, Financial Repression, World Cyclical Slow Growth and Global Recession Risk

© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017

I Mediocre Cyclical United States Economic Growth with GDP Two Trillion Dollars below Trend

IA Mediocre Cyclical United States Economic Growth

IA1 Stagnating Real Private Fixed Investment

II Stagnating Real Disposable Income and Consumption Expenditures

IB1 Stagnating Real Disposable Income and Consumption Expenditures

IB2 Financial Repression

III World Financial Turbulence

IIIA Financial Risks

IIIE Appendix Euro Zone Survival Risk

IIIF Appendix on Sovereign Bond Valuation

IV Global Inflation

V World Economic Slowdown

VA United States

VB Japan

VC China

VD Euro Area

VE Germany

VF France

VG Italy

VH United Kingdom

VI Valuation of Risk Financial Assets

VII Economic Indicators

VIII Interest Rates

IX Conclusion

References

Appendixes

Appendix I The Great Inflation

IIIB Appendix on Safe Haven Currencies

IIIC Appendix on Fiscal Compact

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

IIIG Appendix on Deficit Financing of Growth and the Debt Crisis

IIIGA Monetary Policy with Deficit Financing of Economic Growth

IIIGB Adjustment during the Debt Crisis of the 1980s

I Mediocre Cyclical United States Economic Growth with GDP Two Trillion Dollars below Trend. Section IA Mediocre Cyclical United States Economic Growth provides the analysis of long-term and cyclical growth of GDP in the US with GDP two trillion dollars or 14.1 percent below trend. Section IA1 Stagnating Real Private Fixed Investment analyzes weakness in investment. There is socio-economic stress in the combination of adverse events and cyclical performance:

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 30 quarters from IIIQ2009 to IVQ2016. Boskin (2010Sep) measures that the US economy grew at 6.2 percent in the first four quarters and 4.5 percent in the first 12 quarters after the trough in the second quarter of 1975; and at 7.7 percent in the first four quarters and 5.8 percent in the first 12 quarters after the trough in the first quarter of 1983 (Professor Michael J. Boskin, Summer of Discontent, Wall Street Journal, Sep 2, 2010 http://professional.wsj.com/article/SB10001424052748703882304575465462926649950.html). There are new calculations using the revision of US GDP and personal income data since 1929 by the Bureau of Economic Analysis (BEA) (http://bea.gov/iTable/index_nipa.cfm) and the second estimate of GDP for IVQ2016 (https://www.bea.gov/newsreleases/national/gdp/2017/pdf/gdp4q16_2nd.pdf). The average of 7.7 percent in the first four quarters of major cyclical expansions is in contrast with the rate of growth in the first four quarters of the expansion from IIIQ2009 to IIQ2010 of only 2.7 percent obtained by diving GDP of $14,745.9 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/2017/01/rising-valuations-of-risk-financial.html and earlier http://cmpassocregulationblog.blogspot.com/2016/12/mediocre-cyclical-united-states.html). The expansion from IQ1983 to IVQ1985 was at the average annual growth rate of 5.9 percent, 5.4 percent from IQ1983 to IIIQ1986, 5.2 percent from IQ1983 to IVQ1986, 5.0 percent from IQ1983 to IQ1987, 5.0 percent from IQ1983 to IIQ1987, 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. 4.5 percent from IQ1983 to IQ1990, 4.4 percent from IQ1983 to IIQ1990 and at 7.8 percent from IQ1983 to IVQ1983 (Section I and earlier http://cmpassocregulationblog.blogspot.com/2017/01/rising-valuations-of-risk-financial.html and earlier http://cmpassocregulationblog.blogspot.com/2016/12/mediocre-cyclical-united-states.html). The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. Growth at trend in the entire cycle from IVQ2007 to IVQ2016 would have accumulated to 30.5 percent. GDP in IVQ2016 would be $19,564.3 billion (in constant dollars of 2009) if the US had grown at trend, which is higher by $2760.2 billion than actual $16,804.1 billion. There are about two trillion dollars of GDP less than at trend, explaining the 25.7 million unemployed or underemployed equivalent to actual unemployment/underemployment of 15.3 percent of the effective labor force (https://cmpassocregulationblog.blogspot.com/2017/02/twenty-six-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2017/01/twenty-four-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2016/12/rising-yields-and-dollar-revaluation.html). US GDP in IVQ2016 is 14.1 percent lower than at trend. US GDP grew from $14,991.8 billion in IVQ2007 in constant dollars to $16,804.1 billion in IVQ2016 or 12.1 percent at the average annual equivalent rate of 1.3 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 Jan 1919 to Jan 2017. Growth at 3.1 percent per year would raise the NSA index of manufacturing output from 108.2316 in Dec 2007 to 142.7575 in Jan 2017. The actual index NSA in Jan 2017 is 101.5620, which is 28.9 percent below trend. Manufacturing output grew at average 2.0 percent between Dec 1986 and Jan 2017. Using trend growth of 2.0 percent per year, the index would increase to 129.5532 in Jan 2017. The output of manufacturing at 101.5620 in Jan 2017 is 21.6 percent below trend under this alternative calculation.

The economy of the US can be summarized in growth of economic activity or GDP as fluctuating from mediocre growth of 2.5 percent on an annual basis in 2010 to 1.6 percent in 2011, 2.2 percent in 2012, 1.7 percent in 2013, 2.4 percent in 2014 and 2.6 percent in 2015. GDP growth was 1.6 percent in 2016. The following calculations show that actual growth is around 2.1 percent per year. The rate of growth of 1.3 percent in the entire cycle from 2007 to 2016 is well below 3 percent per year in trend from 1870 to 2010, which the economy of the US always attained for entire cycles in expansions after events such as wars and recessions (Lucas 2011May). Revisions and enhancements of United States GDP and personal income accounts by the Bureau of Economic Analysis (BEA) (http://bea.gov/iTable/index_nipa.cfm) provide important information on long-term growth and cyclical behavior. Table Summary provides relevant data.

Table Summary, Long-term and Cyclical Growth of GDP, Real Disposable Income and Real Disposable Income per Capita

 

GDP

 

Long-Term

   

1929-2016

3.2

 

1947-2016

3.2

 

Whole Cycles

   

1980-1989

3.5

 

2006-2016

1.3

 

2007-2016

1.3

 

Cyclical Contractions ∆%

   

IQ1980 to IIIQ1980, IIIQ1981 to IVQ1982

-4.7

 

IVQ2007 to IIQ2009

-4.2

 

Cyclical Expansions Average Annual Equivalent ∆%

   

IQ1983 to IVQ1985

IQ1983-IQ1986

IQ1983-IIIQ1986

IQ1983-IVQ1986

IQ1983-IQ1987

IQ1983-IIQ1987

IQ1983-IIIQ1987

IQ1983 to IVQ1987

IQ1983 to IQ1988

IQ1983 to IIQ1988

IQ1983 to IIIQ1988

IQ1983 to IVQ1988

IQ1983 to IQ1989

IQ1983 to IIQ1989

IQ1983 to IIIQ1989

IQ1983 to IVQ1989

IQ1983 to IQ1990

IQ1983 to IIQ1990

5.9

5.7

5.4

5.2

5.0

5.0

4.9

5.0

4.9

4.9

4.8

4.8

4.8

4.7

4.7

4.5

4.5

4.4

 

First Four Quarters IQ1983 to IVQ1983

7.8

 

IIIQ2009 to IVQ2016

2.1

 

First Four Quarters IIIQ2009 to IIQ2010

2.7

 
 

Real Disposable Income

Real Disposable Income per Capita

Long-Term

   

1929-2016

3.2

2.0

1947-1999

3.7

2.3

Whole Cycles

   

1980-1989

3.5

2.6

2006-2016

1.8

1.0

Source: Bureau of Economic Analysis

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

The revisions and enhancements of United States GDP and personal income accounts by the Bureau of Economic Analysis (BEA) (http://bea.gov/iTable/index_nipa.cfm) also provide critical information in assessing the current rhythm of US economic growth. The economy appears to be moving at a pace around 2.1 percent per year. Table Summary GDP provides the data.

1. Average Annual Growth in the Past Nineteen Quarters. GDP growth in the four quarters of 2012, the four quarters of 2013, the four quarters of 2014, the four quarters of Q2015 and the four quarters of 2016 accumulated to 10.6 percent. This growth is equivalent to 2.0 percent per year, obtained by dividing GDP in IVQ2016 of $16,804.1 billion by GDP in IVQ2011 of $15,190.3 billion and compounding by 4/20: {[($16,804.1/$15,190.3)4/20 -1]100 = 2.0 percent}.

2. Average Annual Growth in the Past Four Quarters. GDP growth in the four quarters of IVQ2015 to IVQ2016 accumulated to 1.9 percent that is equivalent to 1.9 percent in a year. This is obtained by dividing GDP in IVQ2016 of $16,804.1 billion by GDP in IVQ2015 of $16,490.7 billion and compounding by 4/4: {[($16,804.1.0/$16,490.7)4/4 -1]100 = 1.9%}. The US economy grew 1.9 percent in IVQ2016 relative to the same quarter a year earlier in IVQ2015. Growth was at annual equivalent 4.0 percent in IIQ2014 and 5.0 percent IIIQ2014 and only at 2.3 percent in IVQ2014. GDP grew at annual equivalent 2.0 percent in IQ2015, 2.6 percent in IIQ2015, 2.0 percent in IIIQ2015 and 0.9 percent in IVQ2015. GDP grew at annual equivalent 0.8 percent in IQ2016 and at 1.4 percent annual equivalent in IIQ2016. GDP increased at 3.5 percent annual equivalent in IIIQ2016 and at 1.9 percent in IVQ2016. Another important revelation of the revisions and enhancements is that GDP was flat in IVQ2012, which is in the borderline of contraction, and negative in IQ2014. US GDP fell 0.3 percent in IQ2014. The rate of growth of GDP in the revision of IIIQ2013 is 3.1 percent in seasonally adjusted annual rate (SAAR).

Table Summary GDP, US, Real GDP and Percentage Change Relative to IVQ2007 and Prior Quarter, Billions Chained 2005 Dollars and ∆%

 

Real GDP, Billions Chained 2009 Dollars

∆% Relative to IVQ2007

∆% Relative to Prior Quarter

∆%
over
Year Earlier

IVQ2007

14,991.8

NA

0.4

1.9

IVQ2011

15,190.3

1.3

1.1

1.7

IQ2012

15,291.0

2.0

0.7

2.8

IIQ2012

15,362.4

2.5

0.5

2.5

IIIQ2012

15,380.8

2.6

0.1

2.4

IVQ2012

15,384.3

2.6

0.0

1.3

IQ2013

15,491.9

3.3

0.7

1.3

IIQ2013

15,521.6

3.5

0.2

1.0

IIIQ2013

15,641.3

4.3

0.8

1.7

IVQ2013

15,793.9

5.4

1.0

2.7

IQ2014

15,747.0

5.0

-0.3

1.6

IIQ2014

15,900.8

6.1

1.0

2.4

IIIQ2014

16,094.5

7.4

1.2

2.9

IVQ2014

16,186.7

8.0

0.6

2.5

IQ2015

16,269.0

8.5

0.5

3.3

IIQ2015

16,374.2

9.2

0.6

3.0

IIIQ2015

16,454.9

9.8

0.5

2.2

IVQ2015

16,490.7

10.0

0.2

1.9

IQ2016

16,525.0

10.2

0.2

1.6

IIQ2016

16,583.1

10.6

0.4

1.3

IIIQ2016

16,727.0

11.6

0.9

1.7

IVQ2016

16,804.1

12.1

0.5

1.9

Cumulative ∆% IQ2012 to IVQ2016

10.6

 

10.8

 

Annual Equivalent ∆%

2.0

 

2.1

 

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

Chart GDP of the US Bureau of Economic Analysis provides the rates of growth of GDP at SAAR (seasonally adjusted annual rate) in the 16 quarters from IQ2013 to IVQ2016. Growth has been fluctuating.

 

Chart GDP, Seasonally Adjusted Quarterly Rates of Growth of United States GDP, ∆%

Source: US Bureau of Economic Analysis

http://www.bea.gov/newsreleases/national/gdp/gdp_glance.htm

Historical parallels are instructive but have all the limitations of empirical research in economics. The more instructive comparisons are not with the Great Depression of the 1930s but rather with the recessions in the 1950s, 1970s and 1980s. The growth rates and job creation in the expansion of the economy away from recession are subpar in the current expansion compared to others in the past. Four recessions are initially considered, following the reference dates of the National Bureau of Economic Research (NBER) (http://www.nber.org/cycles/cyclesmain.html ): IIQ1953-IIQ1954, IIIQ1957-IIQ1958, IIIQ1973-IQ1975 and IQ1980-IIIQ1980. The data for the earlier contractions illustrate that the growth rate and job creation in the current expansion are inferior. The sharp contractions of the 1950s and 1970s are considered in Table I-1, showing the Bureau of Economic Analysis (BEA) quarter-to-quarter, seasonally adjusted (SA), yearly-equivalent growth rates of GDP. The recovery from the recession of 1953 consisted of four consecutive quarters of high percentage growth rates from IIIQ1954 to IIIQ1955: 4.6, 8.0, 11.9 and 6.7. The recession of 1957 was followed by four consecutive high percentage growth rates from IIIQ1958 to IIQ1959: 9.6, 9.7, 7.7 and 10.1. The recession of 1973-1975 was followed by high percentage growth rates from IIQ1975 to IQ1976: 3.1, 6.8, 5.5 and 9.3. The disaster of the Great Inflation and Unemployment of the 1970s, which made stagflation notorious, is even better in growth rates during the expansion phase in comparison with the current slow-growth recession.

Table I-1, US, Seasonally Adjusted Quarterly Percentage Growth Rates in Annual Equivalent of GDP in Cyclical Recessions and Following Four Quarter Expansions ∆%

 

IQ

IIQ

IIIQ

IV

R IIQ1953-IIQ1954

       

1953

   

-2.2

-5.9

1954

-1.8

     

E IIIQ1954-IIQ1955

       

1954

   

4.6

8.0

1955

11.9

6.7

   

R IIIQ1957-IIQ1958

       

1957

     

-4.0

1958

-10.0

     

E IIIQ1958-IIQ1959

       

1958

   

9.6

9.7

1959

7.7

10.1

   

R IVQ1969-IV1970

       

1969

     

-1.7

1970

-0.7

     

E IIQ1970-IQ1971

       

1970

 

0.7

3.6

-4.0

1971

11.1

     

R IVQ1973-IQ1975

       

1973

     

3.8

1974

-3.3

1.1

-3.8

-1.6

1975

-4.7

     

E IIQ1975-IQ1976

       

1975

 

3.1

6.8

5.5

1976

9.3

     

R IQ1980-IIIQ1980

       

1980

1.3

-7.9

-0.6

 

R IQ1981-IVQ1982

       

1981

8.5

-2.9

4.7

-4.6

1982

-6.5

2.2

-1.4

0.4

E IQ1983-IVQ1983

       

1983

5.3

9.4

8.1

8.5

R IVQ2007-IIQ2009

       

2008

-2.7

2.0

-1.9

-8.2

2009

-5.4

-0.5

   

E IIIQ2009-IIQ2010

       

2009

   

1.3

3.9

2010

1.7

3.9

   

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

The NBER dates another recession in 1980 that lasted about half a year. If the two recessions from IQ1980s to IIIQ1980 and IIIQ1981 to IVQ1982 are combined, the impact of lost GDP of 4.7 percent is more comparable to the latest revised 4.2 percent drop of the recession from IVQ2007 to IIQ2009. The recession in 1981-1982 is quite similar on its own to the 2007-2009 recession. In contrast, during the Great Depression in the four years of 1930 to 1933, GDP in constant dollars fell 26.4 percent cumulatively and fell 45.3 percent in current dollars (Pelaez and Pelaez, Financial Regulation after the Global Recession (2009a), 150-2, Pelaez and Pelaez, Globalization and the State, Vol. II (2009b), 205-7 and revisions in http://bea.gov/iTable/index_nipa.cfm). Table I-2 provides the Bureau of Economic Analysis (BEA) quarterly growth rates of GDP in SA yearly equivalents for the recessions of 1981 to 1982 and 2007 to 2009, using the latest major revision published on Jul 27, 2016 and the second estimate for IVQ2016 GDP (https://www.bea.gov/newsreleases/national/gdp/2017/pdf/gdp4q16_2nd.pdf), which are available in the dataset of the US Bureau of Economic Analysis (http://www.bea.gov/iTable/index_nipa.cfm). There were four quarters of contraction in 1981-1982 ranging in rate from -1.4 percent to -6.5 percent and five quarters of contraction in 2007-2009 ranging in rate from -0.5 percent to -8.2 percent. The striking difference is that in the first twenty-nine quarters of expansion from IQ1983 to IVQ1989, shown in Table I-2 in relief, GDP grew at the high quarterly percentage growth rates of 5.3, 9.4, 8.1, 8.5, 8.2, 7.2, 4.0, 3.2, 4.0, 3.7, 6.4, 3.0, 3.8, 1.9, 4.1, 2.1, 2.8, 4.6, 3.7, 6.8, 2.3, 5.4, 2.3, 5.4, 4.1, 3.2, 3.0, 0.9, 4.5, 1.6, 0.1 and minus 3.4. The National Bureau of Economic Research dates another cycle from Jul 1990 (IIIQ1981) to Mar 1991 (IQ1991) (http://www.nber.org/cycles.html), showing in Table III-1 with weaker performance in IIQ1990 and IIIQ1990 and contraction of 3.4 percent in IVQ1990. In contrast, the percentage growth rates in the first twenty-eight quarters of expansion from IIIQ2009 to IIQ2016 shown in relief in Table I-2 were mediocre: 1.3, 3.9, 1.7, 3.9, 2.7, 2.5, -1.5, 2.9, 0.8, 4.6, 2.7, 1.9, 0.5, 0.1, 2.8, 0.8, 3.1, 4.0, minus 1.2, 4.0, 5.0, 2.3, 2.0, 2.6, 2.0, 0.9, 0.8, 1.4, 3.5 and 1.9. Economic growth and employment creation continued at slow rhythm during 2012 and in 2013-2016 while much stronger growth would be required in movement to full employment. The cycle is now long by historical standards and growth rates are typically weaker in the final periods of cyclical expansions.

Table I-2, US, Quarterly Growth Rates of GDP, % Annual Equivalent SA

Q

1981

1982

1983

1984

2008

2009

2010

I

8.5

-6.5

5.3

8.2

-2.7

-5.4

1.7

II

-2.9

2.2

9.4

7.2

2.0

-0.5

3.9

III

4.7

-1.4

8.1

4.0

-1.9

1.3

2.7

IV

-4.6

0.4

8.5

3.2

-8.2

3.9

2.5

       

1985

   

2011

I

     

4.0

   

-1.5

II

     

3.7

   

2.9

III

     

6.4

   

0.8

IV

     

3.0

   

4.6

       

1986

   

2012

I

     

3.8

   

2.7

II

     

1.9

   

1.9

III

     

4.1

   

0.5

IV

     

2.1

   

0.1

       

1987

   

2013

I

     

2.8

   

2.8

II

     

4.6

   

0.8

III

     

3.7

   

3.1

IV

     

6.8

   

4.0

       

1988

   

2014

I

     

2.3

   

-1.2

II

     

5.4

   

4.0

III

     

2.3

   

5.0

IV

     

5.4

   

2.3

       

1989

   

2015

I

     

4.1

   

2.0

II

     

3.2

   

2.6

III

     

3.0

   

2.0

IV

     

0.9

   

0.9

       

1990

   

2016

I

     

4.5

   

0.8

II

     

1.6

   

1.4

III

     

0.1

   

3.5

IV

     

-3.4

   

1.9

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

Chart I-1 of the Bureau of Economic Analysis (BEA) provides strong growth of real GDP in the US between 1929 and 1999 at the yearly average rate of 3.5 percent. There is an evident acceleration of the rate of GDP growth in the 1990s as shown by a much sharper slope of the growth curve. Cobet and Wilson (2002) define labor productivity as the value of manufacturing output produced per unit of labor input used (see Pelaez and Pelaez, The Global Recession Risk (2007), 137-44). Between 1950 and 2000, labor productivity in the US grew less rapidly than in Germany and Japan. The major part of the increase in productivity in Germany and Japan occurred between 1950 and 1973 while the rate of productivity growth in the US was relatively subdued in several periods. While Germany and Japan reached their highest growth rates of productivity before 1973, the US accelerated its rate of productivity growth in the second half of the 1990s. Between 1950 and 2000, the rate of productivity growth in the US of 2.9 percent per year was much lower than 6.3 percent in Japan and 4.7 percent in Germany. Between 1995 and 2000, the rate of productivity growth of the US of 4.6 percent exceeded that of Japan of 3.9 percent and the rate of Germany of 2.6 percent.

 

Chart I-1, US, Real GDP 1929-1999

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

Chart I-1A provides real GDP annually from 1929 to 2016. Growth after the global recession from IVQ2007 to IIQ2009 has not been sufficiently high to compensate for the contraction as it had in past economic cycles. The drop of output in the recession from IVQ2007 to IIQ2009 has been followed by anemic recovery compared with return to trend at 3.0 percent from 1870 to 2010 after events such as wars and recessions (Lucas 2011May) and a standstill that can lead to growth recession, or low rates of economic growth. The expansion is relatively long compared to earlier expansion and there could be even another contraction or conventional recession in the future. The average rate of growth from 1947 to 2016 is 3.2 percent. The average growth rate from IV2007 to IVQ2016 is only 1.3 percent with 2.8 percent annual equivalent from the end of the recession in IVQ2001 to the end of the expansion in IVQ2007. There are about two trillion dollars of GDP less than at trend, explaining the 25.7 million unemployed or underemployed equivalent to actual unemployment/underemployment of 15.3 percent of the effective labor force (https://cmpassocregulationblog.blogspot.com/2017/02/twenty-six-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2017/01/twenty-four-million-unemployed-or.html). US GDP in IVQ2016 is 14.1 percent lower than at trend. US GDP grew from $14,991.8 billion in IVQ2007 in constant dollars to $16,804.8 billion in IVQ2016 or 12.1 percent at the average annual equivalent rate of 1.3 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 Dec 1919 to Dec 2016. Growth at 3.1 percent per year would raise the NSA index of manufacturing output from 108.2316 in Dec 2007 to 142.4328 in Dec 2016. The actual index NSA in Dec 2016 is 101.4769, which is 28.8 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 130.5273 in Dec 2016. The output of manufacturing at 101.4769 in Dec 2016 is 22.3 percent below trend under this alternative calculation.

 

Chart I-1A, US, Real GDP 1929-2016

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

Chart I-2 provides the growth of real quarterly GDP in the US between 1947 and 2016. The drop of output in the recession from IVQ2007 to IIQ2009 has been followed by anemic recovery compared with return to trend at 3.0 percent from 1870 to 2010 after events such as wars and recessions (Lucas 2011May) and a standstill that can lead to growth recession, or low rates of economic growth. The expansion is relatively long compared to earlier expansions and there could be another contraction or conventional recession in the future. The average rate of growth from 1947 to 2016 is 3.2 percent. The average growth rate from IVQ2007 to IVQ2016 is only 1.3 percent with 2.8 percent from the end of the recession in IVQ2001 to the end of the expansion in IVQ2007.

 

Chart I-2, US, Real GDP, Quarterly, 1947-2016

Source: US Bureau of Economic Analysis

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

Chart I-3 provides real GDP percentage change on the quarter a year earlier for 1983-1989. The objective is simply to compare expansion in two recoveries from sharp contractions as shown in Table I-5. Growth rates in the early phase of the recovery in 1983 and 1984 were very high, which is the opportunity to reduce unemployment that has characterized cyclical expansion in the postwar US economy.

 

Chart I-3, Real GDP Percentage Change on Quarter a Year Earlier 1983-1989

Source: US Bureau of Economic Analysis

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

In contrast, growth rates in the comparable first thirty quarters of expansion from 2009 to 2016 in Chart I-4 have been mediocre. As a result, growth has not provided the exit from unemployment and underemployment as in other cyclical expansions in the postwar period. Growth rates did not rise in V shape as in earlier expansions and then declined close to the standstill of growth recessions.

