Saturday, October 26, 2019

Increasing Valuations of Risk Financial Assets, United States Industrial Production Underperforming Below Trend, Squeeze of Economic Activity by Carry Trades Induced by Zero Interest Rates, United States Housing, United States House Prices, Collapse of United States Dynamism of Income Growth and Employment Creation in the Lost Economic Cycle of the Global Recession with Economic Growth Underperforming Below Trend Worldwide, World Cyclical Slow Growth, Government Intervention in Globalization, and Global Recession Risk: Part I


Increasing Valuations of Risk Financial Assets, United States Industrial Production Underperforming Below Trend, Squeeze of Economic Activity by Carry Trades Induced by Zero Interest Rates, United States Housing, United States House Prices, Collapse of United States Dynamism of Income Growth and Employment Creation in the Lost Economic Cycle of the Global Recession with Economic Growth Underperforming Below Trend Worldwide, World Cyclical Slow Growth, Government Intervention in Globalization, and Global Recession Risk

Carlos M. Pelaez

© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019.

I United States Industrial Production

IIB Squeeze of Economic Activity by Carry Trades Induced by Zero Interest Rates

IIA United States Housing Collapse

IIA1 Sales of New Houses

IIA2 United States House Prices

II IB Collapse of United States Dynamism of Income Growth and Employment Creation in the Lost Economic Cycle of the Global Recession with Economic Growth Underperforming Below Trend Worldwide

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 United States Industrial Production. 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)

Industrial production decreased 0.4 percent in Sep 2019 and increased 0.8 percent in Aug 2019 after decreasing 0.2 percent in Jul 2019, with all data seasonally adjusted, as shown in Table I-1. The Board of Governors of the Federal Reserve System conducted the annual revision of industrial production released on Mar 27, 2019 (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 the growth rates for total IP for recent years were small and positive, with the estimates for 2016 and 2017 a bit higher and the estimates for 2015 and 2018 slightly lower.[2] Total IP is still reported to have increased from the end of the recession in mid-2009 through late 2014 before declining in 2015 and rebounding in mid-2016. Subsequently, the index advanced around 7 1/2 percent over 2017 and 2018.

Capacity for total industry expanded modestly in each year from 2015 to 2017 before advancing 1 1/2 percent in 2018; it is expected to advance about 2 percent in 2019. Revisions for recent years were very small and showed slightly less expansion in most years relative to earlier reports.

In the fourth quarter of 2018, capacity utilization for total industry stood at 79.4 percent, about 3/4 percentage point above its previous estimate and about 1/2 percentage point below its long-run (1972–2018) average. The utilization rate in 2017 is also higher than its previous estimate.”

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

“Industrial production fell back 0.4 percent in September after advancing 0.8 percent in August. For the third quarter, industrial production rose at an annual rate of 1.2 percent following declines of about 2 percent in both the first and the second quarters. Manufacturing production decreased 0.5 percent in September, with output reduced by a strike at a major manufacturer of motor vehicles. Excluding motor vehicles and parts, the overall index and the manufacturing index each moved down 0.2 percent. Mining production fell 1.3 percent, while utilities output rose 1.4 percent. At 109.5 percent of its 2012 average, total industrial production was 0.1 percent lower in September than it was a year earlier. Capacity utilization for the industrial sector decreased 0.4 percentage point in September to 77.5 percent, a rate that is 2.3 percentage points below its long-run (1972–2018) average.” In the six months ending in Sep 2019, United States national industrial production accumulated change of minus 0.1 percent at the annual equivalent rate of minus 0.2 percent, which is lower than growth of minus 0.1 percent in the 12 months ending in Sep 2019. Excluding growth of 0.8 percent in Aug 2019, growth in the remaining five months from Apr 2019 to Sep 2019 accumulated to minus 0.9 percent or minus 2.1 percent annual equivalent. Industrial production increased 0.8 percent in one of the past six months, increased 0.2 percent in one month, 0.1 percent in one month, minus 0.6 minus in one month, minus 0.4 percent in one month, and minus 0.2 percent in one month. Industrial production increased at annual equivalent 0.8 percent in the most recent quarter from Jul 2019 to Sep 2019 and decreased at 1.2 percent annual equivalent in the prior quarter from Apr to Jun 2019. Business equipment accumulated change of minus 1.0 percent in the six months from Apr 2018 to Sep 2019, at the annual equivalent rate of minus 2.0 percent, which is lower than growth of minus 0.8 percent in the 12 months ending in Sep 2019. The Fed analyzes capacity utilization of total industry in its report (https://www.federalreserve.gov/releases/g17/Current/default.htm): ” Capacity utilization for the industrial sector decreased 0.4 percentage point in September to 77.5 percent, a rate that is 2.3 percentage points below its long-run (1972–2018) average.” United States industry apparently decelerated to a lower growth rate followed by possible acceleration and weakening growth in past months. There could be renewed growth with oscillations.

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

Sep 19

Aug 19

Jul 19

Jun 19

May 19

Apr 19

Sep 19/

Sep 18

Total

-0.4

0.8

-0.2

0.1

0.2

-0.6

-0.1

Market
Groups

Final Products

-0.3

0.3

-0.2

0.6

0.5

-1.8

-0.6

Consumer Goods

-0.2

0.1

0.0

0.5

0.6

-1.9

-1.0

Business Equipment

-0.7

1.1

-0.5

0.6

0.4

-1.9

-0.8

Non
Industrial Supplies

-0.2

0.6

-0.2

-0.2

0.5

-0.5

0.1

Construction

0.0

0.7

-1.2

0.7

0.6

-0.7

1.2

Materials

-0.5

1.2

-0.2

-0.3

-0.1

0.3

0.2

Industry Groups

Manufacturing

-0.5

0.6

-0.4

0.6

0.1

-0.9

-0.9

Mining

-1.3

2.4

-2.4

0.4

-0.2

2.6

2.6

Utilities

1.4

0.2

4.2

-4.1

1.8

-3.3

1.2

Capacity

77.5

77.9

77.4

77.7

77.8

77.8

2.2

Sources: Board of Governors of the Federal Reserve System

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

Manufacturing decreased 0.5 percent in Sep 2019 and increased 0.6 percent in Aug 2019 after decreasing 0.4 percent in Jul 2019, seasonally adjusted, decreasing 1.0 percent not seasonally adjusted in the 12 months ending in Sep 2019, as shown in Table I-2. Manufacturing decreased cumulatively 0.5 percent in the six months ending in Sep 2019 or at the annual equivalent rate of minus 1.0 percent. Excluding the increase of 0.6 percent in Jun 2019, manufacturing decreased 1.1 percent from Apr 2019 to Sep 2019 or at the annual equivalent rate of minus 2.6 percent. Table I-2 provides a longer perspective of manufacturing in the US. There has been evident deceleration of manufacturing growth in the US from 2010 and the first three months of 2011 with recovery followed by renewed deterioration/improvement in more recent months as shown by 12 months’ rates of growth. Growth rates appeared to be increasing again closer to 5 percent in Apr-Jun 2012 but deteriorated. The rates of decline of manufacturing in 2009 are quite high with a drop of 18.6 percent in the 12 months ending in Apr 2009. Manufacturing recovered from this decline and led the recovery from the recession. Rates of growth appeared to be returning to the levels at 3 percent or higher in the annual rates before the recession, but the pace of manufacturing fell steadily with some strength at the margin. There is renewed deterioration and improvement. The Board of Governors of the Federal Reserve System conducted the annual revision of industrial production released on Mar 27, 2019 (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 the growth rates for total IP for recent years were small and positive, with the estimates for 2016 and 2017 a bit higher and the estimates for 2015 and 2018 slightly lower.[2] Total IP is still reported to have increased from the end of the recession in mid-2009 through late 2014 before declining in 2015 and rebounding in mid-2016. Subsequently, the index advanced around 7 1/2 percent over 2017 and 2018.

