Effective Demand Research: August 2015

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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August 2015

08/29/2015

Starting the blog again... First, Update original Effective Demand

OK... I am ready to start blogging again... I feel that the economy will once again start closing against effective demand. So let's see where Effective Demand was up to the 2nd quarter in 2015.

The basic format of the equation is...

UT index = labor share * 0.762 - (capacity utilization * (1 - unemployment rate))

Just as before the last two recessions, the UT index has come close to zero and moved up a bit. So I might forecast that as the UT index comes back toward zero and then starts up again, we would be moving toward a recession.

This possibility of recession based on effective demand is what I will be watching.

Posted by Edward Lambert on 08/29/2015 in Current Affairs | Permalink | Comments (2)

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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):