 

Chart I-4, US, Real GDP Percentage Change on Quarter a Year Earlier 2009-2016

Source: US Bureau of Economic Analysis

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

Table I-3 provides percentage change of real GDP in the United States in the 1930s, 1980s and 2000s. The recession in 1981-1982 is quite similar on its own to the 2007-2009 recession. In contrast, during the Great Depression in the four years of 1930 to 1933, GDP in constant dollars fell 26.4 percent cumulatively and fell 45.3 percent in current dollars (Pelaez and Pelaez, Financial Regulation after the Global Recession (2009a), 150-2, Pelaez and Pelaez, Globalization and the State, Vol. II (2009b), 205-7 and revisions in http://bea.gov/iTable/index_nipa.cfm). Data are available for the 1930s only on a yearly basis. US GDP fell 4.7 percent in the two recessions (1) from IQ1980 to IIIQ1980 and (2) from III1981 to IVQ1982 and 4.2 percent cumulatively in the recession from IVQ2007 to IIQ2009. It is instructive to compare the first 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, 3.5 percent in 1987, 4.2 percent in 1988 and 3.7 percent in 1989. In contrast, GDP grew 2.5 percent in 2010, 1.6 percent in 2011, 2.2 percent in 2012, 1.7 percent in 2013, 2.4 percent in 2014 and 2.6 percent in 2015. GDP grew 1.6 percent in 2016. Actual annual equivalent GDP growth in the twenty quarters from 2012 to 2016 is 2.0 percent and 1.9 percent in the four quarters ending in IVQ2016. GDP grew at 4.2 percent in 1985, 3.5 percent in 1986, 3.5 percent in 1987, 4.2 percent in 1988 and 3.7 percent in 1989. The forecasts of the central tendency of participants of the Federal Open Market Committee (FOMC) are in the range of 1.9 to 2.3 percent in 2017 (https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20161214.pdf) with less reliable forecast of 1.8 to 2.2 percent in 2017 (https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20161214.pdf). Growth of GDP in the expansion from IIIQ2009 to IIIQ2016 has been at average 2.1 percent in annual equivalent.

Table I-3, US, Percentage Change of GDP in the 1930s, 1980s and 2000s, ∆%

Year

GDP ∆%

Year

GDP ∆%

Year

GDP ∆%

1930

-8.5

1980

-0.2

2000

4.1

1931

-6.4

1981

2.6

2001

1.0

1932

-12.9

1982

-1.9

2002

1.8

1933

-1.3

1983

4.6

2003

2.8

1934

10.8

1984

7.3

2004

3.8

1935

8.9

1985

4.2

2005

3.3

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

1939

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

2.2

1943

17.0

1993

2.7

2013

1.7

1944

8.0

1994

4.0

2014

2.4

1945

-1.0

1995

2.7

2015

2.6

1946

-11.6

1996

3.8

2016

1.6

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

Chart I-5 provides percentage change of GDP in the US during the 1930s. There is vast literature analyzing the Great Depression (Pelaez and Pelaez, Regulation of Banks and Finance (2009), 198-217). Cole and Ohanian (1999) find that US real per capita output was lower by 11 percent in 1939 than in 1929 while the typical expansion of real per capita output in the US during a decade is 31 percent. Private hours worked in the US were 25 percent lower in 1939 relative to 1929.

 

Chart I-5, US, Percentage Change of GDP in the 1930s

Source: US Bureau of Economic Analysis

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

In contrast, Chart I-6 shows rapid recovery from the recessions in the 1980s. High growth rates in the initial quarters of expansion eliminated the unemployment and underemployment created during the contraction. The economy then returned to grow at the trend of expansion, interrupted by another contraction in 1991.

 

Chart I-6, US, Percentage Change of GDP in the 1980s

Source: US Bureau of Economic Analysis9

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

Chart I-7 provides the rates of growth during the 2000s. Growth rates in the initial twenty-nine quarters of expansion have been relatively lower than during recessions after World War II. As a result, unemployment and underemployment continue at the rate of 15.3 percent of the effective US labor force (https://cmpassocregulationblog.blogspot.com/2017/02/twenty-six-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2017/01/twenty-four-million-unemployed-or.html).

 

Chart I-7, US, Percentage Change of GDP in the 2000s

Source: US Bureau of Economic Analysis

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

Characteristics of the four cyclical contractions are in Table I-4 with the first column showing the number of quarters of contraction; the second column the cumulative percentage contraction; and the final column the average quarterly rate of contraction. There were two contractions from IQ1980 to IIIQ1980 and from IIIQ1981 to IVQ1982 separated by three quarters of expansion. The drop of output combining the declines in these two contractions is 4.7 percent, which is almost equal to the decline of 4.2 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-4, US, Number of Quarters, GDP Cumulative Percentage Contraction and Average Percentage Annual Equivalent Rate in Cyclical Contractions   

 

Number of Quarters

Cumulative Percentage Contraction

Average Percentage Rate

IIQ1953 to IIQ1954

3

-2.4

-0.8

IIIQ1957 to IIQ1958

3

-3.0

-1.0

IVQ1973 to IQ1975

5

-3.1

-0.6

IQ1980 to IIIQ1980

2

-2.2

-1.1

IIIQ1981 to IVQ1982

4

-2.5

-0.64

IVQ2007 to IIQ2009

6

-4.2

-0.72

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

Table I-5 shows the mediocre average annual equivalent growth rate of 2.1 percent of the US economy in the thirty quarters of the current cyclical expansion from IIIQ2009 to IVQ2016. 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
  • 4.9 percent in the first twenty-first quarters of expansion from IQ1983 to IQ1988
  • 4.9 percent in the first twenty-two quarters of expansion from IQ1983 to IIQ1988
  • 4.8 percent in the first twenty-three quarters of expansion from IQ1983 to IIIQ1988
  • 4.8 percent in the first twenty-four quarters of expansion from IQ1983 to IVQ1988
  • 4.8 percent in the first twenty-five quarters of expansion from IQ1983 to IQ1989
  • 4.7 percent in the first twenty-six quarters of expansion from IQ1983 to IIQ1989
  • 4.7 percent in the first twenty-seven quarters of expansion from IQ1983 to IIIQ1989
  • 4.5 percent in the first twenty-eight quarters of expansion from IQ1983 to IVQ1989
  • 4.5 percent in the first twenty-nine quarters of expansion from IQ1983 to IQ1990
  • 4.4 percent in the first thirty quarters of expansion from IQ1983 to IIQ1990

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, 2.2 percent in 2012, 1.7 percent in 2013, 2.4 percent in 2014, 2.6 percent in 2015 and 1.6 percent in 2016 (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, 4.9 percent from IQ1983 to IQ1988, 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, 4.5 percent from IQ1983 to IQ1990, 4.4 percent from IQ1983 to IIQ1990 and at 7.8 percent from IQ1983 to IVQ1983. GDP grew 2.7 percent in the first four quarters of the expansion from IIIQ2009 to IIQ2010. GDP growth in the twenty quarters from 2012 to 2016 accumulated to 10.6 percent. This growth is equivalent to 2.0 percent per year, obtained by dividing GDP in IVQ2016 of $16,804.1 billion by GDP in IVQ2011 of $15,190.3 billion and compounding by 4/20: {[($16,804.1/$15,190.3)4/20 -1]100 = 2.0 percent}.

Table I-5 shows that GDP grew 17.1 percent in the first thirty quarters of expansion from IIIQ2009 to IVQ2016 at the annual equivalent rate of 2.1 percent.

Table I-5, 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

IQ1983 to IQ1988

IQ1983 to IIQ1988

IQ1983 to IIIQ1988

IQ1983 to IVQ1988

IQ1983 to IQ1989

IQ1983 to IIQ1989

IQ1983 to IIIQ1989

IQ1983 to IVQ1989

IQ1983 to IQ1990

IQ1983 to IIQ1990

13

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

30

19.9

21.6

22.3

23.1

24.5

25.6

27.7

28.4

30.1

30.9

32.6

34.0

35.0

36.0

36.3

37.8

38.3

5.7

5.4

5.2

5.0

5.0

4.9

5.0

4.9

4.9

4.8

4.8

4.8

4.7

4.7

4.5

4.5

4.4

First Four Quarters IQ1983 to IVQ1983

4

7.8

 

Average First Four Quarters in Four Expansions*

 

7.7

 

IIIQ2009 to IVQ2016

30

17.1

2.1

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

Chart I-8 shows US real quarterly GDP growth from 1980 to 1989. The economy contracted during the recession and then expanded vigorously throughout the 1980s, rapidly eliminating the unemployment caused by the contraction.

 

Chart I-8, US, Real GDP, 1980-1989

Source: US Bureau of Economic Analysis

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

Chart I-9 shows the entirely different situation of real quarterly GDP in the US between 2007 and 2016. The economy has underperformed during the first thirty quarters of expansion for the first time in the comparable contractions since the 1950s. The US economy is now in a perilous standstill.

 

Chart I-9, US, Real GDP, 2007-2016

Source: US Bureau of Economic Analysis

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

As shown in Tables I-4 and I-5 above the loss of real GDP in the US during the contraction was 4.2 percent but the gain in the cyclical expansion has been only 17.1 percent (first to the last row in Table I-5), using all latest revisions. As a result, the level of real GDP in IVQ2016 with the second estimate and revisions is higher by only 12.1 percent than the level of real GDP in IVQ2007. 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 IVQ2016 would have accumulated to 30.5 percent. GDP in IVQ2016 would be $19,564.3 billion (in constant dollars of 2009) if the US had grown at trend, which is higher by $2760.2 billion than actual $16,804.1 billion. There are about two trillion dollars of GDP less than at trend, explaining the 25.7 million unemployed or underemployed equivalent to actual unemployment/underemployment of 15.3 percent of the effective labor force (https://cmpassocregulationblog.blogspot.com/2017/02/twenty-six-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2017/01/twenty-four-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2016/12/rising-yields-and-dollar-revaluation.html). US GDP in IVQ2016 is 14.1 percent lower than at trend. US GDP grew from $14,991.8 billion in IVQ2007 in constant dollars to $16,804.1 billion in IVQ2016 or 12.1 percent at the average annual equivalent rate of 1.3 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 Jan 1919 to Jan 2017. Growth at 3.1 percent per year would raise the NSA index of manufacturing output from 108.2316 in Dec 2007 to 142.7575 in Jan 2017. The actual index NSA in Jan 2017 is 101.5620, which is 28.9 percent below trend. Manufacturing output grew at average 2.0 percent between Dec 1986 and Jan 2017. Using trend growth of 2.0 percent per year, the index would increase to 129.5532 in Jan 2017. The output of manufacturing at 101.5620 in Jan 2017 is 21.6 percent below trend under this alternative calculation.

Table I-6 shows that the contraction actually concentrated in two quarters: decline of 2.1 percent in IVQ2008 relative to the prior quarter and decline of 1.4 percent in IQ2009 relative to IVQ2008. The combined fall of GDP in IVQ2008 and IQ2009 was 3.5 percent {[(1-0.021) x (1-0.014) -1]100 = -3.5%}, or {[(IQ2009 $14,375.0)/(IIIQ2008 $14,891.6) – 1]100 = -3.5%} except for rounding. Those two quarters coincided with the worst effects of the financial crisis (Cochrane and Zingales 2009). GDP fell 0.1 percent in IIQ2009 but grew 0.3 percent in IIIQ2009, which is the beginning of recovery in the cyclical dates of the NBER. Most of the recovery occurred in five successive quarters from IVQ2009 to IVQ2010 of growth of 1.0 percent in IVQ2009, 0.4 percent in IQ2010, 1.0 percent in IIQ2010 and nearly equal growth at 0.7 percent in IIIQ2010 and 0.6 percent in IVQ2010 for cumulative growth in those five quarters of 3.8 percent, obtained by accumulating the quarterly rates {[(1.01 x 1.004 x 1.01 x 1.007 x 1.006) – 1]100 = 3.8%} or {[(IVQ2010 $14,939.0)/(IIIQ2009 $14,402.5) – 1]100 = 3.7%} with minor rounding difference. The economy then stalled during the first half of 2011 with decline of 0.4 percent in IQ2011 and growth of 0.7 percent in IIQ2011 for combined annual equivalent rate of 0.6 percent {(0.996 x 1.007)2}. The economy grew 0.2 percent in IIIQ2011 for annual equivalent growth of 0.7 percent in the first three quarters {[(0.996 x 1.007 x 1.002)4/3 -1]100 = 0.7%}. Growth picked up in IVQ2011 with 1.1 percent relative to IIIQ2011. Growth in a quarter relative to a year earlier in Table I-6 slows from over 2.7 percent during three consecutive quarters from IIQ2010 to IVQ2010 to 1.9 percent in IQ2011, 1.7 percent in IIQ2011, 1.2 percent in IIIQ2011 and 1.7 percent in IVQ2011. As shown below, growth of 1.1 percent in IVQ2011 was partly driven by inventory accumulation. In IQ2012, GDP grew 0.7 percent relative to IVQ2011 and 2.8 percent relative to IQ2011, decelerating to 0.5 percent in IIQ2012 and 2.5 percent relative to IIQ2011 and 0.1 percent in IIIQ2012 and 2.4 percent relative to IIIQ2011. Growth was 0.0 percent in IVQ2012 with 1.3 percent relative to a year earlier but mostly because of deduction of 1.54 percentage points of inventory divestment and 0.42 percentage points of reduction of one-time national defense expenditures. Growth was 0.7 percent in IQ2013 and 1.3 percent relative to IQ2012 in large part because of burning savings to consume caused by financial repression of zero interest rates. There is similar growth of 0.2 percent in IIQ2013 and 1.0 percent relative to a year earlier. In IIIQ2013, GDP grew 0.8 percent relative to the prior quarter and 1.7 percent relative to the same quarter a year earlier with inventory accumulation contributing 1.60 percentage points to growth at 3.1 percent SAAR in IIIQ2013. GDP increased 1.0 percent in IVQ2013 and 2.7 percent relative to a year earlier. GDP fell 0.3 percent in IQ2014 and grew 1.6 percent relative to a year earlier. Inventory divestment deducted 1.89 percentage points from GDP growth in IQ2014. GDP grew 1.0 percent in IIQ2014, 2.4 percent relative to a year earlier and at 4.0 SAAR with inventory change contributing 0.67 percentage points. GDP grew 1.2 percent in IIIQ2014 and 2.9 percent relative to a year earlier. GDP grew 0.6 percent in IVQ2014 and 2.5 percent relative to a year earlier. GDP increased 0.5 percent in IQ2015 and increased 3.3 percent relative to a year earlier partly because of low level during contraction of 0.3 percent in IQ2014. GDP grew 0.6 percent in IIQ2015 and 3.0 percent relative to a year earlier. GDP grew 0.5 percent in IIIQ2015 and 2.2 percent relative to a year earlier. GDP grew 0.2 percent in IVQ2015 and increased 1.9 percent relative to a year earlier. GDP grew 0.2 percent in IQ2016 and increased 1.6 percent relative to a year earlier. GDP grew 0.4 percent in IIQ2016 and increased 1.3 percent relative to a year earlier. GDP grew 0.9 percent in IIIQ2016 and increased 1.7 percent relative to a year earlier. GDP grew 0.5 percent in IVQ2016 and increased 1.9 percent relative to a year earlier. Rates of a quarter relative to the prior quarter capture better deceleration of the economy than rates on a quarter relative to the same quarter a year earlier. The critical question for which there is not yet definitive solution is whether what lies ahead is continuing growth recession with the economy crawling and unemployment/underemployment at extremely high levels or another contraction or conventional recession. Forecasts of various sources continued to maintain high growth in 2011 without taking into consideration the continuous slowing of the economy in late 2010 and the first half of 2011. The sovereign debt crisis in the euro area and growth in China are common sources of doubts on the rate and direction of economic growth in the US. There is weak internal demand in the US with almost no investment and spikes of consumption driven by burning saving because of financial repression in the form of zero interest rates and bloated balance sheet of the Fed.

Table I-6, US, Real GDP and Percentage Change Relative to IVQ2007 and Prior Quarter, Billions Chained 2009 Dollars and ∆%

 

Real GDP, Billions Chained 2009 Dollars

∆% Relative to IVQ2007

∆% Relative to Prior Quarter

∆%
over
Year Earlier

IVQ2007

14,991.8

NA

0.4

1.9

IQ2008

14,889.5

-0.7

-0.7

1.1

IIQ2008

14,963.4

-0.2

0.5

0.8

IIIQ2008

14,891.6

-0.7

-0.5

-0.3

IVQ2008

14,577.0

-2.8

-2.1

-2.8

IQ2009

14,375.0

-4.1

-1.4

-3.5

IIQ2009

14,355.6

-4.2

-0.1

-4.1

IIIQ2009

14,402.5

-3.9

0.3

-3.3

IV2009

14,541.9

-3.0

1.0

-0.2

IQ2010

14,604.8

-2.6

0.4

1.6

IIQ2010

14,745.9

-1.6

1.0

2.7

IIIQ2010

14,845.5

-1.0

0.7

3.1

IVQ2010

14,939.0

-0.4

0.6

2.7

IQ2011

14,881.3

-0.7

-0.4

1.9

IIQ2011

14,989.6

0.0

0.7

1.7

IIIQ2011

15,021.1

0.2

0.2

1.2

IVQ2011

15,190.3

1.3

1.1

1.7

IQ2012

15,291.0

2.0

0.7

2.8

IIQ2012

15,362.4

2.5

0.5

2.5

IIIQ2012

15,380.8

2.6

0.1

2.4

IVQ2012

15,384.3

2.6

0.0

1.3

IQ2013

15,491.9

3.3

0.7

1.3

IIQ2013

15,521.6

3.5

0.2

1.0

IIIQ2013

15,641.3

4.3

0.8

1.7

IVQ2013

15,793.9

5.4

1.0

2.7

IQ2014

15,747.0

5.0

-0.3

1.6

IIQ2014

15,900.8

6.1

1.0

2.4

IIIQ2014

16,094.5

7.4

1.2

2.9

IVQ2014

16,186.7

8.0

0.6

2.5

IQ2015

16,269.0

8.5

0.5

3.3

IIQ2015

16,374.2

9.2

0.6

3.0

IIIQ2015

16,454.9

9.8

0.5

2.2

IVQ2015

16,490.7

10.0

0.2

1.9

IQ2016

16,525.0

10.2

0.2

1.6

IIQ2016

16,583.1

10.6

0.4

1.3

IIIQ2016

16,727.0

11.6

0.9

1.7

IV 2016

16,804.1

12.1

0.5

1.9

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

Chart I-10 provides the percentage change of real GDP from the same quarter a year earlier from 1980 to 1989. There were two contractions almost in succession in 1980 and from 1981 to 1983. The expansion was marked by initial high rates of growth as in other recession in the postwar US period during which employment lost in the contraction was recovered. Growth rates continued to be high after the initial phase of expansion.

 

Chart I-10, Percentage Change of Real Gross Domestic Product from Quarter a Year Earlier 1980-1989

Source: US Bureau of Economic Analysis

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

The experience of recovery after 2009 is not as complete as during the 1980s. Chart I-11 shows the much lower rates of growth in the early phase of the current expansion and sharp decline from an early peak. The US missed the initial high growth rates in cyclical expansions that eliminate unemployment and underemployment.

 

Chart I-11, Percentage Change of Real Gross Domestic Product from Quarter a Year Earlier 2007-2016

Source: US Bureau of Economic Analysis

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

Chart I-12 provides growth rates from a quarter relative to the prior quarter during the 1980s. There is the same strong initial growth followed by a long period of sustained growth.

 

Chart I-12, Percentage Change of Real Gross Domestic Product from Prior Quarter 1980-1989

Source: US Bureau of Economic Analysis

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

Chart I-13 provides growth rates in a quarter relative to the prior quarter from 2007 to 2016. Growth in the current expansion after IIIQ2009 has not been as strong as in other postwar cyclical expansions.

 

Chart I-13, Percentage Change of Real Gross Domestic Product from Prior Quarter 2007-2016

Source: US Bureau of Economic Analysis

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

The revised estimates and earlier estimates from IQ2008 to IQ2016 in seasonally adjusted annual equivalent rates are shown in Table I-7. The strongest revision is for IVQ2008 for which the contraction of GDP is revised from minus 6.8 percent to minus 8.9 percent and minus 8.2 percent. IQ2009 is also revised from contraction of minus 4.9 percent to minus 6.7 percent but then lowered to contraction of 5.3 percent and 5.4 percent. There is only minor revision in IIIQ2008 of the contraction of minus 4.0 percent to minus 3.7 percent and much lower to minus 1.9 percent. Growth of 5.0 percent in IV2009 is revised to 3.8 percent and then increased to 4.0 percent but lowered to 3.9 percent. Growth in IQ2010 is lowered from 3.9 percent to 2.3 percent and 1.7 percent. Growth in IIQ2010 is upwardly revised to 3.8 percent but then lowered to 2.2 percent. The final revision increased growth in IIQ2010 to 3.9 percent. Revisions lowered growth of 1.9 percent in IQ2011 to minus 1.5 percent. The revisions increased growth of 1.8 percent in IQ2013 to 2.7 percent and increased growth of 2.0 percent in IQ2012 to 2.3 percent. The revision reduced the decline of GDP from 2.9 percent in IQ2014 to 2.1 percent. The revision of Jul 20, 2015, reduced significantly the rate of growth in 2013. The revision of Jul 27, 2016, increased the growth rate in 2013 and 2014. The revisions do not alter the conclusion that the current expansion is much weaker than historical sharp contractions since the 1950s and is now changing into slow growth recession with higher risks of contraction and continuing underperformance.

Table I-7, US, Quarterly Growth Rates of GDP, % Annual Equivalent SA, Revised and Earlier Estimates

Quarters

Rev Jul 29, 2016

Rev Jul 30, 2015

Rev Jul 30, 2014

Rev

Jul 31, 2013

Rev

Jul 27, 2012

Rev

Jul 29, 2011

Earlier Estimate

2008

             

I

   

-2.7

-2.7

 

-1.8

-0.7

II

   

2.0

2.0

 

1.3

0.6

III

   

-1.9

-2.0

 

-3.7

-4.0

IV

   

-8.2

-8.3

 

-8.9

-6.8

2009

             

I

   

-5.4

-5.4

-5.3

-6.7

-4.9

II

   

-0.5

-0.4

-0.3

-0.7

-0.7

III

   

1.3

1.3

1.4

1.7

1.6

IV

   

3.9

3.9

4.0

3.8

5.0

2010

             

I

   

1.7

1.6

2.3

3.9

3.7

II

   

3.9

3.9

2.2

3.8

1.7

III

   

2.7

2.8

2.6

2.5

2.6

IV

   

2.5

2.8

2.4

2.3

3.1

2011

             

I

   

-1.5

-1.3

0.1

0.4

1.9

II

   

2.9

3.2

2.5

   

III

   

0.8

1.4

1.3

   

IV

   

4.6

4.9

4.1

   

2012

             

I

 

2.7

2.3

3.7

2.0

   

II

 

1.9

1.6

1.2

1.3

   

III

 

0.5

2.5

2.8

3.1

   

IV

 

0.1

0.1

0.1

0.4

   

2013

             

I

2.8

1.9

2.7

1.1

1.8

   

II

0.8

1.1

1.8

2.5

     

III

3.1

3.0

4.5

4.1

     

IV

4.0

3.8

3.5

2.6

     

2014

             

I

-1.2

-0.9

-2.1

-2.9

     

II

4.0

4.6

         

III

5.0

4.3

         

IV

2.3

2.1

         

2015

             

I

2.0

0.6

         

II

2.6

           

III

2.0

           

IV

0.9

           

2016

             

I

0.8

           

Note: Rev: Revision

Source: US Bureau of Economic Analysis

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

Aggregate demand, personal consumption expenditures (PCE) and gross private domestic investment (GDI) were much stronger during the expansion phase from IQ1983 to IQ1990 than from IIIQ2009 to IIIQ2016, as shown in Table I-8. GDI provided the impulse of growth in 1983 and 1984, which has not been the case from 2009 to 2016. The investment decision in the US economy has been frustrated in the current cyclical expansion. Growth of GDP in IIIQ2013 at seasonally adjusted annual rate of 3.1 percent consisted of positive contribution of 1.28 percentage points of personal consumption expenditures (PCE) plus positive contribution of 2.08 percentage points of gross private domestic investment (GDI) of which 1.60 percentage points of inventory investment (∆PI), contribution of net exports (trade or exports less imports) of 0.13 percentage points and deduction of 0.37 percentage points of government consumption expenditures and gross investment (GOV) partly because of one-time deduction of national defense expenditures of 0.31 percentage points. Growth at 4.0 percent in IVQ2013 had strongest contributions of 2.29 percentage points of PCE and 1.29 percentage points of trade. Growth of GDP at minus 1.2 percent in IQ2014 is mostly contribution of 1.26 percentage points by PCE with deduction of 1.10 percentage points by GDI, inventory divestment of 1.89 percentage points and trade deducting 1.16 percentage points. Growth at 4.0 percent in IIQ2014 consists of contributions of 2.56 percentage points by PCE and 1.79 percentage points by GDI with 0.67 percentage points by inventory change. Trade deducted 0.41 percentage points and government added 0.02 percentage points mostly because of contribution of 0.22 percentage points of expenditures by state and local government. Growth at 5.0 percent in IIIQ2014 consists of contribution of 2.52 percentage points by PCE, 1.49 percentage points by GDI, 0.50 percentage points by trade and 0.46 percentage points by government of which 0.17 percentage points by national defense expenditures growing at 4.0 percent in annual equivalent. Growth at 2.3 percent in IVQ2014 consists of contribution of 3.07 percentage points by PCE, 0.45 percentage points by GDI with contribution of 0.23 percentage points by inventory investment. Net trade deducted 1.14 percentage points while government deducted 0.07 percentage mostly because of deduction of 0.52 percentage points by national defense expenditure declining at 11.6 percent in IVQ2014. Growth of GDP at 2.0 percent in IQ2015 consisted mostly of contributions of 1.63 percentage points by personal consumption expenditures and 1.01 percentage points by inventory accumulation while trade deducted 1.65 percentage points and government contributed 0.45 percentage points. Growth at 2.6 percentage points in IIQ2015 consisted mostly of contributions of 1.94 percentage points by personal consumption expenditures, 0.18 percentage points by gross domestic investment, deduction of 0.08 percentage points by net trade and contribution of 0.57 percentage points by government consumption and expenditures. Growth at 2.0 percent in IIIQ2015 consisted mostly of contribution of personal consumption expenditures (PCE) of 1.81 percentage points with government adding 0.34 percentage points. Gross domestic investment (GDI) contributed 0.35 percentage points with deduction of inventory divestment of 0.57 percentage points while net trade deducted 0.52 percentage points. Growth at 0.9 percent in IVQ2015 consisted mostly of contribution of 1.53 percentage points by personal consumption expenditures (PCE). GDI deducted 0.39 percentage points while trade deducted 0.45 percentage points and inventory divestment deducted 0.36 percentage points. Growth at 0.8 percent in IQ2016 consisted mostly of contribution of 1.11 percentage points by personal consumption expenditures (PCE). There were deduction of 0.56 percentage points by gross domestic investment (GDI) and 0.41 percentage points by inventory change. Net trade contributed 0.01 percentage points and government added 0.28 percentage points. Growth at 1.4 percent in IIQ2016 consisted mostly of contribution of 2.88 percentage points by PCE with GDI deducting 1.34 percentage points. Inventory divestment deducted 1.16 percentage points. Growth at 3.5 percent in IIIQ2016 consisted mostly of contribution of 2.03 by PCE with GDI adding 0.50 percentage points. Inventory investment contributed 0.49 percentage points and trade added 0.85 percentage points. Growth at 1.9 percent in IVQ2016 had positive contributions of 2.05 percentage points of PCE, 1.45 of GDI and 0.06 of GOV. Inventory investment added 0.94 percentage points and net trade deducted 1.70 percentage points. The economy of the United States has lost the dynamic growth impulse of earlier cyclical expansions with mediocre growth resulting from consumption forced by one-time effects of financial repression, national defense expenditures and inventory accumulation.

