I’ve been looking at a lot of historical economic data recently, trying to get a broader perspective on our current situation. I have two drivers:
- Desire to preserve my retirement capital over the long-term.
- Curiosity. Our economy is a complex system that I would like to better understand.
This post is mainly a data dump of charts with my brief observations.
Side note: Since I’m a marketer, not an economist or an investment adviser, please don’t take anything here as investment advice. The “real” economists don’t agree on what’s going to happen.
Side side note: Though, it appears that the more economists disagree the lower the stock market returns in subsequent periods (link).
Real GDP and Real GDP per Capita (shaded areas mark recessions)
The US economy has had a incredible run over the last 80+ years, obviously there was a major dip in 2008 with the financial crisis, but the overall trend has been very strong. On average we’ve had a recession once every 6 years (since WW2), they’ve lasted an average of one year, and have caused an average of a -2.28% GDP decline. My takeaway from this chart is that I should expect to go through a number of recessions in my investing lifetime (average 7.5 recessions for the 45 years from age 20-65), it would be helpful to know how to preserve my capital through the troughs.
GDP per employed person and Number Employed
The dip in GDP after 2008 has not been due to decreased productivity. GDP per employed person is very strong and has been increasing at a rate above the linear trend since ~2000. This seems to indicate that businesses are able and willing to quickly lay-off employees and keep their production in line with demand. It also indicates that employment is very important, you’re not going to be able to increase GDP without new jobs, it’s only slower processes like technological advancement that changes the GDP/employee relationship. The possible exception seems to be war (see below).
GDP per employed person and Number Employed (Red Bands are major shooting wars, Blue band is the Cold War)
GDP/employee seems to increase during war time, potentially due to defense spending.
% of Total Population Employed and Unemployment Rate
From 1960 through 1990/200 there has been a consistent increase in % employed. I expect this is mainly due to women’s lib. Since ~2000 this upward trend has stagnated and with the 2008 crisis has dropped back to 1985 levels. This could mean we have have a lot of upside once more jobs are created, however, our private industry has been shifting away from manufacturing towards services (see below).
%GDP from Goods Producing Industries and % GDP from Service Industries
Our economy has very consistently been shifting from Good’s Producing (from 40% in 1940’s to 19% in 2013) to Service Providing (from 47% in 1940’s to 69% in 2013)
Real GDP and Debt as % of GDP
This is a worrying chart. It looks like the recovery we’ve seen since 2011 has been fueled by debt. Naturally, it’s been in the news, we’ve been hearing about QE3 and we’re wondering what will happen when the Fed stops pumping in billions of $. I have no way to predict, but I’m worried that if fundamental measures like # of people employed don’t increase, we’re in for a very hard landing.
I’m going to be working on another one of these soon, there are some interesting stats buried in employment by industry and I want to look at Gov’t contribution to GDP vs. actual Gov’t spending.