Sunday, January 29, 2012

Chart of the Day: Structural Shift in U.S. Economy

An earlier version of the chart above was featured on CD in November and it generated a lot interest and 133 comments, so I'm providing an update here based on employment and real GDP data through 2011.  More than any single chart, I think this one really helps to accurately capture graphically the current state of the U.S. economy, although Scott Grannis has another GDP graph that also helps us understand today's economic situation. 

1. Measured by real output (GDP), the U.S. economy has made a complete recovery from the 2007-2009 recession.  Real output in Q4 of 2011 was higher than the 2007 Q4 level when the recession started by 0.72%.  

2. While real output has completely recovered to above pre-recession levels, U.S. civilian employment at 140.56 million is still 5.7 million jobs (and 3.9%) below the 2007 peak of 146.27 million jobs, and that translates into the ongoing and persistent "jobless recovery."   

3. The recovery of real output to historical highs with 3.9% fewer employees has also translated into record-level corporate profits, which are now 40% above pre-recession levels.  

4. The recovery of both output and profits to above 2007 levels with 5.7 million fewer workers could explain the sluggish job growth that will probably continue for several more years.  If companies can produce more output now than in 2007 with fewer workers and record profits, where's the incentive to hire more workers?  

The Great Recession stimulated huge productivity and efficiency gains as companies shed marginal workers and learned how to do "more with less (fewer workers)."  The surge in productivity over the last few years may be unprecedented in recent history and may be responsible for a "structural shift" in the U.S. economy that will have long-lasting effects, e.g. an extended period of time with a jobless rate above 7%. 


39 Comments:

At 1/29/2012 1:12 PM, Blogger Stan said...

And yet we know that companies with cash rich balance sheets and a host of potential cost-effective retrofit projects in the pipeline are still afraid to spend the money. Expansions are on hold. New hires, even for positions projected to produce profit, are on hold. Fear and uncertainty regarding govt still dominate business thinking.

We are losing out on an enormous amount of potential growth.

 
At 1/29/2012 1:13 PM, Blogger Stan said...

This comment has been removed by the author.

 
At 1/29/2012 2:02 PM, Blogger Buddy R Pacifico said...

Part of the structural shift is U.S. multi-national companies earning more foreign profits.

The U.S. has the highest corporate tax rates and has no territorial tax system for corporations.

If the U.S. reduced its corporate tax rate to 25% and had a territorial tax system then:

Only the profits earned within the U.S. would be taxed and at 25%. This would make the U.S. a much more an attractive place to invest in human capital for corporations.

 
At 1/29/2012 2:16 PM, Blogger Benjamin said...

The private sector does more with less every year.

The public sector, including the Defense,Homeland Security-Va megaplex, does less with more every year.

Ergo, reduce the size of federal agencies, and increase the size of the private sector.

Transfer payment (entitlements) are annoying, but essentially result in shuffling money around private citizens. The number of parasitic federal employees attached to entitlement programs is very small.

Below is list of largest federal agencies financed by income taxes. Where should we cut?



Defense 3,200,000
Veterans Affairs 240,000 

Homeland Security 200,000
Treasury 162,119 

Justice 124,870 

USDA 100,000 

DOT 100,000
Health and Human Services 62,999 

Interior 57,232 

Commerce 41,711 

NASA 19,198 

EPA 18,879
State 18,000 

Labor 16,818 

Energy 14,000 

GSA 14,000

 
At 1/29/2012 2:36 PM, Blogger rjs said...

here's a longer term view of both metrics:

http://research.stlouisfed.org/fred2/series/PAYEMS
http://research.stlouisfed.org/fred2/series/GDPC1

what do you see now?

 
At 1/29/2012 3:23 PM, Blogger marmico said...

Part of the structural shift is U.S. multi-national companies earning more foreign profits.

U.S. foreign NIPA profits (see Chart 1) have been increasing as a percentage of total profits for as long as the data has been collected.

How is that a recent structural shift?

 
At 1/29/2012 4:44 PM, Blogger Buddy R Pacifico said...

"U.S. foreign NIPA profits (see Chart 1) have been increasing as a percentage of total profits for as long as the data has been collected.

How is that a recent structural shift?"


For over fifty years foreign profits were less then twenty percent (1950-2000), but moved to near fifty percent in less than ten years.

That is a structural shift (duh).

 
At 1/29/2012 5:26 PM, Blogger sethstorm said...


And yet we know that companies with cash rich balance sheets and a host of potential cost-effective retrofit projects in the pipeline are still afraid to spend the money.

Then make them do a 180, save for the fear. If they don't, they get far worse from government. Nobody owes them perfect economic winds.


The U.S. has the highest corporate tax rates and has no territorial tax system for corporations.