Table I-8, US, Contributions to the Rate of Growth of GDP in Percentage Points

 

GDP

PCE

GDI

∆ PI

Trade

GOV

2016

           

I

0.8

1.11

-0.56

-0.41

0.01

0.28

II

1.4

2.88

-1.34

-1.16

0.18

-0.30

III

3.5

2.03

0.50

0.49

0.85

0.14

IV

1.9

2.05

1.45

0.94

-1.70

0.06

2015

           

I

2.0

1.63

1.62

1.01

-1.65

0.45

II

2.6

1.94

0.18

-0.52

-0.08

0.57

III

2.0

1.81

-0.35

-0.57

-0.52

0.34

IV

0.9

1.53

-0.39

-0.36

-0.45

0.18

2014

           

I

-1.2

1.26

-1.10

-1.89

-1.16

-0.19

II

4.0

2.56

1.79

0.67

-0.41

0.02

III

5.0

2.52

1.49

0.32

0.50

0.46

IV

2.3

3.07

0.45

0.23

-1.14

-0.07

2013

           

I

2.8

1.32

2.04

0.92

0.30

-0.83

II

0.8

0.58

0.78

0.08

-0.21

-0.37

III

3.1

1.28

2.08

1.60

0.13

-0.37

IV

4.0

2.29

0.91

-0.11

1.29

-0.53

2012

           

I

2.7

1.63

1.47

-0.53

-0.02

-0.40

II

1.9

0.45

1.53

0.56

0.28

-0.39

III

0.5

0.72

-0.18

-0.18

0.16

-0.22

IV

0.1

0.78

-0.51

-1.54

0.58

-0.75

2011

           

I

-1.5

1.38

-1.07

-0.96

-0.24

-1.60

II

2.9

0.57

2.14

1.04

0.31

-0.08

III

0.8

1.20

0.15

-2.10

0.01

-0.52

IV

4.6

0.94

4.16

2.80

-0.21

-0.31

2010

           

I

1.7

1.46

1.77

1.66

-0.85

-0.63

II

3.9

2.23

2.86

1.09

-1.77

0.61

III

2.7

1.77

1.86

1.90

-0.83

-0.07

IV

2.5

2.79

-0.51

-1.63

1.12

-0.87

2009

           

I

-5.4

-0.86

-7.02

-2.26

2.30

0.15

II

-0.5

-1.19

-3.25

-1.12

2.34

1.56

III

1.3

1.68

-0.40

-0.38

-0.45

0.48

IV

3.9

-0.01

4.05

4.40

0.06

-0.17

1982

           

I

-6.5

1.61

-7.59

-5.33

-0.49

-0.05

II

2.2

0.89

-0.06

2.26

0.81

0.56

III

-1.4

1.88

-0.62

1.11

-3.22

0.53

IV

0.4

4.51

-5.37

-5.33

-0.10

1.35

1983

           

I

5.3

2.45

2.36

0.92

-0.29

0.82

II

9.4

5.06

5.96

3.43

-2.46

0.89

III

8.1

4.50

4.40

0.57

-2.25

1.42

IV

8.5

4.06

6.94

3.01

-1.14

-1.36

1984

           

I

8.2

2.26

7.23

4.94

-2.31

1.01

II

7.2

3.64

2.57

-0.29

-0.87

1.87

III

4.0

1.95

1.69

0.21

-0.36

0.70

IV

3.2

3.29

-1.08

-2.44

-0.56

1.58

1985

           

I

4.0

4.23

-2.14

-2.86

0.94

1.01

II

3.7

2.35

1.34

0.35

-1.90

1.93

III

6.4

4.82

-0.43

-0.15

-0.01

1.98

IV

3.0

0.62

2.80

1.40

-0.66

0.27

1986

           

I

3.8

2.10

0.04

-0.17

0.92

0.70

II

1.9

2.77

-1.30

-1.30

-1.33

1.70

III

4.1

4.55

-1.97

-1.62

-0.45

1.95

IV

2.1

1.62

0.24

-0.29

0.71

-0.48

1987

           

I

2.8

0.05

1.98

3.28

0.23

0.57

II

4.6

3.54

0.08

-0.99

0.14

0.81

III

3.7

2.97

0.03

-1.19

0.45

0.23

IV

6.8

0.57

4.94

4.95

0.18

1.08

1988

           

I

2.3

4.49

-3.62

-3.68

1.94

-0.54

II

5.4

1.89

1.72

0.33

1.44

0.34

III

2.3

2.17

0.38

0.05

-0.31

0.08

IV

5.4

2.93

1.11

0.27

-0.21

1.56

1989

           

I

4.1

1.18

2.41

1.80

0.85

-0.35

II

3.2

1.20

-0.70

-0.79

1.35

1.34

III

3.0

2.52

-0.64

-1.84

0.44

0.70

IV

0.9

1.13

-0.53

0.37

-0.20

0.45

1990

           

I

4.5

2.21

0.69

-0.10

0.25

1.30

Note: PCE: personal consumption expenditures; GDI: gross private domestic investment; ∆ PI: change in private inventories; Trade: net exports of goods and services; GOV: government consumption expenditures and gross investment; – is negative and no sign positive

GDP: percent change at annual rate; percentage points at annual rates

Source: US Bureau of Economic Analysis

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

The Bureau of Economic Analysis (BEA) (pages 1-2) explains growth of GDP in IVQ2016 as follows (https://www.bea.gov/newsreleases/national/gdp/2017/pdf/gdp4q16_2nd.pdf):

Real gross domestic product (GDP) increased at an annual rate of 1.9 percent in the fourth quarter of 2016 (table 1), according to the "second" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 3.5 percent. The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was also 1.9 percent. With the second estimate for the fourth quarter, the general picture of economic growth remains the same; the increase in personal consumption expenditures was larger and increases in state and local government spending and in nonresidential fixed investment were smaller than previously estimated (see "Updates to GDP" on page 2). The increase in real GDP in the fourth quarter reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, residential fixed investment, nonresidential fixed investment, and state and local government spending. These increases were partly offset by negative contributions from exports and federal government spending. Imports, which are a subtraction in the calculation of GDP, increased (table 2). The deceleration in real GDP in the fourth quarter primarily reflected a downturn in exports, an acceleration in imports, and a downturn in federal government spending that were partly offset by an upturn in residential fixed investment, an acceleration in private inventory investment, and an upturn in state and local government spending.”

There are positive contributions to growth in IVQ2016 shown in Table I-9:

  • Personal consumption expenditures (PCE) growing at 3.0 percent
  • Growth of consumption of durable goods at 11.5 percent
  • Growth of nonresidential fixed investment (NRFI) at 1.3 percent
  • Growth of residential fixed investment at 9.6 percent
  • Inventory investment contributing 0.94 percentage points
  • Growth of government expenditures at 0.4 percent of which growth of state and local government expenditures at 2.6 percent

There were negative contributions in IVQ2016:

  • Exports contracting at 4.0 percent
  • Imports, which are a deduction from growth, growing at 8.5 percent
  • Federal government expenditures contracting at 1.2 percent with contraction of national defense expenditures at 3.6 percent

The BEA explains deceleration in real GDP growth in IVQ2016 by:

  • Contraction of exports at 4.0 percent in IVQ2016 compared with increase at 10.0 percent in IIIQ2016
  • Growth of imports at 8.5 percent in IVQ2016 compared with growth at 2.2 percent in IIIQ2016
  • Growth of consumption of durable goods at 11.5 percent in IVQ2016 compared with growth at 11.6 percent in IIIQ2016
  • Contraction of federal government expenditures at 1.2 percent in IVQ2016 compared with growth at 2.4 percent in IIIQ2016
  • Contraction of national defense expenditures at 3.6 percent in IVQ2016 compared with growth at 2.0 percent in IIIQ2016

The BEA finds offsetting accelerating factors:

· Growth of residential fixed investment at 9.6 percent in IVQ2016 compared with contraction at 4.1 percent in IIIQ2016

· Inventory investment contribution of 0.94 percentage points in IVQ2016 compared with 0.49 percentage points in IIIQ2016

· Growth of expenditures of state and local government at 2.6 percent in IVQ2016 compared with contraction at 0.2 percent in IIIQ2016

An important aspect of growth in the US is the decline in growth of real disposable personal income, or what is left after taxes and inflation, which decreased at the rate of 0.5 percent in IIIQ2013 compared with a year earlier. Contraction of real disposable income of 2.8 percent in IVQ2013 relative to a year earlier is largely due to comparison with an artificially higher level in anticipations of income in Nov and Dec 2012 to avoid increases in taxes in 2013, an episode known as “fiscal cliff.” Real disposable personal income increased 2.5 percent in IQ2014 relative to a year earlier and 3.2 percent in IIQ2014 relative to a year earlier. Real disposable personal income increased 3.7 percent in IIIQ2014 relative to a year earlier and 4.5 percent in IVQ2014 compared with a year earlier. Real disposable personal income grew 3.9 percent in IQ2015 relative to a year earlier partly because of contraction of energy prices and increased at 3.6 percent in IIQ2015. Real disposable personal income grew at 3.3 percent in IIIQ2015 relative to a year earlier and at 3.0 percent in IVQ2015 relative to a year earlier. Real disposable income grew at 3.1 percent in IQ2016 relative to a year earlier and at 2.8 percent in IIQ2016 relative to a year earlier. Real disposable income grew at 2.7 percent in IIIQ2016 relative to a year earlier and at 2.5 percent in IVQ2016 compared with a year earlier. The effects of financial repression, or zero interest, are vividly shown in the decline of the savings rate, or personal saving as percent of disposable income from 9.2 percent in IVQ2012 to 5.3 percent in IIIQ2013 and 4.7 percent in IVQ2013. The savings rate eased to 5.3 percent in IQ2014, increasing to 5.7 percent in IIQ2014 and stabilizing to 5.7 percent in IIIQ2014. The savings rate fell to 5.6 percent in IVQ2014, increasing to 5.5 percent in IQ2015. The savings rate increased to 5.7 percent in IIQ2015, 5.9 percent in IIIQ2015 and 6.0 percent in IVQ2015. The savings ratio moved to 6.1 percent in IQ2016 and 5.9 percent in IIQ2016. The savings ratio stabilized at 5.8 percent in IIIQ2016 and at 5.6 percent in IVQ2016. Anticipation of income in IVQ2012 to avoid higher taxes in 2013 caused increases in income and savings while higher payroll taxes in 2013 restricted income growth and savings in IQ2013. Zero interest rates induce risky investments with high leverage and can contract balance sheets of families, business and financial institutions when interest rates inevitably increase in the future. There is a tradeoff of weaker economy in the future when interest rates increase by meager growth in the present with forced consumption by zero interest rates. Microeconomics consists of the analysis of allocation of scarce resources to alternative and competing ends. Zero interest rates cloud he calculus of risk and returns in consumption and investment, disrupting decisions that maintain the economy in its long-term growth path.

Table I-9, US, Percentage Seasonally Adjusted Annual Equivalent Quarterly Rates of Increase, %

 

IVQ 2015

IQ2016

IIQ   

2016

IIIQ 

2016

IVQ 

2016

GDP

0.9

0.8

1.4

3.5

1.9

PCE

2.3

1.6

4.3

3.0

3.0

Durable Goods

4.0

-0.6

9.8

11.6

11.5

NRFI

-3.3

-3.4

1.0

1.4

1.3

RFI

11.5

7.8

-7.7

-4.1

9.6

Exports

-2.7

-0.7

1.8

10.0

-4.0

Imports

0.7

-0.6

0.2

2.2

8.5

GOV

1.0

1.6

-1.7

0.8

0.4

Federal GOV

3.8

-1.5

-0.4

2.4

-1.2

National Defense

4.4

-3.2

-3.2

2.0

-3.6

Cont to GDP Growth % Points

0.17

-0.13

-0.13

0.08

-0.14

State/Local GOV

-0.6

3.5

-2.5

-0.2

2.6

∆ PI (PP)

-0.36

-0.41

-1.16

0.49

0.94

Final Sales of Domestic Product

1.2

1.2

2.6

3.0

0.9

Gross Domestic Purchases

1.3

0.8

1.2

2.6

3.5

Prices Gross
Domestic Purchases

0.3

0.2

2.1

1.5

1.9

Prices of GDP

0.8

0.5

2.3

1.4

2.0

Prices of GDP Excluding Food and Energy

0.9

1.5

2.1

1.9

1.7

Prices of PCE

0.4

0.3

2.0

1.5

1.9

Prices of PCE Excluding Food and Energy

1.2

2.1

1.8

1.7

1.2

Prices of Market Based PCE

0.2

-0.2

1.9

1.3

2.0

Prices of Market Based PCE Excluding Food and Energy

1.1

1.8

1.6

1.6

1.2

Real Disposable Personal Income*

3.0

3.1

2.8

2.7

2.5

Personal Saving As % Disposable Income

6.0

6.1

5.9

5.8

5.6

Note: PCE: personal consumption expenditures; NRFI: nonresidential fixed investment; RFI: residential fixed investment; GOV: government consumption expenditures and gross investment; ∆ PI: change in

private inventories; GDP - ∆ PI: final sales of domestic product; PP: percentage points; Personal savings rate: savings as percent of disposable income

*Percent change from quarter one year ago

Source: Bureau of Economic Analysis

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

Percentage shares of GDP are in Table I-10. PCE (personal consumption expenditures) is equivalent to 68.9 percent of GDP and is under pressure with stagnant real disposable income per person, high levels of unemployment and underemployment and higher savings rates than before the global recession, temporarily interrupted by financial repression in the form of zero interest rates. Gross private domestic investment is also growing slowly even with about two trillion dollars in cash holdings by companies. In a slowing world economy, it may prove more difficult to grow exports faster than imports to generate higher growth. Bouts of risk aversion revalue the dollar relative to most currencies in the world as investors increase their holdings of dollar-denominated assets.

Table I-10, US, Percentage Shares of GDP, %

 

IVQ2016

GDP

100.0

PCE

68.9

   Goods

22.2

            Durable

7.6

            Nondurable

14.5

   Services

46.7

Gross Private Domestic Investment

16.4

    Fixed Investment

16.2

        NRFI

12.3

            Structures

2.6

            Equipment & Software

5.6

            Intellectual Property

4.1

        RFI

3.8

     Change in Private
      Inventories

0.3

Net Exports of Goods and Services

-2.9

       Exports

12.0

                    Goods

7.8

                    Services

4.2

       Imports

14.9

                     Goods

12.2

                     Services

2.7

Government

17.6

        Federal

6.6

           National Defense

3.9

           Nondefense

2.8

        State and Local

10.9

PCE: personal consumption expenditures; NRFI: nonresidential fixed investment; RFI: residential fixed investment

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

Table I-11 shows percentage point (PP) contributions to the annual levels of GDP growth in the earlier recessions 1958-1959, 1975-1976, 1982-1983 and 2009, 2010, 2011, 2012, 2013, 2014 2015 and 2016. The data incorporate the new revisions released by the BEA. The most striking contrast is in the rates of growth of annual GDP in the expansion phases of 6.9 percent in 1959, 5.4 percent in 1976, and 4.6 percent in 1983 followed by 7.3 percent in 1984 and 4.2 percent in 1985. In contrast, GDP grew 2.5 percent in 2010 after six consecutive quarters of growth, 1.6 percent in 2011 after ten consecutive quarters of expansion, 2.2 percent in 2012 after 14 quarters of expansion, 1.7 percent in 2013 after 18 consecutive quarters of expansion, 2.4 percent in 2014 after 22 consecutive quarters of expansion and 2.6 percent in 2015 after twenty-six consecutive quarters of expansion. GDP grew at 1.6 percent in 2016 after thirty consecutive quarters of expansion. Annual levels also show much stronger growth of PCEs in the expansions after the earlier contractions than in the expansion after the global recession of 2007. Gross domestic investment was much stronger in the earlier expansions than in 2010, 2011, 2012, 2013, 2014, 2015 and 2016.

Table I-11, US, Percentage Point Contributions to the Annual Growth Rate of GDP

 

GDP

PCE

GDI

∆ PI

Trade

GOV

1958

-0.7

0.52

-1.16

-0.17

-0.87

0.77

1959

6.9

3.49

2.82

0.83

0.00

0.59

1975

-0.2

1.36

-2.90

-1.23

0.86

0.49

1976

5.4

3.41

2.91

1.37

-1.05

0.12

1982

-1.9

0.86

-2.55

-1.30

-0.59

0.38

1983

4.6

3.54

1.60

0.28

-1.32

0.81

1984

7.3

3.32

4.73

1.90

-1.54

0.76

1985

4.2

3.25

-0.01

-1.03

-0.39

1.38

1986

3.5

2.63

0.03

-0.31

-0.29

1.14

1987

3.5

2.14

0.53

0.41

0.17

0.63

1988

4.2

2.66

0.45

-0.13

0.81

0.28

1989

3.7

1.86

0.72

0.17

0.51

0.59

2009

-2.8

-1.08

-3.52

-0.76

1.19

0.64

2010

2.5

1.32

1.66

1.45

-0.46

0.02

2011

1.6

1.55

0.73

-0.14

-0.02

-0.65

2012

2.2

1.01

1.52

0.14

0.08

-0.38

2013

1.7

1.00

0.95

0.19

0.29

-0.56

2014

2.4

1.95

0.73

-0.14

-0.15

-0.16

2015

2.6

2.16

0.82

0.17

-0.71

0.32

2016

1.6

1.84

-0.26

-0.37

-0.12

0.15

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

Table I-12 provides more detail of the contributions to growth of GDP from 2009 to 2016 using annual-level data. PCEs contributed 1.32 PPs to GDP growth in 2010 of which 0.77 percentage points (PP) in goods and 0.55 PP in services. Gross private domestic investment (GPDI) deducted 3.52 PPs of GDP growth in 2009 of which -2.77 PPs by fixed investment and -0.76 PPs of inventory change (∆PI) and added 1.66 PPs of GDI in 2010 of which 0.21 PPs of fixed investment and 1.45 PPs of inventory accumulation (∆PI). Trade, or exports of goods and services net of imports, contributed 1.19 PPs in 2009 of which exports deducted 1.07 PPs and imports added 2.26 PPs. In 2010, trade deducted 0.46 PPs with exports contributing 1.33 PPs and imports deducting 1.79 PPs likely benefitting from dollar revaluation. In 2009, government added 0.64 PP of which 0.44 PPs by the federal government and 0.20 PPs by state and local government; in 2010, government added 0.02 PPs of which 0.37 PPs by the federal government with state and local government deducting 0.35 PPs. Table I-12 provides the estimates for 2011, 2012, 2013, 2014, 2015 and 2016. PCE contributed 1.55 PPs in 2011 after 1.32 PPs in 2010. The contribution of PCE fell to 1.01 points in 2012 and to 1.00 PPs in 2013, increasing to 1.95 PPs in 2014. PCE contributed 2.16 percentage points in 2015. The breakdown into goods and services is similar but with contributions in 2012 of 0.63 PPs of goods and 0.38 PPs of services. In 2013, goods contributed 0.71 PPs and services 0.28 PPs. Goods contributed 0.89 PPs in 2014 and services contributed 1.06 PPS. Goods contributed 0.91 percentage points in 2015 and services 1.26 percentage points. Gross private domestic investment contributed 1.66 PPs in 2010 with 1.45 PPs of change of private inventories but the contribution of gross private domestic investment was only 0.73 PPs in 2011. The contribution of GDI in 2012 increased to 1.52 PPs with fixed investment increasing its contribution to 1.38 PPs and residential investment contributing 0.33 PPs for the first time since 2009. GDI contributed 1.52 PPs in 2012 with 1.38 PPs from fixed investment and 0.14 PPs from inventory change. GDI contribute 0.95 PPs in 2013, 0.73 PPs in 2014 and 0.82 PPs in 2015. GDI deducted 0.26 PPs in 2016 with 0.11 PPs of fixed investment and deduction of 0.37 PPP by inventory change. Net exports of goods and services deducted marginally in 2011 with 0.02 PPs and added 0.08 PPs in 2012. Net trade contributed 0.29 PPs in 2013 and deducted 0.15 PPs in 2014. Net trade deducted 0.71 percentage points in 2015 and deducted 0.12 PPs in 2016. The contribution of exports fell from 1.33 PPs in 2010 and 0.87 PPs in 2011 to only 0.46 PPs in 2012, 0.47 PPs in 2013 and 0.58 PPs in 2014. Exports contributed only 0.01 percentage points in 2015 and 0.05 percentage points in 2016. Government deducted 0.65 PPs in 2011, 0.38 PPs in 2012 and 0.56 PPs in 2013. Government deducted 0.16 PPs in 2014 and contributed 0.32 PPs in 2015, contributing 0.15 PPs in 2016. Demand weakened in 2013 with lower contribution of personal consumption expenditures of 1.00 PPs and of gross domestic investment of 0.76 PPs. PCE contributed 1.95 PPs in 2014 and GDI 0.73 PPs. PCE contributed 2.16 PPs in 2015 and GDI contributed 0.82 PPs. PCE contributed 1.84 PPs in 2016 and GDI deducted 0.26 PPs. Net trade contributed only 0.29 PPs in 2013 and deducted 0.15 PPs in 2014, deducting 0.71 PPs in 2015. Net trade deducted 0.12 PPs in 2016. The expansion since IIIQ2009 has been characterized by weak contributions of aggregate demand, which is the sum of personal consumption expenditures plus gross private domestic investment. The US did not recover strongly from the global recessions as typical in past cyclical expansions. Recoveries tend to be more sluggish as expansions mature. At the margin in IVQ2011, the acceleration of expansion was driven by inventory accumulation instead of aggregate demand of consumption and investment. Growth of PCE was partly the result of burning savings because of financial repression, which may not be sustainable in the future while creating multiple distortions of resource allocation and growth restraint.

