The United States economy is still growing, but it is not going anywhere very rapidly.
Industrial production figures were released for February showing that manufacturing output rose at a 2.5 percent year-over-year rate of increase. This is up from the 2.3 percent year-over-year rate of growth achieved in January, but it is still below the average rate of increase, year-over-year, maintained from January 2012 to the present, which was 3.7 percent. Some analysts hailed this upward movement in February, but put within an historical perspective, it is pretty anemic.
Post-Great Recession, the rate of increase in Industrial Production has only risen, on average, year-over-year, by a 2.8 percent rate. The Great Recovery is anything but.
The unemployment rate dropped to 7.7 percent in February. This rate had been roughly constant for the previous five months, averaging 7.8 percent during this time period. The civilian labor force participation rate dropped in February and now stands at 63.5 percent of potential workforce. My measure of under-employment still shows that about 1 out of every 5 individuals that could work are either not working, working part-time but would like to work full time, or are discouraged and are not looking for work at the present time.
This under-employment scenario is also shown in the use of physical capital. Capacity utilization came in at 79.6 percent in February, up from 79.3 percent in January.
Over the past four months, capacity utilization has fluctuated around 79.3 percent. This is up slightly from the monthly average of the previous eleven months when capacity utilization was around 78.6 percent. Note that the previous peak that capacity utilization reached was about 81.0 percent for the 2004-2007 period.
Capacity utilization has been trending downwards since the late 1960s. With one exception, after every recession, capacity utilization recovered but to a peak level that was below the peak that just preceded it. Thus, every recovery since the 1960s saw capacity utilization peak out at lower and lower levels.
This is also true of the under-employment of human capital. In the 1960s the under-employment rate was in the 7 percent to 8 percent range. The rate of under-employment has followed a secular trend upwards to its current level of just under 20 percent. The upward trend in under-employment since the 1960s has been the mirror image of the downward movement in capacity utilization during the same time period.
Do you think something might be going on here? Do you think that the United States could be experiencing some structural problems that need to be overcome? Structurally, the United States is employing less and less of its physical capital and less and less of its human capital as time passes since the 1960s.
Maybe the problems in the United States economy cannot be addressed by an economic policy of credit inflation. Maybe the problems the United States economy is facing are not the result of the economic policies of the Republicans or the Democrats. Maybe the problems the United States economy are facing is the result of BOTH the Republicans and the Democrats.
Earlier I presented rates of growth of industrial production for the period following the Great Recession. They were not impressive.
But, if you look at the rate of growth of industrial production, year-over-year, for the time period beginning in January 2001 and ending in December 2007, the date the Great Recession began, industrial production only increased at a 2.5 percent rate. For the two years beginning in January 2006 and ending in December 2007, industrial production only rose, year-over-year, by 2.3 percent.
Thus, even during the period when the United States was experiencing the greatest amount of credit inflation in the period beginning in 1961 to the present, industrial production increased at a pitifully anemic growth.
Economic growth is at a much slower pace now than it was in the 1960s and 1970s. As credit inflation permeated the United States economy, economic growth declined and is still declining. If this is true, we cannot expect credit inflation to buy us back into much lower levels of under-employment and much higher levels of capacity utilization.
Where does the credit inflation go? It goes into the financial cycle. It produces greater and greater levels of financial velocity. There is no place else for it to go.
The only exceptions in the real economy are in the sectors that are experiencing special situations. For example, energy is a growth area. Health systems are another place to look. And, the financial system is something you want to be aware of…but, my own preference is to stay away from the "legacy" commercial banking system.
The United States economy is expanding, but only just barely. At current rates, it cannot put all of our capital resources and our human resources back to work. In order for this to happen, the economy must go through a re-structuring. It is going through a re-structuring. But, the credit inflation created by the federal government and the Federal Reserve System will not do a whole lot to help this re-structuring but it can benefit those that are smart enough to take advantage of it.