While you fail to realize that the US has an effectively infinite jurisdiction. Nowhere to run, nowhere to hide - just don't become too big of a thorn in the US's side. Businesses are really getting to the point where political sabotage is a (potential) explanation.

 
At 1/29/2012 5:28 PM, Blogger sethstorm said...


Benjamin said...

Then the answer might be to get more people into defense contractors. They have large budgets that could more than pay for any OJT, much less the larger amount of clearances.

 
At 1/29/2012 6:18 PM, Blogger PeakTrader said...

How about just freezing government spending at the 2012 level for about 10 years to balance the budget?:

According to "Government Spending - Wikipedia:"

U.S. Federal, State, and Local Government spending was 40.0% of GDP in 2010, or $5.79 trillion.

Major categories of government spending 2010 in billions of dollars:

Pensions $939.2
Health Care $1028.8
Education $887.3
Defense $848.1
Welfare $727.3
Interest $296.3

 
At 1/29/2012 6:28 PM, Blogger PeakTrader said...

The stronger fourth quarter was still weak;

National Income and Product Accounts
Gross Domestic Product, 4th quarter and Annual 2011 (advance estimate)

Real final sales of domestic product -- GDP less change in private inventories -- increased 0.8 percent in the fourth quarter.

The change in real private inventories added 1.94 percentage points to the fourth-quarter change
in real GDP.

Real GDP increased 1.7 percent in 2011 (that is, from the 2010 annual level to the 2011 annual
level).

 
At 1/29/2012 7:21 PM, Blogger PeakTrader said...

According to a chart in:

Advance 4Q 2011 GDP at 2.8% Is Weaker Than It Seems
27 January 2012

Real GDP per capita peaked in Q4 2007 at $50,086. In Q4 2011, real GDP per capita was $48,552.

 
At 1/29/2012 10:17 PM, Blogger VangelV said...

The reporting of real GDP uses the doctored BLS numbers that don't reflect the actual inflation rate. There is no real recovery in the US economy. All that happened was that the Fed transferred trillions of worthless paper from the banks to its books. That means that the FRNs that are issued by the Fed are backed by worthless mortgage paper. Most of the financial sector profits depend on mark to model valuations of assets. But there is no evidence to suggest that the models are any more accurate today than they were in 2007 or 2008.

What I suspect is that we could see another bout of support for the USD when Europe admits that Greece will default and the Irish people rebel against their government's decision not to force bondholders to take a haircut on their loans. As the positions of France, the UK, Spain, Portugal, and Italy begin to matter the Euro could become much weaker and that could make the USD stronger. But eventually the markets will figure out that the US is in worse position than many of the EU governments and the USD will begin its final slide towards the graveyard that has taken all fiat currencies ever devised. At that time I would not be surprised to see a bank holiday and a significant devaluation as part of the strategy to deal with the crisis.

 
At 1/30/2012 12:10 AM, Blogger kmg said...

Wages in China and India are rising to reduce the delta with the US.

The real reason for low US job growth is because the government inflicts all sorts of additional costs onto businesses. Healthcare, quotas for women, useless HR jobs, etc.

 
At 1/30/2012 8:57 AM, Blogger stuckinblue said...

This just doesn't strike me as remarkable. In 3 1/2 years you would expect cumulative trend productivity growth of 3-5% . So flat real point to point output and a near 4% decline in real employment sounds about what you would expect.

 
At 1/30/2012 9:51 AM, Blogger marmico said...

This just doesn't strike me as remarkable
Right. It's called a nothing burger.

That is a structural shift (duh).

No. A structural shift means that there has been a break or trend shift in the data series. The only point Perry is making implicitly is that the corporate share of national income is at all time highs and the labor share is at all time lows.

 
At 1/30/2012 10:20 AM, Blogger morganovich said...

this "recovery of real gdp" may be largely illusory.

rather than a structural shift it may just be the failure of reality to conform to statistical chicanery.

you can set your scale to read 15 pound lighter, but that will not help you fit into your pants.

q4 gdp used a 0.8% deflator. CPI was over 3% for q4 (even using the BLS methodology) . if real gdp used bls data to measure price, then growth would have been 0.4-0.5%.

this has been true in several of the most recent quarters.

perhaps rather than looking for a "structural shift" because it sounds more interesting, we really ought to be looking at the integrity of the data.

this "structural shift" is sounding more and more like a guy who set his scale back claiming his pants shrunk.

 
At 1/30/2012 11:00 AM, Blogger VangelV said...

perhaps rather than looking for a "structural shift" because it sounds more interesting, we really ought to be looking at the integrity of the data.

Mark has already made it very clear that he is not willing to do that. He prefers to believe the data because it supports his optimistic narrative.