Table I-12, US, Contributions to Growth of Gross Domestic Product in Percentage Points

 

2009

2010

2011

2012

2013

2014

2015

GDP Growth ∆%

-2.8

2.5

1.6

2.2

1.7

2.4

2.6

Personal Consumption Expenditures (PCE)

-1.08

1.32

1.55

1.01

1.00

1.95

2.16

  Goods

-0.68

0.77

0.71

0.63

0.71

0.89

0.91

     Durable

-0.41

0.43

0.43

0.53

0.45

0.49

0.51

     Nondurable

-0.27

0.34

0.28

0.10

0.27

0.40

0.40

  Services

-0.40

0.55

0.84

0.38

0.28

1.06

1.26

Gross Private Domestic Investment (GPDI)

-3.52

1.66

0.73

1.52

0.95

0.73

0.82

Fixed Investment

-2.77

0.21

0.86

1.38

0.76

0.87

0.65

    Nonresidential

-2.04

0.28

0.85

1.05

0.43

0.76

0.27

      Structures

-0.70

-0.49

0.06

0.32

0.04

0.29

-0.13

     Equipment, software

-1.29

0.70

0.66

0.58

0.26

0.32

0.21

      Intellectual Property

-0.05

0.07

0.13

0.15

0.13

0.15

0.19

    Residential

-0.73

-0.07

0.01

0.33

0.33

0.11

0.39

Change Private Inventories

-0.76

1.45

-0.14

0.14

0.19

-0.14

0.17

Net Exports of Goods and Services

1.19

-0.46

-0.02

0.08

0.29

-0.15

-0.71

   Exports

-1.07

1.33

0.87

0.46

0.47

0.58

0.01

      Goods

-1.03

1.08

0.57

0.34

0.29

0.41

-0.06

      Services

-0.04

0.25

0.29

0.12

0.18

0.17

0.07

   Imports

2.26

-1.79

-0.89

-0.38

-0.18

-0.72

-0.73

      Goods

2.15

-1.69

-0.78

-0.30

-0.17

-0.65

-0.65

      Services

0.10

-0.10

-0.11

-0.09

-0.02

-0.07

-0.08

Government Consumption Expenditures and Gross Investment

0.64

0.02

-0.65

-0.38

-0.56

-0.16

0.32

  Federal

0.44

0.37

-0.24

-0.15

-0.46

-0.19

0.00

    National Defense

0.27

0.18

-0.13

-0.18

-0.34

-0.19

-0.09

    Nondefense

0.17

0.19

-0.11

0.03

-0.12

0.00

0.09

  State and Local

0.20

-0.35

-0.41

-0.22

-0.09

0.03

0.32

 

2013

2014

2015

2016

GDP Growth ∆%

1.7

2.4

2.6

1.6

Personal Consumption Expenditures (PCE)

1.00

1.95

2.16

1.84

  Goods

0.71

0.89

0.91

0.78

     Durable

0.45

0.49

0.51

0.42

     Nondurable

0.27

0.40

0.40

0.36

  Services

0.28

1.06

1.26

1.06

Gross Private Domestic Investment (GPDI)

0.95

0.73

0.82

-0.26

Fixed Investment

0.76

0.87

0.65

0.11

    Nonresidential

0.43

0.76

0.27

-0.06

      Structures

0.04

0.29

-0.13

-0.08

     Equipment, software

0.26

0.32

0.21

-0.17

      Intellectual Property

0.13

0.15

0.19

0.19

    Residential

0.33

0.11

0.39

0.18

Change Private Inventories

0.19

-0.14

0.17

-0.37

Net Exports of Goods and Services

0.29

-0.15

-0.71

-0.12

   Exports

0.47

0.58

0.01

0.05

      Goods

0.29

0.41

-0.06

0.05

      Services

0.18

0.17

0.07

0.00

   Imports

-0.18

-0.72

-0.73

-0.17

      Goods

-0.17

-0.65

-0.65

-0.09

      Services

-0.02

-0.07

-0.08

-0.08

Government Consumption Expenditures and Gross Investment

-0.56

-0.16

0.32

0.15

  Federal

-0.46

-0.19

0.00

0.04

    National Defense

-0.34

-0.19

-0.09

-0.03

    Nondefense

-0.12

0.00

0.09

0.07

  State and Local

-0.09

0.03

0.32

0.11

Source: US Bureau of Economic Analysis

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

Manufacturing jobs not seasonally adjusted decreased 35,000 from Jan 2016 to
Jan 2017 or at the average monthly rate of minus 2917. Industrial production decreased 0.3 percent in Jan 2017 and increased 0.6 percent in Dec 2016 after decreasing 0.2 percent in Nov 2016, 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 Apr 1, 2016 (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.[1] Total IP is now reported to have increased about 2 1/2 percent per year, on average, from 2011 through 2014 before falling 1 1/2 percent in 2015.[2] Relative to earlier reports, the current rates of change are lower, especially for 2014 and 2015. Total IP is now estimated to have returned to its pre-recession peak in November 2014, six months later than previously estimated. Capacity for total industry is now reported to have increased about 2 percent in 2014 and 2015 after having increased only 1 percent in 2013. Compared with the previously reported estimates, the gain in 2015 is 1/2 percentage point higher, and the gain in 2013 is 1/2 percentage point lower. Industrial capacity is expected to increase 1/2 percent in 2016.”

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

“Industrial production decreased 0.3 percent in January following a 0.6 percent increase in December. In January, manufacturing output moved up 0.2 percent, and mining output jumped 2.8 percent. The index for utilities fell 5.7 percent, largely because unseasonably warm weather reduced the demand for heating. At 104.6 percent of its 2012 average, total industrial production in January was at about the same level as it was a year earlier. Capacity utilization for the industrial sector fell 0.3 percentage point in January to 75.3 percent, a rate that is 4.6 percentage points below its long-run (1972–2016) average.” In the six months ending in Jan 2017, United States national industrial production accumulated change of 0.0 percent at the annual equivalent rate of 0.0 percent, which is equal to growth of 0.0 percent in the 12 months ending in Jan 2017. Excluding growth of 0.6 percent in Dec 2016, growth in the remaining five months from Aug to Jan 2017 accumulated to minus 0.6 percent or minus 1.4 percent annual equivalent. Industrial production declined in four of the past six months and increased 0.3 percent in one month and 0.6 percent in another month. Industrial production grew at annual equivalent 0.4 percent in the most recent quarter from Nov 2016 to Jan 2017 and decreased at 0.4 percent in the prior quarter Aug 2016 to Oct 2016. Business equipment accumulated change of 0.0 percent in the six months from Aug 2016 to Jan 2017, at the annual equivalent rate of 0.0 percent, which is lower than growth of 1.2 percent in the 12 months ending in Jan 2017. The Fed analyzes capacity utilization of total industry in its report (https://www.federalreserve.gov/releases/g17/Current/default.htm): “Capacity utilization for the industrial sector fell 0.3 percentage point in January to 75.3 percent, a rate that is 4.6 percentage points below its long-run (1972–2016) average.” United States industry apparently decelerated to a lower growth rate followed by possible acceleration and weakening growth in past months. Manufacturing declined 22.3 from the peak in Jun 2007 to the trough in Apr 2009 and increased 16.4 percent from the trough in Apr 2009 to Dec 2016. Manufacturing grew 16.2 percent from the trough in Apr 2009 to Jan 2017. Manufacturing in Jan 2017 is lower by 9.8 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 IVQ2016 would have accumulated to 30.5 percent. GDP in IVQ2016 would be $19,564.3 billion (in constant dollars of 2009) if the US had grown at trend, which is higher by $2760.2 billion than actual $16,804.1 billion. There are about two trillion dollars of GDP less than at trend, explaining the 25.7 million unemployed or underemployed equivalent to actual unemployment/underemployment of 15.3 percent of the effective labor force (https://cmpassocregulationblog.blogspot.com/2017/02/twenty-six-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2017/01/twenty-four-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2016/12/rising-yields-and-dollar-revaluation.html). US GDP in IVQ2016 is 14.1 percent lower than at trend. US GDP grew from $14,991.8 billion in IVQ2007 in constant dollars to $16,804.1 billion in IVQ2016 or 12.1 percent at the average annual equivalent rate of 1.3 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 Jan 1919 to Jan 2017. Growth at 3.1 percent per year would raise the NSA index of manufacturing output from 108.2316 in Dec 2007 to 142.7575 in Jan 2017. The actual index NSA in Jan 2017 is 101.5620, which is 28.9 percent below trend. Manufacturing output grew at average 2.0 percent between Dec 1986 and Jan 2017. Using trend growth of 2.0 percent per year, the index would increase to 129.5532 in Jan 2017. The output of manufacturing at 101.5620 in Jan 2017 is 21.6 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 87.2 percent in IIIQ2016. Most of US national income is in the form of services. In Jan 2017, there were 143.220 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 121.124 million NSA in Jan 2017 accounted for 84.6 percent of total nonfarm jobs of 143.220 million, of which 12.258 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 101.784 million NSA in Jan 2017, or 71.1 percent of total nonfarm jobs and 84.0 percent of total private-sector jobs. Manufacturing has share of 10.4 percent in US national income in IIIQ2016 and durable goods 6.0 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
IIQ2016

% Total

SAAR IIIQ2016

% Total

National Income WCCA

15,905.5

100.0

16,173.7

100.0

Domestic Industries

15,697.6

98.7

15,969.7

98.7

Private Industries

13,843.4

87.0

14,095.4

87.2

Agriculture

123.9

0.8

122.0

0.8

Mining

187.7

1.2

187.7

1.2

Utilities

164.9

1.0

172.0

1.1

Construction

765.2

4.8

771.3

4.8

Manufacturing

1658.4

10.4

1676.5

10.4

Durable Goods

972.8

6.1

977.4

6.0

Nondurable Goods

685.6

4.3

699.2

4.3

Wholesale Trade

920.7

5.8

957.9

5.9

Retail Trade

1118.6

7.0

1136.2

7.0

Transportation & WH

495.7

3.1

505.7

3.1

Information

578.8

3.6

596.0

3.7

Finance, Insurance, RE

2807.8

17.7

2862.6

17.7

Professional & Business Services

2246.5

14.1

2293.6

14.2

Education, Health Care

1633.0

10.3

1651.7

10.2

Arts, Entertainment

675.1

4.2

688.0

4.3

Other Services

467.1

2.9

474.2

2.9

Government

1854.3

11.7

1874.3

11.6

Rest of the World

207.8

1.3

204.0

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

IA1. Stagnating Real Private Fixed Investment. The United States economy has grown at the average yearly rate of 3 percent per year and 2 percent per year in per capita terms from 1870 to 2010, as measured by Lucas (2011May). An important characteristic of the economic cycle in the US has been rapid growth in the initial phase of expansion after recessions. Inferior performance of the US economy and labor markets is the critical current issue of analysis and policy design. Long-term economic performance in the United States consisted of trend growth of GDP at 3 percent per year and of per capita GDP at 2 percent per year as measured for 1870 to 2010 by Robert E Lucas (2011May). The economy returned to trend growth after adverse events such as wars and recessions. The key characteristic of adversities such as recessions was much higher rates of growth in expansion periods that permitted the economy to recover output, income and employment losses that occurred during the contractions. Over the business cycle, the economy compensated the losses of contractions with higher growth in expansions to maintain trend growth of GDP of 3 percent and of GDP per capita of 2 percent. 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 30 quarters from IIIQ2009 to IVQ2016. Boskin (2010Sep) measures that the US economy grew at 6.2 percent in the first four quarters and 4.5 percent in the first 12 quarters after the trough in the second quarter of 1975; and at 7.7 percent in the first four quarters and 5.8 percent in the first 12 quarters after the trough in the first quarter of 1983 (Professor Michael J. Boskin, Summer of Discontent, Wall Street Journal, Sep 2, 2010 http://professional.wsj.com/article/SB10001424052748703882304575465462926649950.html). There are new calculations using the revision of US GDP and personal income data since 1929 by the Bureau of Economic Analysis (BEA) (http://bea.gov/iTable/index_nipa.cfm) and the second estimate of GDP for IVQ2016 (https://www.bea.gov/newsreleases/national/gdp/2017/pdf/gdp4q16_2nd.pdf). The average of 7.7 percent in the first four quarters of major cyclical expansions is in contrast with the rate of growth in the first four quarters of the expansion from IIIQ2009 to IIQ2010 of only 2.7 percent obtained by diving GDP of $14,745.9 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/2017/01/rising-valuations-of-risk-financial.html and earlier http://cmpassocregulationblog.blogspot.com/2016/12/mediocre-cyclical-united-states.html). The expansion from IQ1983 to IVQ1985 was at the average annual growth rate of 5.9 percent, 5.4 percent from IQ1983 to IIIQ1986, 5.2 percent from IQ1983 to IVQ1986, 5.0 percent from IQ1983 to IQ1987, 5.0 percent from IQ1983 to IIQ1987, 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. 4.5 percent from IQ1983 to IQ1990, 4.4 percent from IQ1983 to IIQ1990 and at 7.8 percent from IQ1983 to IVQ1983 (Section I and earlier http://cmpassocregulationblog.blogspot.com/2017/01/rising-valuations-of-risk-financial.html and earlier http://cmpassocregulationblog.blogspot.com/2016/12/mediocre-cyclical-united-states.html). The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. Growth at trend in the entire cycle from IVQ2007 to IVQ2016 would have accumulated to 30.5 percent. GDP in IVQ2016 would be $19,564.3 billion (in constant dollars of 2009) if the US had grown at trend, which is higher by $2760.2 billion than actual $16,804.1 billion. There are about two trillion dollars of GDP less than at trend, explaining the 25.7 million unemployed or underemployed equivalent to actual unemployment/underemployment of 15.3 percent of the effective labor force (https://cmpassocregulationblog.blogspot.com/2017/02/twenty-six-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2017/01/twenty-four-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2016/12/rising-yields-and-dollar-revaluation.html). US GDP in IVQ2016 is 14.1 percent lower than at trend. US GDP grew from $14,991.8 billion in IVQ2007 in constant dollars to $16,804.1 billion in IVQ2016 or 12.1 percent at the average annual equivalent rate of 1.3 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 Jan 1919 to Jan 2017. Growth at 3.1 percent per year would raise the NSA index of manufacturing output from 108.2316 in Dec 2007 to 142.7575 in Jan 2017. The actual index NSA in Jan 2017 is 101.5620, which is 28.9 percent below trend. Manufacturing output grew at average 2.0 percent between Dec 1986 and Jan 2017. Using trend growth of 2.0 percent per year, the index would increase to 129.5532 in Jan 2017. The output of manufacturing at 101.5620 in Jan 2017 is 21.6 percent below trend under this alternative calculation.

Table IA1-1 provides quarterly seasonally adjusted annual rates (SAAR) of growth of private fixed investment for the recessions of the 1980s and the current economic cycle. In the cyclical expansion beginning in IQ1983 (http://www.nber.org/cycles.html), real private fixed investment in the United States grew at the average annual rate of 14.7 percent in the first eight quarters from IQ1983 to IVQ1984. Growth rates fell to an average of 2.2 percent in the following eight quarters from IQ1985 to IVQ1986 and to an average of 1.9 percent in the 12 quarters of 1985, 1986 and 1987. The average rate of growth in the four quarters of 1988 was 3.7 percent. There were only four quarters of contraction of private fixed investment from IQ1983 to IVQ1987. The National Bureau of Economic Research dates another cycle from Jul 1990 (IIIQ1981) to Mar 1991 (IQ1991) (http://www.nber.org/cycles.html), showing in Table III-1 with contractions of fixed investment in the final three quarters of 1990. There is quite different behavior of private fixed investment in the thirty quarters of cyclical expansion from IIIQ2009 to IVQ2016. The average annual growth rate in the first eight quarters of expansion from IIIQ2009 to IIQ2011 was 3.2 percent, which is significantly lower than 14.7 percent in the first eight quarters of expansion from IQ1983 to IVQ1984. There is only strong growth of private fixed investment in the four quarters of expansion from IIQ2011 to IQ2012 at the average annual rate of 12.5 percent. Growth has fallen from the SAAR of 17.3 percent in IIIQ2011 to 0.1 percent in IIIQ2012, recovering to 6.9 percent in IVQ2012 and increasing to 7.0 percent in IQ2013. The SAAR of fixed investment fell to 2.9 percent in IIIQ2013 and to 6.6 percent in IVQ2013. The SAAR of fixed investment decreased to 5.3 percent in IQ2014. Fixed investment grew at the SAAR of 7.2 percent in IIQ2014 and at 7.4 percent in IIIQ2014. Fixed investment grew at 1.3 percent in IVQ2014, 3.7 percent in IQ2015 and 4.3 percent in IIQ2015. Fixed investment grew at 5.7 percent in IIIQ2015 and fell at 0.2 percent in IVQ2015. Fixed investment decreased at 0.9 percent in IQ2016 and fell at 1.1 percent in IIQ2016. Fixed investment increased at 0.1 percent in IIIQ2016 and increased at 3.2 percent in IVQ2016. Sudeep Reddy and Scott Thurm, writing on “Investment falls off a cliff,” on Nov 18, 2012, published in the Wall Street Journal (http://professional.wsj.com/article/SB10001424127887324595904578123593211825394.html?mod=WSJPRO_hpp_LEFTTopStories) analyze the decline of private investment in the US and inform that a review by the Wall Street Journal of filing and conference calls finds that 40 of the largest publicly traded corporations in the US have announced intentions to reduce capital expenditures in 2012.

Table IA1-1, US, Quarterly Growth Rates of Real Private Fixed Investment, % Annual Equivalent SA

Q

1981

1982

1983

1984

2008

2009

2010

I

3.8

-12.2

9.4

13.1

-7.1

-27.4

0.8

II

3.2

-12.1

16.0

16.6

-5.5

-14.2

13.6

III

0.1

-9.3

24.4

8.2

-12.1

-0.5

-0.4

IV

-1.5

0.2

24.3

7.3

-23.9

-2.8

8.5

       

1985

   

2011

I

     

3.7

   

-0.9

II

     

5.2

   

8.2

III

     

-1.6

   

17.3

IV

     

7.8

   

9.9

       

1986

   

2012

I

     

1.1

   

14.7

II

     

0.1

   

6.9

III

     

-1.8

   

0.1

IV

     

3.1

   

6.9

       

1987

   

2013

I

     

-6.7

   

7.0

II

     

6.3

   

4.3

III

     

7.1

   

2.9

IV

     

-0.2

   

6.6

       

1988

   

2014

I

     

0.2

   

5.3

II

     

8.1

   

7.2

III

     

1.9

   

7.4

IV

     

4.8

   

1.3

       

1989

   

2015

IQ

     

3.6

   

3.7

IIQ

     

0.5

   

4.3

IIIQ

     

7.2

   

5.7

IVQ

     

-5.0

   

-0.2

       

1990

   

2016

IQ

     

4.8

   

-0.9

IIQ

     

-7.7

   

-1.1

IIIQ

     

-3.3

   

0.1

IVQ

     

-9.8

   

3.2

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

Chart IA1-1 of the US Bureau of Economic Analysis (BEA) provides seasonally adjusted annual rates of growth of real private fixed investment from 1981 to 1989. Growth rates recovered sharply during the first eight quarters, which was essential in returning the economy to trend growth and eliminating unemployment and most underemployment accumulated during the contractions.

 

Chart IA1-1, US, Real Private Fixed Investment, Seasonally-Adjusted Annual Rates Percent Change from Prior Quarter, 1980-1989

Source: US Bureau of Economic Analysis

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

Weak behavior of real private fixed investment from 2007 to 2016 is in Chart IA1-2. Growth rates of real private fixed investment were much lower during the initial phase of the current economic cycle and have entered sharp trend of decline.

 

Chart IA1-2, US, Real Private Fixed Investment, Seasonally-Adjusted Annual Rates Percent Change from Prior Quarter, 2007-2016

Source: US Bureau of Economic Analysis

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

Table IA1-2 provides real private fixed investment at seasonally adjusted annual rates from IVQ2007 to IVQ2016 or for the complete economic cycle. The first column provides the quarter, the second column percentage change relative to IVQ2007, the third column the quarter percentage change in the quarter relative to the prior quarter and the final column percentage change in a quarter relative to the same quarter a year earlier. In IQ1980, real gross private domestic investment in the US was $951.6 billion of chained 2009 dollars, growing to $1,270.4 billion in IIQ1990 or 33.5 percent. Real gross private domestic investment in the US increased 10.1 percent from $2605.2 billion in IVQ2007 to $2,867.4 billion in IVQ2016. As shown in Table IAI-2, real private fixed investment increased 8.3 percent from $2,586.3 billion of chained 2009 dollars in IVQ2007 to $2,801.3 billion in IVQ2016. Private fixed investment fell relative to IVQ2007 in all quarters preceding IQ2014 and changed 0.0 percent in IIIQ2016, declining 0.3 percent in IIQ2016 and falling 0.2 percent in IQ2016. Private fixed investment changed 0.0 percent in IIIQ2016 and increased 0.8 percent in IVQ2016. Growth of real private investment in Table IA1-2 is mediocre for all but four quarters from IIQ2011 to IQ2012. The investment decision of United States corporations is fractured in the current economic cycle in preference of cash.

Table IA1-2, US, Real Private Fixed Investment and Percentage Change Relative to IVQ2007 and Prior Quarter, Billions of Chained 2009 Dollars and ∆%

 

Real PFI, Billions Chained 2009 Dollars

∆% Relative to IVQ2007

∆% Relative to Prior Quarter

∆%
over
Year Earlier

IVQ2007

2586.3

NA

-0.9

-1.4

IQ2008

2539.1

-1.8

-1.8

-3.0

IIQ2008

2503.4

-3.2

-1.4

-4.6

IIIQ2008

2424.1

-6.3

-3.2

-7.1

IV2008

2263.8

-12.5

-6.6

-12.5

IQ2009

2089.3

-19.2

-7.7

-17.7

IIQ2009

2011.0

-22.2

-3.7

-19.7

IIIQ2009

2008.4

-22.3

-0.1

-17.1

IVQ2009

1994.1

-22.9

-0.7

-11.9

IQ2010

1997.9

-22.8

0.2

-4.4

IIQ2010

2062.8

-20.2

3.2

2.6

IIIQ2010

2060.8

-20.3

-0.1

2.6

IVQ2010

2103.1

-18.7

2.1

5.5

IQ2011

2098.4

-18.9

-0.2

5.0

IIQ2011

2140.2

-17.2

2.0

3.8

IIIQ2011

2227.5

-13.9

4.1

8.1

IVQ2011

2280.6

-11.8

2.4

8.4

IQ2012

2360.4

-8.7

3.5

12.5

IIQ2012

2399.8

-7.2

1.7

12.1

IIIQ2012

2400.4

-7.2

0.0

7.8

IVQ2012

2441.0

-5.6

1.7

7.0

IQ2013

2482.7

-4.0

1.7

5.2

IIQ2013

2508.8

-3.0

1.1

4.5

IIIQ2013

2526.7

-2.3

0.7

5.3

IVQ2013

2567.2

-0.7

1.6

5.2

IQ2014

2600.5

0.5

1.3

4.7

IIQ2014

2646.1

2.3

1.8

5.5

IIIQ2014

2693.4

4.1

1.8

6.6

IVQ2014

2702.3

4.5

0.3

5.3

IQ2015

2727.2

5.4

0.9

4.9

IIQ2015

2756.0

6.6

1.1

4.2

IIIQ2015

2794.5

8.1

1.4

3.8

IVQ2015

2793.3

8.0

0.0

3.4

IQ2016

2786.7

7.7

-0.2

2.2

IIQ2016

2778.8

7.4

-0.3

0.8

IIIQ2016

2779.3

7.5

0.0

-0.5

IVQ2016

2801.3

8.3

0.8

0.3

PFI: Private Fixed Investment

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

Chart IA1-3 provides real private fixed investment in chained dollars of 2009 from 2007 to 2016. Real private fixed investment increased 8.3 percent from $2,586.3 billion of chained 2009 dollars in IVQ2007 to $2,801.3 billion in IVQ2016.

 

Chart IA1-3, US, Real Private Fixed Investment, Billions of Chained 2009 Dollars, IQ2007 to IVQ2016

Source: US Bureau of Economic Analysis

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

Chart IA1-4 provides real gross private domestic investment in chained dollars of 2009 from 1980 to 1989. Real gross private domestic investment climbed 33.5 percent to $1,270.4 billion of 2009 dollars in IIQ1990 above the level of $951.6 billion in IQ1980.

