Saturday, October 27, 2018

Contraction of Valuations of Risk Financial Assets, Mediocre Cyclical United States Economic Growth with GDP Two Trillion Dollars below Trend in the Lost Economic Cycle of the Global Recession with Economic Growth Underperforming Below Trend Worldwide, Cyclically Stagnating Real Private Fixed Investment, United States Commercial Banks, United States Housing, United States House Prices, IMF View of World Economy and Finance, World Financial Turbulence, World Cyclical Slow Growth, Government Intervention in Globalization, and Global Recession Risk: Part I

Contraction of Valuations of Risk Financial Assets, Mediocre Cyclical United States Economic Growth with GDP Two Trillion Dollars below Trend in the Lost Economic Cycle of the Global Recession with Economic Growth Underperforming Below Trend Worldwide, Cyclically Stagnating Real Private Fixed Investment, United States Commercial Banks, United States Housing, United States House Prices, IMF View of World Economy and Finance, World Financial Turbulence, World Cyclical Slow Growth, Government Intervention in Globalization, and Global Recession Risk

© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018

I Mediocre Cyclical United States Economic Growth with GDP Two Trillion Dollars below Trend in the Lost Economic Cycle of the Global Recession with Economic Growth Underperforming Below Trend Worldwide

IA Mediocre Cyclical United States Economic Growth

IA1 Stagnating Real Private Fixed Investment

II United States Commercial Banks Assets and Liabilities

IIA Transmission of Monetary Policy

IIB Functions of Banking

IIC United States Commercial Banks Assets and Liabilities

IIA United States Housing Collapse

IIA1 Sales of New Houses

IIA2 United States House Prices

IIC IMF View of World Economy and Finance

III World Financial Turbulence

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

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 13.8 percent below trend. Section IA1 Stagnating Real Private Fixed Investment analyzes weakness in investment in the initial part of the cycle followed by stronger performance.

There is socio-economic stress in the combination of adverse events and cyclical performance:

and earlier http://cmpassocregulationblog.blogspot.com/2015/07/fluctuating-risk-financial-assets.html and earlier http://cmpassocregulationblog.blogspot.com/2015/06/fluctuating-financial-asset-valuations.html and earlier http://cmpassocregulationblog.blogspot.com/2015/05/fluctuating-valuations-of-financial.html and earlier http://cmpassocregulationblog.blogspot.com/2015/04/global-portfolio-reallocations-squeeze.html and earlier http://cmpassocregulationblog.blogspot.com/2015/03/impatience-with-monetary-policy-of.html and earlier (http://cmpassocregulationblog.blogspot.com/2015/02/world-financial-turbulence-squeeze-of.html and earlier http://cmpassocregulationblog.blogspot.com/2015/01/exchange-rate-conflicts-squeeze-of.html and earlier http://cmpassocregulationblog.blogspot.com/2014/12/patience-on-interest-rate-increases.html and earlier http://cmpassocregulationblog.blogspot.com/2014/11/squeeze-of-economic-activity-by-carry.html and earlier http://cmpassocregulationblog.blogspot.com/2014/10/imf-view-squeeze-of-economic-activity.html and earlier http://cmpassocregulationblog.blogspot.com/2014/09/world-inflation-waves-squeeze-of.html)

The Bureau of Economic Analysis revised the national accounts of the United States since 1929 (https://www.bea.gov/newsreleases/national/gdp/2018/pdf/gdp2q18_adv.pdf):

“Comprehensive Update of the National Income and Product Accounts The estimates released today also reflect the results of the 15th comprehensive update of the National Income and Product Accounts (NIPAs). The updated estimates reflect previously announced improvements, and include the introduction of new not seasonally adjusted estimates for GDP, GDI, and their major components. For more information, see the Technical Note. Revised NIPA table stubs, initial results, and background materials are available on the BEA Web site.”

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 2.3 percent on average in the cyclical expansion in the 37 quarters from IIIQ2009 to IIIQ2018. 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 first estimate of GDP for IIIQ2018 (https://www.bea.gov/system/files/2018-10/gdp3q18_adv_2.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 2.8 percent obtained by dividing GDP of $15,557.3 billion in IIQ2010 by GDP of $15,134.1 billion in IIQ2009 {[($15,557.3/$15,134.1) -1]100 = 2.8%], or accumulating the quarter on quarter growth rates (Section I and earlier https://cmpassocregulationblog.blogspot.com/2018/09/fomc-increases-policy-interest-rate.html and earlier https://cmpassocregulationblog.blogspot.com/2018/09/revision-of-united-states-national.html). The expansion from IQ1983 to IQ1986 was at the average annual growth rate of 5.7 percent, 5.3 percent from IQ1983 to IIIQ1986, 5.1 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, 4.6 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, 4.3 percent from IQ1983 to IIIQ1990, 4.0 percent from IQ1983 to IVQ1990, 3.8 percent from IQ1983 to IQ1991, 3.8 percent from IQ1983 to IIQ1991, 3.8 percent from IQ1983 to IIIQ1991, 3.7 percent from IQ1983 to IVQ1991, 3.7 percent from IQ1983 to IQ1992 and at 7.9 percent from IQ1983 to IVQ1983 (Section I and earlier https://cmpassocregulationblog.blogspot.com/2018/09/fomc-increases-policy-interest-rate.html and earlier https://cmpassocregulationblog.blogspot.com/2018/09/revision-of-united-states-national.html). The National Bureau of Economic Research (NBER) dates a contraction of the US from IQ1990 (Jul) to IQ1991 (Mar) (http://www.nber.org/cycles.html). The expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP contracted 1.3 percent from the pre-recession peak of $8983.9 billion of chained 2009 dollars in IIIQ1990 to the trough of $8865.6 billion in IQ1991 (http://www.bea.gov/iTable/index_nipa.cfm). 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 IIIQ2018 would have accumulated to 37.4 percent. GDP in IIIQ2018 would be $21,657.0 billion (in constant dollars of 2012) if the US had grown at trend, which is higher by $2985.5 billion than actual $18,671.5 billion. There are about two trillion dollars of GDP less than at trend, explaining the 20.7 million unemployed or underemployed equivalent to actual unemployment/underemployment of 12.1 percent of the effective labor force (https://cmpassocregulationblog.blogspot.com/2018/10/twenty-one-million-unemployed-or.html and earlier https://cmpassocregulationblog.blogspot.com/2018/09/twenty-one-million-unemployed-or.html). US GDP in IIIQ2018 is 13.8 percent lower than at trend. US GDP grew from $15,762.0 billion in IVQ2007 in constant dollars to $18,671.5 billion in IIIQ2018 or 18.5 percent at the average annual equivalent rate of 1.6 percent. Professor John H. Cochrane (2014Jul2) estimates US GDP at more than 10 percent below trend. Cochrane (2016May02) measures GDP growth in the US at average 3.5 percent per year from 1950 to 2000 and only at 1.76 percent per year from 2000 to 2015 with only at 2.0 percent annual equivalent in the current expansion. Cochrane (2016May02) proposes drastic changes in regulation and legal obstacles to private economic activity. The US missed the opportunity to grow at higher rates during the expansion and it is difficult to catch up because growth rates in the final periods of expansions tend to decline. The US missed the opportunity for recovery of output and employment always afforded in the first four quarters of expansion from recessions. Zero interest rates and quantitative easing were not required or present in successful cyclical expansions and in secular economic growth at 3.0 percent per year and 2.0 percent per capita as measured by Lucas (2011May). There is cyclical uncommonly slow growth in the US instead of allegations of secular stagnation. There is similar behavior in manufacturing. There is classic research on analyzing deviations of output from trend (see for example Schumpeter 1939, Hicks 1950, Lucas 1975, Sargent and Sims 1977). The long-term trend is growth of manufacturing at average 3.1 percent per year from Sep 1919 to Sep 2018. Growth at 3.1 percent per year would raise the NSA index of manufacturing output from 108.3221 in Dec 2007 to 150.3999 in Sep 2018. The actual index NSA in Sep 2018 is 106.1908, which is 29.4 percent below trend. Manufacturing output grew at average 2.1 percent between Dec 1986 and Sep 2018. Using trend growth of 2.1 percent per year, the index would increase to 135.4390 in Sep 2018. The output of manufacturing at 106.1908 in Sep 2018 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 2.6 percent on an annual basis in 2010 to 1.6 percent in 2011, 2.2 percent in 2012, 1.8 percent in 2013, 2.5 percent in 2014 and 2.9 percent in 2015. GDP growth was 1.6 percent in 2016 and 2.2 percent in 2017. The following calculations show that actual growth is around 2.3 percent per year during the expansion phase. The rate of growth of 1.5 percent in the entire cycle from 2007 to 2017 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) provides valuable 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

1929-2017

3.2

1947-2017

3.2

Whole Cycles

1980-1989

3.4

2006-2017

1.5

2007-2017

1.5

Cyclical Contractions ∆%

IQ1980 to IIIQ1980, IIIQ1981 to IVQ1982

-4.8

IVQ2007 to IIQ2009

-4.0

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

IQ1983 to IIIQ1990

IQ1983 to IVQ1990

5.9

5.7

5.3

5.1

5.0

5.0

4.9

5.0

4.9

4.9

4.8

4.8

4.8

4.7

4.6

4.5

4.5

4.4

4.3

4.0

IQ1983 to IQ1991

IQ1983 to IIQ1991

IQ1983 to IIIQ1991

IQ1983 to IVQ1991

IQ1983 to IQ1992

3.8

3.8

3.8

3.7

3.7

First Four Quarters IQ1983 to IVQ1983

7.9

IIIQ2009 to IIIQ2018

2.3

First Four Quarters IIIQ2009 to IIQ2010

2.8

Real Disposable Income

Real Disposable Income per Capita

Long-Term

1929-2017

3.2

2.0

1947-1999

3.7

2.3

Whole Cycles

1980-1989

3.5

2.6

2006-2017

2.0

1.2

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 2.3 percent per year. Table Summary GDP provides the data.

  1. Average Annual Growth in the Past Twenty-Six Quarters. GDP growth in the four quarters of 2012, the four quarters of 2013, the four quarters of 2014, the four quarters of 2015, the four quarters of 2016, the four quarters of 2017 and the three quarters of 2018 accumulated to 16.7 percent. This growth is equivalent to 2.3 percent per year, obtained by dividing GDP in IIIQ2018 of $18,671.5 billion by GDP in IVQ2011 of $16,004.1 billion and compounding by 4/27: {[($18,671.5/$16,004.1)4/27 -1]100 = 2.3 percent}.
  2. Average Annual Growth in the Past Four Quarters. GDP growth in the four quarters from IIIQ2017 to IIIQ2018 accumulated to 3.0 percent that is equivalent to 3.0 percent in a year. This is obtained by dividing GDP in IIIQ2018 of $18,671.5 billion by GDP in IIIQ2017 of $18,120.8 billion and compounding by 4/4: {[($18,671.5/$18,120.84/4 -1]100 = 3.0%}. The US economy grew 3.0 percent in IIIQ2018 relative to the same quarter a year earlier in IIIQ2017. Growth was at annual equivalent 5.1 percent in IIQ2014 and 4.9 percent IIIQ2014 and only at 1.9 percent in IVQ2014. GDP grew at annual equivalent 3.3 percent in IQ2015, 3.3 percent in IIQ2015, 1.0 percent in IIIQ2015 and 0.4 percent in IVQ2015. GDP grew at annual equivalent 1.5 percent in IQ2016 and at 2.3 percent annual equivalent in IIQ2016. GDP increased at 1.9 percent annual equivalent in IIIQ2016 and at 1.8 percent in IVQ2016. GDP grew at annual equivalent 1.8 percent in IQ2017 and at annual equivalent 3.0 percent in IIQ2017. GDP grew at annual equivalent 2.8 percent in IIIQ2017. GDP grew at annual equivalent 2.3 percent in IVQ2017. GDP grew at annual equivalent 2.2 percent in IQ2018, increasing at 4.2 percent annual equivalent in IIQ2018. GDP grew at annual equivalent 3.5 percent in IIIQ2018. Another important revelation of the revisions and enhancements is that GDP was flat at 0.1 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 3.2 percent in seasonally adjusted annual rate (SAAR).