 
At 1/30/2012 11:35 AM, Blogger morganovich said...

v-

yeah, i know.

it strikes me as odd though.

i mean, data handling 101 teaches you that when you see somehting that looks like a "structural shift" the first thing you do is to double and triple check your data for consistency to make sure you are seeing a result that is actually happening as opposed to a statistical artifact.

if i had a nickel for every "fat tail" that showed up from data mining that turned out to just be inconsistent data, i'd buy a private island and retire.

 
At 1/30/2012 11:51 AM, Blogger VangelV said...

it strikes me as odd though.

i mean, data handling 101 teaches you that when you see somehting that looks like a "structural shift" the first thing you do is to double and triple check your data for consistency to make sure you are seeing a result that is actually happening as opposed to a statistical artifact.


You think it odd because you care about reality as it is. But when the data is reported the BLS and the government care about the narrative far more than the truth. We have seen this problem ever since the Boskin changes provided cover for the actions taken by the Fed and Treasury. It is in the interest of politicians from both parties to keep the illusion going because reality will mean that they are turfed out of office and their days as parasites might be coming to an end.

One of my old neocon profs pointed out that seemingly irrational actions are very easy to understand if you follow the interests and the money. Mark likes to be optimistic so he has no concern with data integrity as long as it supports his narrative. I do not expect him to start looking until he turns pessimistic.

 
At 1/30/2012 12:16 PM, Blogger Buddy R Pacifico said...

marmico,

You have deliberately manipulated the narrative to make a point, which is very untrustworty.

Here is your quote: "Part of the structural shift is U.S. multi-national companies earning more foreign profits.

U.S. foreign NIPA profits (see Chart 1) have been increasing as a percentage of total profits for as long as the data has been collected.

How is that a recent structural shift?"


I responded: "For over fifty years foreign profits were less then twenty percent (1950-2000), but moved to near fifty percent in less than ten years.

That is a structural shift (duh)."


You then responded with a cut and paste job(manipulation) to make your point: "This just doesn't strike me as remarkable
Right. It's called a nothing burger.

That is a structural shift (duh).<"


My, "That is a structural shift (duh)", was in response to your foreign profits comment and not your burger comment.

Nevertheless, you really made my point on foreign corporate profit for me, by providing Chart 1, and I say thanks for that.

 
At 1/30/2012 1:01 PM, Blogger FloridaSteve said...

Take the painful step of REALLY cleaning up the existing housing backlog by using some honest valuation and sooner rather than later housing growth will return to pre-mortgage insanity levels and employment will return. As long as we put off the inevitable this will fester

 
At 1/30/2012 1:34 PM, Blogger VangelV said...

Take the painful step of REALLY cleaning up the existing housing backlog by using some honest valuation and sooner rather than later housing growth will return to pre-mortgage insanity levels and employment will return. As long as we put off the inevitable this will fester

That is what should happen but won't. If true valuations were to be recognised most of your financial system would be insolvent, the Fed's assets would shrink in market value, and there would have to be a devaluation of the USD sooner rather than later. I doubt that the politicians will choose reality over narrative.

 
At 1/30/2012 1:44 PM, Blogger Hydra said...

peak work.

 
At 1/30/2012 1:59 PM, Blogger Hydra said...

All that happened was that the Fed transferred trillions of worthless paper from the banks to its books.

=================================

I will happily take off your hands any of that worthless paper you have lying around.

 
At 1/30/2012 2:04 PM, Blogger Hydra said...

Mark likes to be optimistic so he has no concern with data integrity as long as it supports his narrative. I do not expect him to start looking until he turns pessimistic.

================================

Only your version of data integrity supports the truth? And the truth is always pessimistic?


[I agree with you that Dr Perry has an unfortunate way of titillationg people by bending the or giving half the truth.

He does it in such obvious ways I assume it is his teaching paradigm, and not his actual view of the world.

 
At 1/30/2012 2:33 PM, Blogger sethstorm said...


kmg said...

The more reason to train our own as we have in the past as opposed to employers thinking they're entitled to perfect political winds and perfectly pre-trained employees that love slavery-by-contract.

You want to clear that backlog? Use some force, and be willing to thwart evasion.

 
At 1/30/2012 2:40 PM, Blogger Jet Beagle said...

"The Great Recession stimulated huge productivity and efficiency gains as companies shed marginal workers and learned how to do "more with less (fewer workers)."

I'm sure some of this happened on a company--by-company basis. But I also believe some of the aggregate productivity gains represent a change in the mix of U.S. output.

If the recession put extreme cost pressures on labor-intensive industries, the companies in those industries will offshore much of the work. Offshoring will, of course, reduce the overall GDP of the nation.

At the same time, industries and companies which used highly skilled U.S. labor - companies such as Apple, ExxonMobil, Hewlett-Packard, Microsoft - have been growing in the U.S.

Changing the mix of U.S. industry from lesser skilled to highly skilled could sharply increase aggregate U.S. productivity - without any single company becoming more productive.

