productivity & potential

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Productivity & Potential Charts & Text by Paul Winghart, Economic Strategist

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  • 1. Productivity & Potential Charts & Text by Paul Winghart, Economic Strategist

2. Economic Potential is a measure of WHAT an economy COULD produce if all factors of production were utilized at peak efficiency. 3. Economic Potential is a measure of WHAT an economy COULD produce if all factors of production were utilized at peak efficiency. Economic Productivity is a function of total output produced over a period of time. 4. Economic Potential is a measure of WHAT an economy COULD produce if all factors of production were utilized at peak efficiency. Economic Productivity is a function of total output produced over a period of time. Productivity is also a component of Potential 5. Economists rarely agree on anything but this formula for calculating an economys potential has so far stood the test of time: 6. Economists rarely agree on anything but this formula for calculating an economys potential has so far stood the test of time: POTENTIAL 7. Economists rarely agree on anything but this formula for calculating an economys potential has so far stood the test of time: POTENTIAL = 8. Economists rarely agree on anything but this formula for calculating an economys potential has so far stood the test of time: POTENTIAL = PRODUCTIVITY 9. Economists rarely agree on anything but this formula for calculating an economys potential has so far stood the test of time: POTENTIAL = PRODUCTIVITY + 10. Economists rarely agree on anything but this formula for calculating an economys potential has so far stood the test of time: POTENTIAL = PRODUCTIVITY + WORKERS 11. Economists rarely agree on anything but this formula for calculating an economys potential has so far stood the test of time: POTENTIAL = PRODUCTIVITY + WORKERS Since it is a function of moving parts, economists continually attempt to keep tabs on changes in potential. 12. One way to do just that is to employ a little calculus and take the derivative of the function to find the sensitivity to change. 13. One way to do just that is to employ a little calculus and take the derivative of the function to find the sensitivity to change. POTENTIAL = 14. One way to do just that is to employ a little calculus and take the derivative of the function to find the sensitivity to change. POTENTIAL = PRODUCTIVITY 15. One way to do just that is to employ a little calculus and take the derivative of the function to find the sensitivity to change. POTENTIAL = PRODUCTIVITY + 16. One way to do just that is to employ a little calculus and take the derivative of the function to find the sensitivity to change. POTENTIAL = PRODUCTIVITY + WORKERS 17. One way to do just that is to employ a little calculus and take the derivative of the function to find the sensitivity to change. POTENTIAL = PRODUCTIVITY + WORKERS = a change in economic potential is equal to the change in productivity plus the change in the workforce with respect to potential. 18. Starting with the workers component it is evident that in the short-run changes in the workforce can be very volatile. 19. 3 4 16 38 81 166 198 125 73 38 15 7 14 -0.6% or less -0.5% -0.4% -0.3% -0.2% -0.1% 0.0% 0.1% 0.2% 0.3% 0.4% 0.5% 0.6% or greater Monthly Change in the Unemployment Rate 1948 - Present Data Source: Bureau of Labor Statistics 20. However, over the long-run, changes in the workforce are very much muted. 3 4 16 38 81 166 198 125 73 38 15 7 14 -0.6% or less -0.5% -0.4% -0.3% -0.2% -0.1% 0.0% 0.1% 0.2% 0.3% 0.4% 0.5% 0.6% or greater Monthly Change in the Unemployment Rate 1948 - Present Data Source: Bureau of Labor Statistics 21. However, over the long-run, changes in the workforce are very much muted. 3 4 16 38 81 166 198 125 73 38 15 7 14 -0.6% or less -0.5% -0.4% -0.3% -0.2% -0.1% 0.0% 0.1% 0.2% 0.3% 0.4% 0.5% 0.6% or greater Monthly Change in the Unemployment Rate 1948 - Present Data Source: Bureau of Labor Statistics Over 96% of the data are in this 0.8 percent range. 22. However, over the long-run, changes in the workforce are very much muted. 3 4 16 38 81 166 198 125 73 38 15 7 14 -0.6% or less -0.5% -0.4% -0.3% -0.2% -0.1% 0.0% 0.1% 0.2% 0.3% 0.4% 0.5% 0.6% or greater Monthly Change in the Unemployment Rate 1948 - Present Data Source: Bureau of Labor Statistics 23. However, over the long-run, changes in the workforce are very much muted. 