Capacity for total industry expanded modestly in each year from 2015 to 2017 before advancing 1 1/2 percent in 2018; it is expected to advance about 2 percent in 2019. Revisions for recent years were very small and showed slightly less expansion in most years relative to earlier reports.

In the fourth quarter of 2018, capacity utilization for total industry stood at 79.4 percent, about 3/4 percentage point above its previous estimate and about 1/2 percentage point below its long-run (1972–2018) average. The utilization rate in 2017 is also higher than its previous estimate.”

The bottom part of Table I-2 shows manufacturing decreasing 22.3 percent from the peak in Jun 2007 to the trough in Apr 2009 and increasing 19.7 percent from the trough in Apr 2009 to Dec 2018. Manufacturing grew 21.3 percent from the trough in Apr 2009 to Sep 2019. Manufacturing in Sep 2019 is lower by 5.7 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. US economic growth has been at only 2.3 percent on average in the cyclical expansion in the 40 quarters from IIIQ2009 to IIQ2019. Boskin (2010Sep) measures that the US economy grew at 6.2 percent in the first four quarters and 4.5 percent in the first 12 quarters after the trough in the second quarter of 1975; and at 7.7 percent in the first four quarters and 5.8 percent in the first 12 quarters after the trough in the first quarter of 1983 (Professor Michael J. Boskin, Summer of Discontent, Wall Street Journal, Sep 2, 2010 http://professional.wsj.com/article/SB10001424052748703882304575465462926649950.html). There are new calculations using the revision of US GDP and personal income data since 1929 by the Bureau of Economic Analysis (BEA) (http://bea.gov/iTable/index_nipa.cfm) and the third estimate of GDP for IIQ2019 (https://www.bea.gov/system/files/2019-09/gdp2q19_3rd.pdf). The average of 7.7 percent in the first four quarters of major cyclical expansions is in contrast with the rate of growth in the first four quarters of the expansion from IIIQ2009 to IIQ2010 of only 2.8 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 (https://cmpassocregulationblog.blogspot.com/2019/09/dollar-appreciation-decreasing.html and earlier https://cmpassocregulationblog.blogspot.com/2019/08/revaluation-of-us-dollar-falling-yields.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, 3.7 percent from IQ1983 to IIQ1992, 3.7 percent from IQ1983 to IIIQ2019, 3.8 percent from IQ1983 to IVQ1992 and at 7.9 percent from IQ1983 to IVQ1983 (https://cmpassocregulationblog.blogspot.com/2019/09/dollar-appreciation-decreasing.html and earlier https://cmpassocregulationblog.blogspot.com/2019/08/revaluation-of-us-dollar-falling-yields.html). The National Bureau of Economic Research (NBER) dates a contraction of the US from IQ1990 (Jul) to IQ1991 (Mar) (https://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 (https://apps.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 IIQ2019 would have accumulated to 40.5 percent. GDP in IIQ2019 would be $22,145.6 billion (in constant dollars of 2012) if the US had grown at trend, which is higher by $3123.7 billion than actual $19,021.9 billion. There are more than three trillion dollars of GDP less than at trend, explaining the 18.7 million unemployed or underemployed equivalent to actual unemployment/underemployment of 10.9 percent of the effective labor force (https://cmpassocregulationblog.blogspot.com/2019/10/volatility-of-valuations-of-risk.html and earlier https://cmpassocregulationblog.blogspot.com/2019/09/increase-in-valuations-of-risk.html). US GDP in IIQ2019 is 14.1 percent lower than at trend. US GDP grew from $15,762.0 billion in IVQ2007 in constant dollars to $19,021.9 billion in IIQ2019 or 20.7 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 3.0 percent per year from Sep 1919 to Sep 2019. Growth at 3.0 percent per year would raise the NSA index of manufacturing output (SIC, Standard Industrial Classification) from 108.2987 in Dec 2007 to 153.2712 in Sep 2019. The actual index NSA in Sep 2019 is 105.8717 which is 30.9 percent below trend. Manufacturing grew at the average annual rate of 3.3 percent between Dec 1986 and Dec 2006. Growth at 3.3 percent per year would raise the NSA index of manufacturing output (SIC, Standard Industrial Classification) from 108.2987 in Dec 2007 to 158.5996 in Sep 2019. The actual index NSA in Sep 2019 is 105.8717, which is 33.2 percent below trend. Manufacturing output grew at average 2.0 percent between Dec 1986 and Sep 2019. Using trend growth of 2.0 percent per year, the index would increase to 136.6707 in Sep 2019. The output of manufacturing at 105.8717 in Sep 2019 is 22.5 percent below trend under this alternative calculation. Using the NAICS (North American Industry Classification System), manufacturing output fell from the high of 110.5147 in Jun 2007 to the low of 86.3800 in Apr 2009 or 21.8 percent. The NAICS manufacturing index increased from 86.3800 in Apr 2009 to 106.8222 in Sep 2019 or 23.7 percent. The NAICS manufacturing index increased at the annual equivalent rate of 3.5 percent from Dec 1986 to Dec 2006. Growth at 3.5 percent would increase the NAICS manufacturing output index from 106.6777 in Dec 2007 to 159.8169 in Sep 2019. The NAICS index at 106.8222 in Sep 2019 is 33.2 below trend. The NAICS manufacturing output index grew at 1.7 percent annual equivalent from Dec 1999 to Dec 2006. Growth at 1.7 percent would raise the NAICS manufacturing output index from 106.6777 in Dec 2007 to 130.0453 in Sep 2019. The NAICS index at 106.8222 in Sep 2019 is 17.9 percent below trend under this alternative calculation.

