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America the Service Economy: Since 1960, consumption as a percentage of GDP has risen from 60% to nearly 70%, as of 2017. However, the make up of the three components that comprise consumption has drastically changed (chart below). Durable goods (those deemed to last 3+ years) has been steady at about 8% of GDP while non-durable goods has nearly fallen in half. Conversely, services have risen from just more than a quarter of the total economy to nearly half of total GDP! A service is a type of economic activity that is intangible, is not stored, and does not result in ownership. A service is consumed at the point of sale. So America is an economy where nearly half of all spending results in nothing tangible or durable to show for it…except more debt to be serviced?!?
Looking at the year over year quarterly change in the components that make up consumption in dollar terms, the pre-eminence of growth among services is obvious (chart below). Particularly interesting is the disconnect of accelerating growth among services versus decelerating growth among durable and non-durable goods post the GFC.
And it is those reliant on these services that are feeling the surging inflation in the cost of these services. Whether it be education, insurance, healthcare, or just a haircut…prices of services (47% of the economy) are skyrocketing versus fairly tame inflation among the 22% that represents “goods” (a computer, a car, a pair of pants).
So what? Well, an economy that is reliant on debt (cheap debt) to purchase intangible services (an activity with no asset to show for it) is an interesting concept.
Perhaps this transition to a service economy is as responsible for the breakdown in full time employment as anything? As the chart below shows, despite the significantly larger population and gross domestic product, the economy has been consistently producing a decelerating number of full time employees for decades…but the current ten year period is particularly ugly. Despite a new peak in employment and asset prices, the net creation of full time employment over the past decade is less than a third of that seen almost five decades ago.
Viewed differently, the chart below shows total full time employees (stock) blue line and the year over year change in full time employees (flow) in yellow. What should be clear is the current period has seen full time job losses magnitudes greater than any previous recession but the subsequent recovery in full time employment has actually been sub-par to those of previous recoveries.
Or on a percentage basis, the decelerating growth in full time employment is easier to see. Lower highs and lower lows (chart below).
But asset prices are amazing and the market must be telling us all is well? Perhaps but if gauging the Wilshire 5000 (representing all publicly traded US equities) against the annual net change in full time jobs against…(chart below), something is amiss.
When looking at the same full time employment growth as above but on a percentage change basis…decidedly not good (chart below). Lower highs and lower lows for full time employment growth…however, quite the opposite for asset appreciation as the current equity market is equivalent to the ’00 and ’07 bubbles… combined.
Not to mention the now declining 15-64yr/old US population, surging debt to GDP, and Federal Funds rate still barely off the zero bound (chart below).
Chris, you aren’t alone. “I haven’t a clue what they are smoking.” This is starting to become a common sentiment amongst the financial press. If Trump keeps up what he’s doing, over the next few years, the economy is set to undergo a radical transformation. It’s no longer going to be a service/consumer bullshit economy. It will be based on actual production of real assets. It’s not where we are (rubinomics), it’s where we are going that matters. Chart reading is going to be sort of a useless skill for a while, because the numbers have been so falsified for so long, it has rendered them meaningless during the transition. We will start to get a better picture of actual things, but it won’t be for a couple of years. Hang tight and read as much as you can.
I don’t know what anyone that sees 4% real growth on the horizon is smoking. Must be hopium. There isn’t going to be 4% real growth in the foreseeable future, the debt overhang is too great. Fed/state/local governments. Student debt, mortgage, auto, credit card. Ad lets not forget corporate debt. The primary reason many of these stocks are os high is because they’ve been borrowing money at near zero interest to engage in stock buy backs when they should be investing in capex. That they aren’t tells you all you need to know about their real outlook, and it isn’t good. All of this stupidity also assumes no recession for the next 10 years, which is an idiotic assumption to make. All of the GOP’s budget projections and deficit predictions are also going off this rosy 4% forever nonsense. In reality, the best we can hope for is to continue to muddle along at the pace we are at now.
Well first thing is that the charts are meaningless glees withot context. This mak s this column more of graphic data dump with an agenda than any useful information.
The lumping is “services” into one big basket is also kinda stupid. Some services provide a real value – like say a plumber or electrician or engineer. Others do not – like bureaucrats and paper-pushers. The same thing goes for government workers for that matter. There should be a distinction between those who actually do things – like keep the water on – and those who just “regulate”.
Where is this coming from?:
http://www.deagel.com/country/United-States-of-America_c0001.aspx
It predicts not only no growth for ’18 but a massive reduction.