By Ken Houghton
If I were looking for structural changes, I would not be likely to find them. But at least I know how to look. Start at the macro level and see if there is a noticeable shift in revenues:
Click to enlarge:
I decided that anything that didn't have at least a 0.3% change in its effect on GDP over three years could not be defined as a Structural Change, especially by the people who claim a priori that the change is structural. This may be giving them too much credit, but that's how we roll here in Dataland.
There are two basic areas that show effectively neutral shifts. The first is that there is a decline in Construction that is matched by a rise in Manufacturing.
If we look at employment in Construction, it peaks (as one might expect) in April of 2006. (Employment in Manufacturing in the United States peaked in June of 1979.)
If we normalize both Construction and Manufacturing to that peak, we might expect that Manufacturing hiring would increase while Construction hiring would decrease. (Indeed, having chosen the maximum point in Construction Employment to be early in the graphic, the general trend in Construction becomes inevitable.)
Click to enlarge:
As expected (by definition, as it were), Construction plummeted, and now appears to have "leveled off" in the range of a 25-30% decline from its peak. But Manufacturing, even as it represents the shifted share-of-GDP also plummeted and has "recovered" only to about a 15% decline since the same point. So let's see if we can see the shift if we measure employment in the two areas using the NBER-designated "trough" of June 2009 as our baseline. Then we have: (Click to enlarge)
What we see here is that, while there has been a GDP ratio shift, there is not a notable hiring trend--an increase of less than 2% in nearly three years--certainly not enough of a trend (even adjusting for the difference in employment totals) that we can say that there is unsatisfied demand in the Manufacturing sector. And that is from a "trough" in the economic cycle.
Looking solely at the net change in employment between the two sectors since the Recession ended makes it clear that there is a lack of demand, not supply: (Click to enlarge)
with long-term government borrowing as cheap as in living memory, with unemployed workers and plenty of spare capacity and... suffering from both creaking infrastructure and a chronic lack of housing supply, now is the time for government to borrow and invest. This is not just basic macroeconomics, it is common sense.
In the next post, I'll look at FIRE and Health Care.