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

Month SA ∆%

12-Month NSA ∆%

Sep 2019

-0.5

-1.0

Aug

0.6

-0.5

Jul

-0.4

-0.7

Jun

0.6

0.1

May

0.1

0.3

Apr

-0.9

-0.8

Mar

-0.1

0.8

Feb

-0.5

0.9

Jan

-0.6

2.3

Dec 2018

0.6

2.2

Nov

0.2

1.7

Oct

-0.1

1.9

Sep

0.0

3.5

Aug

0.4

3.3

Jul

0.4

2.5

Jun

0.7

1.8

May

-0.8

1.3

Apr

0.4

3.3

Mar

0.0

2.5

Feb

1.1

2.4

Jan

-0.4

1.3

Dec 2017

-0.1

2.3

Nov

0.3

2.7

Oct

1.3

2.5

Sep

-0.2

1.4

Aug

-0.3

2.1

Jul

-0.2

2.3

Jun

0.1

2.4

May

-0.2

2.7

Apr

1.1

1.3

Mar

-0.3

1.8

Feb

-0.1

1.4

Jan

0.6

0.7

Dec 2016

0.3

0.9

Nov

0.1

0.1

Oct

0.3

-0.1

Sep

0.4

-0.1

Aug

-0.4

-1.5

Jul

0.3

-1.5

Jun

0.3

-0.9

May

0.0

-1.7

Apr

-0.4

-1.0

Mar

-0.2

-2.1

Feb

-0.6

-0.8

Jan

0.7

-0.9

Dec 2015

-0.3

-2.0

Nov

-0.3

-1.8

Oct

0.0

-0.8

Sep

-0.4

-1.7

Aug

-0.3

-0.6

Jul

0.7

-0.4

Jun

-0.4

-1.1

May

0.0

-0.2

Apr

-0.1

-0.1

Mar

0.3

0.0

Feb

-0.7

0.5

Jan

-0.4

2.0

Dec 2014

-0.3

1.6

Nov

0.8

1.8

Oct

-0.1

1.0

Sep

0.0

1.1

Aug

-0.5

1.3

Jul

0.4

2.0

Jun

0.4

1.4

May

0.3

1.3

Apr

-0.2

0.9

Mar

0.8

1.5

Feb

1.0

0.2

Jan

-1.1

-0.6

Dec 2013

0.0

0.1

Nov

0.0

1.2

Oct

0.1

1.9

Sep

0.1

1.2

Aug

0.9

1.3

Jul

-0.9

0.3

Jun

0.2

0.7

May

0.3

0.9

Apr

-0.4

1.0

Mar

-0.1

0.6

Feb

0.5

0.7

Jan

-0.3

0.8

Dec 2012

0.8

1.6

Nov

0.7

1.7

Oct

-0.4

0.7

Sep

-0.1

1.6

Aug

-0.2

2.1

Jul

-0.1

2.4

Jun

0.2

3.4

May

-0.4

3.4

Apr

0.5

3.8

Mar

-0.5

2.8

Feb

0.3

4.2

Jan

0.8

3.5

Dec 2011

0.7

3.1

Nov

-0.3

2.7

Oct

0.5

2.8

Sep

0.3

2.6

Aug

0.4

2.1

Jul

0.6

2.3

Jun

0.1

1.7

May

0.1

1.5

Apr

-0.6

2.7

Mar

0.6

4.2

Feb

0.1

4.8

Jan

0.2

4.8

Dec 2010

0.5

5.5

Nov

0.0

4.6

Oct

0.1

5.8

Sep

0.0

6.1

Aug

0.1

6.8

Jul

0.6

7.5

Jun

-0.1

9.2

May

1.4

8.9

Apr

0.8

7.2

Mar

1.2

5.1

Feb

0.0

1.7

Jan

1.1

1.6

Dec 2009

-0.2

-2.9

Nov

1.0

-5.8

Oct

0.2

-8.9

Sep

0.9

-10.4

Aug

1.1

-13.5

Jul

1.5

-15.3

Jun

-0.3

-17.9

May

-1.1

-17.9

Apr

-0.7

-18.6

Mar

-1.9

-17.8

Feb

-0.1

-16.7

Jan

-3.0

-17.0

Dec 2008

-3.5

-14.5

Nov

-2.4

-11.8

Oct

-0.6

-9.2

Sep

-3.5

-8.8

Aug

-1.2

-5.2

Jul

-1.2

-3.7

Jun

-0.7

-3.2

May

-0.5

-2.3

Apr

-1.1

-1.0

Mar

-0.3

-0.5

Feb

-0.6

1.1

Jan

-0.4

2.5

Dec 2007

0.1

2.1

Nov

0.6

3.5

Oct

-0.3

2.9

Sep

0.5

2.9

Aug

-0.3

2.7

Jul

0.1

3.6

Jun

0.3

3.1

May

-0.1

3.2

Apr

0.7

3.7

Mar

0.9

2.6

Feb

0.4

1.6

Jan

-0.5

1.2

Dec 2006

2.7

Dec 2005

3.6

Dec 2004

4.1

Dec 2003

2.3

Dec 2002

2.4

Dec 2001

-5.3

Dec 2000

0.8

Dec 1999

5.2

Average ∆% Dec 1986-Dec 2018

2.0

Average ∆% Dec 1986-Dec 2017

2.0

Average ∆% Dec 1986-Dec 2016

2.0

Average ∆% Dec 1986-Dec 2015

2.0

Average ∆% Dec 1986-Dec 2014

2.2

Average ∆% Dec 1986-Dec 2013

2.2

Average ∆% Dec 1986-Dec 1999

4.3

Average ∆% Dec 1999-Dec 2006

1.5

Average ∆% Dec 1986-Dec 2006

3.3

Average ∆% Dec 1999-Dec 2017

0.4

Average ∆% Dec 1999-Dec 2018

0.5

∆% Peak 112.3113 in 06/2007 to 104.4579 in 12/2018

-7.0

∆% Peak 112.3113 in 06/2007 to Trough 87.3028 in 4/2009

-22.3

∆% Trough 87.3028 in 04/2009 to 104.4579 in 12/2018

19.7

∆% Trough 87.3028 in 04/2009 to 105.8717 in 09/2019

21.3

∆% Peak 112.3113 in 06/2007 to 105.8717 in 09/2019

-5.7

Source: Board of Governors of the Federal Reserve System

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

https://www.federalreserve.gov/releases/g17/Revisions/Current/DefaultRev.htm

Chart I-1 of the Board of Governors of the Federal Reserve System provides industrial production, manufacturing and capacity since the 1970s. There was acceleration of growth of industrial production, manufacturing and capacity in the 1990s because of rapid growth of productivity in the US (Cobet and Wilson (2002); see Pelaez and Pelaez, The Global Recession Risk (2007), 135-44). The slopes of the curves flatten in the 2000s. Production and capacity have not recovered sufficiently above levels before the global recession, remaining like GDP below historical trend. There is classic research on analyzing deviations of output from trend (see for example Schumpeter 1939, Hicks 1950, Lucas 1975, Sargent and Sims 1977). The long-term trend is growth of manufacturing at average 3.0 percent per year from Sep 1919 to Sep 2019. Growth at 3.0 percent per year would raise the NSA index of manufacturing output (SIC, Standard Industrial Classification) from 108.2987 in Dec 2007 to 153.2712 in Sep 2019. The actual index NSA in Sep 2019 is 105.8717 which is 30.9 percent below trend. Manufacturing grew at the average annual rate of 3.3 percent between Dec 1986 and Dec 2006. Growth at 3.3 percent per year would raise the NSA index of manufacturing output (SIC, Standard Industrial Classification) from 108.2987 in Dec 2007 to 158.5996 in Sep 2019. The actual index NSA in Sep 2019 is 105.8717, which is 33.2 percent below trend. Manufacturing output grew at average 2.0 percent between Dec 1986 and Sep 2019. Using trend growth of 2.0 percent per year, the index would increase to 136.6707 in Sep 2019. The output of manufacturing at 105.8717 in Sep 2019 is 22.5 percent below trend under this alternative calculation. Using the NAICS (North American Industry Classification System), manufacturing output fell from the high of 110.5147 in Jun 2007 to the low of 86.3800 in Apr 2009 or 21.8 percent. The NAICS manufacturing index increased from 86.3800 in Apr 2009 to 106.8222 in Sep 2019 or 23.7 percent. The NAICS manufacturing index increased at the annual equivalent rate of 3.5 percent from Dec 1986 to Dec 2006. Growth at 3.5 percent would increase the NAICS manufacturing output index from 106.6777 in Dec 2007 to 159.8169 in Sep 2019. The NAICS index at 106.8222 in Sep 2019 is 33.2 below trend. The NAICS manufacturing output index grew at 1.7 percent annual equivalent from Dec 1999 to Dec 2006. Growth at 1.7 percent would raise the NAICS manufacturing output index from 106.6777 in Dec 2007 to 130.0453 in Sep 2019. The NAICS index at 106.8222 in Sep 2019 is 17.9 percent below trend under this alternative calculation.

clip_image001

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

Source: Board of Governors of the Federal Reserve System

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

Additional detail on industrial production and capacity utilization is in Chart I-2 of the Board of Governors of the Federal Reserve System. Production of consumer durable goods fell sharply during the global recession by more than 30 percent and is oscillating above the level before the contraction. Output of nondurable consumer goods fell around 10 percent and is some 5 percent below the level before the contraction. Output of business equipment fell sharply during the contraction of 2001 but began rapid growth again after 2004. An important characteristic is rapid growth of output of business equipment in the cyclical expansion after sharp contraction in the global recession, stalling in the final segment. Output of defense and space only suffered reduction in the rate of growth during the global recession and surged ahead of the level before the contraction, declining in the final segment. Output of construction supplies collapsed during the global recession and is well below the level before the contraction. Output of energy materials was stagnant before the contraction but recovered sharply above the level before the contraction with alternating recent decline/improvement.

