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02/16/2015

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Edward,

You had me worried until I read this article several times. I have almost no understanding of the statistics which you are using. You cite the P factor and with your context, I assume that the item with the lowest P factor is the most relevant.

It appears that you are still looking at labor share as the most important factor in causing our current economic problems. I have serious doubts about the other factors. The other factors which you cite here seem to be only secondary.

Population increases may well work to lift an economy but only if the economy needs more labor. That certainly is not true of the US while we are importing as much as we are. The problem is not that we don't have enough labor it is that we have moved too much production overseas.

We should expect cpiall to stall as consumers have less and less income to spend on discretionary purchases. Speculators fear the FED will raise interest rates. As bubbles caused by loose money collapse, prices should fall. (Think oil prices, as oil prices rose for no good reason from 2003 to 2008 then fell before returning to unreasonable highs.) We are getting back to the essentials of supply and demand.

But the FED is only responding to the reality of the economy.

Long term interest rates are also responding to the economy and its future prospects.

I assume that G is government spending and obviously that is limited by revenue and a willingness to borrow ever more money. This is obviously responding to the private economy.

I can see that all those other factors do affect the economy and thus do add or subtract from the effect of low labor share. Thus your graphs can not completely match the real world without them. But I still view them as a distraction.

My view is that consumers can not spend what they do not have and producers will not produce what they can not sell. That is our problem, stated as briefly as I can. Any explanation which wanders very far from that is flawed.

We will either deal with our primary problem or we will twist in the breeze as economists and politicians wander thru the maze of other possibilities.

Hi Jim,
According to the statistics, labor share is still the most significant variable to determine effective demand. When labor share moves, all other variables are dragged along with it.
I have more to publish on this. Yet, from what I see, monetary policy is going to great lengths to try to battle the drop in labor share. Japan too... These great lengths produce some uncertainty in the business world. The uncertainty does hinder business expansion and investment in productive capacity.
But a proper look at effective demand should include all the factors with a significant impact.

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Data as of 4thQ-2016
Effective Demand = $17.587 trillion
Real GDP = $16.805 trillion
Productive Capacity is rising to next business cycle =
UT index is rising = +3.9%
Effective demand limit = 75.9%
TFUR = 72.0%
ED Fed rate rule (down from a peak of 3.8% in 2014) = 1.6%
Estimated Natural Real Interest rate = 2.2%
Short-term real interest rate (fallen from 2.8% peak in 2014) = -0.5%

There is no recession for 4thQ-2016. I am expecting a recession by the middle of 2017.

(UT index is rising which implies a recession is on the way.



Click on Graphs below to see updated data at FRED.

UT Index (measure of slack):

The UT Index

Recession Alert (developed at recessionalert.com):

recession alert

z-vertical:

z-vertical

z derivatives in terms of labor & capital:

z derivatives in terms of labor & capital

Effective Demand, real GDP & Potential GDP:

ED, real GDP & pot rGDP

ED Output Gap:

ED Output gap

Corporate profit rate over real cost of money:

Corp profit rate over real cost of money

Exponential decay of Inflation:

Corporate profits impact Inflation

Measures of Inflation:

Measures of Inflation

YoY Employment change:

YoY employment change

Speed of consuming slack: yoy monthly:

Speed of consuming slack

Speed of consuming slack: quarterly:

Speed of consuming slack quarterly

Real consumption per Employee:

real consumption per employee 2

Will real wages ever rise faster than productivity?:

Productivity & Real Wages

Real Wage Index:

real wage index

Productivity:

Productivity

Productivity against Effective Demand limit:

Prod & ED limit

Bottom of Initial Claims?:

Initial claims

Tracking inflation expectations:

Fisher effect?

M2 velocity still falling:

Measures of Inflation

All in one:

All in one

Double checking labor share with unit labor costs & inflation:

ULC LS CPI
My Photo
Edward Lambert: Independent Researcher on Effective Demand.
Some links for economic analysis
Fed Views - San Francisco Fed, around 10th of each month.
Well's Fargo monthly - around 10th of each month
Well's Fargo weekly
Well's Fargo Interest rate report
Well's Fargo Economic indicators
T. Rowe Price weekly market wrap-up
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