Update on Natural Rate of Unemployment, 7.25%

Basic Effective Demand Limit, L = labor share index * 0.76

Effective demand on real GDP = rGDPeT/L (1 -(1 - 1/e)T/L)

Effective Demand Monetary rule with NGDP targeting = z(T² + L²) - (1 - z)(T + L) + (1+a)current core inflation + acore inflation average - 2acore inflation target

z = (2L + Natural real rate)/(2L² + 2L) ............................ T = capacity utilization*(1 - unemployment rate)
UT index = L - T ... (UT index goes to zero at limit of business cycle.)

New economic thinking... effective demand limit upon the utilization of labor and capital

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05/02/2013

Update on Natural Rate of Unemployment, 7.25%

Now that the labor share of income number (business sector) has been released, I will have a series of updated graphs. The labor share number for 1Q-2013 was 94.7.

The first graph will be for the Natural rate of unemployment.

This is a plot of the UT index against the unemployment rate since 1967. You can see that for years the natural rate of unemployment was approximately 4.72% (the y-intercept of the trend line). Then after the crisis, the natural rate jumped up to the red line. We can see that the new natural rate of unemployment is trending in at 7.25%.

We are close to that now.

Posted by Edward Lambert on 05/02/2013 in recovery, Unemployment | Permalink

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Synopsis of Effective Demand

Data as of 3rdQ-2018
Effective Demand = $18.433 trillion
Real GDP = $18.671 trillion
Productive Capacity = $24.872 trillion
UT index is at effective demand limit = -0.92%
Effective demand limit = 74.1%
TFUR = 75.1%
ED Fed rate rule = 4.0%
Estimated Natural Real Interest rate = 2.3%
Short-term real interest rate = 2.8%

There is no recession for 3rdQ-2018. Chance of recession is growing as economy has now reached 2nd effective demand limit in this business cycle. I am forecasting that economic conditions will begin to contract in the second half of 2018.

Click on Graphs below to see updated data at FRED.

UT Index (measure of slack):