clip_image002

Chart I-2, US, Industrial Production, Capacity and Utilization

Source: Board of Governors of the Federal Reserve System

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

The modern industrial revolution of Jensen (1993) is captured in Chart I-3 of the Board of Governors of the Federal Reserve System (for the literature on M&A and corporate control see Pelaez and Pelaez, Regulation of Banks and Finance (2009a), 143-56, Globalization and the State, Vol. I (2008a), 49-59, Government Intervention in Globalization (2008c), 46-49). The slope of the curve of total industrial production accelerates in the 1990s to a much higher rate of growth than the curve excluding high-technology industries. Growth rates decelerate into the 2000s and output and capacity utilization have not recovered fully from the strong impact of the global recession. Growth in the current cyclical expansion has been more subdued than in the prior comparably deep contractions in the 1970s and 1980s. Chart I-2 shows that the past recessions after World War II are the relevant ones for comparison with the recession after 2007 instead of common comparisons with the Great Depression (https://cmpassocregulationblog.blogspot.com/2019/09/dollar-appreciation-decreasing.html and earlier https://cmpassocregulationblog.blogspot.com/2019/08/revaluation-of-us-dollar-falling-yields.html). The lower part of Chart I-3 shows recent strong growth of energy compared with non-energy.

clip_image003

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

Source: Board of Governors of the Federal Reserve System

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

United States manufacturing output from 1919 to 2019 monthly is in Chart I-4 of the Board of Governors of the Federal Reserve System. The second industrial revolution of Jensen (1993) is quite evident in the acceleration of the rate of growth of output given by the sharper slope in the 1980s and 1990s. Growth was robust after the shallow recession of 2001 but dropped sharply during the global recession after IVQ2007. Manufacturing output recovered sharply but has not reached earlier levels and is losing momentum at the margin. 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 3.0 percent per year from Sep 1919 to Sep 2019. Growth at 3.0 percent per year would raise the NSA index of manufacturing output (SIC, Standard Industrial Classification) from 108.2987 in Dec 2007 to 153.2712 in Sep 2019. The actual index NSA in Sep 2019 is 105.8717 which is 30.9 percent below trend. Manufacturing grew at the average annual rate of 3.3 percent between Dec 1986 and Dec 2006. Growth at 3.3 percent per year would raise the NSA index of manufacturing output (SIC, Standard Industrial Classification) from 108.2987 in Dec 2007 to 158.5996 in Sep 2019. The actual index NSA in Sep 2019 is 105.8717, which is 33.2 percent below trend. Manufacturing output grew at average 2.0 percent between Dec 1986 and Sep 2019. Using trend growth of 2.0 percent per year, the index would increase to 136.6707 in Sep 2019. The output of manufacturing at 105.8717 in Sep 2019 is 22.5 percent below trend under this alternative calculation. Using the NAICS (North American Industry Classification System), manufacturing output fell from the high of 110.5147 in Jun 2007 to the low of 86.3800 in Apr 2009 or 21.8 percent. The NAICS manufacturing index increased from 86.3800 in Apr 2009 to 106.8222 in Sep 2019 or 23.7 percent. The NAICS manufacturing index increased at the annual equivalent rate of 3.5 percent from Dec 1986 to Dec 2006. Growth at 3.5 percent would increase the NAICS manufacturing output index from 106.6777 in Dec 2007 to 159.8169 in Sep 2019. The NAICS index at 106.8222 in Sep 2019 is 33.2 below trend. The NAICS manufacturing output index grew at 1.7 percent annual equivalent from Dec 1999 to Dec 2006. Growth at 1.7 percent would raise the NAICS manufacturing output index from 106.6777 in Dec 2007 to 130.0453 in Sep 2019. The NAICS index at 106.8222 in Sep 2019 is 17.9 percent below trend under this alternative calculation.

clip_image004

Chart I-4, US, Manufacturing Output, 1919-2019

Source: Board of Governors of the Federal Reserve System

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

Industrial production decreased 0.4 percent in Sep 2019 and increased 0.8 percent in Aug 2019 after decreasing 0.2 percent in Jul 2019, with all data seasonally adjusted, as shown in Table I-1. The Board of Governors of the Federal Reserve System conducted the annual revision of industrial production released on Mar 27, 2019 (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 the growth rates for total IP for recent years were small and positive, with the estimates for 2016 and 2017 a bit higher and the estimates for 2015 and 2018 slightly lower.[2] Total IP is still reported to have increased from the end of the recession in mid-2009 through late 2014 before declining in 2015 and rebounding in mid-2016. Subsequently, the index advanced around 7 1/2 percent over 2017 and 2018.

Capacity for total industry expanded modestly in each year from 2015 to 2017 before advancing 1 1/2 percent in 2018; it is expected to advance about 2 percent in 2019. Revisions for recent years were very small and showed slightly less expansion in most years relative to earlier reports.

In the fourth quarter of 2018, capacity utilization for total industry stood at 79.4 percent, about 3/4 percentage point above its previous estimate and about 1/2 percentage point below its long-run (1972–2018) average. The utilization rate in 2017 is also higher than its previous estimate.”

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

“Industrial production fell back 0.4 percent in September after advancing 0.8 percent in August. For the third quarter, industrial production rose at an annual rate of 1.2 percent following declines of about 2 percent in both the first and the second quarters. Manufacturing production decreased 0.5 percent in September, with output reduced by a strike at a major manufacturer of motor vehicles. Excluding motor vehicles and parts, the overall index and the manufacturing index each moved down 0.2 percent. Mining production fell 1.3 percent, while utilities output rose 1.4 percent. At 109.5 percent of its 2012 average, total industrial production was 0.1 percent lower in September than it was a year earlier. Capacity utilization for the industrial sector decreased 0.4 percentage point in September to 77.5 percent, a rate that is 2.3 percentage points below its long-run (1972–2018) average.” In the six months ending in Sep 2019, United States national industrial production accumulated change of minus 0.1 percent at the annual equivalent rate of minus 0.2 percent, which is lower than growth of minus 0.1 percent in the 12 months ending in Sep 2019. Excluding growth of 0.8 percent in Aug 2019, growth in the remaining five months from Apr 2019 to Sep 2019 accumulated to minus 0.9 percent or minus 2.1 percent annual equivalent. Industrial production increased 0.8 percent in one of the past six months, increased 0.2 percent in one month, 0.1 percent in one month, minus 0.6 minus in one month, minus 0.4 percent in one month, and minus 0.2 percent in one month. Industrial production increased at annual equivalent 0.8 percent in the most recent quarter from Jul 2019 to Sep 2019 and decreased at 1.2 percent annual equivalent in the prior quarter from Apr to Jun 2019. Business equipment accumulated change of minus 1.0 percent in the six months from Apr 2018 to Sep 2019, at the annual equivalent rate of minus 2.0 percent, which is lower than growth of minus 0.8 percent in the 12 months ending in Sep 2019. The Fed analyzes capacity utilization of total industry in its report (https://www.federalreserve.gov/releases/g17/Current/default.htm): ” Capacity utilization for the industrial sector decreased 0.4 percentage point in September to 77.5 percent, a rate that is 2.3 percentage points below its long-run (1972–2018) average.” United States industry apparently decelerated to a lower growth rate followed by possible acceleration and weakening growth in past months. There could be renewed growth with oscillations.

