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Very interesting, and consistent with what a number of leading heterodox economists are saying, and then there is the 11-year "rule." I have nothing but admiration for your approach, but, intuitively (and I am really just a dabbler), it is not clear to me that effective demand cannot be sustained for a slightly longer period through a combination of financial innovations/fraud, which give an impression that greater capital utilization is still possible (i.e. for a period it is possible to be at a point beyond the effective demand frontier, rather like over-harvesting a natural resource beyond the PPF).

For instance, I suspect that had one applied your equation in 2005, one might have arrived at a similar conclusion, but it took another couple of years for the downturn to occur. I propose that your equation represents almost an accounting identity, but, (at the margin -- I mean where capital nears optimal utilization) a confidence fairy does exist. What will be the trigger for recession? Maybe blowback from housing crashes in peripheral economies like Canada, Australia, Norway etc., who until recently were insulated by a resource boom?

Hello Canuck Civil Servant,
It is appearing that the trigger will be tight monetary conditions. The Fed is consistently avoiding that this business cycle. I still see the mon. conditions as accommodative.
So maybe another trigger that is geo political, but I do not see a trigger yet.

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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 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 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. 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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