 

Chart IA1-4, US, Real Gross Private Domestic Investment, Billions of Chained 2009 Dollars at Seasonally Adjusted Annual Rate, 1980-1989

Source: US Bureau of Economic Analysis

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

Chart IA1-5 provides real gross private domestic investment in the United States in billions of chained dollars of 2009 from 2006 to 2016. Real gross private domestic investment reached a level of $2,867.4 billion in IVQQ2016, which was only 10.1 percent higher than the level of $2605.2 billion in IVQ2007 (http://www.bea.gov/iTable/index_nipa.cfm).

 

Chart IA1-5, US, Real Gross Private Domestic Investment, Billions of Chained 2009 Dollars at Seasonally Adjusted Annual Rate, 2007-2016

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

Table IA1-3 shows that the share of gross private domestic investment in GDP has fallen from 19.7 percent in IVQ2000 and 18.8 percent in IVQ2006 to 16.4 percent in IVQ2016. There are declines in percentage shares in GDP of all components with sharp reduction of residential investment from 4.7 percent in IVQ2000 and 5.6 percent in IVQ2006 to 3.8 percent in IVQ2016. The share of fixed investment in GDP fell from 19.2 percent in IVQ2000 and 18.8 percent in IVQ2006 to 16.2 percent in IVQ2016.

Table IA1-3, Percentage Shares of Gross Private Domestic Investment and Components in Gross Domestic Product, % of GDP

 

IVQ2016

IVQ2006

IVQ2000

Gross Private Domestic Investment

16.4

18.8

19.7

  Fixed Investment

16.2

18.5

19.2

     Nonresidential

12.3

12.9

14.5

          Structures

2.6

3.1

3.2

          Equipment

          and Software

5.6

6.1

7.3

          Intellectual
           Property

4.1

3.7

4.0

     Residential

3.8

5.6

4.7

   Change in Private Inventories

0.3

0.3

0.5

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

Broader perspective is in Chart IA1-6 with the percentage share of gross private domestic investment in GDP in annual data from 1929 to 2016. There was sharp drop during the current economic cycle with almost no recovery in contrast with sharp recovery after the recessions of the 1980s.

 

Chart IA1-6, US, Percentage Share of Gross Private Domestic Investment in Gross Domestic Product, Annual, 1929-2016

Source: US Bureau of Economic Analysis

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

Chart IA1-7 provides percentage shares of private fixed investment in GDP with annual data from 1929 to 2016. The sharp contraction after the recessions of the 1980s was followed by sustained recovery while the sharp drop in the current economic cycle has not been recovered.

 

Chart IA1-7, US, Percentage Share of Private Fixed Investment in Gross Domestic Product, Annual, 1929-2016

Source: US Bureau of Economic Analysis

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

Chart IA1-8 provides percentage shares in GDP of nonresidential investment from 1929 to 2016. There is again recovery from sharp contraction in the 1980s but inadequate recovery in the current economic cycle.

 

Chart IA1-8, US, Percentage Share of Nonresidential Investment in Gross Domestic Product, Annual, 1929-2016

Source: US Bureau of Economic Analysis

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

Chart IA1-9 provides percentage shares of business equipment and software in GDP with annual data from 1929 to 2016. There is again inadequate recovery in the current economic cycle.

 

Chart IA1-9, US, Percentage Share of Business Equipment and Software in Gross Domestic Product, Annual, 1929-2016

Source: US Bureau of Economic Analysis

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

Chart IA1-10 provides percentage shares of residential investment in GDP with annual data from 1929 to 2016. The salient characteristic of Chart IA1-10 is the vertical increase of the share of residential investment in GDP up to 2006 and subsequent collapse.

 

Chart IA1-10, US, Percentage Share of Residential Investment in Gross Domestic Product, Annual, 1929-2016

Source: US Bureau of Economic Analysis

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

Finer detail is provided by the quarterly share of residential investment in GDP from 1979 to 2016 in Chart IA1-11. There was protracted growth of that share, accelerating sharply into 2006 followed with nearly vertical drop. The explanation of the sharp contraction of United States housing can probably be found in the origins of the financial crisis and global recession. Let V(T) represent the value of the firm’s equity at time T and B stand for the promised debt of the firm to bondholders and assume that corporate management, elected by equity owners, is acting on the interests of equity owners. Robert C. Merton (1974, 453) states:

“On the maturity date T, the firm must either pay the promised payment of B to the debtholders or else the current equity will be valueless. Clearly, if at time T, V(T) > B, the firm should pay the bondholders because the value of equity will be V(T) – B > 0 whereas if they do not, the value of equity would be zero. If V(T) ≤ B, then the firm will not make the payment and default the firm to the bondholders because otherwise the equity holders would have to pay in additional money and the (formal) value of equity prior to such payments would be (V(T)- B) < 0.”

Pelaez and Pelaez (The Global Recession Risk (2007), 208-9) apply this analysis to the US housing market in 2005-2006 concluding:

“The house market [in 2006] is probably operating with low historical levels of individual equity. There is an application of structural models [Duffie and Singleton 2003] to the individual decisions on whether or not to continue paying a mortgage. The costs of sale would include realtor and legal fees. There could be a point where the expected net sale value of the real estate may be just lower than the value of the mortgage. At that point, there would be an incentive to default. The default vulnerability of securitization is unknown.”

There are multiple important determinants of the interest rate: “aggregate wealth, the distribution of wealth among investors, expected rate of return on physical investment, taxes, government policy and inflation” (Ingersoll 1987, 405). Aggregate wealth is a major driver of interest rates (Ingersoll 1987, 406). Unconventional monetary policy, with zero fed funds rates and flattening of long-term yields by quantitative easing, causes uncontrollable effects on risk taking that can have profound undesirable effects on financial stability. Excessively aggressive and exotic monetary policy is the main culprit and not the inadequacy of financial management and risk controls.

The net worth of the economy depends on interest rates. In theory, “income is generally defined as the amount a consumer unit could consume (or believe that it could) while maintaining its wealth intact” (Friedman 1957, 10). Income, Y, is a flow that is obtained by applying a rate of return, r, to a stock of wealth, W, or Y = rW (Ibid). According to a subsequent restatement: “The basic idea is simply that individuals live for many years and that therefore the appropriate constraint for consumption decisions is the long-run expected yield from wealth r*W. This yield was named permanent income: Y* = r*W” (Darby 1974, 229), where * denotes permanent. The simplified relation of income and wealth can be restated as:

W = Y/r (1)

Equation (1) shows that as r goes to zero, r →0, W grows without bound, W→∞.

Lowering the interest rate near the zero bound in 2003-2004 caused the illusion of permanent increases in wealth or net worth in the balance sheets of borrowers and also of lending institutions, securitized banking and every financial institution and investor in the world. The discipline of calculating risks and returns was seriously impaired. The objective of monetary policy was to encourage borrowing, consumption and investment but the exaggerated stimulus resulted in a financial crisis of major proportions as the securitization that had worked for a long period was shocked with policy-induced excessive risk, imprudent credit, high leverage and low liquidity by the incentive to finance everything overnight at close to zero interest rates, from adjustable rate mortgages (ARMS) to asset-backed commercial paper of structured investment vehicles (SIV).

The consequences of inflating liquidity and net worth of borrowers were a global hunt for yields to protect own investments and money under management from the zero interest rates and unattractive long-term yields of Treasuries and other securities. Monetary policy distorted the calculations of risks and returns by households, business and government by providing central bank cheap money. Short-term zero interest rates encourage financing of everything with short-dated funds, explaining the SIVs created off-balance sheet to issue short-term commercial paper to purchase default-prone mortgages that were financed in overnight or short-dated sale and repurchase agreements (Pelaez and Pelaez, Financial Regulation after the Global Recession, 50-1, Regulation of Banks and Finance, 59-60, Globalization and the State Vol. I, 89-92, Globalization and the State Vol. II, 198-9, Government Intervention in Globalization, 62-3, International Financial Architecture, 144-9). ARMS were created to lower monthly mortgage payments by benefitting from lower short-dated reference rates. Financial institutions economized in liquidity that was penalized with near zero interest rates. There was no perception of risk because the monetary authority guaranteed a minimum or floor price of all assets by maintaining low interest rates forever or equivalent to writing an illusory put option on wealth. Subprime mortgages were part of the put on wealth by an illusory put on house prices. The housing subsidy of $221 billion per year created the impression of ever increasing house prices. The suspension of auctions of 30-year Treasuries was designed to increase demand for mortgage-backed securities, lowering their yield, which was equivalent to lowering the costs of housing finance and refinancing. Fannie and Freddie purchased or guaranteed $1.6 trillion of nonprime mortgages and worked with leverage of 75:1 under Congress-provided charters and lax oversight. The combination of these policies resulted in high risks because of the put option on wealth by near zero interest rates, excessive leverage because of cheap rates, low liquidity because of the penalty in the form of low interest rates and unsound credit decisions because the put option on wealth by monetary policy created the illusion that nothing could ever go wrong, causing the credit/dollar crisis and global recession (Pelaez and Pelaez, Financial Regulation after the Global Recession, 157-66, Regulation of Banks, and Finance, 217-27, International Financial Architecture, 15-18, The Global Recession Risk, 221-5, Globalization and the State Vol. II, 197-213, Government Intervention in Globalization, 182-4).

 

Chart IA1-11, US, Percentage Share of Residential Investment in Gross Domestic Product, Quarterly, 1979-2016

Source: US Bureau of Economic Analysis

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

Chart IA1-12 provides the share of intellectual property products investment in GDP with annual data from 1929 to 2016. This is an important addition in the revision and enhancement of GDP provided by the Bureau of Economic Analysis. The share rose sharply over time but stabilized at a lower level in the past decade.

 

Chart IA1-12, US, Percentage Share of Intellectual Property Products Investment in Gross Domestic Product, Annual, 1929-2016

Source: US Bureau of Economic Analysis

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

Chart IA1-13 provides the percentage share of intellectual property investment in GDP on a quarterly basis from 1979 to 2016. The share stabilized in the 2000s.

 

Chart IA1-13, US, Percentage Share of Intellectual Property Investment in Gross Domestic Product, Quarterly, 1979-2016

Source: US Bureau of Economic Analysis

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

Table IA1-4 provides the seasonally adjusted annual rate of real GDP percentage change and contributions in percentage points in annual equivalent rate of gross domestic investment (GDI), real private fixed investment (PFI), nonresidential investment (NRES), business equipment and software (BES), residential investment (RES), intellectual property products (IPP) and change in inventories (∆INV) for the cyclical expansions from IQ1983 to IVQ1988 and from IIIQ2009 to IVQ2016. GDI contributed 1.62 percentage points to GDP in IQ2015 with 0.61 percentage points by PFI, 1.01 percentage points by inventory accumulation and 0.03 percentage points by intellectual property products. GDI contributed 0.18 percentage points to GDP growth in IIQ2015: 0.70 percentage points in PFI, 0.21 percentage points in NRES and 0.49 percentage points in RES. Inventory investment deducted 0.52 percentage points and IPP added 0.31 percentage points. GDI added 0.35 percentage points to GDP growth in IIIQ2015 with deduction of 0.57 percentage points by inventory divestment while BSE deducted 0.12 percentage points. PFI added 0.92 percentage points, nonresidential investment added 0.49 percentage points and residential investment added 0.43 percentage points. IPP added 0.08 percentage points. GDI deducted 0.39 percentage points in IVQ2015 with percentage point deductions of 0.43 by NRES, 0.03 by PFI, 0.45 by BES, 0.45 by NRES and 0.36 by inventory divestment. Percentage point contributions were 0.18 by IPP and 0.40 by RES. GDI deducted 0.56 percentage points from GDP growth in IQ2016 with percentage point deduction of 0.15 by fixed investment, 0.44 by nonresidential investment and 0.41 by inventory change. Residential investment added 0.29 percentage points and intellectual property products contributed 0.15 percentage points. GDI deducted 1.34 percentage points from GDP growth in IIQ2016 with deductions of 0.18 by PFI, 0.06 by BES and 0.31 by RES. Inventory investment deducted 1.16. IPP added 0.35 and NRES contributed 0.12. GDI contributed 0.50 percentage points to GDP growth in IIIQ2016 with contributions by NRES, BES, IPP and inventory investment. PFI added 0.02 percentage points and RES deducted 0.16 percentage points. GDI contributed 1.45 percentage points to GDP growth in IVQ2016 with contributions by NRES, IPP, RES and inventory investment. PFI added 0.51 percentage points, RES added 0.35 percentage points and inventory investment added 0.94 percentage points.

Table IA1-4, US, Contributions to the Rate of Growth of Real GDP in Percentage Points

 

GDP

GDI

PFI

NRES

BES

IPP

RES

∆INV

2016

               

I

0.8

-0.56

-0.15

-0.44

0.00

0.15

0.29

-0.41

II

1.4

-1.34

-0.18

0.12

-0.06

0.35

-0.31

-1.16

III

3.5

0.50

0.02

0.18

0.30

0.13

-0.16

0.49

IV

1.9

1.45

0.51

0.17

-0.12

0.18

0.35

0.94

2015

               

I

2.0

1.62

0.61

0.18

-0.39

0.03

0.43

1.01

II

2.6

0.18

0.70

0.21

-0.07

0.31

0.49

-0.52

III

2.0

0.35

0.92

0.49

-0.12

0.08

0.43

-0.57

IV

0.9

-0.39

-0.03

-0.43

-0.45

0.18

0.40

-0.36

2014

               

I

-1.2

-1.10

0.79

0.84

0.66

0.18

-0.04

-1.89

II

4.0

1.79

1.12

0.76

0.22

0.17

0.36

0.67

III

5.0

1.49

1.16

1.05

-0.08

0.27

0.12

0.32

IV

2.3

0.45

0.22

-0.14

0.13

0.29

0.36

0.23

2013

               

I

2.8

2.04

1.12

0.72

-0.14

0.29

0.41

0.92

II

0.8

0.78

0.70

0.35

0.27

-0.13

0.35

0.08

III

3.1

2.08

0.48

0.29

0.44

0.14

0.18

1.60

IV

4.0

0.91

1.01

1.16

0.06

0.04

-0.15

-0.11

2012

               

I

2.7

1.47

2.00

1.37

0.48

0.07

0.63

-0.53

II

1.9

1.53

0.98

0.88

0.27

0.14

0.10

0.56

III

0.5

-0.18

0.00

-0.27

-0.12

0.05

0.27

-0.18

IV

0.1

-0.51

1.03

0.46

-0.21

0.26

0.57

-1.54

2011

               

I

-1.5

-1.07

-0.11

-0.09

-0.73

0.05

-0.02

-0.96

II

2.9

2.14

1.10

0.97

0.63

0.12

0.13

1.04

III

0.8

0.15

2.25

2.06

0.56

0.19

0.19

-2.10

IV

4.6

4.16

1.36

1.08

0.34

0.26

0.28

2.80

2010

               

I

1.7

1.77

0.11

0.46

1.25

-0.07

-0.35

1.66

II

3.9

2.86

1.76

1.21

1.02

-0.08

0.56

1.09

III

2.7

1.86

-0.04

0.90

0.83

0.22

-0.94

1.90

IV

2.5

-0.51

1.13

0.94

0.57

0.19

0.19

-1.63

2009

               

I

-5.4

-7.02

-4.75

-3.58

-2.25

-0.23

-1.17

-2.26

II

-0.5

-3.25

-2.13

-1.46

-0.60

0.16

-0.66

-1.12

III

1.3

-0.40

-0.02

-0.54

0.25

0.04

0.52

-0.38

IV

3.9

4.05

-0.36

-0.37

0.36

0.25

0.01

4.40

1982

               

I

-6.5

-7.59

-2.26

-1.45

-0.83

0.14

-0.81

-5.33

II

2.2

-0.06

-2.32

-1.89

-1.20

0.08

-0.44

2.26

III

-1.4

-0.62

-1.73

-1.72

-0.55

0.06

-0.02

1.11

IV

0.4

-5.37

-0.03

-1.05

-0.57

0.00

1.01

-5.33

1983

               

I

5.3

2.36

1.44

-0.92

-0.27

0.16

2.36

0.92

II

9.4

5.96

2.53

0.67

1.24

0.29

1.86

3.43

III

8.1

4.40

3.82

2.13

1.43

0.31

1.70

0.57

IV

8.5

6.94

3.93

3.14

2.32

0.35

0.79

3.01

1984

               

I

8.2

7.23

2.29

1.71

0.46

0.30

0.58

4.94

II

7.2

2.57

2.86

2.52

1.36

0.29

0.34

-0.29

III

4.0

1.69

1.48

1.70

0.88

0.25

-0.22

0.21

IV

3.2

-1.08

1.36

1.34

0.86

0.29

0.02

-2.44

1985

               

I

4.0

-2.14

0.72

0.67

-0.23

0.14

0.05

-2.86

II

3.7

1.34

0.99

0.83

0.64

0.20

0.16

0.35

III

6.4

-0.43

-0.28

-0.62

-0.38

0.13

0.34

-0.15

IV

3.0

2.80

1.40

1.00

0.53

0.26

0.40

1.40

1986

               

I

3.8

0.04

0.21

-0.55

-0.28

0.17

0.76

-0.17

II

1.9

-1.30

0.00

-1.12

0.34

0.15

1.12

-1.30

III

4.1

-1.97

-0.34

-0.63

-0.17

0.10

0.28

-1.62

IV

2.1

0.24

0.53

0.48

0.30

0.10

0.05

-0.29

1987

               

I

2.8

1.98

-1.30

-1.26

-0.97

0.07

-0.04

3.28

II

4.6

0.08

1.07

1.00

0.76

0.08

0.07

-0.99

III

3.7

0.03

1.22

1.39

0.70

0.11

-0.17

-1.19

IV

6.8

4.94

-0.01

-0.05

-0.48

0.16

0.04

4.95

1988

               

I

2.3

-3.62

0.06

0.41

0.82

0.15

-0.36

-3.68

II

5.4

1.72

1.39

1.14

0.67

0.18

0.25

0.33

III

2.3

0.38

0.33

0.32

0.29

0.22

0.01

0.05

IV

5.4

1.11

0.84

0.71

0.34

0.40

0.13

0.27

GDP: Gross Domestic Product; GDI: Gross Domestic Investment; PFI: Private Fixed Investment; NRES: Nonresidential; BES: Business Equipment and Software; IPP: Intellectual Property Products; RES: Residential; ∆INV: Change in Private Inventories.

GDI = PFI + ∆INV, may not add exactly because of errors of rounding.

GDP: Seasonally adjusted annual equivalent rate of growth in a quarter; components: percentage points at annual rate.

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

II IB Stagnating Real Disposable Income and Consumption Expenditures. The Bureau of Economic Analysis (BEA) provides important revisions and enhancements of data on personal income and outlays since 1929 (http://www.bea.gov/iTable/index_nipa.cfm). There are waves of changes in personal income and expenditures in Table IB-1 that correspond somewhat to inflation waves observed worldwide (https://cmpassocregulationblog.blogspot.com/2017/02/world-inflation-waves-united-states.html and earlier http://cmpassocregulationblog.blogspot.com/2017/01/world-inflation-waves-united-states.html) because of the influence through price indexes. There are wide fluctuations in Nov and Dec 2012 by the rush to realize income of all forms in anticipation of tax increases beginning in Jan 2013. There is major distortion in Jan 2013 because of higher contributions in payrolls to government social insurance that caused sharp reduction in personal income and disposable personal income. The Bureau of Economic Analysis (BEA) explains as follows (page 3 http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0313.pdf):

“The February and January [2013] changes in disposable personal income (DPI) mainly reflected the effect of special factors in January, such as the expiration of the “payroll tax holiday” and the acceleration of bonuses and personal dividends to November and to December [2012] in anticipation of changes in individual tax rates.”

In the first wave in Jan-Apr 2011 with relaxed risk aversion, nominal personal income (NPI) increased at the annual equivalent rate of 7.7 percent, nominal disposable personal income (NDPI) at 5.2 percent and nominal personal consumption expenditures (NPCE) at 5.9 percent. Real disposable income (RDPI) increased at the annual equivalent rate of 1.2 percent and real personal consumption expenditures (RPCE) rose at annual equivalent 1.5 percent. In the second wave in May-Aug 2011 under risk aversion, NPI rose at annual equivalent 4.9 percent, NPDI at 4.9 percent and NPCE at 3.7 percent. RDPI increased at 1.8 percent annual equivalent and RPCE at 0.9 percent annual equivalent. With mixed shocks of risk aversion in the third wave from Sep to Dec 2011, NPI rose at 2.4 percent annual equivalent, NDPI at 2.4 percent and NPCE at 2.1 percent. RDPI increased at 1.5 percent annual equivalent and RPCE at 1.5 percent annual equivalent. In the fourth wave from Jan to Mar 2012, NPI increased at 8.3 percent annual equivalent, NDPI at 9.6 percent and NPCE at 4.3 percent. Real disposable income (RDPI) is more dynamic in the revisions, growing at 4.9 percent annual equivalent and RPCE at 2.1 percent. The policy of repressing savings with zero interest rates stimulated growth of nominal consumption (NPCE) at the annual equivalent rate of 4.3 percent and real consumption (RPCE) at 2.1 percent. In the fifth wave in Apr-Jul 2012, NPI increased at annual equivalent 1.2 percent, NDPI at 1.2 percent and RDPI at 0.9 percent. Financial repression failed to stimulate consumption with NPCE growing at 1.2 percent annual equivalent and RPCE at 0.9 percent. In the sixth wave in Aug-Oct 2012, in another wave of carry trades into commodity futures, NPI increased at 8.3 percent annual equivalent and NDPI increased at 7.9 percent while real disposable income (RDPI) increased at 3.7 percent annual equivalent. NPCE increased at 4.1 percent and RPCE changed at 0.0 percent. Data for Nov-Dec 2012 have illusory increases: “Personal income in November and December was boosted by accelerated and special dividend payments to persons and by accelerated bonus payments and other irregular pay in private wages and salaries in anticipation of changes in individual income tax rates. Personal income in December was also boosted by lump-sum social security benefit payments” (page 2 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi1212.pdf). In the seventh wave, anticipations of tax increases in Jan 2013 caused exceptional income gains that increased personal income to annual equivalent 25.3 percent in Nov-Dec 2012, nominal disposable income at 25.3 percent and real disposable personal income at 26.0 percent with likely effects on nominal personal consumption that increased at 2.4 percent and real personal consumption at 3.0 percent with subdued prices. The numbers in parentheses show that without the exceptional effects NDPI (nominal disposable personal income) increased at 5.5 percent and RDPI (real disposable personal income) at 8.7 percent. In the eighth wave, nominal personal income fell 5.2 percent in Jan 2013 or at the annual equivalent rate of decline of 47.3 percent; nominal disposable personal income fell 6.1 percent or at the annual equivalent rate of decline of 53.0 percent; real disposable income fell 6.2 percent or at the annual rate of decline of 53.6 percent; nominal personal consumption expenditures increased 0.3 percent or at the annual equivalent rate of 3.7 percent; and real personal consumption expenditures increased 0.2 percent or at the annual equivalent rate of 2.4 percent. The savings rate fell significantly from 11.0 percent in Dec 2012 to 4.9 percent in Jan 2013. The Bureau of Economic Analysis explains as follows (http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0113.pdf 3):

“Contributions for government social insurance -- a subtraction in calculating personal income -- increased $126.7 billion in January, compared with an increase of $6.3 billion in December. The

January estimate reflected increases in both employer and employee contributions for government social insurance. The January estimate of employee contributions for government social insurance reflected the expiration of the “payroll tax holiday,” that increased the social security contribution rate for employees and self-employed workers by 2.0 percentage points, or $114.1 billion at an annual rate. For additional information, see FAQ on “How did the expiration of the payroll tax holiday affect personal income for January 2013?” at www.bea.gov. The January estimate of employee contributions for government social insurance also reflected an increase in the monthly premiums paid by participants in the supplementary medical insurance program, in the hospital insurance provisions of the Patient Protection and Affordable Care Act, and in the social security taxable wage base; together, these changes added $12.8 billion to January. As noted above, employer contributions were boosted $5.9 billion in January, so the total contribution of special factors to the January change in contributions for government social insurance was $132.8 billion”

Further explanation is provided by the Bureau of Economic Analysis (http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0213.pdf 2-3):

“Contributions for government social insurance -- a subtraction in calculating personal income --increased $6.4 billion in February, compared with an increase of $126.8 billion in January. The

January estimate reflected increases in both employer and employee contributions for government social insurance. The January estimate of employee contributions for government social insurance reflected the expiration of the “payroll tax holiday,” that increased the social security contribution rate for employees and self-employed workers by 2.0 percentage points, or $114.1 billion at an annual rate. For additional information, see FAQ on “How did the expiration of the payroll tax holiday affect personal income for January 2013?” at www.bea.gov. The January estimate of employee contributions for government social insurance also reflected an increase in the monthly premiums paid by participants in the supplementary medical insurance program, in the hospital insurance provisions of the Patient Protection and Affordable Care Act, and in the social security taxable wage base; together, these changes added $12.9 billion to January. Employer contributions were boosted $5.9 billion in January, which reflected increases in the social security taxable wage base (from $110,100 to $113,700), in the tax rates paid by employers to state unemployment insurance, and in employer contributions for the federal unemployment tax and for pension guaranty. The total contribution of special factors to the January change in contributions for government social insurance was $132.9 billion. The January change in disposable personal income (DPI) mainly reflected the effect of special factors, such as the expiration of the “payroll tax holiday” and the acceleration of bonuses and personal dividends to December in anticipation of changes in individual tax rates. Excluding these special factors and others, which are discussed more fully below, DPI increased $46.8 billion in February, or 0.4 percent, after increasing $15.8 billion, or 0.1 percent, in January.”

