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The following chart shows industrial capacity per capita (industrial production index adjusted for capacity utilization and population).


Click to enlarge.

That's a 0.998 correlation over 27 years of data (Jan 1967 to Jan 1994). And then... Boom! Trend broken big time. That has to be one of the most impressive trend failures I've ever posted on this blog. It was so incredibly consistent and predictable right up until it wasn't.

It's not where we've been but where we are headed that concerns me most. Now that we have all this extra capacity, what's the worst that could happen from here?


File:Abandoned Packard Automobile Factory Detroit 200.jpg (Albert duce)

It's not just us.

February 17, 2014
China Crackdown Drives Business Off the Books


February 10, 2014
Guest post: dealing with 500m tonnes of global steel overcapacity


January 27, 2014
China’s Aluminum Overcapacity Seen by Fitch Holding Down Prices


January 23, 2014
PetroChina delays operation of refineries on overcapacity

December 11, 2013
Overcapacity Threatens China Growth


I have never been more permabearish.

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart

The following chart shows the average hourly earnings for retail employees (not adjusted for inflation). I'm using quarterly averages to smooth out the data.


Click to enlarge.

The parabolic trend line in red uses the data points in red. As a side note, I first tried to use an exponential trend line but it turns out that the data was not growing exponentially (not even remotely). Parabolic is so much more fun anyway though! Very sustainable over the long-term (until it isn't)!

Retail employees just lost what little pricing power they had left. Have no fear if you are one of the 15 million retail employees though. We've been told repeatedly that our economy is strong and resilient!

That said, we've also been told that online retailers wouldn't hurt the brick and mortars all that much and that the 10-year treasury yield would be well north of 3% by now (thanks to our strong and resilient economy of course). We're told a lot of things. If we're told enough things, some of it is bound to be true!

Rather than listen to the financial "experts" on CNBC, let's summarize what the chart's trying to say in one rhetorical question or less.


This is not employment advice. Sigh.

Source Data:
St. Louis Fed: Custom Chart

The following chart shows the natural log of real disposable personal income per capita. Once again, constant exponential growth shows up as a straight line when using natural logs.


Click to enlarge.

There are at least a few things worth considering.

1. Due to rising income inequality, the typical person isn't doing nearly as well as this chart would suggest.

2. As automation takes on more and more human work, how will billions of people find employment? How much of this is seen in the chart?

3. The trend is definitely not a straight line. It is curving downwards with a very high correlation of 0.993. If the current trend continues, then we'll peak in 2058 (45 years from now). That's a big if. If I'm alive to see it, I'll be 94 years old. That's another big if.

4. It is mathematically impossible for this upside down parabolic trend to continue forever. There must be a failure at some point. If nothing else, I don't think any rational person would expect real disposable personal income per capita to ever fall below zero. That would happen in 2164. This would certainly not be the first failure we've seen in recent years. We live in the era of long-term trend failures.

5. Any failure would probably be to the downside, since that is the direction the data is being pulled (much like a camel's back when more and more weight is placed upon it).

6. Contrary to some, I therefore definitely believe that the long-term future is not so bright that I gotta wear shades.

“I believe in making the world safe for our children, but not our children's children, because I don't think children should be having sex.” - Jack Handey

Japan (our partner in ZIRP crime) must love Jack Handey quotes.

December 23, 2013
Japan’s Diaper Shift and Global Population Trends


For what it is worth, I'm very much a believer in the theory. In some ways, we're like locusts and the lowest hanging fruit has already been eaten (USA prosperity analogy). I know it sounds grim, but that's what I believe. The good news is that I'm thankful every day that I was born where and when I was.

As seen in the chart, I'm not at all convinced that our children's children will be quite as thankful. It isn't that I think they will be unhappy being born in America. Far from it. I simply question the timing. It's not like I would tell them to move to China. Let's just put it that way.

Source Data:
St. Louis Fed: Custom Chart

In my last post, I presented the following chart that showed the fraction of the civilian noninstitutional population aged 16 to 19 who are employed.


Click to enlarge.

It is disturbing to me that we can't and quite possibly won't ever get back to the trend channel. I therefore propose a desperate solution. If the teenagers can't come to the mountain, then let's bring the mountain to the teenagers! All we need to do is come up with an alternate trend channel. Right?


Click to enlarge.

Still not back to the trend channel? What a bummer! Have no fear though. We are guaranteed to get back to this one at some point. Just need to be patient. At the very least, the percentage of those aged 16 to 19 with a job will hit the hard floor of 0% and fall no further (which is in sharp contrast to the long-term trend itself). Call me a mathematical optimist!

As a side note, do all teenagers now live in Detroit? Seriously. Other than potentially obvious long-term structural employment issues, what's up with that long-term parabolic trend failure? Sigh.

Source Data:
St. Louis Fed: Custom Chart

The following chart shows the 12-month moving average of annualized production and nonsupervisory sign (durable goods) employee minutes worked per capita.


Click to enlarge.

New businesses need signs. Right?

The signs aren't looking so good, both short-term and long-term.

Update:

After further review, I noticed that the chart's data was per capita and not per 1,000 people. That's been fixed.

Source Data:
BLS: Employment
St. Louis Fed: Population

The following chart shows employees working at used merchandise stores divided by all retail trade employees.


Click to enlarge.

The "sure thing" parabolic trend has been replaced with the "sure thing" exponential trend.

The future's so bright I gotta buy used rose-colored glasses.

Source Data:
BLS: Employment

Click to enlarge.

Economics is not rocket science. It just looks like it sometimes.

Jet Fuel


Source Data:
EIA: Petroleum
St. Louis Fed: Population

The following chart shows the 10-year moving average of personal current transfer receipts divided by private production and nonsupervisory employee earnings. I have added a parabolic trend line in red.


Click to enlarge.

Can you say epic trend failure?

AC/DC - Down Payment Blues



Source Data:
St. Louis Fed: Custom Chart