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05/09/2015

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So, the UT Index is a measure of slack. At the end of the business cycle the economy is booming and slack is at its minimum.

But that always occurs just before the bust. So the Index can not tell us if we are already in a recession, especially if we are still producing but only increasing inventory.

Next our economy is much different than the one in the late 1980's. Total household debt is so high that it must mean that consumers can not increase discretionary spending. They are increasing student loan debt which cannot be shed by bankruptcy so those lenders are still lending. They are acquiring light vehicles because they NEED to replace an old vehicle and the replacement is thru subprime lending or leasing which causes a problem for automobile companies later. So we have a debt ridden consumer who is probably getting marginally worse by the year, that was not true of the late 1980s.

We are continuing the Great Recession, regardless of the official definition of recessions. In that sense, we are repeating 1937. We have a little boomlet which is leaving out part time employees, or those who have left the labor force because they can not find a job. And wages are still more or less stagnant. This economy does not have any reserves to draw on.

Under those conditions I would expect the economy to be fragile. Businesses are the key borrowers now. When the FED lifts rates, I expect the economy to slow, and the number of employee layoffs to increase.

And since we are the net importers, as our economy slows Japan and Europe will be in deep trouble. As their economies slow, China and the rest of the southeast Asian exporters will be in deep trouble.

Given that very likely scenario, I doubt that the FED will raise rates.

JIm,
My sense is that the Fed will raise the Fed rate by September. The reason to raise rates is a very good one. The economy is weakened by persistent low interest rates. There is a need to raise the level of discipline.
Yes, there will be a slowdown, but the economy eventually gets stronger.

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Data as of 1stQ-2017
Effective Demand = $17.613 trillion
Real GDP = $16.842 trillion
Productive Capacity is rising to next business cycle = $23.285 trillion
UT index is rising = +3.9%
Effective demand limit = 76.2%
TFUR = 72.3%
ED Fed rate rule (down from a peak of 3.8% in 2014) = 1.4%
Estimated Natural Real Interest rate = 2.0%
Short-term real interest rate (fallen from 2.8% peak in 2014) = -0.3%

There is no recession for 1stQ-2017. I am expecting a recession by end of 2017.




Click on Graphs below to see updated data at FRED.

UT Index (measure of slack):

The UT Index

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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