The increase was provided in the “fiscal cliff” law H.R. 8 American Taxpayer Relief Act of 2012 (http://www.gpo.gov/fdsys/pkg/BILLS-112hr8eas/pdf/BILLS-112hr8eas.pdf). In the ninth wave in Feb-Mar 2013, nominal personal income increased at 3.0 percent and nominal disposable income at 2.4 percent annual equivalent, while real disposable income increased at 0.6 percent annual equivalent. Nominal personal consumption expenditures grew at 1.8 percent annual equivalent and real personal consumption expenditures at 0.0 percent annual equivalent. The savings rate collapsed from 7.8 percent in Oct 2012, 8.8 percent in Nov 2012 and 11.0 percent in Dec 2012 to 4.9 percent in Jan 2013, 4.7 percent in Feb 2013 and 4.8 percent in Mar 2013. In the tenth wave from Apr to Sep 2013, personal income grew at 4.1 percent annual equivalent, nominal disposable income increased at annual equivalent 3.7 percent and nominal personal consumption expenditures at 2.8 percent. Real disposable income grew at 2.6 percent annual equivalent and real personal consumption expenditures at 2.0 percent. In the eleventh wave, nominal personal income fell at 1.2 percent annual equivalent in Oct 2013, nominal disposable income at 1.2 percent and real disposable income at 3.5 percent. Nominal personal consumption expenditures increased at 4.9 percent annual equivalent and real personal consumption expenditures at 2.4 percent. In the twelfth wave, nominal personal income increased at 6.2 percent annual equivalent in Nov 2013, nominal disposable income at 4.9 percent and nominal personal consumption expenditures at 8.7 percent. Real disposable income increased at annual equivalent 3.7 percent and real personal consumption expenditures at 6.2 percent. In the thirteenth wave, nominal personal income increased at 4.9 percent annual equivalent in Dec 2013 and nominal disposable income at 3.7 percent while real disposable income increased at 1.2 percent annual equivalent. Nominal personal consumption expenditures increased at 2.4 percent annual equivalent and 0.0 percent for real personal consumption expenditures. In the fourteenth wave, nominal personal income increased at 8.3 percent annual equivalent in Jan-Mar 2014, nominal disposable income at 8.3 percent and nominal consumption expenditures at 5.3 percent. Real disposable personal income increased at 6.6 percent and real personal consumption expenditures at 2.8 percent. In the fifteenth wave, nominal personal income increased at 5.9 percent in annual equivalent in Apr-Aug 2014 and nominal disposable income at 5.7 percent. Real disposable income increased at 4.7 percent in annual equivalent in Apr-Aug 2014. Nominal personal consumption increased at 5.2 percent annual equivalent in Apr-Aug 2014 and real personal consumption expenditures increased at 3.7 percent. In the sixteenth wave, nominal personal income increased at 4.0 percent annual equivalent in Sep-Dec 2014, nominal disposable income at 3.7 percent and nominal personal consumption at 3.0 percent. Real disposable income increased at 3.7 percent in Sep-Dec 2014 and real personal consumption expenditure at 3.7 percent. In the seventeenth wave, nominal personal income increased at 1.8 percent annual equivalent in Jan-Feb 2015 and nominal disposable income fell at 0.6 percent while nominal personal consumption expenditures increased at 0.6 percent. Real disposable income increased at 1.8 percent and real personal consumption expenditures at 1.8 percent. In the eighteenth wave, nominal personal income (NPI) increased at 6.2 percent and nominal disposable personal income (NDPI) increased at 5.7 percent annual equivalent in Mar-Jun 2015. Real disposable income (RDPI) increased at 4.1 percent. Nominal consumption expenditures (NPCE) increased at 5.3 percent and real personal consumption expenditures (RPCE) increased at 3.7 percent. In the nineteenth wave, nominal personal income (NPI) increased at 4.1 percent in Jun-Aug 2015 and nominal disposable personal income (NDPI) at 4.5 percent. Real disposable income (RDPI) increased at 3.2 percent, nominal personal consumption expenditures (NPCE) at 3.2 percent and real personal consumption expenditures (RPCE) at 2.0 percent. In the twentieth wave, nominal personal income (NPI) increased at 3.4 percent annual equivalent in Sep-Dec 2015, nominal disposable personal income (NDPI) at 3.4 percent and nominal personal consumption expenditures (NPCE) at 2.7 percent. Real disposable personal income grew at 3.3 percent annual equivalent and real personal consumption expenditures at 2.4 percent. In the twenty-first wave, nominal personal income fell at 0.6 percent annual equivalent in Jan-Feb 2016. Nominal disposable personal income increased at 0.6 percent and nominal personal consumption expenditures at 1.8 percent. Real disposable personal income increased at 0.6 percent and real personal consumption expenditures at 1.2 percent. In the twenty-second wave, nominal personal income increased at 6.2 percent in Mar-Apr 2016. Nominal disposable income increased at 6.2 percent and real disposable income grew at 2.0 percent. Nominal personal consumption expenditures grew at 6.8 percent and real personal consumption expenditures increased at 4.3 percent. In the twenty-third wave, nominal personal income increased at 4.9 percent in May-Jul 2016 and nominal disposable income at 4.5 percent while nominal consumption expenditures increased at 4.5 percent. Real disposable income increased at 2.8 percent and real consumption expenditures at 3.7 percent. In the twenty-fourth wave, nominal personal income increased at 4.5 percent in Aug-Oct 2016 and nominal disposable income at 4.1 percent while nominal consumption expenditures increased at 4.9 percent. Real disposable income increased at 1.6 percent and real personal consumption expenditures increased at 2.0 percent. In the twenty-fifth wave, nominal personal income increased at 3.7 percent and nominal disposable income increased at 3.2 percent in Nov 2016-Jan 2017. Nominal personal consumption expenditures increased at 3.7 percent. Real personal disposable income changed at 0.0 percent and real personal consumption expenditures increased at 0.8 percent.

The United States economy has grown at the average yearly rate of 3 percent per year and 2 percent per year in per capita terms from 1870 to 2010, as measured by Lucas (2011May). An important characteristic of the economic cycle in the US has been rapid growth in the initial phase of expansion after recessions. Inferior performance of the US economy and labor markets is the critical current issue of analysis and policy design. Long-term economic performance in the United States consisted of trend growth of GDP at 3 percent per year and of per capita GDP at 2 percent per year as measured for 1870 to 2010 by Robert E Lucas (2011May). The economy returned to trend growth after adverse events such as wars and recessions. The key characteristic of adversities such as recessions was much higher rates of growth in expansion periods that permitted the economy to recover output, income and employment losses that occurred during the contractions. Over the business cycle, the economy compensated the losses of contractions with higher growth in expansions to maintain trend growth of GDP of 3 percent and of GDP per capita of 2 percent. US economic growth has been at only 2.1 percent on average in the cyclical expansion in the 30 quarters from IIIQ2009 to IVQ2016. Boskin (2010Sep) measures that the US economy grew at 6.2 percent in the first four quarters and 4.5 percent in the first 12 quarters after the trough in the second quarter of 1975; and at 7.7 percent in the first four quarters and 5.8 percent in the first 12 quarters after the trough in the first quarter of 1983 (Professor Michael J. Boskin, Summer of Discontent, Wall Street Journal, Sep 2, 2010 http://professional.wsj.com/article/SB10001424052748703882304575465462926649950.html). There are new calculations using the revision of US GDP and personal income data since 1929 by the Bureau of Economic Analysis (BEA) (http://bea.gov/iTable/index_nipa.cfm) and the second estimate of GDP for IVQ2016 (https://www.bea.gov/newsreleases/national/gdp/2017/pdf/gdp4q16_2nd.pdf). The average of 7.7 percent in the first four quarters of major cyclical expansions is in contrast with the rate of growth in the first four quarters of the expansion from IIIQ2009 to IIQ2010 of only 2.7 percent obtained by diving GDP of $14,745.9 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/2017/01/rising-valuations-of-risk-financial.html and earlier http://cmpassocregulationblog.blogspot.com/2016/12/mediocre-cyclical-united-states.html). The expansion from IQ1983 to IVQ1985 was at the average annual growth rate of 5.9 percent, 5.4 percent from IQ1983 to IIIQ1986, 5.2 percent from IQ1983 to IVQ1986, 5.0 percent from IQ1983 to IQ1987, 5.0 percent from IQ1983 to IIQ1987, 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. 4.5 percent from IQ1983 to IQ1990, 4.4 percent from IQ1983 to IIQ1990 and at 7.8 percent from IQ1983 to IVQ1983 (Section I and earlier http://cmpassocregulationblog.blogspot.com/2017/01/rising-valuations-of-risk-financial.html and earlier http://cmpassocregulationblog.blogspot.com/2016/12/mediocre-cyclical-united-states.html). The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. Growth at trend in the entire cycle from IVQ2007 to IVQ2016 would have accumulated to 30.5 percent. GDP in IVQ2016 would be $19,564.3 billion (in constant dollars of 2009) if the US had grown at trend, which is higher by $2760.2 billion than actual $16,804.1 billion. There are about two trillion dollars of GDP less than at trend, explaining the 25.7 million unemployed or underemployed equivalent to actual unemployment/underemployment of 15.3 percent of the effective labor force (https://cmpassocregulationblog.blogspot.com/2017/02/twenty-six-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2017/01/twenty-four-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2016/12/rising-yields-and-dollar-revaluation.html). US GDP in IVQ2016 is 14.1 percent lower than at trend. US GDP grew from $14,991.8 billion in IVQ2007 in constant dollars to $16,804.1 billion in IVQ2016 or 12.1 percent at the average annual equivalent rate of 1.3 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 Jan 1919 to Jan 2017. Growth at 3.1 percent per year would raise the NSA index of manufacturing output from 108.2316 in Dec 2007 to 142.7575 in Jan 2017. The actual index NSA in Jan 2017 is 101.5620, which is 28.9 percent below trend. Manufacturing output grew at average 2.0 percent between Dec 1986 and Jan 2017. Using trend growth of 2.0 percent per year, the index would increase to 129.5532 in Jan 2017. The output of manufacturing at 101.5620 in Jan 2017 is 21.6 percent below trend under this alternative calculation.

Table IB-1, US, Percentage Change from Prior Month Seasonally Adjusted of Personal Income, Disposable Income and Personal Consumption Expenditures %

 

NPI

NDPI

RDPI

NPCE

RPCE

2017

         

Jan

0.4

0.3

-0.2

0.2

-0.3

2016

         

Dec

0.3

0.3

0.1

0.5

0.3

Nov

0.2

0.2

0.1

0.2

0.2

AE ∆% Nov-Jan

3.7

3.2

0.0

3.7

0.8

Oct

0.4

0.4

0.2

0.4

0.2

Sep

0.4

0.4

0.2

0.7

0.5

Aug

0.2

0.2

0.1

0.1

-0.1

AE ∆% Aug-Oct

4.5

4.1

1.6

4.9

2.0

Jul

0.5

0.4

0.4

0.4

0.3

Jun

0.4

0.3

0.2

0.5

0.4

May

0.4

0.4

0.2

0.3

0.2

AE ∆% May-Jul

4.9

4.5

2.8

4.5

3.7

Apr

0.7

0.7

0.3

1.1

0.7

Mar

0.3

0.3

0.2

0.0

0.0

AE ∆% Mar-Apr

6.2

6.2

2.0

6.8

4.3

Feb

-0.1

-0.1

0.0

0.2

0.3

Jan

0.0

0.2

0.1

0.1

-0.1

AE ∆% Jan-Feb

-0.6

0.6

0.6

1.8

1.2

2015

         

Dec

0.3

0.4

0.5

0.2

0.3

Nov

0.2

0.2

0.1

0.3

0.2

Oct

0.4

0.3

0.3

0.1

0.0

Sep

0.2

0.2

0.2

0.3

0.3

AE ∆% Sep-Dec

3.4

3.4

3.3

2.7

2.4

Aug

0.3

0.3

0.3

0.2

0.2

Jul

0.3

0.4

0.2

0.4

0.3

Jun

0.4

0.4

0.3

0.2

0.0

AE ∆% Jun-Aug

4.1

4.5

3.2

3.2

2.0

May

0.6

0.6

0.4

0.6

0.4

Apr

0.7

0.7

0.6

0.2

0.1

Mar

0.2

0.1

0.0

0.5

0.4

AE ∆% Mar-Jun

6.2

5.7

4.1

5.3

3.7

Feb

0.3

0.3

0.2

0.3

0.1

Jan

0.0

-0.4

0.1

-0.2

0.2

AE ∆% Jan-Feb

1.8

-0.6

1.8

0.6

1.8

2014

         

Dec

0.1

0.1

0.3

-0.1

0.1

Nov

0.4

0.3

0.4

0.4

0.4

Oct

0.5

0.5

0.4

0.6

0.6

Sep

0.3

0.3

0.1

0.1

0.0

AE ∆% Sep-Dec

4.0

3.7

3.7

3.0

3.3

Aug

0.5

0.4

0.5

0.7

0.7

Jul

0.4

0.3

0.2

0.2

0.1

Jun

0.6

0.6

0.5

0.5

0.5

May

0.5

0.5

0.4

0.3

0.1

Apr

0.4

0.5

0.3

0.4

0.1

AE ∆% Apr-Aug

5.9

5.7

4.7

5.2

3.7

Mar

0.7

0.8

0.6

0.7

0.5

Feb

0.6

0.6

0.6

0.6

0.5

Jan

0.7

0.6

0.4

0.0

-0.3

AE ∆% Jan-Mar

8.3

8.3

6.6

5.3

2.8

2013

         

Dec

0.4

0.3

0.1

0.2

0.0

AE ∆% Dec

4.9

3.7

1.2

2.4

0.0

Nov

0.5

0.4

0.3

0.7

0.5

AE ∆% Nov

6.2

4.9

3.7

8.7

6.2

Oct

-0.1

-0.1

-0.3

0.4

0.2

AE ∆% Oct

-1.2

-1.2

-3.5

4.9

2.4

Sep

0.4

0.4

0.3

0.5

0.4

Aug

0.4

0.4

0.3

0.2

0.1

Jul

0.0

0.0

-0.1

0.2

0.1

Jun

0.4

0.4

0.2

0.4

0.2

May

0.7

0.6

0.6

0.2

0.2

Apr

0.1

0.0

0.0

-0.1

0.0

AE ∆% Apr-Sep

4.1

3.7

2.6

2.8

2.0

Mar

0.1

0.0

0.1

-0.2

-0.1

Feb

0.4

0.4

0.0

0.5

0.1

AE ∆% Feb-Mar

3.0

2.4

0.6

1.8

0.0

Jan

-5.2

-6.1 (0.1)a

-6.2

0.3

0.2

AE ∆% Jan

-47.3

-53.0 (3.7)a

-53.6

3.7

2.4

2012

         

∆% Jan-Dec 2012***

8.5

8.6

6.8

3.3

2.3

Dec

2.6

2.6 (0.3)*

2.6 (0.5)*

0.2

0.2

Nov

1.2

1.2 (0.6)*

1.3 (0.9)*

0.2

0.3

AE ∆% Nov-Dec

25.3

25.3 (5.5)*

26.0 (8.7)*

2.4

3.0

Oct

0.9

0.9

0.6

0.1

-0.2

Sep

0.9

0.8

0.5

0.7

0.4

Aug

0.2

0.2

-0.2

0.2

-0.2

AE ∆% Aug-Oct

8.3

7.9

3.7

4.1

0.0

Jul

-0.2

-0.2

-0.3

0.3

0.3

Jun

0.2

0.2

0.2

-0.1

-0.1

May

0.0

0.0

0.1

-0.1

0.0

Apr

0.4

0.4

0.3

0.3

0.1

AE ∆% Apr-Jul

1.2

1.2

0.9

1.2

0.9

Mar

0.5

0.5

0.3

0.1

-0.1

Feb

0.8

0.8

0.6

0.6

0.4

Jan

0.7

1.0

0.7

0.7

0.4

AE ∆% Jan-Mar

8.3

9.6

4.9

4.3

2.1

2011

         

∆% Jan-Dec 2011*

5.1

4.1

1.6

3.7

1.8

Dec

0.8

0.8

0.8

0.0

0.0

Nov

0.0

0.0

-0.1

0.0

-0.1

Oct

0.1

0.1

0.1

0.3

0.3

Sep

-0.1

-0.1

-0.3

0.4

0.3

AE ∆% Sep-Dec

2.4

2.4

1.5

2.1

1.5

Aug

0.2

0.2

-0.1

0.2

-0.1

Jul

0.6

0.6

0.4

0.5

0.3

Jun

0.5

0.5

0.4

0.2

0.2

May

0.3

0.3

-0.1

0.3

-0.1

AE ∆% May-Aug

4.9

4.9

1.8

3.7

0.9

Apr

0.2

0.2

-0.3

0.4

0.0

Mar

0.2

0.2

-0.1

0.7

0.3

Feb

0.5

0.6

0.3

0.4

0.1

Jan

1.6

0.7

0.5

0.4

0.1

AE ∆% Jan-Apr

7.7

5.2

1.2

5.9

1.5

2010

         

∆% Jan-Dec 2010**

5.2

4.3

2.9

4.4

2.9

Dec

0.9

0.9

0.7

0.3

0.1

Nov

0.5

0.5

0.3

0.5

0.4

Oct

0.5

0.5

0.2

0.7

0.5

IVQ2010∆%

1.9

1.9

1.2

1.5

1.0

IVQ2010 AE ∆%

7.9

7.9

4.9

6.2

4.1

Notes: *Excluding exceptional income gains in Nov and Dec 2012 because of anticipated tax increases in Jan 2013 ((page 2 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi1212.pdf). a Excluding employee contributions for government social insurance (pages 1-2 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0113.pdf )Excluding NPI: current dollars personal income; NDPI: current dollars disposable personal income; RDPI: chained (2005) dollars DPI; NPCE: current dollars personal consumption expenditures; RPCE: chained (2005) dollars PCE; AE: annual equivalent; IVQ2010: fourth quarter 2010; A: annual equivalent

Percentage change month to month seasonally adjusted

*∆% Dec 2011/Dec 2010 **∆% Dec 2010/Dec 2009 *** ∆% Dec 2012/Dec 2011

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

Table IB-2 provides 12-month rates of growth of real disposable personal income (RDPI), real personal consumption expenditures (RPCE), real personal consumption expenditures in goods (RPCEG), real personal consumption expenditures in durable goods (RPCEGD) and real personal consumption expenditures of services (RPCES). The rates of growth of real disposable income decline in the final quarter of 2013 because of the increases in the last two months of 2012 in anticipation of the tax increases of the “fiscal cliff” episode. The increase was provided in the “fiscal cliff” law H.R. 8 American Taxpayer Relief Act of 2012 (http://www.gpo.gov/fdsys/pkg/BILLS-112hr8eas/pdf/BILLS-112hr8eas.pdf).

The 12-month rate of increase of real disposable income fell to minus 1.3 percent in Oct 2013 and minus 2.4 percent in Nov 2013 partly because of the much higher level in late 2012 in anticipation of incomes to avoid increases in taxes in 2013. Real disposable income fell 4.8 percent in the 12 months ending in Dec 2013 primarily because of the much higher level in late 2012 in anticipation of income to avoid increases in taxes in 2013. Real disposable income increased 1.9 percent in the 12 months ending in Jan 2014, partly because of the low level in Jan 2013 after anticipation of incomes in late 2012 in avoiding the fiscal cliff episode. Real disposable income increased 2.0 percent in the 12 months ending in Jan 2017.

RPCE growth decelerated less sharply from close to 3 percent in IVQ2010 to 2.8 percent in Jan 2017. Subdued growth of RPCE could affect revenues of business. Growth rates of personal consumption have weakened. Goods and especially durable goods have been driving growth of PCE as shown by the much higher 12-month rates of growth of real goods PCE (RPCEG) and durable goods real PCE (RPCEGD) than services real PCE (RPCES). Growth of consumption of goods and, in particular, of consumer durable goods drives the faster expansion of the economy while growth of consumption of services is much more moderate. The 12-month rates of growth of RPCEGD have fallen from around 10 percent and even higher in several months from Sep 2010 to Feb 2011 to the range of 3.2 to 8.8 percent from Jan 2016 to Jan 2017. RPCEG growth rates have fallen from around 5 percent late in 2010 and early Jan-Feb 2011 to the range of 2.4 to 4.6 percent from Jan 2016 to Jan 2017. In Jan 2017, RPCEG increased 4.3 percent in 12 months and RPCEGD 8.8 percent while RPCES increased 2.0 percent. There are limits to sustained growth based on financial repression in an environment of weak labor markets and real labor remuneration.

Table IB-2, Real Disposable Personal Income and Real Personal Consumption Expenditures

Percentage Change from the Same Month a Year Earlier %

 

RDPI

RPCE

RPCEG

RPCEGD

RPCES

2017

         

Jan

2.0

2.8

4.3

8.8

2.0

2016

         

Dec

2.3

3.0

4.4

8.5

2.3

Nov

2.6

3.0

4.0

6.7

2.5

Oct

2.6

3.0

4.6

8.6

2.2

Sep

2.7

2.8

3.6

6.8

2.4

Aug

2.7

2.6

2.9

4.8

2.4

Jul

2.9

2.9

3.7

6.6

2.5

Jun

2.8

2.9

3.7

5.4

2.5

May

2.8

2.5

3.2

3.8

2.2

Apr

2.9

2.8

3.9

5.1

2.2

Mar

3.2

2.2

2.4

3.2

2.0

Feb

2.9

2.6

3.3

5.5

2.2

Jan

3.1

2.4

3.1

4.1

2.0

2015

         

Dec

3.0

2.6

3.5

5.5

2.2

Nov

2.9

2.4

3.2

5.3

2.0

Oct

3.2

2.6

3.3

5.6

2.3

Sep

3.3

3.2

4.3

6.8

2.6

Aug

3.3

2.9

3.5

5.6

2.5

Jul

3.4

3.4

4.4

7.3

2.9

Jun

3.4

3.2

3.8

6.2

2.9

May

3.6

3.6

4.7

8.0

3.1

Apr

3.7

3.4

3.8

7.5

3.2

Mar

3.3

3.4

4.2

7.0

3.0

Feb

4.0

3.5

4.1

7.6

3.3

Jan

4.4

4.0

5.9

11.1

3.1

2014

         

Dec

4.7

3.5

4.7

9.4

2.9

Nov

4.5

3.5

4.7

8.5

2.8

Oct

4.4

3.5

4.5

8.0

3.0

Sep

3.7

3.2

4.0

8.0

2.8

Aug

3.8

3.6

5.3

8.5

2.7

Jul

3.6

2.9

3.8

6.7

2.4

Jun

3.3

2.9

4.2

7.0

2.3

May

3.1

2.6

3.7

6.7

2.1

Apr

3.3

2.7

4.1

6.0

2.0

Mar

3.0

2.6

4.2

7.3

1.7

Feb

2.5

1.9

2.6

3.3

1.6

Jan

1.9

1.5

1.1

1.2

1.7

2013

         

Dec

-4.8

1.9

2.9

3.1

1.4

Nov

-2.4

2.2

3.8

5.8

1.3

Oct

-1.3

1.9

3.7

6.8

1.0

Sep

-0.5

1.5

2.9

4.5

0.8

Aug

-0.3

1.5

2.8

6.6

0.9

Jul

-0.8

1.3

3.4

7.0

0.2

Jun

-1.0

1.5

3.5

7.5

0.5

May

-1.0

1.2

3.0

6.5

0.3

Apr

-1.5

1.0

2.5

6.1

0.2

Mar

-1.2

1.1

2.4

5.6

0.5

Feb

-1.1

1.1

3.0

7.2

0.1

Jan

-0.5

1.4

3.4

7.8

0.3

2012

         

Dec

6.8

1.6

3.6

8.7

0.6

Nov

4.9

1.4

2.8

7.7

0.7

Oct

3.4

1.0

1.9

5.2

0.5

Sep

2.9

1.4

3.4

8.5

0.4

Aug

2.1

1.3

3.4

8.5

0.3

Jul

2.2

1.4

2.8

7.5

0.7

Jun

2.9

1.4

2.5

8.3

0.8

May

3.1

1.7

3.1

7.9

1.0

Apr

3.0

1.6

2.5

7.0

1.2

Mar

2.4

1.4

2.3

5.9

1.0

Feb

2.0

1.8

2.5

7.1

1.5

Jan

1.8

1.5

1.9

5.9

1.3

Dec 2011

1.6

1.2

1.4

5.0

1.1

Dec 2010

2.9

2.9

4.7

8.4

2.1

Notes: RDPI: real disposable personal income; RPCE: real personal consumption expenditures (PCE); RPCEG: real PCE goods; RPCEGD: RPCEG durable goods; RPCES: RPCE services

Numbers are percentage changes from the same month a year earlier

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

Chart IB-1 shows US real personal consumption expenditures (RPCE) between 1999 and 2016. There is an evident drop in RPCE during the global recession in 2007 to 2009 but the slope is flatter during the current recovery than in the period before 2007.

