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03/09/2015

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I believe that this chart is tainted by the holes in our statistics. Holes created during the period of your chart.

Your 1-unemployment rate is the employment rate. But that is artificially high now since the labor participation rate has been driven lower and underemployment has been driven higher. Using these techniques we could get back to 2007 unemployment rates but that fact would be meaningless to the health of the overall economy.

I note that some are saying that the lower labor participation rate is the 'boomers' retiring. But unless I have missed some new phenomena, retirees do not take their jobs with them. And there are plenty of recent graduates who would gladly take those jobs or the starting positions which would open up as employees moved up the ladder.

And beginning in about 1996 consumer borrowing played a larger and larger role in the economy. Until about 2008, when total household debt peaked. Total household debt is rising again but it is only creeping up when compared to the previous growth rates in total household debt.

You noted in your post on 2/20/2015 that "Those ED limit lines show more consistency than before."

I speculate that this is because there are fewer and fewer compensating mechanisms available to consumers and that joblessness is worse than our statistics show.

The overall effect is an economy that is overstressed and liable to fail suddenly.

In fact what I find most intriguing about your chart above is that the blue graph drops suddenly and further, than one would expect from a mere correction. I find myself asking why doesn't it just follow ED down? Hmmmmm?

Jim,
The ED limit lines showing consistency is related to productive capacity not growing. If productive capacity was growing, then those ED lines would be creeping to larger numbers.

And the unemployment rate is what it is. It is not artificially low. Underemployment is seen in productivity and capacity utilization.

When you wrote "Those ED limit lines show more consistency than before", I thought you meant less erratic???

The lines were more consistent in that they pointed to a smaller area at the ongoing inflation rate of 1.5% to 2.0%.
So if inflation kept steady in that range, effective demand would constrain around $16.3 trillion. And we saw something to that effect through the stock markets, but then oil dropped and long rates were coming down. That combination is shifting effective demand to a higher level over $16.5 trillion.

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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):

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

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. Graduate of Atlantic International University where independent research was developed.
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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