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Chart:

http://3.bp.blogspot.com/-Uno_IN5m3VU/TopEcs4362I/AAAAAAAAPys/jJyodbH5RP0/s1600/investmentless.jpg

MP: The chart above helps to illustrate the current economic situation by showing the percent changes since the third quarter of 2007 for five key economic variables: real personal consumption spending, real disposable personal income, real GDP, private payroll employment, and real business investment. As can be seen in the chart, consumption, income, and production have all recovered from the effects of the Great Recession and are now back to their pre-recession levels. But private employment remains almost 6 percent and more than 6 million jobs below the pre-recession level, and that’s associated with private business investment that remains 10 percent below 2007 levels.

Bottom Line: Private job creation and private business investment are so closely linked that the current “jobless recovery” could also be described as an “investment-less recovery.” The chart above helps to show that it’s not a lack of consumer spending, weak gains in personal income, or sluggish real output growth that are holding back job creation. Rather, it’s weak business investment spending that is largely responsible for the sub-par recovery.

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PeakTrader said...

Deregulation lowers costs and prices, to increase demand.

However, when the recession began, demand fell below supply, i.e. there was excess supply.

Over the past four years, productivity increased, while demand was flat.

So, the demand wasn't there to expand supply.

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Craig said...

"So, the demand wasn't there to expand supply."

How could there be when 10% of the labor force (or more) was unemployed? People have to work to exert demand. Even if the government were able to make up for the lost wages of the 10%, it won't demand what they would have.

It's a formula for an expensive failure.

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PeakTrader said...

Craig, an expensive failure is expanding your store when you don't have enough customers.

Also, you state "people have to work to exert demand."

That's a false assumption. Demand also comes autonomous consumption.

However, the government can spur demand through tax cuts or cash benefits for the unemployed.

Demand will lift supply, or anything that'll strengthen household balance sheets, raise incomes, or lower taxes:

BLS
REAL EARNINGS AUGUST 2011

Since reaching a recent peak in
October 2010, real average weekly earnings have fallen 2.2 percent.

From recent articles:

All from October 2011

The ratio of household debt to personal income (wages and salaries only) remains at a staggering 154%, which is only 7.5 percentage points lower than in pre-recession peak.

Take-home pay, adjusted for prices, fell 0.3 percent in August, the third decrease in five months, and personal income dropped for the first time in two years.

Consumer spending fell 2% last year, following a 2.8% decline in 2009.

Median household income in 2010 fell to $49,445, the lowest in more than a decade.

Salary and benefit growth “has been going nowhere”...“One of the key reasons the recovery has stalled is that real incomes have fallen.”

“Those who are employed are worried about their income and are seeing real purchasing power get squeezed, therefore they’re set to retrench a bit.”

"The biggest issue is that labor income is soft at a time when we’re getting no offset” from other sources."

A record 91 percent of consumers expect that growth in their incomes will match or fall behind price gains in the coming year, according to participants in the September Thomson Reuters/University of Michigan sentiment survey.

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Chart

http://1.bp.blogspot.com/-TAqn7XiJk7s/TosHIxsmD6I/AAAAAAAAPy0/swyiC2oxhBI/s1600/cars.jpg

MP: U.S. car sales of 13.1 million units in September (on a seasonally adjusted annual rate, SAAR) were the highest monthly total since last April and showed strong gains of 8.1% from August and 10.8% compared to a year-ago, according to sales data released yesterday by Motor Intelligence. On a year-to-date basis, total light vehicle sales through September are up by 10.4% compared to last year, with especially strong gains of 12.2% for light trucks and 48.7% for midsize SUVs (source).

Scott Grannis reports on the booming September auto sales and concludes that "Auto sales do not conform at all to the current narrative about the economy being on the ropes." Larry Kudlow is not convinced, and says "We’re on the front end of a recession."

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PeakTrader said...

Pent-up demand, lower prices, and lower interest rates facilitate auto sales.

However, U.S. auto sales are expected to be less than 13 million this year.

From 2000-07, U.S. auto sales averaged 16.8 million per year.