Table Summary GDP, US, Real GDP and Percentage Change Relative to IVQ2007 and Prior Quarter, Billions Chained 2012 Dollars and ∆%

Real GDP, Billions Chained 2012 Dollars

∆% Relative to IVQ2007

∆% Relative to Prior Quarter

∆%
over
Year Earlier

IVQ2007

15,762.0

NA

0.6

2.0

IVQ2011

16,004.1

1.5

1.2

1.6

IQ2012

16,129.5

2.3

0.8

2.7

IIQ2012

16,198.8

2.8

0.4

2.4

IIIQ2012

16,220.7

2.9

0.1

2.5

IVQ2012

16,239.1

3.0

0.1

1.5

IQ2013

16,383.0

3.9

0.9

1.6

IIQ2013

16,403.2

4.1

0.1

1.3

IIIQ2013

16,531.7

4.9

0.8

1.9

IVQ2013

16,663.6

5.7

0.8

2.6

IQ2014

16,621.7

5.5

-0.3

1.5

IIQ2014

16,830.1

6.8

1.3

2.6

IIIQ2014

17,033.6

8.1

1.2

3.0

IVQ2014

17,113.9

8.6

0.5

2.7

IQ2015

17,254.7

9.5

0.8

3.8

IIQ2015

17,397.0

10.4

0.8

3.4

IIIQ2015

17,438.8

10.6

0.2

2.4

IVQ2015

17,456.2

10.7

0.1

2.0

IQ2016

17,523.4

11.2

0.4

1.6

IIQ2016

17,622.5

11.8

0.6

1.3

IIIQ2016

17,706.7

12.3

0.5

1.5

IVQ2016

17,784.2

12.8

0.4

1.9

IQ2017

17,863.0

13.3

0.4

1.9

IIQ2017

17,995.2

14.2

0.7

2.1

IIIQ2017

18,120.8

15.0

0.7

2.3

IVQ2017

18,223.8

15.6

0.6

2.5

IQ2018

18,324.0

16.3

0.5

2.6

IIQ2018

18,511.6

17.4

1.0

2.9

IIIQ2018

18,671.5

18.5

0.9

3.0

Cumulative ∆% IQ2012 to IVQ2017

16.7

16.5

Annual Equivalent ∆%

2.3

2.3

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 IVQ2014 to IIIQ2018. Growth has been fluctuating.

clip_image001

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

Source: US Bureau of Economic Analysis

https://www.bea.gov/data/gdp/gross-domestic-product

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 IIQ1954 to IIIQ1955: 4.6, 8.1, 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, 7.9 and 9.3. The recession of 1973-1975 was followed by high percentage growth rates from IIQ1975 to IQ1976: 2.9, 7.0, 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

-1.9

E IIIQ1954-IIQ1955

1954

4.6

8.1

1955

11.9

6.7

R IIIQ1957-IIQ1958

1957

-4.1

1958

-10.0

E IIIQ1958-IIQ1959

1958

9.6

9.7

1959

7.9

9.3

R IVQ1969-IV1970

1969

-1.9

1970

-0.6

E IIQ1970-IQ1971

1970

0.6

3.7

-4.2

1971

11.3

R IVQ1973-IQ1975

1973

3.8

1974

-3.4

1.0

-3.7

-1.5

1975

-4.8

E IIQ1975-IQ1976

1975

2.9

7.0

5.5

1976

9.3

R IQ1980-IIIQ1980

1980

1.3

-8.0

-0.5

R IQ1981-IVQ1982

1981

8.1

-2.9

4.9

-4.3

1982

-6.1

1.8

-1.5

0.2

E IQ1983-IVQ1983

1983

5.4

9.4

8.2

8.6

R IVQ2007-IIQ2009

2008

-2.3

2.1

-2.1

-8.4

2009

-4.4

-0.6

E IIIQ2009-IIQ2010

2009

1.5

4.5

2010

1.5

3.7

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 4.8 percent is more comparable to the latest revised 4.0 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, subsequent revisions, the revision since 1929 (https://www.bea.gov/newsreleases/national/gdp/2018/pdf/gdp2q18_adv.pdf), first estimate for IIQ2018 GDP, revising data since 1929 (https://www.bea.gov/newsreleases/national/gdp/2018/pdf/gdp2q18_adv.pdf) (“Comprehensive Update of the National Income and Product Accounts The estimates released today also reflect the results of the 15th comprehensive update of the National Income and Product Accounts (NIPAs). The updated estimates reflect previously announced improvements, and include the introduction of new not seasonally adjusted estimates for GDP, GDI, and their major components. For more information, see the Technical Note. Revised NIPA table stubs, initial results, and background materials are available on the BEA Web site.”) and the first estimate for IIIQ2018 (https://www.bea.gov/system/files/2018-10/gdp3q18_adv_2.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 -1.5 percent to -6.1 percent and five quarters of contraction in 2007-2009 ranging in rate from -0.6 percent to -8.4 percent. The striking difference is that in the first thirty-six quarters of expansion from IQ1983 to IVQ1991, shown in Table I-2 in relief, GDP grew at the high quarterly percentage growth rates of 5.4, 9.4, 8.2, 8.6, 8.1, 7.1, 3.9, 3.3, 3.9, 3.6, 6.2, 3.0, 3.8, 1.8, 3.9, 2.2, 3.0, 4.4, 3.5, 7.0, 2.1, 5.4, 2.4, 5.4, 4.1, 3.1, 3.0, 0.8, 4.4, 1.5, 0.3, minus 3.6, minus 1.9, 3.2, 2.0, 1.4 , 4.9, 4.4 and 4.0 The National Bureau of Economic Research (NBER) dates a contraction of the US from IQ1990 (Jul) to IQ1991 (Mar) (http://www.nber.org/cycles.html). The expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP contracted 1.3 percent from the pre-recession peak of $8983.9 billion of chained 2009 dollars in IIIQ1990 to the trough of $8865.6 billion in IQ1991 (http://www.bea.gov/iTable/index_nipa.cfm). Table III-1 shows weaker performance in IIQ1990 and IIIQ1990 and contractions at 3.6 percent in IVQ1990 and 1.9 percent in IQ1991. In contrast, the percentage growth rates in the first thirty-six quarters of expansion from IIIQ2009 to IIQ2018 shown in relief in Table I-2 were mediocre: 1.5, 4.5, 1.5, 3.7, 3.0, 2.0, -1.0, 2.9, -0.1, 4.7, 3.2, 1.7, 0.5, 0.5, 3.6, 0.5, 3.2, 3.2, minus 1.0, 5.1, 4.9, 1.9, 3.3, 3.3, 1.0, 0.4, 1.5, 2.3, 1.9, 1.8, 1.8, 3.0, 2.8, 2.3, 2.2, 4.2 and 3.5. Economic growth and employment creation continued at slow rhythm during 2012 and in 2013-2018 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

8.1

-6.1

5.4

8.1

-2.3

-4.4

1.5

II

-2.9

1.8

9.4

7.1

2.1

-0.6

3.7

III

4.9

-1.5

8.2

3.9

-2.1

1.5

3.0

IV

-4.3

0.2

8.6

3.3

-8.4

4.5

2.0

1985

2011

I

3.9

-1.0

II

3.6

2.9

III

6.2

-0.1

IV

3.0

4.7

1986

2012

I

3.8

3.2

II

1.8

1.7

III

3.9

0.5

IV

2.2

0.5

1987

2013

I

3.0

3.6

II

4.4

0.5

III

3.5

3.2

IV

7.0

3.2

1988

2014

I

2.1

-1.0

II

5.4

5.1

III

2.4

4.9

IV

5.4

1.9

1989

2015

I

4.1

3.3

II

3.1

3.3

III

3.0

1.0

IV

0.8

0.4

1990

2016

I

4.4

1.5

II

1.5

2.3

III

0.3

1.9

IV

-3.6

1.8

1991

2017

I

-1.9

1.8

II

3.2

3.0

III

2.0

2.8

IV

1.4

2.3

1992

I

4.9

2.2

II

4.4

4.2

III

4.0

3.5

IV

4.2

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

US GDP grew at the yearly average rate of 3.5 percent between 1929 and 1999. 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.

clip_image003

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 2017. 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 2017 is 3.2 percent. The average growth rate from IV2007 to IIIQ2018 is only 1.6 percent with 2.9 percent annual equivalent from the end of the recession in IVQ2001 to the end of the expansion 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 IIIQ2018 would have accumulated to 37.4 percent. GDP in IIIQ2018 would be $21,657.0 billion (in constant dollars of 2012) if the US had grown at trend, which is higher by $2985.5 billion than actual $18,671.5 billion. There are about two trillion dollars of GDP less than at trend, explaining the 20.7 million unemployed or underemployed equivalent to actual unemployment/underemployment of 12.1 percent of the effective labor force (https://cmpassocregulationblog.blogspot.com/2018/10/twenty-one-million-unemployed-or.html and earlier https://cmpassocregulationblog.blogspot.com/2018/09/twenty-one-million-unemployed-or.html). US GDP in IIIQ2018 is 13.8 percent lower than at trend. US GDP grew from $15,762.0 billion in IVQ2007 in constant dollars to $18,671.5 billion in IIIQ2018 or 18.5 percent at the average annual equivalent rate of 1.6 percent. Professor John H. Cochrane (2014Jul2) estimates US GDP at more than 10 percent below trend. Cochrane (2016May02) measures GDP growth in the US at average 3.5 percent per year from 1950 to 2000 and only at 1.76 percent per year from 2000 to 2015 with only at 2.0 percent annual equivalent in the current expansion. Cochrane (2016May02) proposes drastic changes in regulation and legal obstacles to private economic activity. The US missed the opportunity to grow at higher rates during the expansion and it is difficult to catch up because growth rates in the final periods of expansions tend to decline. The US missed the opportunity for recovery of output and employment always afforded in the first four quarters of expansion from recessions. Zero interest rates and quantitative easing were not required or present in successful cyclical expansions and in secular economic growth at 3.0 percent per year and 2.0 percent per capita as measured by Lucas (2011May). There is cyclical uncommonly slow growth in the US instead of allegations of secular stagnation. There is similar behavior in manufacturing. There is classic research on analyzing deviations of output from trend (see for example Schumpeter 1939, Hicks 1950, Lucas 1975, Sargent and Sims 1977). The long-term trend is growth of manufacturing at average 3.1 percent per year from Sep 1919 to Sep 2018. Growth at 3.1 percent per year would raise the NSA index of manufacturing output from 108.3221 in Dec 2007 to 150.3999 in Sep 2018. The actual index NSA in Sep 2018 is 106.1908, which is 29.4 percent below trend. Manufacturing output grew at average 2.1 percent between Dec 1986 and Sep 2018. Using trend growth of 2.1 percent per year, the index would increase to 135.4390 in Sep 2018. The output of manufacturing at 106.1908 in Sep 2018 is 21.6 percent below trend under this alternative calculation.

clip_image005

Chart I-1A, US, Real GDP 1929-2017

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 2018. 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 2017 is 3.2 percent. The annual equivalent growth rate from IVQ2007 to IIIQ2018 is only 1.6 percent with 2.9 percent from the end of the recession in IVQ2001 to the end of the expansion in IVQ2007.

clip_image007

Chart I-2, US, Real GDP, Quarterly, 1947-2017

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 1983-1992. 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. The National Bureau of Economic Research (NBER) dates a contraction of the US from IQ1990 (Jul) to IQ1991 (Mar) (http://www.nber.org/cycles.html). The expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP contracted 1.3 percent from the pre-recession peak of $8983.9 billion of chained 2009 dollars in IIIQ1990 to the trough of $8865.6 billion in IQ1991 (http://www.bea.gov/iTable/index_nipa.cfm).

clip_image009

Chart I-3, Real GDP Percentage Change on Quarter a Year Earlier 1983-1992

Source: US Bureau of Economic Analysis

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

In contrast, growth rates in the comparable first thirty-seven quarters of expansion from 2009 to 2018 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.

clip_image011

Chart I-4, US, Real GDP Percentage Change on Quarter a Year Earlier 2009-2018

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 26.3 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 4.8 percent in the two recessions (1) from IQ1980 to IIIQ1980 and (2) from III1981 to IVQ1982 and 4.0 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, 7.2 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 2.6 percent in 2010, 1.6 percent in 2011, 2.2 percent in 2012, 1.8 percent in 2013, 2.5 percent in 2014 and 2.9 percent in 2015. GDP grew 1.6 percent in 2016 and 2.2 percent in 2017. Actual annual equivalent GDP growth in the twenty-seven quarters from IQ2012 to IIIQ2018 is 2.3 percent and 3.0 percent in the four quarters ending in IIIQ2018. 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 3.0 to 3.2 percent in 2018 (https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20180926.pdf) with less reliable forecast of 2.4 to 2.7 percent in 2019 (https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20180926.pdf). Growth of GDP in the expansion from IIIQ2009 to IIIQ2018 has been at average 2.3 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

-0.3

2000

4.1

1931

-6.4

1981

2.5

2001

1.0

1932

-12.9

1982

-1.8

2002

1.7

1933

-1.2

1983

4.6

2003

2.9

1934

10.8

1984

7.2

2004

3.8

1935

8.9

1985

4.2

2005

3.5

1936

12.9

1986

3.5

2006

2.9

1937

5.1

1987

3.5

2007

1.9

1938

-3.3

1988

4.2

2008

-0.1

1939

8.0

1989

3.7

2009

-2.5

1940

8.8

1990

1.9

2010

2.6

1941

17.7

1991

-0.1

2011

1.6

1942

18.9

1992

3.5

2012

2.2

1943

17.0

1993

2.8

2013

1.8

1944

8.0

1994

4.0

2014

2.5

1945

-1.0

1995

2.7

2015

2.9

1946

-11.6

1996

3.8

2016

1.6

1947

-1.1

1997

4.4

2017

2.2

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.

