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