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“It’s Going to Get a Lot Worse”: ECRI’s Achuthan Says New Recession Unavoidable
Sep 30, 2011

Weakness in leading economic indicators has become so pervasive the Economic Cycle Research Institute now predicts a new recession is unavoidable.

"You haven't seen anything yet. It's going to get a lot worse."

****

“Most Accurate Economist” to Deliver 2012 Forecast
28 September 2011

Goldman Sachs Chief Economist Jan Hatzius is the winner of the prestigious Lawrence R. Klein Award for economic forecasting this year, becoming one of only a handful of people to take the award twice.

Hatzius’ forecast for 2012 will include these predictions:

Below-trend growth of 2.4 percent on a fourth-quarter-to-fourth-quarter basis for 2012, with a slight increase in the unemployment rate to 9.4 percent;

A substantial risk of renewed recession;
Core inflation to peak early in the year;
Likely additional quantitative easing by the Federal Reserve;
Long-term interest rates edging up, but staying far below the historic norm.

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A Dr Doom - A Gary Shilling - predicted recessions in the U.S. and China:

Article excerpts Jun to Aug 2011

The U.S. Economy:

“I’m predicting another recession next year (2012).”

The economy, he says, is like a four-cylinder engine, and a recovery usually requires all four to be firing.

They are consumer spending, employment, housing and the reversal of the inventory cycle.

Shilling thinks only the last is really recovering.

A further 20% decline in home prices would raise the percentage of homes worth less than the value of their mortgages to a stunning 40% (Robert Shiller, co-creator of the Standard & Poor’s/Case-Shiller Home Price index, has a similar prediction).

If this happens, “you know what that will do to consumer spending,” said Shilling. “That’s a recession — an easy forecast.”

The Obama administration’s own attempt to “fix” the housing market — the Home Affordable Modification Program (HAMP) — was, in Shilling’s words, “a miserable failure.”

As for investing, Shilling has returned to an old favorite (as of June 24, 2011): the 30-year Treasury bond, which is currently yielding around 4.21%. “I think they’re going to 3%,” he said. “I think [the 10-year is] going to 2%.”

I hesitate to second guess him on housing, where his track record has been stellar.

China's economy-housing bubble-commodities bubble:

The hard landing that I foresee for China will probably prick the global commodity bubble, which is already showing signs of topping out.

Our own Fed, using much more sophisticated policy tools, has tried to slow an overheating U.S. economy 12 times in the post-World War II era. Eleven of those attempts failed and resulted in recessions.

What odds do you give the Chinese, who need to maintain an 8% GDP growth rate in order to employ new job entrants?

Speculation by multiple-home owners has pushed new apartment prices in Beijing from 32 times average aftertax income in 2006 to a ridiculous 57 times.

I’ve studied many bubbles over the years, and concentrated on predicting their demises.

Commodities show every sign of being in one.

A Gary Shilling, bachelor’s degree in physics, magna cum laude, from Amherst College, master’s degree and doctorate in economics at Stanford University.

****

NAR forecasts slow economic growth in 2011-12
September 29, 2011

The National Association of Realtors expects U.S. GDP growth of 1 percent in 2011 and 1.3 percent in 2012, compared to a previous forecast, released last month, that anticipated GDP growth of 1.6 percent this year and 2 percent in 2012.

Actual U.S. GDP rose 3 percent in 2010, and declined 3.5 percent in 2009.

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Mark J. Perry said...

Real personal consumption expenditures are above pre-recession levels in 2007, see new chart in the post.

http://3.bp.blogspot.com/-SbNWrUsEFF0/Tot2ghNWZ1I/AAAAAAAAPy4/_qAwmHu07eM/s1600/cons.png

Real personal consumption expenditures are about 1% above the re-recession level.

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PeakTrader said...

"Real personal consumption expenditures are about 1% above the pre-recession level."

Over a four-year period in the early 2000s, when the economy peaked, fell into recession, and had a jobless recovery, real personal consumption expenditures increased over 10%, and without trillions of dollars of additional government spending.

http://research.stlouisfed.org/fred2/series/PCEC96