Professional Pilot, October 2016
It doesnt help that personal consumption expenditures have been growing roughly twice as fast as personal income No wonder a recent NBC Wall Street Journal poll found that 71 of Americans think the country is headed in the wrong direction This is the grimmest reading since 2011 and its getting painfully close to those seen in the worst days of 2008 Things probably wont get much better soon GDP per capita grows when labor productivity does and productivity used to grow quickly In the 1990s it averaged around 15 per year In the early 2000s it was near 3 and sometimes above But since 2010 it has averaged less than 05 Not all economists are convinced but many say this is as good as it will get from now on Corporate balance sheets support this conclusion Profits in many sectors are at record highs but companies are either sitting on their money or paying it out to shareholders Cash on hand buybacks of stocks and debt and the annual dividends all are at near record levels among the S P 500 companies dividends are at their highest since 1936 What companies are not doing is investing in capital improvements or new capacity and without that it is hard to see where future productivity gains will come from On the other hand unemployment in the US was down to 47 in May 49 in June July and August levels 78 PROFESSIONAL PILOT October 2016 not seen since 2007 and getting close to full employment Thats great news But maybe not The Federal Reserves Labor Market Conditions Index looks at a broader range of factors than simple unemployment and many economists consider it a better guide to this aspect of the economy It has been deteriorating since April 2014 In May it reached its lowest reading since 2009 Although this index has recovered slightly since then it remains in a clear downtrend This might confirm that we really are near full employment But it probably doesnt Information on labor participation shows that about 2 million men in their prime earning years have bailed out of the workforce Nearly 2 3rds of them want a job according to the Bureau of Labor Statistics and the numbers have picked up slightly since late 2015 Yet over half of these former workers appear to have given up looking Participation data is even worse for women In all this is cause for concern Former presidential economic advisor Lawrence Summers says there just isnt enough demand for goods and services to maintain full employment As evidence he cites persistently low interest rates If companies needed money to grow their businesses in response to demand rates would be higher Summers offers a number of reasons for this from slower population growth to the replacement of 198 real world stores by online shopping but they all have 2 things in common 1 They all suppress economic growth and 2 they are not likely to change soon Again not everyone agrees but that can be said about anything in economics Rather than trying to dissect any more ambiguous statistics let us consider 1 last sobering fact The American economy has been growing since July 2009 7 full years ago The US has avoided recession that long exactly once in history in the 1960s Not even the vast government spending on weapons and supplies during World War II kept it going this long Europe GDP grew very slightly in Europe and unemployment fell in Q2 2016 Thats good news Economic growth in Europe has struggled ever since the Continent pulled out of its 2nd shallow recession in Q2 2013 In recent years it has come in at a yearly rate of 18 in Q1 For 2016 it was 17 slipping to 16 in Q2 That is better than the US did in the same period Nonetheless it was less impressive than it seems Unemployment though improved remains much too high Around the world it averages roughly 8 In Europe it averaged 101 in figures released this July and 188 among young workers Of course results for the member coun Czech Republic 30 25 20 15 10 5 0 March 2016 April 2016 Malta Germany UK Hungary Denmark Austria Luxembourg Netherlands Poland Estonia Romania Sweden Bulgaria Ireland Lithuania Slovenia Belgium Finland Latvia France Slovakia Italy Portugal Cyprus Croatia Spain Greece Iceland Norway EU 28 EA 19 Unemployment in Europe May 2016 40 41 42 50 55 61 61 62 63 63 64 66 70 73 78 80 81 84 86 90 97 99 100101 31 46 115 116 120 133 241
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