Manufacturing decreased 22.3 percent from the peak in Jun 2007 to the trough in Apr 2009 and increased 19.7 percent from the trough in Apr 2009 to Dec 2018. Manufacturing grew 21.3 percent from the trough in Apr 2009 to Sep 2019. Manufacturing in Sep 2019 is lower by 5.7 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 IIQ2019 would have accumulated to 40.5 percent. GDP in IIQ2019 would be $22,145.6 billion (in constant dollars of 2012) if the US had grown at trend, which is higher by $3123.7 billion than actual $19,021.9 billion. There are more than three trillion dollars of GDP less than at trend, explaining the 18.7 million unemployed or underemployed equivalent to actual unemployment/underemployment of 10.9 percent of the effective labor force (https://cmpassocregulationblog.blogspot.com/2019/10/volatility-of-valuations-of-risk.html and earlier https://cmpassocregulationblog.blogspot.com/2019/09/increase-in-valuations-of-risk.html). US GDP in IIQ2019 is 14.1 percent lower than at trend. US GDP grew from $15,762.0 billion in IVQ2007 in constant dollars to $19,021.9 billion in IIQ2019 or 20.7 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 3.0 percent per year from Sep 1919 to Sep 2019. Growth at 3.0 percent per year would raise the NSA index of manufacturing output (SIC, Standard Industrial Classification) from 108.2987 in Dec 2007 to 153.2712 in Sep 2019. The actual index NSA in Sep 2019 is 105.8717 which is 30.9 percent below trend. Manufacturing grew at the average annual rate of 3.3 percent between Dec 1986 and Dec 2006. Growth at 3.3 percent per year would raise the NSA index of manufacturing output (SIC, Standard Industrial Classification) from 108.2987 in Dec 2007 to 158.5996 in Sep 2019. The actual index NSA in Sep 2019 is 105.8717, which is 33.2 percent below trend. Manufacturing output grew at average 2.0 percent between Dec 1986 and Sep 2019. Using trend growth of 2.0 percent per year, the index would increase to 136.6707 in Sep 2019. The output of manufacturing at 105.8717 in Sep 2019 is 22.5 percent below trend under this alternative calculation. Using the NAICS (North American Industry Classification System), manufacturing output fell from the high of 110.5147 in Jun 2007 to the low of 86.3800 in Apr 2009 or 21.8 percent. The NAICS manufacturing index increased from 86.3800 in Apr 2009 to 106.8222 in Sep 2019 or 23.7 percent. The NAICS manufacturing index increased at the annual equivalent rate of 3.5 percent from Dec 1986 to Dec 2006. Growth at 3.5 percent would increase the NAICS manufacturing output index from 106.6777 in Dec 2007 to 159.8169 in Sep 2019. The NAICS index at 106.8222 in Sep 2019 is 33.2 below trend. The NAICS manufacturing output index grew at 1.7 percent annual equivalent from Dec 1999 to Dec 2006. Growth at 1.7 percent would raise the NAICS manufacturing output index from 106.6777 in Dec 2007 to 130.0453 in Sep 2019. The NAICS index at 106.8222 in Sep 2019 is 17.9 percent below trend under this alternative calculation. Table I-13 provides national income by industry without capital consumption adjustment (WCCA). “Private industries” or economic activities have share of 86.9 percent in IIQ2019. Most of US national income is in the form of services. In Sep 2019, there were 151.949 million nonfarm jobs NSA in the US, according to estimates of the establishment survey of the Bureau of Labor Statistics (BLS) (http://www.bls.gov/news.release/empsit.nr0.htm Table B-1). Total private jobs of 129.312 million NSA in Sep 2019 accounted for 85.1 percent of total nonfarm jobs of 151.949 million, of which 12.884 million, or 10.0 percent of total private jobs and 8.5 percent of total nonfarm jobs, were in manufacturing. Private service-providing jobs were 107.985 million NSA in Sep 2019, or 71.1 percent of total nonfarm jobs and 83.5 percent of total private-sector jobs. Manufacturing has share of 9.3 percent in US national income in IIQ2019 and durable goods 5.6 percent, as shown in Table I-13. Most income in the US originates in services. Subsidies and similar measures designed to increase manufacturing jobs will not increase economic growth and employment and may actually reduce growth by diverting resources away from currently employment-creating activities because of the drain of taxation.

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

SAAR IQ2019

% Total

SAAR IIQ2019

% Total

National Income WCCA

17,562.3

100.0

17,797.6

100.0

Domestic Industries

17,304.5

98.5

17,496.6

98.3

Private Industries

15,288.2

87.1

15,465.6

86.9

Agriculture

115.7

0.7

121.5

0.7

Mining

196.0

1.1

204.1

1.1

Utilities

162.4

0.9

165.6

0.9

Construction

931.7

5.3

938.2

5.3

Manufacturing

1645.8

9.4

1661.0

9.3

Durable Goods

997.4

5.7

1000.9

5.6

Nondurable Goods

648.4

3.7

660.1

3.7

Wholesale Trade

1006.1

5.7

1013.9

5.7

Retail Trade

1161.7

6.6

1179.7

6.6

Transportation & WH

576.1

3.3

572.9

3.2

Information

624.9

3.6

625.3

3.5

Finance, Insurance, RE

3116.1

17.7

3159.8

17.8

Professional & Business Services

2638.5

15.0

2689.8

15.1

Education, Health Care

1819.2

10.4

1829.2

10.3

Arts, Entertainment

774.3

4.4

782.1

4.4

Other Services

519.6

3.0

522.6

2.9

Government

2016.3

11.5

2031.0

11.4

Rest of the World

257.9

1.5

301.0

1.7

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

Motor vehicle sales and production in the US have been in long-term structural change. Table VA-1A provides the data on new motor vehicle sales and domestic car production in the US from 1990 to 2010. New motor vehicle sales grew from 14,137 thousand in 1990 to the peak of 17,806 thousand in 2000 or 29.5 percent. In that same period, domestic car production fell from 6,231 thousand in 1990 to 5,542 thousand in 2000 or -11.1 percent. New motor vehicle sales fell from 17,445 thousand in 2005 to 11,772 in 2010 or 32.5 percent while domestic car production fell from 4,321 thousand in 2005 to 2,840 thousand in 2010 or 34.3 percent. In IIQ2018, light vehicle sales accumulated to 4,500,220, which is higher by 1.8 percent relative to 4,419,349 a year earlier in IIQ2017 (http://www.motorintelligence.com/m_frameset.html). Total not seasonally adjusted light vehicle sales reached 1270.0 thousands in Sep 2019, decreasing 11.3 percent from 1432.1 thousands in Sep 2018 (https://www.bea.gov/national/xls/gap_hist.xlsx). The seasonally adjusted annual rate of light vehicle sales in the US reached 17.2 million in Sep 2019, higher than 17.0 million in Aug 2019 and lower than 17.3 million in Sep 2018 (https://www.bea.gov/national/xls/gap_hist.xlsx).

Table VA-1A, US, New Motor Vehicle Sales and Car Production, Thousand Units 7

New Motor Vehicle Sales

New Car Sales and Leases

New Truck Sales and Leases

Domestic Car Production

1990

14,137

9,300

4,837

6,231

1991

12,725

8,589

4,136

5,454

1992

13,093

8,215

4,878

5,979

1993

14,172

8,518

5,654

5,979

1994

15,397

8,990

6,407

6,614

1995

15,106

8,536

6,470

6,340

1996

15,449

8,527

6,922

6,081

1997

15,490

8,273

7,218

5,934

1998

15,958

8,142

7,816

5,554

1999

17,401

8,697

8,704

5,638

2000

17,806

8,852

8,954

5,542

2001

17,468

8,422

9,046

4,878

2002

17,144

8,109

9,036

5,019

2003

16,968

7,611

9,357

4,510

2004

17,298

7,545

9,753

4,230

2005

17,445

7,720

9,725

4,321

2006

17,049

7,821

9,228

4,367

2007

16,460

7,618

8,683

3,924

2008

13,494

6,814

6.680

3,777

2009

10,601

5,456

5,154

2,247

2010

11,772

5,729

6,044

2,840

Source: US Census Bureau

https://www.bea.gov/national/xls/gap_hist.xlsx

Chart I-5 of the Board of Governors of the Federal Reserve provides output of motor vehicles and parts in the United States from 1972 to 2019. Output virtually stagnated since the late 1990s with recent increase.

clip_image005

Chart 1-5, US, Motor Vehicles and Parts Output, 1972-2019

Source: Board of Governors of the Federal Reserve System

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

Chart I-6 of the Board of Governors of the Federal Reserve System provides output of computers and electronic products in the United States from 1972 to 2019. Output accelerated sharply in the 1990s and 2000s and surpassed the level before the global recession beginning in IVQ2007.