clip_image013

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. The National Bureau of Economic Research (NBER) dates a contraction of the US from IQ1990 (Jul) to IQ1991 (Mar) (http://www.nber.org/cycles.html). The expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP contracted 1.3 percent from the pre-recession peak of $8983.9 billion of chained 2009 dollars in IIIQ1990 to the trough of $8865.6 billion in IQ1991 (http://www.bea.gov/iTable/index_nipa.cfm).

clip_image015

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

Source: US Bureau of Economic Analysis

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

Chart I-7 provides the rates of growth during the 2000s. Growth rates in the initial thirty-two 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 12.1 percent of the effective US labor force (https://cmpassocregulationblog.blogspot.com/2018/10/twenty-one-million-unemployed-or.html and earlier https://cmpassocregulationblog.blogspot.com/2018/09/twenty-one-million-unemployed-or.html).

clip_image017

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 4.8 percent, which is almost equal to the decline of 4.0 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 26.3 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

-2.6

-0.65

IVQ2007 to IIQ2009

6

-4.0

-0.7

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 2.3 percent of the US economy in the thirty-six quarters of the current cyclical expansion from IIIQ2009 to IIIQ2018. In sharp contrast, the average growth rate of GDP was:

  • 5.7 percent in the first thirteen quarters of expansion from IQ1983 to IQ1986
  • 5.3 percent in the first fifteen quarters of expansion from IQ1983 to IIIQ1986
  • 5.1 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
  • 4.6 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
  • 4.3 percent in the first thirty-one quarters of expansion from IQ1983 to IIIQ1990
  • 4.0 percent in the first thirty-two quarters of expansion from IQ1983 to IVQ1990
  • 3.8 percent in the first thirty-three quarters of expansion from IQ1983 to IQ1991
  • 3.8 percent in the first thirty-four quarters of expansion from IQ1983 to IIQ1991
  • 3.8 percent in the first thirty-five quarters of expansion from IQ1983 to IIIQ1991
  • 3.7 percent in the thirty-six quarters of expansion from IQ1983 to IVQ1991
  • 3.7 percent in the thirty-seven quarters of expansion from IQ1983 to IQ1992

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 7.9 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 relative to historical experience with annual growth of 2.6 percent in 2010 decelerating to 1.6 percent annual growth in 2011, 2.2 percent in 2012, 1.8 percent in 2013, 2.5 percent in 2014, 2.9 percent in 2015, 1.6 percent in 2016 and 2.2 percent in 2017 (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, 5.1 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, 4.6 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, 4.3 percent from IQ1983 to IIIQ1990. 4.0 percent from IQ1983 to IVQ1990. 3.8 percent from IQ1983 to IQ1991, 3.8 percent from IQ1983 to IIQ1991, 3.8 percent from IQ1983 to IIIQ1991. 3.7 percent from IQ1983 to IVQ1991, 3.7 percent from IQ1983 to IQ1992 and at 7.9 percent from IQ1983 to IVQ1983. The National Bureau of Economic Research (NBER) dates a contraction of the US from IQ1990 (Jul) to IQ1991 (Mar) (http://www.nber.org/cycles.html). The expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP contracted 1.3 percent from the pre-recession peak of $8983.9 billion of chained 2009 dollars in IIIQ1990 to the trough of $8865.6 billion in IQ1991 (http://www.bea.gov/iTable/index_nipa.cfm). GDP grew 2.8 percent in the first four quarters of the expansion from IIIQ2009 to IIQ2010. GDP growth in the twenty-seven quarters from 2012 to 2018 accumulated to 16.7 percent. This growth is equivalent to 2.3 percent per year, obtained by dividing GDP in IIIQ2018 of $18,671.5 billion by GDP in IVQ2011 of $16,004.1 billion and compounding by 4/27: {[($18,671.5/$16,004.1)4/27 -1]100 = 2.3 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

IQ1983 to IIIQ1990

IQ1983 to IVQ1990

IQ1983 to IQ1991

IQ1983 to IIQ1991

IQ1983 to IIIQ1991

IQ1983 to IVQ1991

IQ1983 to IQ1992

13

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

30

31

32

33

34

35

36

37

19.8

21.5

22.1

23.0

24.4

25.4

27.6

28.3

29.9

30.7

32.5

33.8

34.8

35.8

36.1

37.6

38.1

38.2

36.9

36.3

37.3

38.0

38.5

40.2

5.7

5.3

5.1

5.0

5.0

4.9

5.0

4.9

4.9

4.8

4.8

4.8

4.7

4.6

4.5

4.5

4.4

4.3

4.0

3.8

3.8

3.8

3.7

3.7

First Four Quarters IQ1983 to IVQ1983

4

7.9

Average First Four Quarters in Four Expansions*

7.7

IIIQ2009 to IIIQ2018

37

23.4

2.3

First Four Quarters IIIQ2009 to IIQ2010

2.8

*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 1991. The economy contracted during the recession and then expanded vigorously throughout the 1980s, rapidly eliminating the unemployment caused by the contraction. The National Bureau of Economic Research (NBER) dates a contraction of the US from IQ1990 (Jul) to IQ1991 (Mar) (http://www.nber.org/cycles.html). The expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP contracted 1.3 percent from the pre-recession peak of $8983.9 billion of chained 2009 dollars in IIIQ1990 to the trough of $8865.6 billion in IQ1991 (http://www.bea.gov/iTable/index_nipa.cfm).

clip_image019

Chart I-8, US, Real GDP, 1980-1992

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 2018. The economy has underperformed during the first thirty-four quarters of expansion for the first time in the comparable contractions since the 1950s. The US economy is now in a perilous cyclical slow growth.

clip_image021

Chart I-9, US, Real GDP, 2007-2018

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 4.0 percent but the gain in the cyclical expansion has been only 23.4 percent (first to the last row in Table I-5), using all latest revisions. As a result, the level of real GDP in IIIQ2018 with the first estimate and revisions is higher by only 18.5 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 IIIQ2018 would have accumulated to 37.4 percent. GDP in IIIQ2018 would be $21,657.0 billion (in constant dollars of 2012) if the US had grown at trend, which is higher by $2985.5 billion than actual $18,671.5 billion. There are about two trillion dollars of GDP less than at trend, explaining the 20.7 million unemployed or underemployed equivalent to actual unemployment/underemployment of 12.1 percent of the effective labor force (https://cmpassocregulationblog.blogspot.com/2018/10/twenty-one-million-unemployed-or.html and earlier https://cmpassocregulationblog.blogspot.com/2018/09/twenty-one-million-unemployed-or.html). US GDP in IIIQ2018 is 13.8 percent lower than at trend. US GDP grew from $15,762.0 billion in IVQ2007 in constant dollars to $18,671.5 billion in IIIQ2018 or 18.5 percent at the average annual equivalent rate of 1.6 percent. Professor John H. Cochrane (2014Jul2) estimates US GDP at more than 10 percent below trend. Cochrane (2016May02) measures GDP growth in the US at average 3.5 percent per year from 1950 to 2000 and only at 1.76 percent per year from 2000 to 2015 with only at 2.0 percent annual equivalent in the current expansion. Cochrane (2016May02) proposes drastic changes in regulation and legal obstacles to private economic activity. The US missed the opportunity to grow at higher rates during the expansion and it is difficult to catch up because growth rates in the final periods of expansions tend to decline. The US missed the opportunity for recovery of output and employment always afforded in the first four quarters of expansion from recessions. Zero interest rates and quantitative easing were not required or present in successful cyclical expansions and in secular economic growth at 3.0 percent per year and 2.0 percent per capita as measured by Lucas (2011May). There is cyclical uncommonly slow growth in the US instead of allegations of secular stagnation. There is similar behavior in manufacturing. There is classic research on analyzing deviations of output from trend (see for example Schumpeter 1939, Hicks 1950, Lucas 1975, Sargent and Sims 1977). The long-term trend is growth of manufacturing at average 3.1 percent per year from Sep 1919 to Sep 2018. Growth at 3.1 percent per year would raise the NSA index of manufacturing output from 108.3221 in Dec 2007 to 150.3999 in Sep 2018. The actual index NSA in Sep 2018 is 106.1908, which is 29.4 percent below trend. Manufacturing output grew at average 2.1 percent between Dec 1986 and Sep 2018. Using trend growth of 2.1 percent per year, the index would increase to 135.4390 in Sep 2018. The output of manufacturing at 106.1908 in Sep 2018 is 21.6 percent below trend under this alternative calculation.

Table I-6 shows that the contraction concentrated in two quarters: decline of 2.2 percent in IVQ2008 relative to the prior quarter and decline of 1.1 percent in IQ2009 relative to IVQ2008. The combined fall of GDP in IVQ2008 and IQ2009 was 3.3 percent {[(1-0.022) x (1-0.011) -1]100 = -3.3%}, or {[(IQ2009 $15,155.9)/(IIIQ2008 $15,677.0) – 1]100 = -3.3%} 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 0.4 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 1.1 percent in IVQ2009, 0.4 percent in IQ2010, 0.9 percent in IIQ2010 and nearly equal growth at 0.7 percent in IIIQ2010 and 0.5 percent in IVQ2010 for cumulative growth in those five quarters of 3.8 percent, obtained by accumulating the quarterly rates {[(1.011 x 1.004 x 1.009 x 1.007 x 1.005) – 1]100 = 3.7%} or {[(IVQ2010 $15,750.6)/(IIIQ2009 $15,189.2) – 1]100 = 3.7%} with minor rounding difference. The economy then stalled during the first half of 2011 with decline of 0.2 percent in IQ2011 and growth of 0.7 percent in IIQ2011 for combined annual equivalent rate of 1.0 percent {(0.998 x 1.007)2}. The economy grew 0.0 percent in IIIQ2011 for annual equivalent growth of 0.0 percent in the first three quarters {[(0.998 x 1.007 x 1.00)4/3 -1]100 = 0.7%}. Growth picked up in IVQ2011 with 1.2 percent relative to IIIQ2011. Growth in a quarter relative to a year earlier in Table I-6 slows from over 2.6 percent during three consecutive quarters from IIQ2010 to IVQ2010 to 1.9 percent in IQ2011, 1.7 percent in IIQ2011, 0.9 percent in IIIQ2011 and 1.6 percent in IVQ2011. As shown below, growth of 1.2 percent in IVQ2011 was partly driven by inventory accumulation. In IQ2012, GDP grew 0.8 percent relative to IVQ2011 and 2.7 percent relative to IQ2011, decelerating to 0.4 percent in IIQ2012 and 2.4 percent relative to IIQ2011 and 0.1 percent in IIIQ2012 and 2.5 percent relative to IIIQ2011. Growth was 0.1 percent in IVQ2012 with 1.5 percent relative to a year earlier but mostly because of deduction of 1.70 percentage points of inventory divestment and 0.63 percentage points of reduction of one-time national defense expenditures. Growth was 0.9 percent in IQ2013 and 1.6 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 0.1 percent in IIQ2013 and 1.3 percent relative to a year earlier. In IIIQ2013, GDP grew 0.8 percent relative to the prior quarter and 1.9 percent relative to the same quarter a year earlier with inventory accumulation contributing 1.48 percentage points to growth at 3.2 percent SAAR in IIIQ2013. GDP increased 0.8 percent in IVQ2013 and 2.6 percent relative to a year earlier. GDP fell 0.3 percent in IQ2014 and grew 1.5 percent relative to a year earlier. Inventory divestment deducted 1.69 percentage points from GDP growth in IQ2014. GDP grew 1.3 percent in IIQ2014, 2.6 percent relative to a year earlier and at 5.1 SAAR with inventory change contributing 0.91 percentage points. GDP grew 1.2 percent in IIIQ2014 and 3.0 percent relative to a year earlier. GDP grew 0.5 percent in IVQ2014 and 2.7 percent relative to a year earlier. GDP increased 0.8 percent in IQ2015 and increased 3.8 percent relative to a year earlier partly because of low level during contraction of 0.3 percent in IQ2014. GDP grew 0.8 percent in IIQ2015 and 3.4 percent relative to a year earlier. GDP grew 0.2 percent in IIIQ2015 and 2.4 percent relative to a year earlier. GDP grew 0.1 percent in IVQ2015 and increased 2.0 percent relative to a year earlier. GDP grew 0.4 percent in IQ2016 and increased 1.6 percent relative to a year earlier. GDP grew 0.6 percent in IIQ2016 and increased 1.3 percent relative to a year earlier. GDP grew 0.5 percent in IIIQ2016 and increased 1.5 percent relative to a year earlier. GDP grew 0.4 percent in IVQ2016 and increased 1.9 percent relative to a year earlier. GDP grew 0.4 percent in IQ2017 and increased 1.9 percent relative to a year earlier. GDP grew 0.7 percent in IIQ2017 and 2.1

percent relative to a year earlier. GDP increased 0.7 percent in IIIQ2017 and increased 2.3 percent relative to a year earlier. GDP grew 0.6 percent in IVQ2017 and 2.5 percent relative to a year earlier. GDP increased 0.5 percent in IQ2018 and increased 2.6 percent relative to a year earlier. GDP grew 1.0 percent in IIQ2018 and increased 2.9 percent relative to a year earlier. GDP increased 0.9 percent in IIIQ2018 and increased 3.0 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 recent higher growth of investment and spikes of consumption driven by burning saving because of financial repression in the form of low interest rates and still bloated balance sheet of the Fed.

