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Prof, I need your help. I don't quite understand the chart. So, the bouncing off means what? Is labor share increaasing, and can we see that in this chart?

HI Gary,
Labor share has actually been sliding downward for years. The result is that the combined utilization of labor and capital (labor employment * capacity utilization) has been going down.
View labor share as a ceiling. As labor share falls, combined utilization of labor and capital fall too by hitting the ceiling. Whenever the line in the graph hits zero, utilization of labor and capital hits the labor share limit which is calculated by a constant... (0.762 * labor share index).
Many good economists did not take this seriously back in 2013. Then the line bounced off the ceiling again like I predicted.

It is nice that Fred has this chart available to track this. So, utilization declines as the lines rise. Labor share continues to fall. With the little reflation I wonder where the line is now. Thanks for the explanation.

Definitely an underappreciated soft landing in Q1 2016...do you anticipate model will return to the zero lower bound?

Alan, I do not anticipate a return to the lower zero bound. I foresee something like happened in the late 1990s with a bubble. The plot went sideways for a while.
The plot is going sideways now, but I do not see it lasting long since Trump and republican plans are losing credibility fast.

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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 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 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:

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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