clip_image006

Chart I-6, US, Output of Computers and Electronic Products, 1972-2019

Source: Board of Governors of the Federal Reserve System

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

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

clip_image007

Chart I-7, US, Output of Durable Manufacturing, 1972-2019

Source: Board of Governors of the Federal Reserve System

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

Chart I-8 of the Board of Governors of the Federal Reserve System provides output of aerospace and miscellaneous transportation equipment from 1972 to 2019. There is long-term upward trend with oscillations around the trend and cycles of large amplitude.

clip_image008

Chart I-8, US, Output of Aerospace and Miscellaneous Transportation Equipment, 1972-2019

Source: Board of Governors of the Federal Reserve System

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

Manufacturing is underperforming in the lost cycle of the global recession. Manufacturing (SIC) in Sep 2019 is lower by 3.3 percent relative to the peak in Jun 2007, as shown in Chart V-3A. Manufacturing (NAICS) in Aug 2019 at 107.5806 is lower by 2.7 percent relative to the peak at 110.5147 in Jun 2007. 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 3.0 percent per year from Sep 1919 to Sep 2019. Growth at 3.0 percent per year would raise the NSA index of manufacturing output (SIC, Standard Industrial Classification) from 108.2987 in Dec 2007 to 153.2712 in Sep 2019. The actual index NSA in Sep 2019 is 105.8717 which is 30.9 percent below trend. Manufacturing grew at the average annual rate of 3.3 percent between Dec 1986 and Dec 2006. Growth at 3.3 percent per year would raise the NSA index of manufacturing output (SIC, Standard Industrial Classification) from 108.2987 in Dec 2007 to 158.5996 in Sep 2019. The actual index NSA in Sep 2019 is 105.8717, which is 33.2 percent below trend. Manufacturing output grew at average 2.0 percent between Dec 1986 and Sep 2019. Using trend growth of 2.0 percent per year, the index would increase to 136.6707 in Sep 2019. The output of manufacturing at 105.8717 in Sep 2019 is 22.5 percent below trend under this alternative calculation. Using the NAICS (North American Industry Classification System), manufacturing output fell from the high of 110.5147 in Jun 2007 to the low of 86.3800 in Apr 2009 or 21.8 percent. The NAICS manufacturing index increased from 86.3800 in Apr 2009 to 106.8222 in Sep 2019 or 23.7 percent. The NAICS manufacturing index increased at the annual equivalent rate of 3.5 percent from Dec 1986 to Dec 2006. Growth at 3.5 percent would increase the NAICS manufacturing output index from 106.6777 in Dec 2007 to 159.8169 in Sep 2019. The NAICS index at 106.8222 in Sep 2019 is 33.2 below trend. The NAICS manufacturing output index grew at 1.7 percent annual equivalent from Dec 1999 to Dec 2006. Growth at 1.7 percent would raise the NAICS manufacturing output index from 106.6777 in Dec 2007 to 130.0453 in Sep 2019. The NAICS index at 106.8222 in Sep 2019 is 17.9 percent below trend under this alternative calculation.

clip_image009

Chart V-3A, United States Manufacturing (NAICS) NSA, Jun 2007 to Sep 2019

Board of Governors of the Federal Reserve System

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

Chart V-3B provides the civilian noninstitutional population of the United States, or those available for work. The civilian noninstitutional population increased from 231.713 million in Jun 2007 to 259.638 million in Sep 2019 or 27.925 million.

clip_image010

Chart V-3B, United States, Civilian Noninstitutional Population, Million, NSA, Jan 2007 to Sep 2019

Source: US Bureau of Labor Statistics

https://www.bls.gov/

Chart V-3C provides nonfarm payroll manufacturing jobs in the United States from Jan 2007 to Sep 2019. Nonfarm payroll jobs fell from 13.987 million in Jun 2007 to 12.884 million in Sep 2019, or 1.103 million.

clip_image011

Chart V-3C, United States, Payroll Manufacturing Jobs, NSA, Jan 2007 to Sep 2019, Thousands

Source: US Bureau of Labor Statistics

https://www.bls.gov/

Chart V-3D provides the index of US manufacturing (NAICS) from Jan 1972 to Sep 2019. The index continued increasing during the decline of manufacturing jobs after the early 1980s. There are likely effects of changes in the composition of manufacturing with also changes in productivity and trade.

clip_image012

Chart V-3D, United States Manufacturing (NAICS) NSA, Jan 1972 to Sep 2019

Board of Governors of the Federal Reserve System

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

Chart V-3E provides the US noninstitutional civilian population, or those in condition of working, from Jan 1948, when first available, to Jun 2019. The noninstitutional civilian population increased from 170.042 million in Jun 1981 to 259.638 million in Sep 2019, or 89.596 million.

clip_image013

Chart V-3E, United States, Civilian Noninstitutional Population, Million, NSA, Jan 1948 to Sep 2019

Source: US Bureau of Labor Statistics

https://www.bls.gov/

Chart V-3F provides manufacturing jobs in the United States from Jan 1939 to Sep 2019. Nonfarm payroll manufacturing jobs decreased from a peak of 18.890 million in Jun 1981 to 12.884 million in Sep 2019.

clip_image014

Chart V-3F, United States, Payroll Manufacturing Jobs, NSA, Jan 1939 to Sep 2019, Thousands

Source: US Bureau of Labor Statistics

https://www.bls.gov/

The Empire State Manufacturing Survey Index in Table VA-1 provides continuing deterioration that started in Jun 2012 well before Hurricane Sandy in Oct 2012. The current general index has been in negative contraction territory from minus 2.6 in Aug 2012 to minus 7.7 in Jan 2013 and minus 0.3 in May 2013. The current general index changed to 4.0 in Oct 2019. The index of current orders has also been in negative contraction territory from minus 3.0 in Aug 2012 to minus 11.0 in Jan 2013 and minus 8.2 in Jun 2013. The index of current new orders changed to 3.5 in Oct 2019. There is strengthening in the general index for the next six months at 17.1 in Oct 2019 and new orders at 23.5.

