A new report from Morgan Stanley argues that potential growth for the economy is now just around 2%.
The report argues that drops in productivity and Labor Force Participation mean a new, slower growth track than what we're used to.
This has significance for monetary policy, as there may not be as much "slack" in the economy as the Fed believes.
Sorry. We're not going back to the old normal. At least that's according to Morgan Stanley.
In a new note, economist Vincent Reinhart estimates that the economy's potential growth rate is now around 2% (down from 2.5%) and that 6% is probably what represents "full employment." The Fed will have to acknowledge there's less "slack" in the system than they thought.
This chart shows the new impaired trend.
So what's behind the new slow potential growth rate for the U.S. economy?
Reinhart identifies two big trends. One is declining Labor Force Participation Rate, a trend which started well before the recent slump. And the other is declining productivity. Fewer laborers and less productivity make it hard to keep up the same growth pace.
These two charts tell the story of declining Labor Force Participation and declining productivity.
Labor Force Participation
Output per hour
Again, the big ramifications here are probably for the Fed, which may get unwanted levels of inflation faster than they want or expect.
Bigger picture is that this is something that a lot of folks are talking about right now: The end of extensive slack in the economy.
Just as an example, this is a chart from a new chartbook from Deutsche Bank's Torsten Slok, who spends a lot of time look at wage inflation trends.
Deutsche Bank
Read more: http://www.businessinsider.com/morgan-stanley-economys-growth-potential-is-now-2-percent-2014-3#ixzz2veXV8vwC
Some how it seems every time I come across an 'unemployment-is-good-for-us' report it always comes from a source dependant on gov't assistance--
http://www.sourcewatch.org/index.php/Morgan_Stanley Morgan Stanley - Source Watch Morgan Stanley experienced the initial ... ... has acknowledged the importance of government assistance to the banks.http://www.nydailynews.com/news/money/morgan-stanley-borrowed-107-billion-banks-2008-financial-company-bailout-article-1.950274 Turns out the multi-billion-dollar bailouts of financial firms and major ... to $1.2 trillion to help keep the U.S. economy from going over the edge, ...
Chart of the day, Morgan Stanley bailout edition
--and while those ties don't prove the report is false, it does point to what I'd call a conflict of interest. Like asking your barber if you need a haircut.
—and I’d still like the whole PM if there’s another link (or PM if it’s on a private server) tx!