BIS thinks we’re near international full employment

The BIS thinks that economic growth must slow or inflation will get out of control. They think

there was little or no slack left for rapid non-inflationary expansion.

They obviously haven’t seen

  • the very low inflation rates in the US, particularly when you consider core inflation, the best measure of future inflationary pressures
  • unemployment at a 17 year high in the UK (8%).
  • But mostly they aren’t looking at the graph below of high unemployment in the US, including damagingly high unemployment in the important 20 to 24 age group (below)
Unemployment is very high, and the long-term damage to the economy and the just-starting careers of 20 to 24 year olds is marked.

The graph below shows a rebound in growth in retail sales volumes, but if you follow the previous trend upwards, a clear output gap is evident. Output gaps (from full employment / potential to actual employment) reflects an economy far away from overheating.

Retail sales have not caught up to long term growth rates reflecting a gap between current sales and potential sales (full employment)

Published by David Kirk

The opinions expressed on this site are those of the author and other commenters and are not necessarily those of his employer or any other organisation. David Kirk runs Milliman’s actuarial consulting practice in Africa. He is an actuary and is the creator of New Business Margin on Revenue. He specialises in risk and capital management, regulatory change and insurance strategy . He also has extensive experience in embedded value reporting, insurance-related IFRS and share option valuation.

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