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

Current General Index

Current New Orders

Future General Index

Future New Orders

9/30/2011

-4.3

-4.5

22.5

23.4

10/31/2011

-5.7

1.6

14.4

19.4

11/30/2011

4.8

1.5

35.3

30.1

12/31/2011

11.5

10.2

45.9

43.8

1/31/2012

11.3

8.7

50.4

44.3

2/29/2012

17.2

7

46.3

37.7

3/31/2012

15.3

4.4

43.9

37.7

4/30/2012

7.9

4.2

40.1

38.1

5/31/2012

14.8

7.2

32.4

31.9

6/30/2012

1.5

2.9

27.8

28.3

7/31/2012

3.3

-3.4

24.6

21.9

8/31/2012

-2.6

-3

18.9

14.7

9/30/2012

-6.8

-10.1

27

27.9

10/31/2012

-4.6

-6.8

20

22.3

11/30/2012

-0.8

6.1

18

14.5

12/31/2012

-5.9

0.4

19.7

20.2

1/31/2013

-7.7

-11

21

23.5

2/28/2013

8.9

12.2

32

27

3/31/2013

4.7

4.7

35

32.9

4/30/2013

4.6

3

30

35.3

5/31/2013

-0.3

-2.8

26.6

30.3

6/30/2013

4.2

-8.2

27.7

22.2

7/31/2013

5.4

2.3

34.3

33.4

8/31/2013

9.7

2.9

35.9

30.9

9/30/2013

7.8

3.2

40.3

38.1

10/31/2013

3.7

9.2

41.4

36.9

11/30/2013

2.3

-2.4

38.1

39.2

12/31/2013

3.1

1.3

37.3

28.8

1/31/2014

12.5

7.9

34.8

37.1

2/28/2014

6.3

1.7

40

43.7

3/31/2014

2.2

0.9

35.2

36.3

4/30/2014

4.3

-0.2

37.9

34.3

5/31/2014

19

9

43.8

38.7

6/30/2014

15.2

12.5

41.1

44.2

7/31/2014

21.1

16.5

31.2

27.7

8/31/2014

16.2

15.6

45.8

50.4

9/30/2014

29.5

17.8

46.7

45.8

10/31/2014

6.4

1.3

42.2

42.2

11/30/2014

12

10.5

47.9

47.7

12/31/2014

-2.4

0.7

36.6

37.2

1/31/2015

12.1

6.5

45.4

40.3

2/28/2015

10

2.9

27.4

29.2

3/31/2015

3

-6.3

31

26

4/30/2015

0.4

-4.4

36.3

33.7

5/31/2015

5.7

4.2

31.6

35.2

6/30/2015

-5.8

-8

25.8

26.6

7/31/2015

1.9

-5

30

33.8

8/31/2015

-13.6

-14.3

32.8

30.8

9/30/2015

-12.7

-11.1

23.7

24.2

10/31/2015

-13.5

-16.1

22.6

22.8

11/30/2015

-9.5

-11

22.2

18.6

12/31/2015

-5.7

-5.5

35.2

26.8

1/31/2016

-16.9

-21.6

9.5

13.9

2/29/2016

-13.6

-10.2

14.5

20.6

3/31/2016

-3.5

2.7

25.6

36.7

4/30/2016

9.4

11

29.2

37

5/31/2016

-5.5

-1.9

29.8

24.3

6/30/2016

1.7

5.2

32.9

37.1

7/31/2016

1.6

-1.8

32

31.8

8/31/2016

-5.3

1.1

25

28.9

9/30/2016

-1.7

-5.5

34.8

32.6

10/31/2016

-9.2

-3.4

35.6

37.8

11/30/2016

2.1

3.7

29.9

26

12/31/2016

9.8

10.1

49.5

47.9

1/31/2017

6.9

5.2

47.4

39.1

2/28/2017

19.3

12.9

40.1

40.5

3/31/2017

14.2

16.5

37.9

33.8

4/30/2017

6.7

10.3

40.1

33.7

5/31/2017

3.4

-1.1

41.6

36

6/30/2017

17.4

14.7

41.1

41.5

7/31/2017

12

13.3

37.8

35.9

8/31/2017

22.9

20.5

43.7

41.4

9/30/2017

23.4

24.8

41.4

44

10/31/2017

27.1

19.6

45.3

44.6

11/30/2017

19.3

19.6

49.4

50.4

12/31/2017

20.3

18.1

46.4

43.4

1/31/2018

18.6

14.3

46.6

47.2

2/28/2018

16.4

14.3

49.4

46.3

3/31/2018

21.9

15.3

44.1

42.5

4/30/2018

17.9

12

19.3

19.7

5/31/2018

20.6

17.4

33.2

35.5

6/30/2018

24.4

19.8

38.3

34.9

7/31/2018

22

18.3

32.3

37.2

8/31/2018

24.3

16.5

34.4

36.2

9/30/2018

18.8

17.5

31.1

34.2

10/31/2018

20

20.8

29.6

35.1

11/30/2018

21.4

18.6

32.9

36.5

12/31/2018

11.5

13.4

30.6

34.8

1/31/2019

3.9

3.5

17.8

19.5

2/28/2019

8.8

7.5

32.3

35.7

3/31/2019

3.7

3

29.6

29

4/30/2019

10.1

7.5

12.4

20.5

5/31/2019

17.8

9.7

30.6

33.4

6/30/2019

-8.6

-12

25.7

27.8

7/31/2019

4.3

-1.5

30.8

35.4

8/31/2019

4.8

6.7

25.7

31.7

9/30/2019

2

3.5

13.7

21.9

10/31/2019

4

3.5

17.1

23.5

Source: Federal Reserve Bank of New York

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

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

clip_image016

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

Source: Federal Reserve Bank of New York

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

Table VA-2 shows improvement after prior deterioration followed by current soft improvement of the Business Outlook survey of the Federal Reserve Bank of Philadelphia. The general index moved out of contraction of 5.5 in Feb 2013 to expansion at 5.6 in Oct 2019. New orders moved from 0.4 in Feb 2013 to 26.2 in Oct 2019. There is expansion in the future general index at 33.8 in Oct 2019 and in future new orders at 39.9 in Oct 2019.