3 4 16 38 81 166 198 125 73 38 15 7 14 -0.6% or less -0.5% -0.4% -0.3% -0.2% -0.1% 0.0% 0.1% 0.2% 0.3% 0.4% 0.5% 0.6% or greater Monthly Change in the Unemployment Rate 1948 - Present Data Source: Bureau of Labor Statistics The average monthly change in the unemployment rate since 1948 is just 0.01% with a 0.20% standard deviation! That is with a sample size of over 670 months. One of the largest economic data sets available. 24. However, over the long-run, changes in the workforce are very much muted. 3 4 16 38 81 166 198 125 73 38 15 7 14 -0.6% or less -0.5% -0.4% -0.3% -0.2% -0.1% 0.0% 0.1% 0.2% 0.3% 0.4% 0.5% 0.6% or greater Monthly Change in the Unemployment Rate 1948 - Present Data Source: Bureau of Labor Statistics The average monthly change in the unemployment rate since 1948 is just 0.01% with a 0.20% standard deviation! That is with a sample size of over 670 months. One of the largest economic data sets available. 25. However, over the long-run, changes in the workforce are very much muted. 3 4 16 38 81 166 198 125 73 38 15 7 14 -0.6% or less -0.5% -0.4% -0.3% -0.2% -0.1% 0.0% 0.1% 0.2% 0.3% 0.4% 0.5% 0.6% or greater Monthly Change in the Unemployment Rate 1948 - Present Data Source: Bureau of Labor Statistics 26. However, over the long-run, changes in the workforce are very much muted. 3 4 16 38 81 166 198 125 73 38 15 7 14 -0.6% or less -0.5% -0.4% -0.3% -0.2% -0.1% 0.0% 0.1% 0.2% 0.3% 0.4% 0.5% 0.6% or greater Monthly Change in the Unemployment Rate 1948 - Present Data Source: Bureau of Labor Statistics The distribution of the monthly change in the unemployment rate takes on a bell-curve shape A bell-shape curve has statistic properties unique onto itself. 27. However, over the long-run, changes in the workforce are very much muted. 3 4 16 38 81 166 198 125 73 38 15 7 14 -0.6% or less -0.5% -0.4% -0.3% -0.2% -0.1% 0.0% 0.1% 0.2% 0.3% 0.4% 0.5% 0.6% or greater Monthly Change in the Unemployment Rate 1948 - Present Data Source: Bureau of Labor Statistics 28. Taking into account the relative stableness of the workforce over the long-run, we can justify that 29. Taking into account the relative stableness of the workforce over the long-run, we can justify that WORKERS = 0 30. Taking into account the relative stableness of the workforce over the long-run, we can justify that POTENTIAL = PRODUCTIVITY + WORKERS WORKERS = 0 so that this 31. Taking into account the relative stableness of the workforce over the long-run, we can justify that POTENTIAL = PRODUCTIVITY + WORKERS WORKERS = 0 so that this is actually this POTENTIAL = PRODUCTIVITY + 0 32. Taking into account the relative stableness of the workforce over the long-run, we can justify that POTENTIAL = PRODUCTIVITY + WORKERS WORKERS = 0 so that this is actually this POTENTIAL = PRODUCTIVITY 33. POTENTIAL = PRODUCTIVITY 34. POTENTIAL = PRODUCTIVITY Remember, the change in the workforce isnt exactly 0 so productivity isnt pure potential, but its close 35. POTENTIAL = PRODUCTIVITY Remember, the change in the workforce isnt exactly 0 so productivity isnt pure potential, but its close like Ivory Soap. 36. Analyzing trends in productivity give economists the best clues as to changes in what the economy could grow at, i.e. potential GDP. 37. Analyzing trends in productivity give economists the best clues as to changes in what the economy could grow at, i.e. potential GDP. By way of comparison, Gross Domestic Product, or GDP, is a quarterly summation of what the economy is actually growing at. 38. And oh what a trend! For the first time in post-war history, productivity growth is consistently outpacing that of GDP growth. 39. That means the gap between what the economy can grow at and what it is growing at is getting larger. 40. That means the gap between what the economy can grow at and what it is growing at is getting larger. Potential GDP Realized GDP roductivityP 41. That means the gap between what the economy can grow at and what it is growing at is getting larger. roductivity P 42. That means the gap between what the economy can grow at and what it is growing at is getting larger. Potential GDP Realized GDP roductivity P O U T P U T 43. Surplus productivity means surplus potential which also means a much wider than normal output gap. 44. Surplus productivity means surplus potential which also means a much wider than normal output gap. Since the economy cannot adequately maintain enough leverage to keep up with its potential, any GDP growth does not feel much like growth at all. 45. 