Table I-6, US, Real GDP and Percentage Change Relative to IVQ2007 and Prior Quarter, Billions Chained 2012 Dollars and ∆%

Real GDP, Billions Chained 2012 Dollars

∆% Relative to IVQ2007

∆% Relative to Prior Quarter

∆%
over
Year Earlier

IVQ2007

15,762.0

NA

0.6

2.0

IQ2008

15,671.4

-0.6

-0.6

1.1

IIQ2008

15,752.3

-0.1

0.5

1.1

IIIQ2008

15,667.0

-0.6

-0.5

0.0

IVQ2008

15,328.0

-2.8

-2.2

-2.8

IQ2009

15,155.9

-3.8

-1.1

-3.3

IIQ2009

15,134.1

-4.0

-0.1

-3.9

IIIQ2009

15,189.2

-3.6

0.4

-3.0

IV2009

15,356.1

-2.6

1.1

0.2

IQ2010

15,415.1

-2.2

0.4

1.7

IIQ2010

15,557.3

-1.3

0.9

2.8

IIIQ2010

15,672.0

-0.6

0.7

3.2

IVQ2010

15,750.6

-0.1

0.5

2.6

IQ2011

15,712.8

-0.3

-0.2

1.9

IIQ2011

15,825.1

0.4

0.7

1.7

IIIQ2011

15,820.7

0.4

0.0

0.9

IVQ2011

16,004.1

1.5

1.2

1.6

IQ2012

16,129.4

2.3

0.8

2.7

IIQ2012

16,198.8

2.8

0.4

2.4

IIIQ2012

16,220.7

2.9

0.1

2.5

IVQ2012

16,239.1

3.0

0.1

1.5

IQ2013

16,383.0

3.9

0.9

1.6

IIQ2013

16,403.2

4.1

0.1

1.3

IIIQ2013

16,531.7

4.9

0.8

1.9

IVQ2013

16,663.6

5.7

0.8

2.6

IQ2014

16,621.7

5.5

-0.3

1.5

IIQ2014

16,830.1

6.8

1.3

2.6

IIIQ2014

17,033.6

8.1

1.2

3.0

IVQ2014

17,113.9

8.6

0.5

2.7

IQ2015

17,254.7

9.5

0.8

3.8

IIQ2015

17,397.0

10.4

0.8

3.4

IIIQ2015

17,438.8

10.6

0.2

2.4

IVQ2015

17,456.2

10.7

0.1

2.0

IQ2016

17,523.4

11.2

0.4

1.6

IIQ2016

17,622.5

11.8

0.6

1.3

IIIQ2016

17,706.7

12.3

0.5

1.5

IVQ2016

17,784.2

12.8

0.4

1.9

IQ2017

17,863.0

13.3

0.4

1.9

IIQ2017

17,995.2

14.2

0.7

2.1

IIIQ2017

18,120.8

15.0

0.7

2.3

IVQ2017

18,223.8

15.6

0.6

2.5

IQ2018

18,324.0

16.3

0.5

2.6

IIQ2018

18,511.6

17.4

1.0

2.9

IIIQ2018

18,671.5

18.5

0.9

3.0

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 1992. 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. The National Bureau of Economic Research (NBER) dates a contraction of the US from IQ1990 (Jul) to IQ1991 (Mar) (http://www.nber.org/cycles.html). The expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP contracted 1.3 percent from the pre-recession peak of $8983.9 billion of chained 2009 dollars in IIIQ1990 to the trough of $8865.6 billion in IQ1991 (http://www.bea.gov/iTable/index_nipa.cfm).

clip_image023

Chart I-10, Percentage Change of Real Gross Domestic Product from Quarter a Year Earlier 1980-1992

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.

clip_image025

Chart I-11, Percentage Change of Real Gross Domestic Product from Quarter a Year Earlier 2007-2018

Source: US Bureau o 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. The National Bureau of Economic Research (NBER) dates a contraction of the US from IQ1990 (Jul) to IIQ1991 (Mar) (http://www.nber.org/cycles.html). The expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP contracted 1.3 percent from the pre-recession peak of $8983.9 billion of chained 2009 dollars in IIIQ1990 to the trough of $8865.6 billion in IQ1991 (http://www.bea.gov/iTable/index_nipa.cfm).

clip_image027

Chart I-12, Percentage Change of Real Gross Domestic Product from Prior Quarter 1980-1992

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 2018. Growth in the current expansion after IIIQ2009 has not been as strong as in other postwar cyclical expansions.

clip_image029

Chart I-13, Percentage Change of Real Gross Domestic Product from Prior Quarter 2007-2018

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 IVQ1991 than from IIIQ2009 to IIQ2018, 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 2018. 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 3.2 percent consisted of positive contribution of 1.10 percentage points of personal consumption expenditures (PCE) plus positive contribution of 2.60 percentage points of gross private domestic investment (GDI) of which 1.48 percentage points of inventory investment (∆PI), deduction of net exports (trade or exports less imports) of 0.14 percentage points and deduction of 0.40 percentage points of government consumption expenditures and gross investment (GOV) partly because of one-time deduction of national defense expenditures of 0.38 percentage points. Growth at 3.2 percent in IVQ2013 had strongest contributions of 2.31 percentage points of PCE and 1.23 percentage points of trade. Growth of GDP at minus 1.0 percent in IQ2014 is mostly contribution of 1.02 percentage points by PCE with deduction of 0.68 percentage points by GDI, inventory divestment of 1.28 percentage points and trade deducting 1.08 percentage points. Growth at 5.1 percent in IIQ2014 consists of contributions of 2.92 percentage points by PCE and 2.71 percentage points by GDI with 1.02 percentage points by inventory change. Trade deducted 51 percentage points and government added 0.00 percentage points. Growth at 4.9 percent in IIIQ2014 consists of contribution of 2.98 percentage points by PCE, 1.32 percentage points by GDI, 0.12 percentage points by trade and 0.51 percentage points by government of which 0.23 percentage points by national defense expenditures. Growth at 1.9 percent in IVQ2014 consists of contribution of 3.10 percentage points by PCE and deduction of 0.05 percentage points by GDI and deduction of 0.77 percentage points by inventory investment. Net trade deducted 1.08 percentage points while government deducted 0.07 percentage mostly because of deduction of 0.49 percentage points by national defense expenditure declining at 11.0 percent in IVQ2014. Growth of GDP at 3.3 percent in IQ2015 consisted mostly of contributions of 2.36 percentage points by personal consumption expenditures and 2.16 percentage points by inventory accumulation while trade deducted 1.58 percentage points and government contributed 0.40 percentage points. Growth at 3.3 percent in IIQ2015 consisted mostly of contributions of 2.28 percentage points by personal consumption expenditures, 0.37 percentage points by gross domestic investment, deduction of 0.01 percentage points by net trade and contribution of 0.70 percentage points by government consumption and expenditures. Growth at 1.0 percent in IIIQ2015 consisted mostly of contribution of personal consumption expenditures (PCE) of 1.91 percentage points with government adding 0.33 percentage points. Gross domestic investment (GDI) deducted 0.22 percentage points with deduction of inventory divestment of 0.73 percentage points while net trade deducted 1.05 percentage points. Growth at 0.4 percent in IVQ2015 consisted mostly of contribution of 1.52 percentage points by personal consumption expenditures (PCE). GDI deducted 1.04 percentage points while trade deducted 0.21 percentage points and inventory divestment deducted 0.70 percentage points. Growth at 1.5 percent in IQ2016 consisted mostly of contribution of 1.62 percentage points by personal consumption expenditures (PCE). There were deductions of 0.31 percentage points by gross domestic investment (GDI) and 0.62 percentage points by inventory change. Net trade subtracted 0.36 percentage points and government added 0.60 percentage points. Growth at 2.3 percent in IIQ2016 consisted mostly of contribution of 2.30 percentage points by PCE with GDI deducting 0.17 percentage points. Inventory divestment deducted 0.62 percentage points. Growth at 1.9 percent in IIIQ2016 consisted mostly of contribution of 1.79 percentage points by PCE with GDI deducting 0.07 percentage points. Inventory investment deducted 0.59 percentage points and trade added 0.03 percentage points. Growth at 1.8 percent in IVQ2016 had positive contributions of 1.75 percentage points of PCE, 1.30 of GDI and 0.03 of GOV. Inventory investment added 1.03 percentage points and net trade deducted 1.32 percentage points. Growth at 1.8 percent in IQ2017 originated in contributions of 1.22 percentage points by PCE and 0.80 percentage points by GDI with deduction 0.10 percentage points by net trade. GOV deducted 0.13 percentage points and inventory divestment subtracted 0.80 percentage points. Growth of GDP at 3.0 percent in IIQ217 originated in contributions of 1.95 percentage points by PCE, 0.95 percentage points by GDI, 0.08 percentage points by net trade and 0.23 percentage points by inventory investment. Government added 0.01 percentage points. Growth at 2.8 percent in IIIQ2017 consisted of positive contributions of 1.52 percentage points by PCE, 1.47 percentage points by GDI, 1.04 percentage points by inventory investment and 0.01 percentage points by net trade. GOV contributed 0.18 percentage points. Growth at 2.3 percent in IVQ2017 originated in positive contributions of 2.64 percentage points by PCE, 0.14 percentage points by GDI and 0.41 percentage points by GOV. Inventory divestment deducted 0.91 percentage points and net trade deducted 1.89 percentage points. Growth at 2.2 percent in IQ2018 originated in positive contributions of 0.36 percentage points by PCE, 1.61 percentage points by GDI and 0.27 percentage points by GOV. Inventory investment added 0.27 percentage points and net trade deducted 0.02 percentage points. Growth at 4.2 percent in IIQ2018 originated in positive contributions of 2.57 percentage points by PCE and 0.43 percentage points by GOV. Inventory divestment subtracted 1.17 percentage points and GDI deducted 0.07 percentage points. Net trade contributed 1.22 percentage points. Growth at 3.5 percent in IIIQ2018 consisted of positive contributions of 2.69 percentage points of PCE, 2.07 percentage points of inventory change and 0.56 percentage points of GOV. GDI deducted 2.03 percentage points and net trade deducted 1.78 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

