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Why the Fed Won't Taper


Exhibit C - Labor Force Participation Rate

The participation rate continues to drop, and now appears to match the job market participation rate of the economic rough times of 1978-9.  Note that the participation rate peeked some time during the top of the NASDAQ bubble and has steadily deteriorated, thereafter.

taper3

Source: U.S. Department of Labor

Personal incomes, another important measurement used to forecast future total output, weighs heavily in an economy dependent upon approximately 70% of its GDP derived from consumer spending.

The graph, below, exhibit D, comes courtesy of OfTwoMinds blog.

taper4

"There are two noteworthy points in this chart," explains Charles Hugh-Smith of OfTwoMinds blog.  "One is that real personal income has been negative for the past five years, with one tax-related spike in late 2012 as those who could do so reported income in 2012 rather than 2013 to take advantage of the lower tax rates that expired in 2012."

He adds, "The second point is that every time the black line (the 6-month annualized rate of change) of real personal income fell below 0% (that is, went negative), a recession occurred."

Now, let's look at corporate earnings, a predictor of an employer's proclivity and ability to hire more full-time workers.

There, the most recent guidance from companies which make up the S&P 500 don't look any better than employment or personal income trends.

Of the companies which make up the S&P 500, approximately 90% has issued negative guidance regarding earnings, according to Thompson I/B/E/S.

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