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 18.00% Apr-53 Nov-56 Jun-60 Jan-64 Aug-67 Mar-71 Oct-74 May-78 Dec-81 Jul-85 Feb-89 Sep-92 Apr-96 Nov-99 Jun-03 Jan-07 Aug-10 Mar-14 Oct-17 Constant Maturity 10yr US Treasury Note, 1953 - present 46. Surplus productivity therefore means very low rates of interest and inflation for a very, very long time. 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 18.00% Apr-53 Nov-56 Jun-60 Jan-64 Aug-67 Mar-71 Oct-74 May-78 Dec-81 Jul-85 Feb-89 Sep-92 Apr-96 Nov-99 Jun-03 Jan-07 Aug-10 Mar-14 Oct-17 Constant Maturity 10yr US Treasury Note, 1953 - present 47. Surplus productivity therefore means very low rates of interest and inflation for a very, very long time. 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 18.00% Apr-53 Nov-56 Jun-60 Jan-64 Aug-67 Mar-71 Oct-74 May-78 Dec-81 Jul-85 Feb-89 Sep-92 Apr-96 Nov-99 Jun-03 Jan-07 Aug-10 Mar-14 Oct-17 Constant Maturity 10yr US Treasury Note, 1953 - present Surplus Productivity 48. Thank you for watching! Paul Allen Winghart www.surplusproducivity.com [email protected] (email) SurplusProductivity@SProductivity (Twitter) http://www.linkedin.com/pub/paul-winghart/12/779/390 (LinkenIn) The material contained herein is not a product of any research department . Nothing herein constitutes a recommendation of any security or regarding any issuer; nor is it intended to provide information sufficient to make an investment decision. The information contained in this communication has been compiled by surplusproductivity from sources believed to be reliable, but no representation or warranty, express or implied, is made by surplusproductivity, its affiliates or any other person as to its accuracy, completeness or correctness. All opinions and estimates contained in this communication constitute surplusproductivity judgment as of the date of this communication, are subject to change without notice and are provided in good faith but without legal responsibility. Nothing in this communication constitutes legal, accounting or tax advice or individually tailored investment advice. This material is prepared for general circulation to clients and may have been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The investments or services contained in this communication may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about the suitability of such investments or services. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Every state in the U.S., and most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as the process for doing so. As a result, any specific securities discussed in this communication may not be eligible for sale in some jurisdictions. This communication is not, and under no circumstances should be construed as, a solicitation to act as securities broker or dealer in any jurisdiction by any person or company that is not legally permitted to carry on the business of a securities broker or dealer in that jurisdiction to the fullest extent permitted by law neither surplusproductivity nor any of its affiliates, nor any other person, accepts any liability whatsoever for any direct or consequential loss arising from any use of this communication or the information contained herein. No matter contained in this document may be reproduced or copied by any means without the prior consent of surplusproductivity may buy from or sell to customers on a principal basis in the securities or related derivatives that are the subject of this communication. Additional information is available upon request. As of this time, this material is free of charge, so long as you link back to this site and source any information you may use 49. Thank you for watching! Paul Allen Winghart www.surplusproducivity.com [email protected] (email) SurplusProductivity@SProductivity (Twitter) http://www.linkedin.com/pub/paul-winghart/12/779/390 (LinkenIn) The material contained herein is not a product of any research department . Nothing herein constitutes a recommendation of any security or regarding any issuer; nor is it intended to provide information sufficient to make an investment decision. The information contained in this communication has been compiled by surplusproductivity from sources believed to be reliable, but no representation or warranty, express or implied, is made by surplusproductivity, its affiliates or any other person as to its accuracy, completeness or correctness. All opinions and estimates contained in this communication constitute surplusproductivity judgment as of the date of this communication, are subject to change without notice and are provided in good faith but without legal responsibility. Nothing in this communication constitutes legal, accounting or tax advice or individually tailored investment advice. This material is prepared for general circulation to clients and may have been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The investments or services contained in this communication may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about the suitability of such investments or services. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Every state in the U.S., and most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as the process for doing so. As a result, any specific securities discussed in this communication may not be eligible for sale in some jurisdictions. This communication is not, and under no circumstances should be construed as, a solicitation to act as securities broker or dealer in any jurisdiction by any person or company that is not legally permitted to carry on the business of a securities broker or dealer in that jurisdiction to the fullest extent permitted by law neither surplusproductivity nor any of its affiliates, nor any other person, accepts any liability whatsoever for any direct or consequential loss arising from any use of this communication or the information contained herein. No matter contained in this document may be reproduced or copied by any means without the prior consent of surplusproductivity may buy from or sell to customers on a principal basis in the securities or related derivatives that are the subject of this communication. Additional information is available upon request. As of this time, this material is free of charge, so long as you link back to this site and source any information you may use 50. Thank you for watching! Paul Allen Winghart www.surplusproducivity.com [email protected] (email) SurplusProductivity@SProductivity (Twitter) http://www.linkedin.com/pub/paul-winghart/12/779/390 (LinkenIn) The material contained herein is not a product of any research department . Nothing herein constitutes a recommendation of any security or regarding any issuer; nor is it intended to provide information sufficient to make an investment decision. The information contained in this communication has been compiled by surplusproductivity from sources believed to be reliable, but no representation or warranty, express or implied, is made by surplusproductivity, its affiliates or any other person as to its accuracy, completeness or correctness. All opinions and estimates contained in this communication constitute surplusproductivity judgment as of the date of this communication, are subject to change without notice and are provided in good faith but without legal responsibility. Nothing in this communication constitutes legal, accounting or tax advice or individually tailored investment advice. This material is prepared for general circulation to clients and may have been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The investments or services contained in this communication may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about the suitability of such investments or services. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Every state in the U.S., and most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as the process for doing so. As a result, any specific securities discussed in this communication may not be eligible for sale in some jurisdictions. This communication is not, and under no circumstances should be construed as, a solicitation to act as securities broker or dealer in any jurisdiction by any person or company that is not legally permitted to carry on the business of a securities broker or dealer in that jurisdiction to the fullest extent permitted by law neither surplusproductivity nor any of its affiliates, nor any other person, accepts any liability whatsoever for any direct or consequential loss arising from any use of this communication or the information contained herein. No matter contained in this document may be reproduced or copied by any means without the prior consent of surplusproductivity may buy from or sell to customers on a principal basis in the securities or related derivatives that are the subject of this communication. Additional information is available upon request. As of this time, this material is free of charge, so long as you link back to this site and source any information you may use