2018

I

2.2

0.36

1.61

0.27

-0.02

0.27

II

4.2

2.57

-0.07

-1.17

1.22

0.43

III

3.5

2.69

-2.03

2.07

-1.78

0.56

2017

I

1.8

1.22

0.80

-0.80

-0.10

-0.13

II

3.0

1.95

0.95

0.23

0.08

0.01

III

2.8

1.52

1.47

1.04

0.01

0.18

IV

2.3

2.64

0.14

-0.91

-0.89

0.41

2016

I

1.5

1.62

-0.31

-0.62

-0.36

0.60

II

2.3

2.30

-0.17

-0.62

0.29

-0.15

III

1.9

1.79

-0.07

-0.59

0.03

0.17

IV

1.8

1.75

1.30

1.03

-1.32

0.03

2015

I

3.3

2.36

2.15

2.16

-1.58

0.40

II

3.3

2.28

0.37

-0.25

-0.01

0.70

III

1.0

1.91

-0.22

-0.73

-1.05

0.33

IV

0.4

1.52

-1.04

-0.70

-0.21

0.12

2014

I

-1.0

1.02

-0.68

-1.28

-1.08

-0.26

II

5.1

2.92

2.71

1.02

-0.51

0.00

III

4.9

2.98

1.32

-0.03

0.12

0.51

IV

1.9

3.10

-0.05

-0.77

-1.08

-0.07

2013

I

3.6

1.44

2.43

1.33

0.40

-0.68

II

0.5

0.20

0.75

0.23

-0.33

-0.13

III

3.2

1.10

2.60

1.48

-0.14

-0.40

IV

3.2

2.31

0.27

-0.62

1.23

-0.58

2012

I

3.2

2.19

1.32

-0.59

0.00

-0.34

II

1.7

0.41

1.47

0.21

0.27

-0.41

III

0.5

0.45

0.29

0.20

-0.08

-0.12

IV

0.5

1.22

-0.58

-1.70

0.57

-0.76

2011

I

-1.0

1.17

-1.10

-1.02

-0.02

-1.01

II

2.9

0.62

2.36

1.03

0.45

-0.55

III

-0.1

1.07

0.19

-2.23

-0.21

-1.16

IV

4.7

0.52

4.60

3.06

-0.36

-0.04

2010

I

1.5

1.32

1.28

1.30

-0.72

-0.33

II

3.7

2.16

2.95

0.92

-1.67

0.30

III

3.0

1.90

2.60

2.28

-0.94

-0.57

IV

2.0

1.80

-0.17

-1.25

0.91

-0.52

2009

I

-4.4

-0.52

-7.21

-2.14

2.40

0.92

II

-0.6

-1.03

-3.15

-1.04

2.39

1.22

III

1.5

1.92

-0.08

-0.33

-0.61

0.23

IV

4.5

-0.39

4.76

4.44

-0.07

0.17

1982

I

-6.1

1.80

-7.33

-5.33

-0.49

-0.05

II

1.8

0.75

-0.05

2.27

0.81

0.34

III

-1.5

1.64

-0.62

1.11

-3.22

0.68

IV

0.2

4.34

-5.38

-5.34

-0.10

1.30

1983

I

5.4

2.52

2.34

0.91

-0.30

0.81

II

9.4

5.21

5.95

3.42

-2.47

0.73

III

8.2

4.60

4.40

0.57

-2.26

1.49

IV

8.6

4.10

6.95

3.01

-1.14

-1.30

1984

I

8.1

2.21

7.23

4.94

-2.31

0.92

II

7.1

3.57

2.57

-0.29

-0.87

1.82

III

3.9

1.88

1.70

0.21

-0.36

0.69

IV

3.3

3.22

-1.07

-2.43

-0.56

1.74

1985

I

3.9

4.22

-2.14

-2.86

0.94

0.92

II

3.6

2.29

1.34

0.35

-1.91

1.85

III

6.2

4.76

-0.43

-0.15

-0.01

1.93

IV

3.0

0.52

2.81

1.40

-0.67

0.35

1986

I

3.8

2.16

0.04

-0.17

0.93

0.66

II

1.8

2.70

-1.30

-1.30

-1.33

1.75

III

3.9

4.43

-1.97

-1.63

-0.45

1.87

IV

2.2

1.55

0.25

-0.29

0.71

-0.33

1987

I

3.0

0.26

1.99

3.29

0.23

0.54

II

4.4

3.47

0.08

-1.00

0.14

0.70

III

3.5

2.91

0.03

-1.20

0.45

0.13

IV

7.0

0.57

4.96

4.97

0.18

1.33

1988

I

2.1

4.45

-3.64

-3.69

1.94

-0.67

II

5.4

1.90

1.73

0.33

1.44

0.29

III

2.4

2.25

0.38

0.05

-0.31

0.03

IV

5.4

2.91

1.12

0.28

-0.21

1.62

1989

I

4.1

1.19

2.43

1.80

0.86

-0.34

II

3.1

1.19

-0.71

-0.80

1.35

1.26

III

3.0

2.46

-0.64

-1.84

0.44

0.75

IV

0.8

1.11

-0.54

0.37

-0.20

0.42

1990

I

4.4

2.17

0.70

-0.10

0.25

1.33

II

1.5

0.77

0.03

1.38

0.52

0.13

III

0.3

1.00

-1.29

-0.74

0.44

0.13

IV

-3.6

-1.96

-3.66

-1.97

1.47

0.55

1991

I

-1.9

-1.00

-2.04

-0.26

0.69

0.49

II

3.2

2.11

0.05

-0.12

0.65

0.35

III

2.0

1.27

1.21

1.16

-0.21

-0.23

IV

1.4

-0.12

2.15

1.91

-0.02

-0.61

1992

I

4.9

4.83

-1.16

-1.81

0.44

0.77

II

4.4

1.78

3.40

1.44

-0.63

-0.14

III

4.0

2.77

0.50

-0.19

0.19

0.55

IV

4.2

3.08

1.92

0.14

-0.77

0.01

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 IIIQ2018 as follows (https://www.bea.gov/system/files/2018-10/gdp3q18_adv_2.pdf):

“Real gross domestic product (GDP) increased at an annual rate of 3.5 percent in the third quarter of 2018 (table 1), according to the "advance" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 4.2 percent.

The Bureau emphasized that the third-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see “Source Data for the Advance Estimate” on page 2). The "second" estimate for the third quarter, based on more complete data, will be released on November 28, 2018

The increase in real GDP in the third quarter reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, state and local government spending, federal government spending, and nonresidential fixed investment that were partly offset by negative contributions from exports and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased (table 2).

The deceleration in real GDP growth in the third quarter reflected a downturn in exports and a deceleration in nonresidential fixed investment. Imports increased in the third quarter after decreasing in the second. These movements were partly offset by an upturn in private inventory investment.”

There are positive contributions to growth in IIIQ2018 shown in Table I-9:

· Personal consumption expenditures (PCE) growing at 4.0 percent

· Growth of durable goods at 6.9 percent

· Growth of nonresidential fixed investment (NRFI) at 6.9 percent

· Growth of federal government expenditures at 3.3 percent and national defense expenditures at 4.6 percent

· Growth of state/local government expenditures at 3.2 percent

· Increase of inventory investment contributing 2.07 percentage points

There were negative contributions in IIIQ2018:

· Residential fixed investment contracting at 4.0 percent

· Decrease of exports at 3.5 percent

· Growth of imports, which are a deduction from growth, growing at 9.1 percent

The BEA finding accelerating factors:

· Government expenditures growing at 3.3 percent in IIIQ2018 after growing at 2.5 percent in IIQ2018

· State and local expenditures growing at 3.2 percent in IIIQ2018 after growing at 1.8 percent in IIQ2018

· Personal consumption expenditures growing at 4.0 percent in IIIQ2018 after growing at 3.8 percent in IIQ2018

· Contribution of 2.07 percentage points by inventory investment after deducting 1.17 percentage points in IIQ2018

The BEA finds offsetting decelerating factors:

· Nonresidential fixed investment growing at 0.8 percent in IIIQ2018 after growing at 8.7 percent in IIQ2018

· Durable goods growing at 6.9 percent in IIIQ2018 after growing at 8.6 percent in IIQ2018

· Residential fixed investment decreasing at 4.0 percent in IIIQ2018 after decreasing at 1.3 percent in IIQ2018

· Exports contracting at 3.5 percent in IIIQ2018 after growing at 9.3 percent in IIQ2018

· Imports, which are a deduction from growth, growing at 9.1 percent in IIIQ2018 after contracting at 0.6 percent in IIQ2018

· National defense expenditures growing at 4.6 percent in IIIQ2018 after growing at 5.9 percent in IIQ2018

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 0.2 percent in IIIQ2013 compared with a year earlier. Contraction of real disposable income of 2.5 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 3.1 percent in IQ2014 relative to a year earlier and 3.6 percent in IIQ2014 relative to a year earlier. Real disposable personal income increased 4.3 percent in IIIQ2014 relative to a year earlier and 5.2 percent in IVQ2014 compared with a year earlier. Real disposable personal income grew 4.9 percent in IQ2015 relative to a year earlier partly because of contraction of energy prices and increased at 4.4 percent in IIQ2015. Real disposable personal income grew at 4.1 percent in IIIQ2015 relative to a year earlier and at 3.1 percent in IVQ2015 relative to a year earlier. Real disposable income grew at 2.5 percent in IQ2016 relative to a year earlier and at 1.6 percent in IIQ2016 relative to a year earlier. Real disposable income grew at 1.1 percent in IIIQ2016 relative to a year earlier and at 1.6 percent in IVQ2016 compared with a year earlier. Real disposable income grew at 2.0 percent in IQ2017 relative to a year earlier and grew at 2.7 percent in IIQ2017 relative to a year earlier. Real disposable income grew at 2.9 percent in IIIQ2017 relative to a year earlier and grew 2.8 percent in IVQ2017 relative to a year earlier. Real disposable income grew at 2.8 percent in IQ2018 relative to a year earlier and grew at 2.9 percent in IIQ2018 relative to a year earlier. Real disposable personal income grew at 2.9 percent in IIIQ2018 relative to 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 10.2 percent in IVQ2012 to 6.6 percent in IIIQ2013 and 6.3 percent in IVQ2013. The savings rate eased to 7.3 percent in IQ2014, increasing to 7.4 percent in IIQ2014 and stabilizing to 7.4 percent in IIIQ2014. The savings rate moved to 7.4 percent in IVQ2014, increasing to 7.7 percent in IQ2015. The savings rate moved to 7.6 percent in IIQ2015, 7.7 percent in IIIQ2015 and 7.4 percent in IVQ2015. The savings ratio moved to 7.5 percent in IQ2016 and 6.6 percent in IIQ2016. The savings ratio eased at 6.3 percent in IIIQ2016 and at 6.4 percent in IVQ2016. The savings ratio reached 7.0 percent in IQ2017 and 6.7 percent in IIQ2017. The savings ratio eased to 6.7 percent in IIIQ2017 and 6.3 percent in IVQ2017. The savings ratio increased to 7.2 percent in IQ2018 and 6.8 percent in IIQ2018. The savings ratio eased to 6.4 percent in IIIQ2018. 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, %

III

Q2017

IV

Q2017

I

Q2018

II Q2018

III Q2018

GDP

2.8

2.3

2.2

4.2

3.5

PCE

2.2

3.9

0.5

3.8

4.0

Durable Goods

7.7

12.7

-2.0

8.6

6.9

NRFI

3.4

4.8

11.5

8.7

0.8

RFI

-0.5

11.1

-3.4

-1.3

-4.0

Exports

3.5

6.6

3.6

9.3

-3.5

Imports

2.8

11.8

3.0

-0.6

9.1

GOV

-1.0

2.4

1.5

2.5

3.3

Federal GOV

-1.3

4.1

2.6

3.7

3.3

National Defense

-2.9

2.9

3.0

5.9

4.6

Cont to GDP Growth % Points

-0.11

0.11

0.11

0.22

0.17

State/Local GOV

-0.9

1.4

0.9

1.8

3.2

∆ PI (PP)

1.04

-0.91

0.27

-1.17

2.07

Final Sales of Domestic Product

1.8

3.2

1.9

5.4

1.4

Gross Domestic Purchases

2.7

3.1

2.2

2.8

5.2

Prices Gross
Domestic Purchases

1.8

2.6

2.5

2.4

1.7

Prices of GDP

2.2

2.5

2.0

3.0

1.7

Prices of GDP Excluding Food and Energy

1.8

2.4

2.4

2.9

1.8

Prices of PCE

1.6

2.7

2.5

2.0

1.6

Prices of PCE Excluding Food and Energy

1.4

2.1

2.2

2.1

1.6

Prices of Market Based PCE

1.4

2.5

2.3

2.0

1.2

Prices of Market Based PCE Excluding Food and Energy

1.1

1.7

2.0

2.2

1.2

Real Disposable Personal Income*

2.9

2.8

2.8

2.9

2.9

Personal Saving As % Disposable Income

6.7

6.3

7.2

6.8

6.4

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 68.1 percent of GDP and is under pressure with stagnant real disposable income per person, elevated 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, %

IIIQ2018

GDP

100.0

PCE

68.1

   Goods

21.2

            Durable

7.2

            Nondurable

14.1

   Services

46.9

Gross Private Domestic Investment

17.8

    Fixed Investment

17.5

        NRFI

13.6

            Structures

3.1

            Equipment & Software

6.0

            Intellectual Property

4.5

        RFI

3.9

     Change in Private
      Inventories

0.4

Net Exports of Goods and Services

-3.1

       Exports

12.3

                    Goods

8.1

                    Services

4.2

       Imports

15.5

                     Goods

12.6

                     Services

2.9

Government

17.2

        Federal

6.4

           National Defense

3.8

           Nondefense

2.6

        State and Local

10.8

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, 1982-1991 and 2009, 2010, 2011, 2012, 2013, 2014 2015, 2016 and 2017. 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 7.2 percent in 1984 and 4.2 percent in 1985. The National Bureau of Economic Research (NBER) dates a contraction of the US from IQ1990 (Jul) to IQ1991 (Mar) (http://www.nber.org/cycles.html). The expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP contracted 1.3 percent from the pre-recession peak of $8983.9 billion of chained 2009 dollars in IIIQ1990 to the trough of $8865.6 billion in IQ1991 (http://www.bea.gov/iTable/index_nipa.cfm). In contrast, GDP grew 2.6 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, 1.8 percent in 2013 after 18 consecutive quarters of expansion, 2.5 percent in 2014 after 22 consecutive quarters of expansion and 2.9 percent in 2015 after twenty-six consecutive quarters of expansion. GDP grew at 1.5 percent in 2016 after thirty consecutive quarters of expansion. GDP grew at 2.2 percent in 2017 after 34 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, 2016 and 2017.

