The economy is skirting a recession


The blue line shows the employment-population ratio (left scale), representing the civilian employment as percentage of the total population. The percent is a low 59.3%.This is a big problem, of course. The ratio has declined steadily since 2009. (Click on the chart to enlarge it).

Why? The answer may be given by the red line showing a o.6% y/y growth in working age population aged 14-54 (right scale).

The growth in this group of workers has slowed down steadily and is the outcome of changing demographics. In other words we are getting older.

The important implication is that the slow growth in this segment of the most productive group of workers has an impact on productivity, which is growing at a very slow 0.6% y/y.

The bottom line is the economy cannot grow more than population growth (0.6%) plus productivity growth (0.6%). In other words our economy cannot grow much more than 1.2% at best.

I have been saying this for a long time and it looks like the recent performance of the economy may agree with my assessment.

There is nothing we can do about the demographics. The only way to grow faster is to improve our productivity. Concerns about regulating several aspects of our life are hindering any change in productivity growth.

If a am right, this scenario will have a huge impact on profit growth and equity markets. Commodities and bond yields will not be immune from it.

George Dagnino, PhD
The Peter Dag Portfolio
Since 1977 Author, Profiting in Bull and Bear Markets
No. 1 bond timer in the past 12 months. 

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