 

Chart IB-1, US, Real Personal Consumption Expenditures, Quarterly Seasonally Adjusted at Annual Rates 1999-2016

Source: US Bureau of Economic Analysis

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

Percent changes from the prior period in seasonally adjusted annual equivalent quarterly rates (SAAR) of real personal consumption expenditures (RPCE) are in Chart IB-2 from 1995 to 2016. The average rate could be visualized as a horizontal line. Although there are not yet sufficient observations, it appears from Chart IB-2 that the average rate of growth of RPCE was higher before the recession than during the past thirty quarters of expansion that began in IIIQ2009.

 

Chart IB-2, Percent Change from Prior Period in Real Personal Consumption Expenditures, Quarterly Seasonally Adjusted at Annual Rates 1995-2016

Source: US Bureau of Economic Analysis

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

Personal income and its disposition are in Table IB-3. The latest estimates and revisions have changed movements in eight forms. (1) Increase in Dec 2016 of personal income by $50.2 billion or 0.3 percent and increase of disposable income of $43.7 billion or 0.3 percent with increase of wages and salaries of 0.4 percent. (2) Increase of personal income of $552.5.5 billion or 3.5 percent from Dec 2015 to Dec 2016 and increase of disposable income of $510.1 billion or 3.7 percent. Wages and salaries increased $287.6 billion or 3.6 percent. (3) Increase of personal income of $599.7 billion from Dec 2014 to Dec 2015 or 4.0 percent and increase of disposable income of $482.4 billion or 3.6 percent. Wages and salaries increased $411.7 billion or 5.4 percent. (4) Increase of personal income of $844.1 billion from Dec 2013 to Dec 2014 or 5.9 percent while disposable income increased $712.4 billion or 5.7 percent. Wages and salaries increased $406.0 billion or 5.6 percent. (5) Decrease of personal income of $329.0 billion from Dec 2012 to Dec 2013 or by 2.2 percent and decrease of disposable income of $442.5 billion or by 3.4 percent. Wages and salaries increased $60.7 billion from Dec 2012 to Dec 2013 or by 0.8 percent. Large part of these declines occurred because of the comparison of high levels in late 2012 in anticipation of tax increases in 2013. (6) In 2012, personal income increased $1150.5 billion or 8.5 percent while wages and salaries increased 7.5 percent and disposable income 8.6 percent. Significant part of these gains occurred in Dec 2012 in anticipation of incomes because of tax increases beginning in Jan 2013. (7) Increase of $656.0 billion of personal income in 2011 or by 5.1 percent with increase of wages and salaries of 2.7 percent and disposable income of 4.1 percent. (8) Increase of the rate of savings as percent of disposable income from 5.9 percent in Dec 2010 to 6.4 percent in Dec 2011 and 11.0 percent in Dec 2012, decreasing to 4.7 percent in Dec 2013. The savings rate increased to 5.7 percent in Dec 2014, 6.1 percent in Dec 2015, 5.6 in Nov 2016 and 5.4 percent in Dec 2016.

Table IB-3, US, Personal Income and its Disposition, Seasonally Adjusted at Annual Rates USD Billions

 

Personal
Income

Wages &
Salaries

Personal
Taxes

DPI

Savings
Rate %

Jan 2017

16,370.8

8,400.0

2,025.4

14,345.4

5.5

Dec 2016

16,307.8

8,366.4

2,002.5

14,305.3

5.4

Change Jan 2017/     

Dec 2016

63.0 ∆% 0.4

33.6 ∆%

0.4

22.9 ∆% 1.1

40.1 ∆% 0.3

 

Dec 2015

15,737.7

8,063.0

1,966.6

13,771.1

6.1

Change Dec 2016/     

Dec 2015

570.1 ∆% 3.6

303.4 ∆% 3.8

35.9 ∆% 1.8

534.2 ∆% 3.9

 

Dec 2015

15,737.7

8,063.0

1,966.6

13,771.1

6.1

Change Dec 2015/Dec 2014

599.7 ∆%

4.0

411.7 ∆%

5.4

117.4 ∆%

6.3

482.4 ∆%

3.6

 

Dec 2014

15,138.0

7,651.3

1,849.2

13,288.7

5.7

Change Dec 2014/Dec 2013

844.1 ∆% 5.9

406.0 ∆% 5.6

131.6 ∆% 7.7

712.4 ∆% 5.7

 

Dec 2013

14,293.9

7,245.3

1,717.6

12,576.3

4.7

Dec 2012

14,622.9

7,184.6

1,604.1

13,018.8

11.0

Change Dec 2013/ Dec 2012

-329.0 ∆% -2.2

60.7 ∆% 0.8

113.5 ∆%

7.3

-442.5 ∆% -3.4

 

Change Dec 2012/ Dec 2011

1150.5 ∆% 8.5

501.7 ∆% 7.5

120.3 ∆% 8.1

1030.2 ∆% 8.6

 

Dec 2011

13,472.4

6,682.9

1,483.8

11,988.6

6.4

Dec 2010

12,816.4

6,506.0

1,301.9

11,514.5

5.9

Change Dec 2011/ Dec 2010

656.0 ∆%

5.1

176.9  ∆% 2.7

181.9     ∆% 14.0

474.1    ∆% 4.1

 

Source: US Bureau of Economic Analysis

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

The Bureau of Economic Analysis (BEA) provides a wealth of revisions and enhancements of US personal income and outlays since 1929 (http://www.bea.gov/iTable/index_nipa.cfm). Table IB-4 provides growth rates of real disposable income and real disposable income per capita in the long-term and selected periods. Real disposable income consists of after-tax income adjusted for inflation. Real disposable income per capita is income per person after taxes and inflation. There is remarkable long-term trend of growth of real disposable income of 3.2 percent per year on average from 1929 to 2016 and 2.0 percent in real disposable income per capita. Real disposable income increased at the average yearly rate of 3.7 percent from 1947 to 1999 and real disposable income per capita at 2.3 percent. These rates of increase broadly accompany rates of growth of GDP. Institutional arrangements in the United States provided the environment for growth of output and income after taxes, inflation and population growth. There is significant break of growth by much lower 2.4 percent for real disposable income on average from 1999 to 2016 and 1.5 percent in real disposable per capita income. Real disposable income grew at 3.5 percent from 1980 to 1989 and real disposable per capita income at 2.6 percent. In contrast, real disposable income grew at only 1.8 percent on average from 2006 to 2016 and real disposable income per capita at 1.0 percent. Real disposable income grew at 1.8 percent from 2007 to 2016 and real disposable income per capita at 1.0 percent. The United States has interrupted its long-term and cyclical dynamism of output, income and employment growth. Recovery of this dynamism could prove to be a major challenge. Cyclical uncommonly slow growth explains weakness in the current whole cycle instead of the allegation of secular stagnation.

Table IB-4, Average Annual Growth Rates of Real Disposable Income (RDPI) and Real Disposable Income per Capita (RDPIPC), Percent per Year 

RDPI Average ∆%

 

     1929-2016

3.2

     1947-1999

3.7

     1999-2016

2.4

     1999-2006

3.2

     1980-1989

3.5

     2006-2016

1.8

2007-2016

1.8

RDPIPC Average ∆%

 

     1929-2016

2.0

     1947-1999

2.3

     1999-2016

1.5

     1999-2006

2.2

     1980-1989

2.6

     2006-2016

1.0

2007-2016

1.0

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

Chart IB-3 provides personal income in the US between 1980 and 1989. These data are not adjusted for inflation that was still high in the 1980s in the exit from the Great Inflation of the 1960s and 1970s (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 http://cmpassocregulationblog.blogspot.com/2014/07/financial-irrational-exuberance.html http://cmpassocregulationblog.blogspot.com/2014/07/world-inflation-waves-united-states.html). Personal income grew steadily during the 1980s after recovery from two recessions from Jan IQ1980 to Jul IIIQ1980 and from Jul IIIQ1981 to Nov IVQ1982.

 

Chart IB-3, US, Personal Income, Billion Dollars, Quarterly Seasonally Adjusted at Annual Rates, 1980-1989

Source: US Bureau of Economic Analysis

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

A different evolution of personal income is shown in Chart IB-4. Personal income also fell during the recession from Dec IVQ2007 to Jun IIQ2009 (http://www.nber.org/cycles.html). Growth of personal income during the expansion has been tepid even with the new revisions. In IVQ2012, nominal disposable personal income grew at the SAAR of 13.3 percent and real disposable personal income at 10.9 percent (Table 2.1 http://bea.gov/iTable/index_nipa.cfm). The BEA explains as follows: “Personal income in November and December was boosted by accelerated and special dividend payments to persons and by accelerated bonus payments and other irregular pay in private wages and salaries in anticipation of changes in individual income tax rates. Personal income in December was also boosted by lump-sum social security benefit payments” (page 2 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi1212.pdf pages 1-2 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0113.pdf). The Bureau of Economic Analysis explains as (http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0213.pdf 2-3): “The January estimate of employee contributions for government social insurance reflected the expiration of the “payroll tax holiday,” that increased the social security contribution rate for employees and self-employed workers by 2.0 percentage points, or $114.1 billion at an annual rate. For additional information, see FAQ on “How did the expiration of the payroll tax holiday affect personal income for January 2013?” at www.bea.gov. The January estimate of employee contributions for government social insurance also reflected an increase in the monthly premiums paid by participants in the supplementary medical insurance program, in the hospital insurance provisions of the Patient Protection and Affordable Care Act, and in the social security taxable wage base.”

The increase was provided in the “fiscal cliff” law H.R. 8 American Taxpayer Relief Act of 2012 (http://www.gpo.gov/fdsys/pkg/BILLS-112hr8eas/pdf/BILLS-112hr8eas.pdf).

In IQ2013, personal income fell at the SAAR of minus 11.0 percent; real personal income excluding current transfer receipts at minus 11.9 percent; and real disposable personal income at minus 15.9 percent (Table 14 at http://www.bea.gov/newsreleases/national/pi/2016/pdf/pi0616.pdf).The BEA explains as follows (page 3 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0313.pdf):

“The February and January changes in disposable personal income (DPI) mainly reflected the effect of special factors in January, such as the expiration of the “payroll tax holiday” and the acceleration of bonuses and personal dividends to November and to December in anticipation of changes in individual tax rates.”

In IIIQ2014, personal income grew at 4.5 percent, real personal income excluding current transfers at 2.8 percent, nominal disposable income at 3.9 percent and real disposable personal income at 2.7 percent (Table 14 at http://www.bea.gov/newsreleases/national/pi/2016/pdf/pi0616.pdf). 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/pi1116.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 https://www.bea.gov/newsreleases/national/pi/2017/pdf/pi0117.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 https://www.bea.gov/newsreleases/national/pi/2017/pdf/pi0117.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 https://www.bea.gov/newsreleases/national/pi/2017/pdf/pi0117.pdf). In IIQ2016, personal income grew at 4.9 percent and at 3.2 percent excluding transfer receipts while nominal disposable income grew at 5.0 percent and real disposable income grew at 2.9 percent (Table 6 at https://www.bea.gov/newsreleases/national/pi/2017/pdf/pi0117.pdf). In IIIQ2016, personal income grew at 4.6 percent and at 3.4 percent excluding transfer receipts while nominal disposable income grew at 4.4 percent and real disposable income grew at 2.9 percent (Table 6 at https://www.bea.gov/newsreleases/national/pi/2017/pdf/pi0117.pdf). In IVQ2016, nominal personal income grew at 3.9 percent and 2.1 percent excluding current transfers while disposable income grew at 4.0 percent and real disposable income at 2.0 percent (Table 6 at https://www.bea.gov/newsreleases/national/pi/2017/pdf/pi0117.pdf).

 

Chart IB-4, US, Personal Income, Current Billions of Dollars, Quarterly Seasonally Adjusted at Annual Rates, 2007-2016

Source: US Bureau of Economic Analysis

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

Real or inflation-adjusted disposable personal income is in Chart IB-5 from 1980 to 1989. Real disposable income after allowing for taxes and inflation grew steadily at high rates during the entire decade.

 

Chart IB-5, US, Real Disposable Income, Billions of Chained 2009 Dollars, Quarterly Seasonally Adjusted at Annual Rates 1980-1989

Source: US Bureau of Economic Analysis

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

Chart IB-6 provides real disposable income from 2007 to 2016. In IVQ2012, nominal disposable personal income grew at the SAAR of 13.3 percent and real disposable personal income at 10.9 percent (Table 2.1 http://bea.gov/iTable/index_nipa.cfm). The BEA explains as follows: “Personal income in November and December was boosted by accelerated and special dividend payments to persons and by accelerated bonus payments and other irregular pay in private wages and salaries in anticipation of changes in individual income tax rates. Personal income in December was also boosted by lump-sum social security benefit payments” (page 2 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi1212.pdf pages 1-2 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0113.pdf). The Bureau of Economic Analysis explains as (http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0213.pdf 2-3): “The January estimate of employee contributions for government social insurance reflected the expiration of the “payroll tax holiday,” that increased the social security contribution rate for employees and self-employed workers by 2.0 percentage points, or $114.1 billion at an annual rate. For additional information, see FAQ on “How did the expiration of the payroll tax holiday affect personal income for January 2013?” at www.bea.gov. The January estimate of employee contributions for government social insurance also reflected an increase in the monthly premiums paid by participants in the supplementary medical insurance program, in the hospital insurance provisions of the Patient Protection and Affordable Care Act, and in the social security taxable wage base.”

The increase was provided in the “fiscal cliff” law H.R. 8 American Taxpayer Relief Act of 2012 (http://www.gpo.gov/fdsys/pkg/BILLS-112hr8eas/pdf/BILLS-112hr8eas.pdf). In IQ2013, personal income fell at the SAAR of minus 11.0 percent; real personal income excluding current transfer receipts at minus 11.9 percent; and real disposable personal income at minus 15.9 percent (Table 14 at http://www.bea.gov/newsreleases/national/pi/2016/pdf/pi0616.pdf).The BEA explains as follows (page 3 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0313.pdf):

“The February and January changes in disposable personal income (DPI) mainly reflected the effect of special factors in January, such as the expiration of the “payroll tax holiday” and the acceleration of bonuses and personal dividends to November and to December in anticipation of changes in individual tax rates.”

In IIIQ2014, personal income grew at 4.5 percent, real personal income excluding current transfers at 2.8 percent, nominal disposable income at 3.9 percent and real disposable personal income at 2.7 percent (Table 14 at http://www.bea.gov/newsreleases/national/pi/2016/pdf/pi0616.pdf). 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/pi1116.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 https://www.bea.gov/newsreleases/national/pi/2017/pdf/pi0117.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 https://www.bea.gov/newsreleases/national/pi/2017/pdf/pi0117.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 https://www.bea.gov/newsreleases/national/pi/2017/pdf/pi0117.pdf). In IIQ2016, personal income grew at 4.9 percent and at 3.2 percent excluding transfer receipts while nominal disposable income grew at 5.0 percent and real disposable income grew at 2.9 percent (Table 6 at https://www.bea.gov/newsreleases/national/pi/2017/pdf/pi0117.pdf). In IIIQ2016, personal income grew at 4.6 percent and at 3.4 percent excluding transfer receipts while nominal disposable income grew at 4.4 percent and real disposable income grew at 2.9 percent (Table 6 at https://www.bea.gov/newsreleases/national/pi/2017/pdf/pi0117.pdf). In IVQ2016, nominal personal income grew at 3.9 percent and 2.1 percent excluding current transfers while disposable income grew at 4.0 percent and real disposable income at 2.0 percent (Table 6 at https://www.bea.gov/newsreleases/national/pi/2017/pdf/pi0117.pdf).

 

Chart IB-6, US, Real Disposable Income, Billions of Chained 2009 Dollars, Quarterly Seasonally Adjusted at Annual Rates, 2007-2016

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

Chart IB-7 provides percentage quarterly changes in real disposable income from the preceding period at seasonally adjusted annual rates from 1980 to 1989. Rates of changes were high during the decade with few negative changes.

 

Chart IB-7, US, Real Disposable Income Percentage Change from Preceding Period at Quarterly Seasonally-Adjusted Annual Rates, 1980-1989

Source: US Bureau of Economic Analysis

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

Chart IB-8 provides percentage quarterly changes in real disposable income from the preceding period at seasonally adjusted annual rates from 2007 to 2016. There has been a period of positive rates followed by decline of rates and then negative and low rates in 2011. Recovery in 2012 has not reproduced the dynamism of the brief early phase of expansion. In IVQ2012, nominal disposable personal income grew at the SAAR of 13.3 percent and real disposable personal income at 10.9 percent (Table 2.1 http://bea.gov/iTable/index_nipa.cfm). The BEA explains as follows: “Personal income in November and December was boosted by accelerated and special dividend payments to persons and by accelerated bonus payments and other irregular pay in private wages and salaries in anticipation of changes in individual income tax rates. Personal income in December was also boosted by lump-sum social security benefit payments” (page 2 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi1212.pdf pages 1-2 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0113.pdf). The Bureau of Economic Analysis explains as (http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0213.pdf 2-3): “The January estimate of employee contributions for government social insurance reflected the expiration of the “payroll tax holiday,” that increased the social security contribution rate for employees and self-employed workers by 2.0 percentage points, or $114.1 billion at an annual rate. For additional information, see FAQ on “How did the expiration of the payroll tax holiday affect personal income for January 2013?” at www.bea.gov. The January estimate of employee contributions for government social insurance also reflected an increase in the monthly premiums paid by participants in the supplementary medical insurance program, in the hospital insurance provisions of the Patient Protection and Affordable Care Act, and in the social security taxable wage base.”

The increase was provided in the “fiscal cliff” law H.R. 8 American Taxpayer Relief Act of 2012 (http://www.gpo.gov/fdsys/pkg/BILLS-112hr8eas/pdf/BILLS-112hr8eas.pdf). In IQ2013, personal income fell at the SAAR of minus 11.0 percent; real personal income excluding current transfer receipts at minus 11.9 percent; and real disposable personal income at minus 15.9 percent (Table 14 at http://www.bea.gov/newsreleases/national/pi/2016/pdf/pi0616.pdf).The BEA explains as follows (page 3 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0313.pdf):

“The February and January changes in disposable personal income (DPI) mainly reflected the effect of special factors in January, such as the expiration of the “payroll tax holiday” and the acceleration of bonuses and personal dividends to November and to December in anticipation of changes in individual tax rates.”

In IIIQ2014, personal income grew at 4.5 percent, real personal income excluding current transfers at 2.8 percent, nominal disposable income at 3.9 percent and real disposable personal income at 2.7 percent (Table 14 at http://www.bea.gov/newsreleases/national/pi/2016/pdf/pi0616.pdf). 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/pi1116.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 https://www.bea.gov/newsreleases/national/pi/2017/pdf/pi0117.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 https://www.bea.gov/newsreleases/national/pi/2017/pdf/pi0117.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 https://www.bea.gov/newsreleases/national/pi/2017/pdf/pi0117.pdf). In IIQ2016, personal income grew at 4.9 percent and at 3.2 percent excluding transfer receipts while nominal disposable income grew at 5.0 percent and real disposable income grew at 2.9 percent (Table 6 at https://www.bea.gov/newsreleases/national/pi/2017/pdf/pi0117.pdf). In IIIQ2016, personal income grew at 4.6 percent and at 3.4 percent excluding transfer receipts while nominal disposable income grew at 4.4 percent and real disposable income grew at 2.9 percent (Table 6 at https://www.bea.gov/newsreleases/national/pi/2017/pdf/pi0117.pdf). In IVQ2016, nominal personal income grew at 3.9 percent and 2.1 percent excluding current transfers while disposable income grew at 4.0 percent and real disposable income at 2.0 percent (Table 6 at https://www.bea.gov/newsreleases/national/pi/2017/pdf/pi0117.pdf).

 

Chart, IB-8, US, Real Disposable Income, Percentage Change from Preceding Period at Seasonally-Adjusted Annual Rates, 2007-2016

Source: US Bureau of Economic Analysis

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

The Bureau of Economic Analysis (BEA) estimates US personal income in Jan 2017 at the seasonally adjusted annual rate of $16,370.8 billion, as shown in Table IB-3 above (see Table 1 at https://www.bea.gov/newsreleases/national/pi/2017/pdf/pi0117.pdf). The major portion of personal income is compensation of employees of $10,353.9 billion, or 63.2 percent of the total. Wages and salaries are $8,400.0 billion, of which $7,067.0billion by private industries and supplements to wages and salaries of $1,953.9 billion (contributions to social insurance are $604.4 billion). In Jul 1990 (at the comparable month after the 30th quarter of cyclical expansion), US personal income was $4,938.9 billion at SAAR (http://www.bea.gov/iTable/index_nipa.cfm). Compensation of employees was $3,370.7 billion, or 68.2 percent of the total. Wages and salaries were $2,766.9 billion of which $2,245.4 billion by private industries. Supplements to wages and salaries were $603.9 billion with employer contributions to pension and insurance funds of $395.5 billion and $208.4 billion to government social insurance. Chart IB-9 provides US wages and salaries by private industries in the 1980s. Growth was robust after the interruption of the recessions.

 

Chart IB-9, US, Wages and Salaries, Private Industries, Quarterly, Seasonally Adjusted at Annual Rates Billions of Dollars, 1980-1989

Source: US Bureau of Economic Analysis

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

The Bureau of Economic Analysis (BEA) estimates US personal income in Jan 2017 at the seasonally adjusted annual rate of $16,370.8 billion, as shown in Table IB-3 above (see Table 1 at https://www.bea.gov/newsreleases/national/pi/2017/pdf/pi0117.pdf). The major portion of personal income is compensation of employees of $10,353.9 billion, or 63.2 percent of the total. Wages and salaries are $8,400.0 billion, of which $7,067.0billion by private industries and supplements to wages and salaries of $1,953.9 billion (contributions to social insurance are $604.4 billion). Chart IB-10 provides US wages and salaries by private industries from 2007 to 2016. Growth was mediocre in the weak expansion phase after IIIQ2009.

 

Chart IB-10, US, Wage and Salary Disbursement, Private Industries, Quarterly, Seasonally Adjusted at Annual Rates, Billions of Dollars 2007-2016

Source: US Bureau of Economic Analysis

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

Chart IB-11 provides finer detail with monthly wages and salaries of private industries from 2007 to 2016. Anticipations of income in late 2012 to avoid tax increases in 2013 cloud comparisons.

 

Chart IB-11, US, Wages and Salaries, Private Industries, Monthly, Seasonally Adjusted at Annual Rates, Billions of Dollars 2007-2016

Source: US Bureau of Economic Analysis

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

Chart IB-12 provides monthly real disposable personal income per capita from 1980 to 1989. This is the ultimate measure of wellbeing in receiving income by obtaining the value per inhabitant. The measure cannot adjust for the distribution of income. Real disposable income per capita grew rapidly during the expansion after 1983 and continued growing during the rest of the decade.