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

0.76

1959

6.9

3.51

2.83

0.83

0.00

0.60

1975

-0.2

1.36

-2.91

-1.24

0.86

0.49

1976

5.4

3.41

2.91

1.37

-1.05

0.12

1982

-1.8

0.88

-2.46

-1.31

-0.59

0.37

1983

4.6

3.51

1.60

0.28

-1.32

0.79

1984

7.2

3.30

4.73

1.90

-1.54

0.74

1985

4.2

3.20

-0.01

-1.03

-0.39

1.37

1986

3.5

2.58

0.03

-0.31

-0.29

1.14

1987

3.5

2.15

0.53

0.41

0.17

0.62

1988

4.2

2.65

0.45

-0.13

0.81

0.26

1989

3.7

1.86

0.72

0.17

0.51

0.58

1990

1.9

1.28

-0.45

-0.21

0.40

0.65

1991

-0.1

0.12

-1.09

-0.26

0.62

0.25

1992

3.5

2.36

1.11

0.28

-0.04

0.10

2009

-2.5

-0.85

-3.52

-0.83

1.13

0.70

2010

2.6

1.20

1.86

1.42

-0.49

0.00

2011

1.6

1.29

0.94

-0.05

-0.01

-0.66

2012

2.2

1.03

1.64

0.17

0.00

-0.42

2013

1.8

0.99

1.11

0.23

0.22

-0.47

2014

2.5

1.97

0.90

-0.12

-0.25

-0.18

2015

2.9

2.50

0.83

0.25

-0.78

0.33

2016

1.6

1.85

-0.24

-0.53

-0.30

0.25

2017

2.2

1.73

0.81

0.00

-0.31

-0.01

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 2017 using annual-level data. PCEs contributed 1.20 PPs to GDP growth in 2010 of which 0.66 percentage points (PP) in goods and 0.57 PP in services. Gross private domestic investment (GPDI) deducted 3.52 PPs of GDP growth in 2009 of which -2.70 PPs by fixed investment and -0.83 PPs of inventory change (∆PI) and added 1.86 PPs of GDI in 2010 of which 0.44 PPs of fixed investment and 1.42 PPs of inventory accumulation (∆PI). Trade, or exports of goods and services net of imports, contributed 1.13 PPs in 2009 of which exports deducted 1.01 PPs and imports added 2.14 PPs. In 2010, trade deducted 0.49 PPs with exports contributing 1.35 PPs and imports deducting 1.84 PPs likely benefitting from dollar revaluation. In 2009, government added 0.70 PP of which 0.47 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 0.23 PPs. Table I-12 provides the estimates for 2011, 2012, 2013, 2014, 2015, 2016 and 2017. PCE contributed 1.29 PPs in 2011 after 1.20 PPs in 2010. The contribution of PCE fell to 1.03 points in 2012 and to 0.99 PPs in 2013, increasing to 1.97 PPs in 2014. PCE contributed 2.50 percentage points in 2015 and added 1.85 PPs in 2016. PCE contributed 1.73 percentage points in 2017. The breakdown into goods and services is similar but with contributions in 2012 of 0.48 PPs of goods and 0.55 PPs of services. In 2013, goods contributed 0.70 PPs and services 0.29 PPs. Goods contributed 0.88 PPs in 2014 and services contributed 1.09 PPs. Goods contributed 1.02 percentage points in 2015 and services 1.48 percentage points. Goods contributed 0.77 PPs in 2016 and services contributed 1.08 PPs. Goods contributed 0.78 PPs in 2017 and services contributed 0.95 PPs. Gross private domestic investment contributed 1.86 PPs in 2010 with 1.42 PPs of change of private inventories but the contribution of gross private domestic investment was only 0.94 PPs in 2011. The contribution of GDI in 2012 increased to 1.64 PPs with fixed investment increasing its contribution to 1.47 PPs and residential investment contributing 0.31 PPs for the first time since 2009. GDI contributed 1.64 PPs in 2012 with 1.47 PPs from fixed investment and 0.17 PPs from inventory change. GDI contributed 1.11 PPs in 2013, 0.90 PPs in 2014 and 0.83 PPs in 2015. GDI deducted 0.24 PPs in 2016 with contribution of 0.29 PPs of fixed investment and deduction of 0.53 PPs by inventory change. GDI contributed 0.81 PPs in 2017 with contribution of 0.81 PPs by fixed investment and 0.68 PPs by nonresidential fixed investment. Net exports of goods and services deducted marginally in 2011 with 0.01 PPs and added 0.00 PPs in 2012. Net trade contributed 0.22 PPs in 2013 and deducted 0.25 PPs in 2014. Net trade deducted 0.78 percentage points in 2015 and deducted 0.30 PPs in 2016. Net trade deducted 0.31 percentage points in 2017. The contribution of exports fell from 1.35 PPs in 2010 and 0.90 PPs in 2011 to only 0.46 PPs in 2012, 0.48 PPs in 2013 and 0.58 PPs in 2014. Exports contributed only 0.08 percentage points in 2015 and deducted 0.01 percentage points in 2016. Exports contributed 0.36 PPs in 2017. Government deducted 0.66 PPs in 2011, 0.42 PPs in 2012 and 0.47 PPs in 2013. Government deducted 0.18 PPs in 2014 and contributed 0.33 PPs in 2015, contributing 0.25 PPs in 2016. Government deducted 0.01 PPs in 2017. Demand weakened in 2013 with lower contribution of personal consumption expenditures of 0.99 PPs and of gross domestic investment of 1.11 PPs. PCE contributed 1.97 PPs in 2014 and GDI 0.90 PPs. PCE contributed 2.50 PPs in 2015 and GDI contributed 0.83 PPs. PCE contributed 1.85 PPs in 2016 and GDI deducted 0.24 PPs. PCE contributed 1.73 PPs in 2017 and GDI added 0.81 PPs. Net trade contributed only 0.22 PPs in 2013 and deducted 0.25 PPs in 2014, deducting 0.78 PPs in 2015. Net trade deducted 0.30 PPs in 2016 and deducted 0.31 PPs in 2017. 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 ∆%

-2.5

2.6

1.6

2.2

1.8

2.5

2.9

Personal Consumption Expenditures (PCE)

-0.85

1.20

1.29

1.03

0.99

1.97

2.50

  Goods

-0.70

0.62

0.49

0.48

0.70

0.88

1.02

     Durable

-0.45

0.39

0.35

0.41

0.42

0.50

0.53

     Nondurable

-0.25

0.24

0.14

0.07

0.28

0.39

0.49

  Services

-0.15

0.57

0.80

0.55

0.29

1.09

1.48

Gross Private Domestic Investment (GPDI)

-3.52

1.86

0.94

1.64

1.11

0.90

0.83

Fixed Investment

-2.70

0.44

0.99

1.47

0.87

1.02

0.57

    Nonresidential

-1.95

0.52

1.00

1.16

0.54

0.90

0.24

      Structures

-0.72

-0.50

0.07

0.34

0.04

0.32

-0.10

     Equipment, software

-1.22

0.92

0.69

0.62

0.28

0.41

0.19

      Intellectual Property

-0.02

0.11

0.24

0.20

0.22

0.18

0.15

    Residential

-0.74

-0.08

0.00

0.31

0.34

0.12

0.33

Change Private Inventories

-0.83

1.42

-0.05

0.17

0.23

-0.12

0.25

Net Exports of Goods and Services

1.13

-0.49

-0.01

0.00

0.22

-0.25

-0.78

   Exports

-1.01

1.35

0.90

0.46

0.48

0.58

0.08

      Goods

-1.00

1.12

0.61

0.36

0.30

0.42

-0.03

      Services

-0.01

0.23

0.28

0.10

0.18

0.15

0.10

   Imports

2.14

-1.84

-0.91

-0.46

-0.26

-0.83

-0.85

      Goods

2.08

-1.74

-0.82

-0.38

-0.25

-0.75

-0.74

      Services

0.06

-0.10

-0.09

-0.09

-0.01

-0.07

-0.11

Government Consumption Expenditures and Gross Investment

0.70

0.00

-0.66

-0.42

-0.47

-0.18

0.33

  Federal

0.47

0.35

-0.23

-0.16

-0.44

-0.19

0.00

    National Defense

0.29

0.16

-0.12

-0.18

-0.34

-0.19

-0.08

    Nondefense

0.18

0.19

-0.11

0.03

-0.10

0.00

0.08

  State and Local

0.23

-0.35

-0.44

-0.26

-0.03

0.02

0.34

2013

2014

2015

2016

2017

GDP Growth ∆%

1.8

2.5

2.9

1.6

2.2

Personal Consumption Expenditures (PCE)

0.99

1.97

2.50

1.85

1.73

  Goods

0.70

0.88

1.02

0.77

0.78

     Durable

0.42

0.50

0.53

0.39

0.48

     Nondurable

0.28

0.39

0.49

0.38

0.30

  Services

0.29

1.09

1.48

1.08

0.95

Gross Private Domestic Investment (GPDI)

1.11

0.90

0.83

-0.24

0.81

Fixed Investment

0.87

1.02

0.57

0.29

0.81

    Nonresidential

0.54

0.90

0.24

0.06

0.68

      Structures

0.04

0.32

-0.10

-0.16

0.13

     Equipment, software

0.28

0.41

0.19

-0.09

0.35

      Intellectual Property

0.22

0.18

0.15

0.31

0.20

    Residential

0.34

0.12

0.33

0.23

0.13

Change Private Inventories

0.23

-0.12

0.25

-0.53

0.00

Net Exports of Goods and Services

0.22

-0.25

-0.78

-0.30

-0.31

   Exports

0.48

0.58

0.08

-0.01

0.36

      Goods

0.30

0.42

-0.03

0.03

0.26

      Services

0.18

0.15

0.10

-0.04

0.10

   Imports

-0.26

-0.83

-0.85

-0.28

-0.67

      Goods

-0.25

-0.75

-0.74

-0.17

-0.55

      Services

-0.01

-0.07

-0.11

-0.11

-0.12

Government Consumption Expenditures and Gross Investment

-0.47

-0.18

0.33

0.25

-0.01

  Federal

-0.44

-0.19

0.00

0.03

0.05

    National Defense

-0.34

-0.19

-0.08

-0.02

0.03

    Nondefense

-0.10

0.00

0.08

0.05

0.02

  State and Local

-0.03

0.02

0.34

0.22

-0.06

Source: US Bureau of Economic Analysis

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

Manufacturing jobs not seasonally adjusted increased 278,000 from Sep 2017 to
Sep 2018 or at the average monthly rate of 23,167. Industrial production increased 0.3 percent in Sep 2018 and increased 0.4 percent in Aug 2018 after increasing 0.3 percent in Jul 2018, with all data seasonally adjusted. The Board of Governors of the Federal Reserve System conducted the annual revision of industrial production released on Mar 23, 2018 (https://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] On net, the revisions to total IP for recent years were negative: For the 2015–17 period, the current estimates show rates of change that are 0.4 to 0.7 percentage point lower in each year.[2] Total IP is still reported to have moved up about 22 1/2 percent from the end of the recession in mid-2009 through late 2014. Subsequently, the index declined in 2015, edged down in 2016, and increased in 2017. The incorporation of detailed data for manufacturing from the U.S. Census Bureau's 2016 Annual Survey of Manufactures (ASM) accounts for the majority of the differences between the current and the previously published estimates.

Revisions to capacity for total industry were mixed. Capacity growth was revised up about 1/2 percentage point for 2016, but revisions to other recent years were negative. Capacity for total industry is estimated to have expanded less than 1 percent in 2015, 2016, and 2017, but it is expected to increase about 2 percent in 2018.

In the fourth quarter of 2017, capacity utilization for total industry stood at 77.0 percent, about 1/2 percentage point below its previous estimate and about 3 percentage points below its long-run (1972–2017) average. The utilization rate for 2016 is also lower than the previous estimate.”

Manufacturing decreased 22.3 from the peak in Jun 2007 to the trough in Apr 2009 and increased 16.1 percent from the trough in Apr 2009 to Dec 2017. Manufacturing grew 21.7 percent from the trough in Apr 2009 to Sep 2018. Manufacturing in Sep 2018 is lower by 5.5 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 IIIQ2018 would have accumulated to 37.4 percent. GDP in IIIQ2018 would be $21,657.0 billion (in constant dollars of 2012) if the US had grown at trend, which is higher by $2985.5 billion than actual $18,671.5 billion. There are about two trillion dollars of GDP less than at trend, explaining the 20.7 million unemployed or underemployed equivalent to actual unemployment/underemployment of 12.1 percent of the effective labor force (https://cmpassocregulationblog.blogspot.com/2018/10/twenty-one-million-unemployed-or.html and earlier https://cmpassocregulationblog.blogspot.com/2018/09/twenty-one-million-unemployed-or.html). US GDP in IIIQ2018 is 13.8 percent lower than at trend. US GDP grew from $15,762.0 billion in IVQ2007 in constant dollars to $18,671.5 billion in IIIQ2018 or 18.5 percent at the average annual equivalent rate of 1.6 percent. Professor John H. Cochrane (2014Jul2) estimates US GDP at more than 10 percent below trend. Cochrane (2016May02) measures GDP growth in the US at average 3.5 percent per year from 1950 to 2000 and only at 1.76 percent per year from 2000 to 2015 with only at 2.0 percent annual equivalent in the current expansion. Cochrane (2016May02) proposes drastic changes in regulation and legal obstacles to private economic activity. The US missed the opportunity to grow at higher rates during the expansion and it is difficult to catch up because growth rates in the final periods of expansions tend to decline. The US missed the opportunity for recovery of output and employment always afforded in the first four quarters of expansion from recessions. Zero interest rates and quantitative easing were not required or present in successful cyclical expansions and in secular economic growth at 3.0 percent per year and 2.0 percent per capita as measured by Lucas (2011May). There is cyclical uncommonly slow growth in the US instead of allegations of secular stagnation. There is similar behavior in manufacturing. There is classic research on analyzing deviations of output from trend (see for example Schumpeter 1939, Hicks 1950, Lucas 1975, Sargent and Sims 1977). The long-term trend is growth of manufacturing at average 3.1 percent per year from Sep 1919 to Sep 2018. Growth at 3.1 percent per year would raise the NSA index of manufacturing output from 108.3221 in Dec 2007 to 150.3999 in Sep 2018. The actual index NSA in Sep 2018 is 106.1908, which is 29.4 percent below trend. Manufacturing output grew at average 2.1 percent between Dec 1986 and Sep 2018. Using trend growth of 2.1 percent per year, the index would increase to 135.4390 in Sep 2018. The output of manufacturing at 106.1908 in Sep 2018 is 21.6 percent below trend under this alternative calculation. Manufacturing has share of 9.5 percent in US national income in IIQ2018 and durable goods 5.7 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