Table VA-2, US, Federal Reserve Bank of Philadelphia Business Outlook Survey, SA

Current General Index

Current New Orders

Future General

Future New Orders

11-Jan

16.5

20.2

43.9

35.9

11-Feb

28.9

19.7

41.9

38.8

11-Mar

36.4

34.1

57

55.5

11-Apr

12.9

13.7

35.7

30.9

11May

6.2

8.3

26.2

25.3

11-Jun

-0.5

-5.2

8.4

8.3

11-Jul

7.1

4.1

28.6

32.3

11-Aug

-19.4

-17.5

12.5

26.6

11-Sep

-10.7

-5.6

18.1

19.6

11-Oct

6.1

5.9

26.2

28.6

11-Nov

4

1.5

36.4

36.2

11-Dec

2.4

4.4

33.7

38.7

12-Jan

7.5

10.7

43.4

43.6

12-Feb

10.3

11.5

30.3

32.3

12-Mar

8.8

-0.1

30.4

37.2

12-Apr

5.7

0.6

39.9

42.4

12May

-0.8

2.3

24.8

35.5

12-Jun

-12.5

-17.8

25.3

33.6

12-Jul

-12.6

-3.6

21.5

25.7

12-Aug

-2.5

1.6

20

25.5

12-Sep

0.2

0.7

31.6

42.8

12-Oct

-1.3

-4.7

17.2

20.8

12-Nov

-10.5

-7.3

16.7

22.8

12-Dec

2.5

2.6

22.4

29

13-Jan

-1.4

-2

29.2

32

13-Feb

-5.5

0.4

32.1

39.1

13-Mar

2

0.2

35.6

38.1

13-Apr

0.4

0.6

30.7

34.5

13May

0.3

-4.1

39.3

42.2

13-Jun

12.6

11.7

37

39

13-Jul

15.9

7.5

41.5

52.5

13-Aug

8.4

9

38.4

38.8

13-Sep

20.6

19.3

48.7

51.6

13-Oct

13.3

23.1

55.4

61

13-Nov

4.6

9

42.1

46.6

13-Dec

3.9

11.8

41.1

44.7

14-Jan

15.4

8

38.4

40.9

14-Feb

1.8

4.2

44

39.6

14-Mar

12.6

6.6

42.6

38.7

14-Apr

16.9

17.4

39.4

38.8

14May

18.4

14.8

43.3

42.5

14-Jun

14.2

10.4

52.8

53.6

14-Jul

21.5

28.8

53.5

49

14-Aug

23.2

15.6

61.9

51.4

14-Sep

21.8

13.9

46

44.8

14-Oct

17.9

17

50.8

49.1

14-Nov

35.6

29.8

50.4

45.3

14-Dec

21.7

14.1

47.2

44.2

15-Jan

13.4

10.6

54.9

47.3

15-Feb

9.9

7.6

35.5

46.2

15-Mar

7.4

0.9

38

37.6

15-Apr

9.7

4.5

39.6

33.6

15May

6

5.3

37.4

34.9

15-Jun

8.2

11.2

42.3

45.3

15-Jul

4.6

2.4

40.5

45.5

15-Aug

6.5

7.1

34.7

39.6

15-Sep

-3.7

10.6

36.7

41.8

15-Oct

-5.2

-6.2

34.8

36.7

15-Nov

-3.8

-7.5

37.9

45.7

15-Dec

-9.2

-9.9

18.7

30.5

16-Jan

-3.5

-1.3

19.1

21.6

16-Feb

-7.9

-7.3

17.1

19.9

16-Mar

9.5

5.2

27.2

34.7

16-Apr

-1.6

-0.4

39.4

43.3

16May

-5.1

-2.6

38.2

39.3

16-Jun

4.2

-0.7

34.5

34.9

16-Jul

1.6

10.1

37.2

35.9

16-Aug

6.5

-0.6

41.9

43.6

16-Sep

12.4

3.6

36.6

38.7

16-Oct

10.2

20.4

36.1

40.9

16-Nov

9.6

18.9

30.6

37.1

16-Dec

21.8

14.3

46

46.2

17-Jan

26

27.9

55.6

52.6

17-Feb

37.8

32.9

52.2

48.8

17-Mar

32.2

29.9

56.2

57.1

17-Apr

22.5

28.6

44.9

54.5

17May

34

23.3

38

47.5

17-Jun

27.6

27.3

35.8

36.8

17-Jul

22.3

5.3

40.9

46.4

17-Aug

22.8

24.9

42.6

51.4

17-Sep

24.2

28

53.1

59.2

17-Oct

26.6

22.9

46.5

44.9

17-Nov

23.9

25.4

49

51.6

17-Dec

27.8

27.7

50.7

56.5

18-Jan

24.8

13.7

46.7

48.7

18-Feb

28.1

26.4

42.5

49

18-Mar

23.8

27.4

46.2

47

18-Apr

23.4

22.2

40.9

39.2

18May

32.3

38.5

38.8

40.6

18-Jun

20.8

21.2

35.3

38.5

18-Jul

24.3

24.9

30.4

32.8

18-Aug

13

15.3

37.2

38.6

18-Sep

21.4

20.6

34.5

36.7

18-Oct

19.7

18.4

32.4

40.9

18-Nov

11.9

10.6

27.9

41.9

18-Dec

9.1

13.3

29.9

38.5

19-Jan

17

21.3

31.2

32.2

19-Feb

-4.1

-2.4

31.3

29.4

19-Mar

13.7

1.9

21.8

19.8

19-Apr

8.5

15.7

19.1

23.9

19May

16.6

11

19.7

21.3

19-Jun

0.3

8.3

21.4

31.5

19-Jul

21.8

18.9

38

45.7

19-Aug

16.8

25.8

32.6

44.1

19-Sep

12

24.8

20.8

35.2

19-Oct

5.6

26.2

33.8

39.9

Source: Federal Reserve Bank of Philadelphia

https://www.philadelphiafed.org/

Chart VA-2 of the Federal Reserve Bank of Philadelphia Manufacturing Business Outlook Survey provides the current and future general activity indexes from Jan 2007 to Jul 2019. The shaded areas are the recession cycle dates of the National Bureau of Economic Research (NBER) (http://www.nber.org/cycles.html). The Philadelphia Fed index dropped during the initial period of recession and then led the recovery, as industry overall. There was a second decline of the index into 2011 followed now by what appeared as renewed strength from late 2011 into Jan 2012. There is decline to negative territory of the current activity index in Nov 2012 and return to positive territory in Dec 2012 with decline of current conditions into contraction in Jan-Feb 2013 and rebound to mild expansion in Mar-Apr 2013. The index of current activity moved into expansion in Jun-Oct 2013 with weakness in Nov-Dec 2013, improving in Jan 2014. There is renewed deterioration in Feb 2014 with rebound in Apr-Sep 2014 and mild deterioration in Oct 2014 followed by improvement in Nov 2014. The index deteriorated in Jan-Feb 2015, stabilizing in Mar-May 2015 and improving in Jun 2015. The index deteriorated in Jul 2015, improved in Aug 2015 and deteriorated in Sep-Oct 2015. The index shows contraction in Nov 2015 to Feb 2016 with recovery in Mar 2016. There is deterioration in Apr-May 2016 with improvement in Jun 2016 and deterioration in Jul 2016. There is improvement in Aug-Sep 2016 with moderate weakening in Oct-Nov 2016. The indexes improved sharply in Dec 2016 and Jan-Feb 2017, softening in Mar-Apr 2017. The current index weakened in Jun 2017 with stability in the six-month forecast. The current index deteriorated in Jul 2017 with improvement in the six-month forecast. The current index deteriorated in Aug 2017 with improvement in the six-month forecast. The current index improved in Sep 2017 with improvement in the six-month forecast. The current index improved and the future index deteriorated in Oct 2017. There is deterioration in Nov 2017 of the current index and improvement of the future index. Both the current and future indexes improved in Dec 2017, deteriorating in Jan 2018. There is improvement of the current index in Feb 2018 with mild deterioration in the future index. The current index improves in Apr 2018 while the future index weakens. There is improvement in the current index in May 2018 with weakening of the future index. There is weakening in the current index in Jun 2018 while the future index weakens. The current index improves in Jul 2018 while the future index weakens. There is weakening of the current index in Aug 2018 while the future index improves. The current index improves in Sep 2018 while the future index weakens. The current index weakens in Oct 2018 while the future index weakens. The current index deteriorates in Nov 2018 while the future index deteriorates. The current index deteriorates in Dec 2018 while the future index improves. The current index improves in Jan 2019 while the future index improves. The current index deteriorates in Feb 2019 while the future index improves. The current index improves in Mar 2019 while the future index deteriorates. The current index deteriorates in Apr 2019 while the future index deteriorates. The current index improves in May 2019 while the future index improves. The current index deteriorates in Jun 2019 while the future index improves. The current index improves in Jul 2019 while the future index improves. The current index deteriorates in Aug 2019 while the future index deteriorates. The current index deteriorates in Sep 2019 while the future index deteriorates. The current index deteriorates in Oct 2019 while the future index improves.

clip_image017

Chart VA-2, Federal Reserve Bank of Philadelphia Business Outlook Survey, Current and Future Activity Indexes

Source: Federal Reserve Bank of Philadelphia

https://www.philadelphiafed.org/

The index of current new orders of the Business Outlook Survey of the Federal Reserve Bank of Philadelphia in Chart VA-2 illustrates the weakness of the cyclical expansion. The index weakened in 2006 and 2007 and then fell sharply into contraction during the global recession. There have been twelve readings into contraction from Jan 2012 to May 2013 and generally weak readings with some exceptions. The index of new orders moved into expansion in Jun-Oct 2013 with moderation in Nov-Dec 2013 and into Jan 2014. The index fell into contraction in Feb 2014, recovering in Mar-Apr 2014 but weaker reading in May 2014. There is marked improvement in Jun-Jul 2014 with slowing in Aug-Oct 2014 followed by acceleration in Nov 2014. New orders deteriorated in Jan-Apr 2015, improving in May-Jun 2015. New orders deteriorated in Jul-Aug 2015 and improved in Sep 2015. New orders deteriorated in Oct-2015 to Dec 2015, contracting at slower pace in Jan 2016. There is sharper contraction in Feb 2016 and an upward jump in Mar 2016 followed by deterioration in Apr-Jun 2016. New orders improved in Jul 2016, deteriorating in Aug 2016 and improving in Sep 2016. Improvement continued in Oct-Nov 2016 with mild deterioration in Dec 2016 followed by improvement in Jan-Feb 2017, softening in Mar-Jul 2017, recovering in Aug-Sep 2017. There is deterioration in Oct 2017 followed by improvement in Nov-Dec 2017. There is deterioration in Jan 2018 followed by improvement in Feb 2018 and improvement in Mar 2018. The index deteriorates in Apr 2018, improving in May 2018. The index deteriorates in Jun 2018, improving in Jul 2018 and deteriorating in Aug 2018. The index improves in Sep 2018, deteriorating in Oct 2018. The index weakens in Nov 2018, improving in Dec 2018. The index improves in Jan 2019, deteriorating in Feb 2019. The index improves in Mar 2019, improving in Apr 2019. The index deteriorates in May-Jun 2019, improving in Jul 2019. The index deteriorates in Aug 2019, deteriorating in Sep 2019. The index improves in Oct 2019.

clip_image018

Chart VA-3, Federal Reserve Bank of Philadelphia Business Outlook Survey, Current New Orders Diffusion Index SA

Source: Federal Reserve Bank of Philadelphia

https://www.philadelphiafed.org/

© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019.

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