Sunday, October 26, 2014

The Corkscrewed Recovery

The following scatter chart compares real GDP (bottom scale) to the number of nonfarm employees (left scale). There was a time when you could predict one with uncanny accuracy simply by knowing the other. It was a nearly perfect linear relationship. As seen in the chart below, that is no longer the case. It is different this time.

Click to enlarge.

1. The first coming of trend failure was linear. Rejoice.
2. The second coming of trend failure was parabolic. Praise be.
3. The third coming of trend failure was also parabolic. Amen.

Not only did the linear trend fail in the early 1990s, but it was replaced by an upside down parabolic trend that has failed twice so far. For those who believe that the labor force is important to future prosperity in a capitalistic society, that's just sickening.

Let's zoom in for a closer look.

Click to enlarge.

We're finally back to the upside down parabolic trend.

1. The optimists believe that this is a reason for celebration! Woohoo!
2. The realists believe that the corkscrewing will continue until morale improves.
3. The pessimists believe that morale will never improve.

For the record, I am not an optimist. I am very uneasy about the failure in 2007 in particular. It reached the extrapolated parabola from 1992:Q2 to 2001:Q1 and died right then and there, as if the parabola was an impenetrable wall that could not be breached. I'm also very uneasy that we're right back to the wall (as of 2014:Q2).

Is it any wonder the Fed is afraid to raise interest rates? If I was Yellen, then I'd be terrified. Fortunately, I am not Yellen. I can be terrified as a witness instead, lol. Sigh. Assuming the parabola has merit long-term, then good luck postponing the inevitable! ZIRP might work for awhile, but forever?

Source Data:
St. Louis Fed: Custom Chart


Stagflationary Mark said...

I have added a new blog to my blog list.

Young Money

I am getting some traffic from that blog and after reading the posts there (and liking them), I thought I'd return the favor. :)

dearieme said...

"upside down parabolic trend" is a wee bit clumsy. How about trying "cup" and "cap"?

Keep up the good work.

Stagflationary Mark said...


Would you settle for "unsustainable death goblet" and "satan's umbrella of prosperity's demise"? ;)

I wouldn't want newcomers to think that either cups or caps offer long-term stability, lol. Sigh.

Fritz_O said...

If I was Yellen, then I'd be terrified.

What on earth does she have to be scared about?

Janet Yellen, the No. 2 at the Fed's Board of Governors, and her husband—Nobel Prize-winning economist George Akerlof —had assets such as stocks, bond-fund shares and bank accounts valued at roughly $4.8 million to $13.2 million in 2012, according to financial disclosures released by the Fed on Tuesday. The disclosure forms use ranges rather than specific amounts.

Stagflationary Mark said...


I'd be terrified of being a laughing "stock" if my monetary solutions didn't end up working over the long-term. But hey, maybe that's just me! ;)

In all seriousness, I would find the job extremely stressful, much like the captain of the Titanic must have felt. If I was Yellen, I wouldn't be sleeping well at all. That's if I was Yellen. I'm not. I have no idea how she's sleeping.