SSAR IQ2018

% Total

SSAR IIQ2018

% Total

National Income WCCA

16,806.5

100.0

17,009.6

100.0

Domestic Industries

16,537.7

98.4

16,742.6

98.4

Private Industries

14,610.6

86.9

14,808.6

87.1

Agriculture

129.6

0.8

134.9

0.8

Mining

174.3

1.0

188.4

1.1

Utilities

162.1

1.0

164.3

1.0

Construction

890.8

5.3

909.0

5.3

Manufacturing

1578.2

9.4

1615.5

9.5

Durable Goods

947.5

5.6

966.4

5.7

Nondurable Goods

630.7

3.8

649.1

3.8

Wholesale Trade

923.3

5.5

925.2

5.4

Retail Trade

1142.1

6.8

1137.4

6.7

Transportation & WH

539.4

3.2

549.3

3.2

Information

649.3

3.9

661.9

3.9

Finance, Insurance, RE

2957.2

17.6

2969.1

17.5

Professional & Business Services

2473.0

14.7

2533.4

14.9

Education, Health Care

1745.2

10.4

1764.5

10.4

Arts, Entertainment

746.8

4.4

749.4

4.4

Other Services

499.3

3.0

506.4

3.0

Government

1927.1

11.5

1934.0

11.4

Rest of the World

268.7

1.6

267.0

1.6

Notes: SSAR: Seasonally-Adjusted Annual Rate; Percentages Calculates from Unrounded Data; 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. 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 and the first quarter of 1991. There is quite different behavior of private fixed investment in the thirty-six quarters of cyclical expansion from IIIQ2009 to IIQ2018. The average annual growth rate in the first eight quarters of expansion from IIIQ2009 to IIQ2011 was 4.6 percent, which is significantly lower than 14.7 percent in the first eight quarters of expansion from IQ1983 to IVQ1984. There is only robust growth of private fixed investment in the four quarters of expansion from IIQ2011 to IQ2012 at the average annual rate of 12.8 percent. Growth has fallen from the SAAR of 17.9 percent in IIIQ2011 to 0.6 percent in IIIQ2012, recovering to 7.4 percent in IVQ2012 and increasing to 7.0 percent in IQ2013. The SAAR of fixed investment fell to 7.1 percent in IIIQ2013 and to 5.5 percent in IVQ2013. The SAAR of fixed investment decreased to 3.7 percent in IQ2014. Fixed investment grew at the SAAR of 10.5 percent in IIQ2014 and at 8.2 percent in IIIQ2014. Fixed investment grew at 4.3 percent in IVQ2014, 0.0 percent in IQ2015 and 3.7 percent in IIQ2015. Fixed investment grew at 3.1 percent in IIIQ2015 and fell at 1.9 percent in IVQ2015. Fixed investment increased at 1.9 percent in IQ2016 and increased at 2.8 percent in IIQ2016. Fixed investment increased at 3.2 percent in IIIQ2016 and increased at 1.7 percent in IVQ2016. Fixed investment increased at 9.9 percent in IQ2017 and increased at 4.3 percent in IIQ2017. Fixed investment grew at 2.6 percent in IIIQ2017. Fixed investment grew at 6.2 percent in IVQ2017 and increased at 8.0 percent in IQ2018. Fixed investment grew at 6.4 percent in IIQ2018. Fixed investment decreased at 0.3 percent in IIIQ2018. 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

-10.6

9.3

13.2

-6.1

-28.2

-0.2

II

3.2

-12.0

15.9

16.6

-3.2

-13.7

15.4

III

0.2

-9.2

24.4

8.2

-9.7

1.5

2.2

IV

-1.3

0.2

24.3

7.4

-23.9

2.0

7.8

1985

2011

I

3.7

-0.7

II

5.2

9.7

III

-1.6

17.9

IV

7.8

10.6

1986

2012

I

1.1

13.1

II

0.1

8.3

III

-1.8

0.6

IV

3.1

7.4

1987

2013

I

-6.7

7.0

II

6.3

3.3

III

7.1

7.1

IV

-0.2

5.5

1988

2014

I

0.2

3.7

II

8.1

10.5

III

1.9

8.2

IV

4.8

4.3

1989

2015

IQ

3.6

0.0

IIQ

0.5

3.7

IIIQ

7.2

3.1

IVQ

-5.1

-1.9

1990

2016

IQ

4.8

1.9

IIQ

-7.7

2.8

IIIQ

-3.2

3.2

IVQ

-9.9

1.7

1991

2017

I

-10.6

9.9

II

1.2

4.3

III

0.5

2.6

IV

1.7

6.2

1992

2018

I

4.5

8.0

II

13.8

6.4

III

4.7

-0.3

IV

12.2

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 1980 to 1991. 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. The National Bureau of Economic Research (NBER) dates a contraction of the US from IQ1990 (Jul) to IQ1991 (Mar) (http://www.nber.org/cycles.html). The expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP contracted 1.3 percent from the pre-recession peak of $8983.9 billion of chained 2009 dollars in IIIQ1990 to the trough of $8865.6 billion in IQ1991 (http://www.bea.gov/iTable/index_nipa.cfm).

clip_image031

Chart IA1-1, US, Real Private Fixed Investment, Seasonally-Adjusted Annual Rates Percent Change from Prior Quarter, 1980-1992

Source: US Bureau of Economic Analysis

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

Weak behavior of real private fixed investment from 2007 to 2018 is in Chart IA1-2. Growth rates of real private fixed investment were much lower during the initial phase of the current economic cycle, entered sharp trend of decline and recovered recently, with another decline.

clip_image033

Chart IA1-2, US, Real Private Fixed Investment, Seasonally-Adjusted Annual Rates Percent Change from Prior Quarter, 2007-2018

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 IIQ2018 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 $933.1 billion of chained 2012 dollars, growing to $1,161.7 billion in IQ1992 or 24.5 percent. The National Bureau of Economic Research (NBER) dates a contraction of the US from IQ1990 (Jul) to IQ1991 (Mar) (http://www.nber.org/cycles.html). The expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP contracted 1.3 percent from the pre-recession peak of $8983.9 billion of chained 2009 dollars in IIIQ1990 to the trough of $8865.6 billion in IQ1991 (http://www.bea.gov/iTable/index_nipa.cfm). Real gross private domestic investment in the US increased 28.6 percent from $2653.1 billion in IVQ2007 to $3,412.1 billion in IIIQ2018. Real private fixed investment increased 26.2 percent from $2,630.0 billion of chained 2012 dollars in IVQ2007 to $3,320.1 billion in IIIQ2018. Private fixed investment fell relative to IVQ2007 in all quarters preceding IVQ2012 and increased 0.8 percent in IIIQ2016, increasing 0.7 percent in IIQ2016 and increasing 0.5 percent in IQ2016. Private fixed investment increased 0.4 percent in IVQ2016. Private fixed investment increased 2.4 percent in IQ2017 and increased 1.1 percent in IIQ2017. Private fixed investment increased 0.6 percent in IIIQ2017 and increased 1.5 percent in IVQ2017. Private fixed investment increased 1.9 percent in IQ2018, increasing 1.6 percent in IIQ2018. Private fixed investment decreased 0.1 percent in IIIQ2018. Growth of real private investment in Table IA1-2 is mediocre for all but four quarters from IIQ2011 to IQ2012. There is recent robust growth. 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 2012 Dollars and ∆%

Real PFI, Billions Chained 2012

Dollars

∆% Relative to IVQ2007

∆% Relative to Prior Quarter

∆%
over
Year Earlier

IVQ2007

2630.0

NA

-1.0

-1.1

IQ2008

2589.1

-1.6

-1.6

-2.6

IIQ2008

2567.9

-2.4

-0.8

-3.8

IIIQ2008

2503.0

-4.8

-2.5

-5.7

IV2008

2337.8

-11.1

-6.6

-11.1

IQ2009

2151.9

-18.2

-8.0

-16.9

IIQ2009

2073.9

-21.1

-3.6

-19.2

IIIQ2009

2081.6

-20.9

0.4

-16.8

IVQ2009

2092.0

-20.5

0.5

-10.5

IQ2010

2091.0

-20.5

0.0

-2.8

IIQ2010

2167.1

-17.6

3.6

4.5

IIIQ2010

2178.7

-17.2

0.5

4.7

IVQ2010

2220.0

-15.6

1.9

6.1

IQ2011

2216.2

-15.7

-0.2

6.0

IIQ2011

2268.0

-13.8

2.3

4.7

IIIQ2011

2363.3

-10.1

4.2

8.5

IVQ2011

2423.7

-7.8

2.6

9.2

IQ2012

2499.4

-5.0

3.1

12.8

IIQ2012

2549.8

-3.0

2.0

12.4

IIIQ2012

2553.6

-2.9

0.1

8.1

IVQ2012

2599.4

-1.2

1.8

7.2

IQ2013

2643.9

0.5

1.7

5.8

IIQ2013

2665.3

1.3

0.8

4.5

IIIQ2013

2711.3

3.1

1.7

6.2

IVQ2013

2748.0

4.5

1.4

5.7

IQ2014

2772.8

5.4

0.9

4.9

IIQ2014

2842.9

8.1

2.5

6.7

IIIQ2014

2899.6

10.3

2.0

6.9

IVQ2014

2930.5

11.4

1.1

6.6

IQ2015

2930.4

11.4

0.0

5.7

IIQ2015

2957.5

12.5

0.9

4.0

IIIQ2015

2980.2

13.3

0.8

2.8

IVQ2015

2965.9

12.8

-0.5

1.2

IQ2016

2980.0

13.3

0.5

1.7

IIQ2016

3000.0

14.1

0.7

1.4

IIIQ2016

3023.5

15.0

0.8

1.5

IVQ2016

3036.1

15.4

0.4

2.4

IQ2017

3108.6

18.2

2.4

4.3

IIQ2017

3141.3

19.4

1.1

4.7

IIIQ2017

3161.2

20.2

0.6

4.6

IVQ2017

3209.3

22.0

1.5

5.7

IQ2018

3271.3

24.4

1.9

5.2

IIQ2018

3322.3

26.3

1.6

5.8

IIIQ2018

3320.1

26.2

-0.1

5.0

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 2018. Real private fixed investment increased 26.2 percent from $2,630.0 billion of chained 2009 dollars in IVQ2007 to $3,320.1 billion in IIIQ2018.

clip_image035

Chart IA1-3, US, Real Private Fixed Investment, Billions of Chained 2009 Dollars, 2007 to 2018

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 2012 from 1980 to 1992. Real gross private domestic investment climbed 24.5 percent to $1,161.7 billion of 2012 dollars in IQ1992 above the level of $933.1 billion in IQ1980. The National Bureau of Economic Research (NBER) dates a contraction of the US from IQ1990 (Jul) to IQ1991 (Mar) (http://www.nber.org/cycles.html). The expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP contracted 1.3 percent from the pre-recession peak of $8983.9 billion of chained 2009 dollars in IIIQ1990 to the trough of $8865.6 billion in IQ1991.

clip_image037

Chart IA1-4, US, Real Gross Private Domestic Investment, Billions of Chained 2009 Dollars at Seasonally Adjusted Annual Rate, 1980-1992

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 2007 to 2018. Real gross private domestic investment reached a level of $3412.1 billion in IIIQ2018, which was 28.6 percent higher than the level of $2,653.1 billion in IVQ2007 (http://www.bea.gov/iTable/index_nipa.cfm).

clip_image039

Chart IA1-5, US, Real Gross Private Domestic Investment, Billions of Chained 2009 Dollars at Seasonally Adjusted Annual Rate, 2007-2018

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 decreased from 20.0 percent in IIIQ2000 and 19.5 percent in IIIQ2006 to 17.8 percent in IIIQ2018. There are declines in percentage shares in GDP of all components with sharp reduction of residential investment from 4.7 percent in IIIQ2000 and 5.9 percent in IIIQ2006 to 3.9 percent in IIIQ2018. The share of fixed investment in GDP fell from 19.4 percent in IIIQ2000 and 19.0 percent in IIIQ2006 to 17.5 percent in IIIQ2018.