Of course, most U.S. companies have done what they have been doing for decades: using the sharp cost focus of the recession as an opportunity to get rid of dead weight.

 
At 1/30/2012 3:36 PM, Blogger VangelV said...

I will happily take off your hands any of that worthless paper you have lying around.

I think that you are confusing the Fed's assets with its liabilities. On the asset side the Fed has CDOs on its balance sheets. They were exchanged for Treasuries at full face value but would fetch cents on the dollar in the free market. On the liability side the Fed has FRNs, which are backed by the asset side of the ledger. To make the values balance you need to devalue the currency.

 
At 1/30/2012 3:50 PM, Blogger sethstorm said...


Jet Beagle said...

While at the same time creating a greater underclass, at the net detriment to the country.

 
At 1/30/2012 3:58 PM, Blogger Jet Beagle said...

sethstorm: "While at the same time creating a greater underclass, at the net detriment to the country."

Jetbeagle did not say this, and Jetbeagle does not agree with this statement.

If there is an "underclass" in this great land of opportunity, it is the choices made by such an underclass that put itself in such a condition.

 
At 1/30/2012 4:05 PM, Blogger VangelV said...

Only your version of data integrity supports the truth?

If you don't like my version use the new one. But apply it across the entire spectrum so that you can make an apple to apple comparison. If you use the current methodology you would find little unemployment in the 1970s and little inflation. What we thought of as unemployment and inflation were created by the methodology that looked at people who were out of jobs and the price changes in the CPI basket. If you don't count as unemployed those people who have part time jobs and people who have given up looking there is no unemployment problem. If you don't count price increases because you use hedonic adjustments, geometric weighting, and substitution then price increases do not have to mean that there is inflation.

What Mark is missing is the fact that Main Street has caught on and is no longer buying the story being told by the government and Wall Street. People who are actually in the labour force and shop for their own households know that the unemployment picture is not what the BLS says that it is and that prices have gone up more than the BLS lets on.

And the truth is always pessimistic?

Not at all. It is what it is.

 
At 1/30/2012 4:30 PM, Blogger sethstorm said...


Jet Beagle said...

(I'm replying to your entire post)

That is where you miss things entirely. You act as if it is OK to consign people to damnation that do not give the right amount of blessing to business, and that it is wrong for business to not be sociopathic.

 
At 1/30/2012 4:51 PM, Blogger Jet Beagle said...

Here's some facts to support my argument - the argument that productivity growth represents a shift to highly skilled industries:

U.S. GDP change, 2007 to 2010

Construction .......... -$142 bn
Motor vehicles ......... -$47 bn
truck transportation ... -$11 bn

Computers/electronics .. +$67 bn
prof/scient/legal svcs . +$71 bn
Health care ........... +$170 bn

We've been losing jobs in carpenters, autoworkers, and truck drivers. We've been gaining computer technicians, lawyers, doctors, and nurses. That's the real structural shift which has been happening.

 
At 1/30/2012 4:56 PM, Blogger Jet Beagle said...

sethstorm: "That is where you miss things entirely."

You're mistaken, settstorm.

I worked hard to gain and improve skills needed by employers. I made sure I always had the financial flexibility to move and change employers when I had to. Consequently, I've been employed in good jobs for the past 35 years.

I'm not the one who "missed things". Are you?

 
At 1/30/2012 7:29 PM, Blogger VangelV said...

Jet Beagle said...

While at the same time creating a greater underclass, at the net detriment to the country.


Reference please. This is about the hundredth time where you claim that someone said something that was not said. Try not to make up crap and start dealing with what was actually stated.

 
At 1/31/2012 12:25 AM, Blogger sethstorm said...


I worked hard to gain and improve skills needed by employers. I made sure I always had the financial flexibility to move and change employers when I had to. Consequently, I've been employed in good jobs for the past 35 years.

Your "flexibility" is the exception instead of the norm. That, and in the last 35 years, there was some (if a waning) sense that hard work would be enough.

 
At 1/31/2012 12:26 AM, Blogger sethstorm said...

VangelV:
That's a quote of an entire post, not an implication someone said something.

 
At 1/31/2012 3:52 PM, Blogger VangelV said...

Your "flexibility" is the exception instead of the norm. That, and in the last 35 years, there was some (if a waning) sense that hard work would be enough.

But 'flexibility' should be the norm. People who have very limited skill sets and do not constantly improve are in huge danger of being harmed by normal economic changes. None of us have a right to a good paying full-time job. We have to earn what we get by being able to trade skills, products, or services, that we offer to people who are willing to meet our demands.

Some time this fall, Nassim Taleb will release a book called, Antifragility: How to Live in a World We Don't Understand. I think that you should buy it because it will cover what JB is really talking about. In a world that you do not understand what you don't do is far more important than you can imagine.

 

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