People keep looking for "Green Shoots" in the economic growth area while the numbers keep coming in showing that the economy is just not going to return to the same levels of economic growth that were experienced in the latter half of the twentieth century. The latest numbers just do not support faster rates of growth.
The industrial production figures released last week show that manufacturing output rose in October 3.2 percent over the same period from last year. This is not out-of-line with the numbers that have come in all year. Since this monthly number bounces around a lot month-to-month, a more stable picture is achieved by looking at quarterly averages. Year-over-year industrial production grew at a 2.5 per cent rate in the third quarter of this year; it grew 2.0 percent in the second quarter; and it grew by 2.5 percent in the first quarter.
This is not inconsistent with the real GDP numbers for third quarter growth: year-over year, third quarter real GDP growth was 1.6 percent. This 1.6 percent number compares with a growth rate of 3.1 percent, year-over-year growth through the third quarter in 2012, 1.5 percent in 2011, and 3.0 percent in 2010 … an average of 2.3 percent per year.
The "New Normal" of economic growth appears to be in the 2.0 percent to 2.5 percent range and the industrial production numbers continue to support this. Signs that the malaise in the United States economy is of a secular nature rather than just a cyclical problem come from other information released last week.
Capacity utilization in U.S. manufacturing dropped in October from September, but remained around the "cyclically high" number of 78.0 percent of capacity, where it has been, on average, for all of 2013.
The problem is that this is the lowest "cyclical high" since this measure was begun. Previous "cyclical highs" have shown a downtrend since the 1970s. A cyclical peak of about 89 percent of capacity was reached in 1973; the next cyclical peak came in 1978 and was around 86 percent. The cyclical peaks reached in 1989, 1995, and 1997 was about 85 percent and the cyclical peak in 2008 was about 81 percent.
There is little evidence that the cyclical peak of the current economic recovery will leave the range centering on 78 percent. This is a long-run problem!
Another long-term problem exists in the labor market. The Civilian Labor Force Participation rate dropped to 62.8 percent in October, the lowest level it has been at since the early 1980s. The peak of civilian labor force participation came around 2000 when the participation rate was around 67.0 percent. The drop since then has been very steady.
Another interesting shift in the labor market was seen in recently. The number of women that are now fully employed grew in October to exceed the peak reached before the Great Recession. The number of men fully employed has not yet reached the earlier peak. The reason for this is that women tend to be hired more in services, health care, and so forth, whereas men make up a greater proportion of the works in construction and other more physical jobs. This divergence many are predicting will become worse as the proportion of jobs in the economy shifts more and more to services.
And, what about the rest of the year? Holiday spending produces about one-fifth or more of annual retail sales.
Consumption expenditures rose at a 1.8 percent rate of growth, year-over-year, through the third quarter of 2013. This compares with growth rates of 2.2 percent in 2012, 2.5 percent in 2011, and 2.0 percent in 2010 … an average of 2.1 percent for the past four years.
This growth in consumption expenditures is consistent with the growth rates in real GDP presented above. But, the three earlier years experienced relatively good retail sales in the holiday seasons.
This year's holiday season? The forecasts we are hearing are not very robust. Shelly Banjo writes in the Wall Street Journal
"Morgan Stanley is predicting the weakest holiday shopping season since 2008, which was in the depth of the last recession. Consumer sentiment dropped in November to its lowest point in nearly two years … .
Wal-Mart Stores, Inc. added to the gloom last week, reporting disappointing results and saying it expects meager wage growth and worries about a slow-growing job market to weigh on customers."
Consequently, behavior patterns are changing. For example, Wal-Mart (NYSE:WMT) "started offering holiday promotions a month earlier than usual this year … plans to use heavy discounts to fight for seasonal sales."
Specialty retailers including Gap, Inc. (NYSE:GPS), are posting "discounts of 40 percent to 50 percent as early as the first week of November" whereas these promotions "are usually reserved for the day after Thanksgiving."
Some sectors have shown some gains, but these sectors, the auto and home improvement sectors, are those that are benefiting from the "pretty healthy" position of consumers that have higher incomes. Lower gas prices and deep discounts may "save" the rest of 2013, but think what that tells you of the state of the economy.
Just the very fact that we are discussing things like whether or not holiday sales can be "saved" points to an economy that doesn't have much going for it. Remember, we are in the fifth year of this economic recovery. In most economic upswings, the peak rates of growth for the specific cycle are reached in the first two years where there is a period of "catch up" because of the previous economic slowdown.
This is why I have continually argued that there are major structural issues that must be addressed before the United States economy can obtain … and then sustain … faster economic growth. The long-term trends in the capacity utilization of American manufacturing and in labor market participation confirm this dilemma. Quantitative easing and short-term fiscal stimulus programs are not going to do the job. Think what this means for the quality of earnings and wealth creation in the present environment.
I wish things could be better … I just don't see that they will get much better in the near-term.