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

IIIQ2018

IIIQ2006

IIIQ2000

Gross Private Domestic Investment

17.8

19.5

20.0

  Fixed Investment

17.5

19.0

19.4

     Nonresidential

13.6

13.1

14.7

          Structures

3.1

3.1

3.2

          Equipment

          and Software

6.0

6.3

7.5

          Intellectual
           Property

4.5

3.7

4.0

     Residential

3.9

5.9

4.7

   Change in Private Inventories

0.4

0.6

0.6

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 2017. There was sharp drop during the current economic cycle with almost no recovery in contrast with sharp recovery after the recessions of the 1980s.

clip_image041

Chart IA1-6, US, Percentage Share of Gross Private Domestic Investment in Gross Domestic Product, Annual, 1929-2017

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 2017. 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.

clip_image043

Chart IA1-7, US, Percentage Share of Private Fixed Investment in Gross Domestic Product, Annual, 1929-2017

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 2017. There is again recovery from sharp contraction in the 1980s but inadequate recovery in the current economic cycle.

clip_image045

Chart IA1-8, US, Percentage Share of Nonresidential Investment in Gross Domestic Product, Annual, 1929-2017

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 2017. There is again inadequate recovery in the current economic cycle.

clip_image047

Chart IA1-9, US, Percentage Share of Business Equipment and Software in Gross Domestic Product, Annual, 1929-2017

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 2017. 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.

clip_image049

Chart IA1-10, US, Percentage Share of Residential Investment in Gross Domestic Product, Annual, 1929-2017

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 2018 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).

clip_image051

Chart IA1-11, US, Percentage Share of Residential Investment in Gross Domestic Product, Quarterly, 1979-2018

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 2017. 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.

clip_image053

Chart IA1-12, US, Percentage Share of Intellectual Property Products Investment in Gross Domestic Product, Annual, 1929-2017

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 2018. The share stabilized in the 2000s.

clip_image055

Chart IA1-13, US, Percentage Share of Intellectual Property Investment in Gross Domestic Product, Quarterly, 1979-2018

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 (EQP), residential investment (RES), intellectual property products (IPP) and change in inventories (∆INV) for the cyclical expansions from IQ1983 to IVQ1991 and from IIIQ2009 to IIQ2018. GDI contributed 2.15 percentage points to GDP in IQ2015 with minus 0.01 percentage points by PFI, 2.16 percentage points by inventory accumulation and deduction of 0.21 percentage points by intellectual property products. GDI contributed 0.37 percentage points to GDP growth in IIQ2015: 0.63 percentage points in PFI, 0.27 percentage points in NRES and 0.35 percentage points in RES. Inventory investment deducted 0.25 percentage points and IPP added 0.17 percentage points. GDI deducted 0.22 percentage points from GDP growth in IIIQ2015 with deduction of 0.73 percentage points by inventory divestment while EQP added 0.43 percentage points. PFI added 0.51 percentage points, nonresidential investment added 0.14 percentage points and residential investment added 0.37 percentage points. IPP added 0.18 percentage points. GDI deducted 1.04 percentage points in IVQ2015 with percentage point deductions of 0.53 by NRES, 0.33 by PFI, 0.53 by EQP and 0.70 by inventory divestment. Percentage point contributions were 0.44 by IPP and 0.20 by RES. GDI deducted 0.31 percentage points from GDP growth in IQ2016 with percentage point contribution of 0.31 by fixed investment, deduction of 0.16 by nonresidential investment and deduction of 0.62 by inventory change. Residential investment added 0.47 percentage points and intellectual property products contributed 0.36 percentage points. GDI deducted 0.17 percentage points from GDP growth in IIQ2016 with deductions of 0.04 by RES and 0.62 percentage points by inventory change. IPP added 0.39 percentage points, NRES contributed 0.50 and PFI added 0.46. GDI deducted 0.07 percentage points from GDP growth in IIIQ2016 with contributions by NRES, EQP, IPP and deduction by inventory divestment. PFI added 0.52 percentage points and RES deducted 0.06 percentage points. GDI contributed 1.30 percentage points to GDP growth in IVQ2016 with contributions by NRES, RES and inventory investment. PFI added 0.28 percentage points, RES added 0.26 percentage points and inventory investment added 1.03 percentage points. GDI contributed 0.80 percentage points to GDP growth in IQ2017 with contributions by all segments except for deduction of 0.80 percentage points by inventory divestment. PFI contributed 1.60 percentage points. NRES contributed 1.20 percentage points and RES added 0.41 percentage points. EQP contributed 0.33 percentage points and IPP added 0.33 percentage points. GDI added 0.95 percentage points to GDP growth in IIQ2017 with contributions of 0.72 PPs by PFI, 0.94 PPs by NRES, 0.55 PPs by EQP and 0.28 PPs by IPP. RES deducted 0.22 PPs and inventory change added 0.23 PPs. GDI added 1.47 percentage points to GDP growth in IIIQ2017 with contributions of 0.44 PPs by PFI, 0.45 PPs by NRES and 0.08 PPs by IPP. EQP contributed 0.56 PPs, RES deducted 0.02 PPs and inventory change added 1.04 PPs. GDI added 0.14 percentage points to GDP growth in IVQ2017 with contributions of 1.04 PPs by PFI, 0.63 PPs by NRES and 0.03 PPs by IPP. EQP contributed 0.56 PPs, RES added 0.41 PPs and inventory change deducted 0.91 PPs. GDI added 1.61 percentage points to GDP growth in IQ2018 with contributions of 1.34 PPs by PFI, 1.47 PPs by NRES and 0.58 PPs by IPP. EQP contributed 0.49 PPs, RES deducted 0.14 PPs and inventory change contributed 0.27 PPs. GDI deducted 0.07 PPs from GDP growth in IIQ2018 with contributions of 1.10 by PFI, 1.15 by NRES, 0.27 by EQP and 0.45 by IPP. RES deducted 0.05 and inventory divestment deducted 1.17. GDI added 2.03 PPs to GDP growth in IIIQ2018 with contributions of 0.12 by NRSE, 0.03 by EQP, 0.35 by IPP and 2.07 by inventory change. RES deducted 0.16 and PFI deducted 0.04.

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

GDP

GDI

PFI

NRES

EQP

IPP

RES

∆INV

2018

I

2.2

1.61

1.34

1.47

0.49

0.58

-0.14

0.27

II

4.2

-0.07

1.10

1.15

0.27

0.45

-0.05

-1.17

III

3.5

2.03

-0.04

0.12

0.03

0.35

-0.16

2.07

2017

I

1.8

0.80

1.60

1.20

0.50

0.33

0.41

-0.80

II

3.0

0.95

0.72

0.94

0.55

0.28

-0.22

0.23

III

2.8

1.47

0.44

0.45

0.56

0.08

-0.02

1.04

IV

2.3

0.14

1.04

0.63

0.56

0.03

0.41

-0.91

2016

I

1.5

-0.31

0.31

-0.16

-0.40

0.36

0.47

-0.62

II

2.3

-0.17

0.46

0.50

0.01

0.39

-0.04

-0.62

III

1.9

-0.07

0.52

0.59

0.05

0.23

-0.06

-0.59

IV

1.8

1.30

0.28

0.00

0.50

-0.02

0.28

1.03

2015

I

3.3

2.15

-0.01

-0.25

0.27

-0.21

0.24

2.16

II

3.3

0.37

0.63

0.27

0.05

0.17

0.35

-0.25

III

1.0

-0.22

0.51

0.14

0.43

0.18

0.37

-0.73

IV

0.4

-1.04

-0.33

-0.53

-0.27

0.44

0.20

-0.70

2014

I

-1.0

-0.68

0.60

0.71

0.17

0.11

-0.11

-1.28

II

5.1

2.71

1.69

1.27

0.57

0.27

0.43

1.02

III

4.9

1.32

1.35

1.15

0.87

0.24

0.20

-0.03

IV

1.9

-0.05

0.72

0.26

-0.36

0.41

0.45

-0.77

2013

I

3.6

2.43

1.10

0.69

0.44

0.50

0.41

1.33

II

0.5

0.75

0.52

0.14

-0.05

-0.14

0.37

0.23

III

3.2

2.60

1.12

0.90

0.00

0.31

0.22

1.48

IV

3.2

0.27

0.89

1.08

0.92

0.05

-0.20

-0.62

2012

I

3.2

1.32

1.90

1.30

0.73

0.04

0.60

-0.59

II

1.7

1.47

1.25

1.16

0.68

0.21

0.09

0.21

III

0.5

0.29

0.09

-0.18

-0.07

0.03

0.27

0.20

IV

0.5

-0.58

1.13

0.57

0.48

0.32

0.56

-1.70

2011

I

-1.0

-1.10

-0.09

-0.05

0.53

0.16

-0.03

-1.02

II

2.9

2.36

1.34

1.23

0.31

0.26

0.11

1.03

III

-0.1

0.19

2.42

2.25

1.32

0.32

0.17

-2.23

IV

4.7

4.60

1.55

1.29

0.54

0.37

0.25

3.06

2010

I

1.5

1.28

-0.02

0.32

1.32

-0.27

-0.34

1.30

II

3.7

2.95

2.03

1.49

1.28

-0.08

0.53

0.92

III

3.0

2.60

0.32

1.26

1.11

0.30

-0.94

2.28

IV

2.0

-0.17

1.08

0.92

0.44

0.29

0.16

-1.25

2009

I

-4.4

-7.21

-5.07

-3.89

-2.35

-0.41

-1.18

-2.14

II

-0.6

-3.15

-2.11

-1.44

-0.74

0.39

-0.68

-1.04

III

1.5

-0.08

0.25

-0.24

0.46

0.16

0.49

-0.33

IV

4.5

4.76

0.32

0.33

0.86

0.48

-0.02

4.44

1982

I

-6.1

-7.33

-2.00

-1.19

-0.57

0.14

-0.81

-5.33

II

1.8

-0.05

-2.32

-1.88

-1.20

0.08

-0.44

2.27

III

-1.5

-0.62

-1.73

-1.71

-0.55

0.06

-0.02

1.11

IV

0.2

-5.38

-0.04

-1.05

-0.57

0.00

1.01

-5.34

1983

I

5.4

2.34

1.44

-0.93

-0.27

0.16

2.36

0.91

II

9.4

5.95

2.53

0.67

1.24

0.29

1.86

3.42

III

8.2

4.40

3.83

2.13

1.43

0.31

1.70

0.57

IV

8.6

6.95

3.93

3.14

2.32

0.35

0.79

3.01

1984

I

8.1

7.23

2.29

1.71

0.46

0.30

0.58

4.94

II

7.1

2.57

2.87

2.53

1.36

0.29

0.34

-0.29

III

3.9

1.70

1.48

1.70

0.89

0.25

-0.22

0.21

IV

3.3

-1.07

1.36

1.34

0.86

0.29

0.02

-2.43

1985

I

3.9

-2.14

0.72

0.67

-0.23

0.14

0.05

-2.86

II

3.6

1.34

0.99

0.83

0.65

0.20

0.16

0.35

III

6.2

-0.43

-0.28

-0.62

-0.38

0.13

0.34

-0.15

IV

3.0

2.81

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

1.8

-1.30

0.00

-1.12

0.34

0.15

1.12

-1.30

III

3.9

-1.97

-0.34

-0.63

-0.17

0.10

0.28

-1.62

IV

2.2

0.25

0.54

0.48

0.30

0.10

0.05

-0.29

1987

I

3.0

1.99

-1.30

-1.26

-0.97

0.07

-0.04

3.29

II

4.4

0.08

1.07

1.00

0.76

0.08

0.07

-1.00

III

3.5

0.03

1.23

1.40

0.70

0.11

-0.17

-1.20

IV

7.0

4.96

-0.01

-0.05

-0.48

0.16

0.04

4.97

1988

I

2.1

-3.64

0.06

0.41

0.82

0.15

-0.36

-3.69

II

5.4

1.73

1.39

1.15

0.67

0.18

0.25

0.33

III

2.4

0.38

0.33

0.32

0.29

0.22

0.01

0.05

IV

5.4

1.12

0.84

0.71

0.35

0.40

0.13

0.28

1989

I

4.1

2.43

0.62

0.81

0.32

0.27

-0.19

1.80

II

3.1

-0.71

0.09

0.68

0.57

0.27

-0.59

-0.80

III

3.0

-0.64

1.20

1.28

0.52

0.29

-0.08

-1.84

IV

0.8

-0.54

-0.91

-0.53

-0.74

0.30

-0.38

0.37

1990

I

4.4

0.70

0.80

0.64

0.11

0.23

0.16

-0.10

II

1.5

0.03

-1.35

-0.67

-0.79

0.19

-0.69

1.38

III

0.3

-1.29

-0.56

0.33

0.34

0.05

-0.89

-0.74

IV

-3.6

-3.66

-1.69

-0.79

-0.38

0.20

-0.90

-1.97

1991

I

-1.9

-2.04

-1.78

-1.00

-0.90

0.18

-0.78

-0.26

II

3.2

0.05

0.17

-0.26

-0.17

0.26

0.43

-0.12

III

2.0

1.21

0.05

-0.43

0.33

0.04

0.48

1.16

IV

1.4

2.15

0.24

-0.05

-0.13

0.31

0.29

1.91

1992

I

4.9

-1.16

0.64

-0.20

-0.21

0.15

0.84

-1.81

II

4.4

3.40

1.96

1.44

1.29

0.14

0.53

1.44

III

4.0

0.50

0.70

0.69

0.52

0.07

0.01

-0.19

IV

4.2

1.92

1.78

1.18

0.85

0.19

0.60

0.14

GDP: Gross Domestic Product; GDI: Gross Domestic Investment; PFI: Private Fixed Investment; NRES: Nonresidential; EQP: 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

© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018.

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