Chart IB-12, US, Real Disposable Per Capita Income, Monthly, Seasonally Adjusted at Annual Rates, Chained 2009 Dollars 1980-1989

Source: US Bureau of Economic Analysis

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

Table IB-5 provides the comparison between the cycle of the 1980s and the current cycle. Real per capita disposable income (RDPI-PC) increased 27.0 percent from Dec 1979 to Jul 1990. In the comparable period in the current cycle from Dec 2007 to Jan 2017, real per capita disposable income increased 9.9 percent.

Table IB-5, Percentage Changes of Real Disposable Personal Income Per Capita

Month

RDPI-PC ∆% 12/79

RDPI-PC ∆% YOY

Month

RDPI-PC ∆% 12/07

RDPI-PC ∆% YOY

11/1982

2.4

0.7

6/2009

-0.6

-2.4

12/1982

2.9

1.3

9/2009

-1.3

-0.6

12/1983

7.8

4.8

6/2010

-0.4

0.2

12/1987

20.4

2.7

6/2014

4.3

2.6

1/1988

20.6

2.6

7/2014

4.5

2.9

2/1988

21.2

2.6

8/2014

4.9

3.0

3/1988

21.6

2.9

9/2014

4.9

2.9

4/1988

21.9

7.4

10/2014

5.3

3.6

5/1988

22.0

3.3

11/2014

5.7

3.8

6/1988

22.3

3.9

12/2014

5.9

4.0

7/1988

22.7

4.0

1/2015

5.9

3.6

8/1988

23.0

3.8

2/2015

6.1

3.2

9/1988

23.1

4.0

3/2015

6.0

2.6

10/1988

23.6

3.9

4/2015

6.6

2.9

11/1988

23.6

3.5

5/2015

6.9

2.9

12/1988

24.2

3.2

6/2015

7.1

2.6

1/1989

24.7

3.4

7/2015

7.3

2.7

2/1989

25.0

3.2

8/2015

7.5

2.5

3/1989

25.6

3.3

9/2015

7.7

2.6

4/1989

24.8

2.4

10/2015

7.9

2.4

5/1989

24.1

1.8

11/2015

8.0

2.2

6/1989

24.4

1.6

12/2015

8.4

2.3

7/1989

24.7

1.6

1/2016

8.4

2.4

8/1989

24.9

1.6

2/2016

8.4

2.2

9/1989

25.1

1.7

3/2016

8.6

2.5

10/1989

25.6

1.6

4/2016

8.9

2.2

11/1989

25.6

1.6

5/2016

9.1

2.1

12/1989

25.6

1.1

6/2016

9.3

2.1

1/1990

26.3

1.3

7/2016

9.6

2.2

2/1990

26.5

1.2

8/2016

9.6

2.0

3/1990

26.4

0.6

9/2016

9.8

2.0

4/1990

27.0

1.7

10/216

9.9

1.9

5/1990

26.6

1.9

11/2016

10.0

1.9

6/1990

26.7

1.9

12/2016

10.1

1.6

7/1990

27.0

1.8

1/2017

9.9

1.3

RDPI: Real Disposable Personal Income; RDPI-PC, Real Disposable Personal Income Per Capita

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

National Bureau of Economic Research

http://www.nber.org/cycles.html

Chart IB-13 provides monthly real disposable personal income per capita from 2007 to 2017. There was initial recovery from the drop during the global recession followed by relative cyclical weakness.

 

Chart IB-13, US, Real Disposable Per Capita Income, Monthly, Seasonally Adjusted at Annual Rates, Chained 2009 Dollars 2007-2017

Source: US Bureau of Economic Analysis

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

Table IB-6 provides data for analysis of the current cycle. Real disposable income (RDPI) increased 17.7 percent from Dec 2007 to Jan 2017 (column RDPI ∆% 12/07). In the same period, real disposable income per capita increased 9.9 percent (column RDPI-PC ∆% 12/07). The annual equivalent rate of increase of real disposable income per capita is 1.0 percent, only a fraction of 2.0 percent on average from 1929 to 2016, and 1.8 percent for real disposable income, much lower than 3.2 percent on average from 1929 to 2016.

Table IB-6, Percentage Changes of Real Disposable Personal Income and Real Disposable Personal Income Per Capita

Month

RDPI
∆% 12/07

RDPI ∆% Month

RDPI ∆% YOY

RDPI-PC ∆% 12/07

RDPI-PC ∆% Month

RDPI-PC ∆% YOY

6/09

0.8

-1.7

-1.5

-0.6

-1.8

-2.4

9/09

0.3

0.1

0.3

-1.3

0.1

-0.6

6/10

1.8

0.0

1.0

-0.4

0.0

0.2

12/10

3.3

0.7

2.9

0.7

0.6

2.1

6/11

4.1

0.4

2.3

1.2

0.4

1.5

12/11

5.0

0.8

1.6

1.6

0.7

0.8

6/12

7.2

0.2

2.9

3.4

0.2

2.2

10/12

7.9

0.6

3.4

3.7

0.5

2.7

11/12

9.3

1.3

4.9

5.1

1.3

4.1

12/12

12.1

2.6

6.8

7.7

2.6

6.1

6/13

6.2

0.2

-1.0

1.7

0.2

-1.6

12/13

6.8

0.1

-4.8

1.9

0.1

-5.4

1/14

7.2

0.4

1.9

2.2

0.3

1.2

2/14

7.8

0.6

2.5

2.7

0.5

1.8

3/14

8.5

0.6

3.0

3.3

0.5

2.3

4/14

8.8

0.3

3.3

3.5

0.2

2.5

5/14

9.2

0.4

3.1

3.9

0.4

2.4

6/14

9.7

0.5

3.3

4.3

0.4

2.6

7/14

9.9

0.2

3.6

4.5

0.1

2.9

8/14

10.4

0.5

3.8

4.9

0.4

3.0

9/14

10.6

0.1

3.7

4.9

0.1

2.9

10/14

11.1

0.4

4.4

5.3

0.4

3.6

11/14

11.5

0.4

4.5

5.7

0.3

3.8

12/14

11.8

0.3

4.7

5.9

0.2

4.0

1/15

11.9

0.1

4.4

5.9

0.0

3.6

2/15

12.1

0.2

4.0

6.1

0.1

3.2

3/15

12.1

0.0

3.3

6.0

-0.1

2.6

4/15

12.7

0.6

3.7

6.6

0.5

2.9

5/15

13.1

0.4

3.6

6.9

0.3

2.9

6/15

13.4

0.3

3.4

7.1

0.2

2.6

7/15

13.7

0.2

3.4

7.3

0.2

2.7

8/15

14.1

0.3

3.3

7.5

0.2

2.5

9/15

14.3

0.2

3.3

7.7

0.1

2.6

10/15

14.6

0.3

3.2

7.9

0.2

2.4

11/15

14.7

0.1

2.9

8.0

0.1

2.2

12/15

15.3

0.5

3.0

8.4

0.4

2.3

1/16

15.4

0.1

3.1

8.4

0.0

2.4

2/16

15.4

0.0

2.9

8.4

0.0

2.2

3/16

15.6

0.2

3.2

8.6

0.2

2.5

4/16

16.0

0.3

2.9

8.9

0.3

2.2

5/16

16.3

0.2

2.8

9.1

0.2

2.1

6/16

16.6

0.2

2.8

9.3

0.2

2.1

7/16

17.0

0.4

2.9

9.6

0.3

2.2

8/16

17.1

0.1

2.7

9.6

0.0

2.0

9/16

17.3

0.2

2.7

9.8

0.1

2.0

10/16

17.6

0.2

2.6

9.9

0.2

1.9

11/16

17.7

0.1

2.6

10.0

0.1

1.9

12/16

17.9

0.1

2.3

10.1

0.1

1.6

1/17

17.7

-0.2

2.0

9.9

-0.2

1.3

RDPI: Real Disposable Personal Income; RDPI-PC, Real Disposable Personal Income Per Capita

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

National Bureau of Economic Research

http://www.nber.org/cycles.html

IA2 Financial Repression. McKinnon (1973) and Shaw (1974) argue that legal restrictions on financial institutions can be detrimental to economic development. “Financial repression” is the term used in the economic literature for these restrictions (see Pelaez and Pelaez, Globalization and the State, Vol. II (2008b), 81-6; for historical analysis see the landmark exhaustive research by Summerhill (2015) and earlier research by Pelaez (1975)). Theory and evidence support the role of financial institutions in efficiency and growth (Pelaez and Pelaez, Financial Regulation after the Global Recession (2009a), 22-6, Pelaez and Pelaez, Regulation of Banks and Finance (2009b), 37-44). Excessive official regulation frustrates financial development required for growth (Haber 2011). Emphasis on disclosure can reduce bank fragility and corruption, empowering investors to enforce sound governance (Barth, Caprio and Levine 2006). Banking was important in facilitating economic growth in historical periods (Cameron 1961, 1967, 1972; Cameron et al. 1992). Banking is also important currently because small- and medium-size business may have no other form of financing than banks in contrast with many options for larger and more mature companies that have access to capital markets. Calomiris and Haber (2014) find that broad voting rights and institutions restricting coalitions of bankers and populists ensure stable banking systems and access to credit. Summerhill (2015) contributes momentous solid facts and analysis with an ideal method combining economic theory, econometrics, international comparisons, data reconstruction and exhaustive archival research. Summerhill (2015) finds that Brazil committed to service of sovereign foreign and internal debt. Contrary to conventional wisdom, Brazil generated primary fiscal surpluses during most of the Empire until 1889 (Summerhill 2015, 37-8, Figure 2.1). Econometric tests by Summerhill (2015, 19-44) show that Brazil’s sovereign debt was sustainable. Sovereign credibility in the North-Weingast (1989) sense spread to financial development that provided the capital for modernization in England and parts of Europe (see Cameron 1961, 1967). Summerhill (2015, 3,194-6, Figure 7.1) finds that “Brazil’s annual cost of capital in London fell from a peak of 13.9 percent in 1829 to only 5.12 percent in 1889. Average rates on secured loans in the private sector in Rio, however, remained well above 12 percent through 1850.” Financial development would have financed diversification of economic activities, increasing productivity and wages and ensuring economic growth. Brazil restricted creation of limited liability enterprises (Summerhill 2015, 151-82) that prevented raising capital with issue of stocks and corporate bonds. Cameron (1961) analyzed how the industrial revolution in England spread to France and then to the rest of Europe. The Société Générale de Crédit Mobilier of Émile and Isaac Péreire provided the “mobilization of credit” for the new economic activities (Cameron 1961). Summerhill (2015, 151-9) provides facts and analysis demonstrating that regulation prevented the creation of a similar vehicle for financing modernization by Irineu Evangelista de Souza, the legendary Visconde de Mauá. Regulation also prevented the use of negotiable bearing notes of the Caisse Générale of Jacques Lafitte (Cameron 1961, 118-9). The government also restricted establishment and independent operation of banks (Summerhill 2015, 183-214). Summerhill (2005, 198-9) measures concentration in banking that provided economic rents or a social loss. The facts and analysis of Summerhill (2015) provide convincing evidence in support of the economic theory of regulation, which postulates that regulated entities capture the process of regulation to promote their self-interest. There appears to be a case that excessively centralized government can result in regulation favoring private instead of public interests with adverse effects on economic activity. The contribution of Summerhill (2015) explains why Brazil did not benefit from trade as an engine of growth—as did regions of recent settlement in the vision of nineteenth-century trade and development of Ragnar Nurkse (1959)—partly because of restrictions on financing and incorporation. Interest rate ceilings on deposits and loans have been commonly used. The Banking Act of 1933 imposed prohibition of payment of interest on demand deposits and ceilings on interest rates on time deposits. These measures were justified by arguments that the banking panic of the 1930s was caused by competitive rates on bank deposits that led banks to engage in high-risk loans (Friedman, 1970, 18; see Pelaez and Pelaez, Regulation of Banks and Finance (2009b), 74-5). The objective of policy was to prevent unsound loans in banks. Savings and loan institutions complained of unfair competition from commercial banks that led to continuing controls with the objective of directing savings toward residential construction. Friedman (1970, 15) argues that controls were passive during periods when rates implied on demand deposit were zero or lower and when Regulation Q ceilings on time deposits were above market rates on time deposits. The Great Inflation or stagflation of the 1960s and 1970s changed the relevance of Regulation Q.

Most regulatory actions trigger compensatory measures by the private sector that result in outcomes that are different from those intended by regulation (Kydland and Prescott 1977). Banks offered services to their customers and loans at rates lower than market rates to compensate for the prohibition to pay interest on demand deposits (Friedman 1970, 24). The prohibition of interest on demand deposits was eventually lifted in recent times. In the second half of the 1960s, already in the beginning of the Great Inflation (DeLong 1997), market rates rose above the ceilings of Regulation Q because of higher inflation. Nobody desires savings allocated to time or savings deposits that pay less than expected inflation. This is a fact currently with near zero interest rates, ½ to ¾ percent, and consumer price inflation of 2.5 percent in the 12 months ending in Jan 2017 (http://www.bls.gov/cpi/) but rising during waves of carry trades from zero interest rates to commodity futures exposures (https://cmpassocregulationblog.blogspot.com/2017/02/world-inflation-waves-united-states.html and earlier http://cmpassocregulationblog.blogspot.com/2017/01/world-inflation-waves-united-states.html). Funding problems motivated compensatory measures by banks. Money-center banks developed the large certificate of deposit (CD) to accommodate increasing volumes of loan demand by customers. As Friedman (1970, 25) finds:

“Large negotiable CD’s were particularly hard hit by the interest rate ceiling because they are deposits of financially sophisticated individuals and institutions who have many alternatives. As already noted, they declined from a peak of $24 billion in mid-December, 1968, to less than $12 billion in early October, 1969.”

Banks created different liabilities to compensate for the decline in CDs. As Friedman (1970, 25; 1969) explains:

“The most important single replacement was almost surely ‘liabilities of US banks to foreign branches.’ Prevented from paying a market interest rate on liabilities of home offices in the United States (except to foreign official institutions that are exempt from Regulation Q), the major US banks discovered that they could do so by using the Euro-dollar market. Their European branches could accept time deposits, either on book account or as negotiable CD’s at whatever rate was required to attract them and match them on the asset side of their balance sheet with ‘due from head office.’ The head office could substitute the liability ‘due to foreign branches’ for the liability ‘due on CDs.”

Friedman (1970, 26-7) predicted the future:

“The banks have been forced into costly structural readjustments, the European banking system has been given an unnecessary competitive advantage, and London has been artificially strengthened as a financial center at the expense of New York.”

In short, Depression regulation exported the US financial system to London and offshore centers. What is vividly relevant currently from this experience is the argument by Friedman (1970, 27) that the controls affected the most people with lower incomes and wealth who were forced into accepting controlled-rates on their savings that were lower than those that would be obtained under freer markets. As Friedman (1970, 27) argues:

“These are the people who have the fewest alternative ways to invest their limited assets and are least sophisticated about the alternatives.”

Chart IB-14 of the Bureau of Economic Analysis (BEA) provides quarterly savings as percent of disposable income or the US savings rate from 1980 to 2016. There was a long-term downward sloping trend from 12 percent in the early 1980s to 1.9 percent in Jul 2005. The savings rate then rose during the contraction and in the expansion. In 2011 and into 2012 the savings rate declined as consumption is financed with savings in part because of the disincentive or frustration of receiving a few pennies for every $10,000 of deposits in a bank. The savings rate increased in the final segment of Chart IB-14 in 2012 because of the “fiscal cliff” episode followed by another decline because of the pain of the opportunity cost of zero remuneration for hard-earned savings. There are multiple recent oscillations during expectations of increase or “liftoff” of the fed funds rate in the United States followed by “shallow” or uncertain monetary policy.

 

Chart IB-14, US, Personal Savings as a Percentage of Disposable Personal Income, Quarterly, 1980-2016

Source: US Bureau of Economic Analysis

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

Chart IB-14A provides the US personal savings rate, or personal savings as percent of disposable personal income, on an annual basis from 1929 to 2016. The US savings rate shows decline from around 10 percent in the 1960s to around 5 percent currently.

 

Chart IB-14A, US, Personal Savings as a Percentage of Disposable Personal Income, Annual, 1929-2016

Source: US Bureau of Economic Analysis

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

Table IB-7 provides personal savings as percent of disposable income and annual change of real disposable personal income in selected years since 1930. Savings fell from 4.4 percent of disposable personal income in 1930 to minus 0.8 percent in 1933 while real disposable income contracted 6.3 percent in 1930 and 2.9 percent in 1933. Savings as percent of disposable personal income swelled during World War II to 27.9 percent in 1944 with increase of real disposable income of 3.1 percent. Savings as percent of personal disposable income fell steadily over decades from 11.5 percent in 1982 to 2.6 percent in 2005. Savings as percent of disposable personal income was 5.0 percent in 2013 while real disposable income fell 1.4 percent. The savings rate was 5.6 percent of GDP in 2014 with growth of real disposable income of 3.5 percent. The savings rate was 5.8 percent in 2015 with growth of real disposable income of 3.5 percent. The savings rate stood at 5.9 percent in 2016 with growth of real disposable income at 2.8 percent. The average ratio of savings as percent of disposable income fell from 9.3 percent in 1980 to 1989 to 5.5 percent on average from 2007 to 2016. Real disposable income grew on average at 3.5 percent from 1980 to 1989 and at 1.8 percent on average from 2007 to 2016.

Table IB-7, US, Personal Savings as Percent of Disposable Personal Income, Annual, Selected Years 1929-1913

 

Personal Savings as Percent of Disposable Personal Income

Annual Change of Real Disposable Personal Income

1930

4.4

-6.3

1933

-0.8

-2.9

1944

27.9

3.1

1947

6.3

-4.1

1954

10.3

1.4

1958

11.4

1.1

1960

10.0

2.6

1970

12.6

4.6

1975

13.0

2.5

1982

11.5

2.1

1989

7.8

3.0

1992

8.9

4.3

2002

5.0

3.1

2003

4.8

2.7

2004

4.5

3.6

2005

2.6

1.5

2006

3.3

4.0

2007

2.9

2.1

2008

4.9

1.5

2009

6.1

-0.4

2010

5.6

1.0

2011

6.0

2.5

2012

7.6

3.2

2013

5.0

-1.4

2014

5.6

3.5

2015

5.8

3.5

2016

5.9

2.8

Average Savings Ratio

   

1980-1989

9.3

 

2007-2016

5.5

 

Average Yearly ∆% Real Disposable Income

   

1980-1989

 

3.5

2007-2016

 

1.8

Source: US Bureau of Economic Analysis

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

Chart IB-15 of the US Bureau of Economic Analysis provides personal savings as percent of personal disposable income, or savings ratio, from Jan 2007 to Jan 2017.

 

Chart IB-15, US, Personal Savings as a Percentage of Disposable Income, Monthly 2007-2017

Source: US Bureau of Economic Analysis

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

Table IB-8 provides the savings ratio and changes in real disposable income in selected years. The uncertainties caused by the global recession resulted in sharp increase in the savings ratio that peaked at 7.9 percent in May 2008 (http://www.bea.gov/iTable/index_nipa.cfm). The second peak occurred at 8.1 percent in May 2009. There was another rising trend until 5.9 percent in Jun 2010 and then steady downward trend until 5.6 percent in Nov 2011. This was followed by an upward trend with 7.6 percent in Jun 2012 but decline to 7.1 percent in Aug 2012 followed by jump to 11.0 percent in Dec 2012. Swelling realization of income in Oct-Dec 2012 in anticipation of tax increases in Jan 2013 caused the jump of the savings rate to 11.0 percent in Dec 2012. The BEA explains as “Personal income in November and December was boosted by accelerated and special dividend payments to persons and by accelerated bonus payments and other irregular pay in private wages and salaries in anticipation of changes in individual income tax rates. Personal income in December was also boosted by lump-sum social security benefit payments” (page 2 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi1212.pdf). There was a reverse effect in Jan 2013 with decline of the savings rate to 4.9 percent. Real disposable personal income fell 6.2 percent and real disposable per capita income fell from $38,639 in Dec 2012 to $36,216 in Jan 2013 or by 6.3 percent (http://www.bea.gov/iTable/index_nipa.cfm), which is explained by the Bureau of Economic Analysis as follows (page 3 http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0213.pdf):

“Contributions for government social insurance -- a subtraction in calculating personal income --increased $6.4 billion in February, compared with an increase of $126.8 billion in January. The

January estimate reflected increases in both employer and employee contributions for government social insurance. The January estimate of employee contributions for government social insurance reflected the expiration of the “payroll tax holiday,” that increased the social security contribution rate for employees and self-employed workers by 2.0 percentage points, or $114.1 billion at an annual rate. For additional information, see FAQ on “How did the expiration of the payroll tax holiday affect personal income for January 2013?” at www.bea.gov. The January estimate of employee contributions for government social insurance also reflected an increase in the monthly premiums paid by participants in the supplementary medical insurance program, in the hospital insurance provisions of the Patient Protection and Affordable Care Act, and in the social security taxable wage base; together, these changes added $12.9 billion to January. Employer contributions were boosted $5.9 billion in January, which reflected increases in the social security taxable wage base (from $110,100 to $113,700), in the tax rates paid by employers to state unemployment insurance, and in employer contributions for the federal unemployment tax and for pension guaranty. The total contribution of special factors to the January change in contributions for government social insurance was $132.9 billion.”

Table IB-8, US, Savings Ratio and Real Disposable Income, % and ∆%

 

Personal Saving as % Disposable Income

RDPI ∆% 12/07

RDPI ∆% Month

RDPI ∆% YOY

May 2008

7.9

5.1

4.8

5.7

May 2009

8.1

2.5

1.6

-2.5

Jun 2010

5.9

1.8

0.0

1.0

Nov 2011

5.6

4.2

-0.1

1.5

Jun 2012

7.6

7.2

0.2

2.9

Aug 2012

7.1

6.7

-0.2

2.1

Dec 2012

11.0

12.1

2.6

6.8

Jan 2013

4.9

5.2

-6.2

-0.5

Feb 2013

4.7

5.1

0.0

-1.1

Mar 2013

4.8

5.2

0.1

-1.2

Apr 2013

4.9

5.3

0.0

-1.5

May 2013

5.3

5.9

0.6

-1.0

Jun 2013

5.4

6.2

0.2

-1.0

Jul 2013

5.2

6.1

-0.1

-0.8

Aug 2013

5.4

6.4

0.3

-0.3

Sep 2013

5.3

6.7

0.3

-0.5

Oct 2013

4.8

6.4

-0.3

-1.3

Nov 2013

4.6

6.7

0.3

-2.4

Dec 2013

4.7

6.8

0.1

-4.8

Jan 2014

5.3

7.2

0.4

1.9

Feb 2014

5.3

7.8

0.6

2.5

Mar 2014

5.4

8.5

0.6

3.0

Apr 2014

5.5

8.8

0.3

3.3

May 2014

5.7

9.2

0.4

3.1

Jun 2014

5.8

9.7

0.5

3.3

Jul 2014

5.9

9.9

0.2

3.6

Aug 2014

5.6

10.4

0.5

3.8

Sep 2014

5.7

10.6

0.1

3.7

Oct 2014

5.6

11.1

0.4

4.4

Nov 2014

5.5

11.5

0.4

4.5

Dec 2014

5.7

11.8

0.3

4.7

Jan 2015

5.6

11.9

0.1

4.4

Feb 2015

5.7

12.1

0.2

4.0

Mar 2015

5.3

12.1

0.0

3.3

Apr 2015

5.7

12.7

0.6

3.7

May 2015

5.7

13.1

0.4

3.6

Jun 2015

5.8

13.4

0.3

3.4

Jul 2015

5.8

13.7

0.2

3.4

Aug 2015

5.9

14.1

0.3

3.3

Sep 2015

5.9

14.3

0.2

3.3

Oct 2015

6.1

14.6

0.3

3.2

Nov 2015

6.0

14.7

0.1

2.9

Dec 2015

6.1

15.3

0.5

3.0

Jan 2016

6.2

15.4

0.1

3.1

Feb 2016

6.0

15.4

0.0

2.9

Mar 2016

6.2

15.6

0.2

3.2

Apr 2016

5.9

16.0

0.3

2.9

May 2016

6.0

16.3

0.2

2.8

Jun 2016

5.8

16.6

0.2

2.8

Jul 2016

5.8

17.0

0.4

2.9

Aug 2016

6.0

17.1

0.1

2.7

Sep 2016

5.7

17.3

0.2

2.7

Oct 2016

5.7

17.6

0.2

2.6

Nov 2016

5.7

17.7

0.1

2.6

Dec 2016

5.4

17.9

0.1

2.3

Jan 2017

5.5

17.7

-0.2

2.0

Source: US Bureau of Economic Analysis

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

© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017.

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