# Update on path to next recession

Real GDP came out today. The number was \$15,790 billion for the 3rd quarter 2013.

Back in July, I posted an article that Real GDP had an appointment to keep with Effective Demand. I showed a series of graphs from the past of how real GDP grows up to the effective demand limit before a recession. The two meet at the natural level of output. Well, I simply want to update the latest graph.

Graph updated with long-run supply curve after comment by Arne in the comment section below.

It looks like they will meet within 2 to 4 quarters depending on how slow 4th quarter 2013 turns out to be with the government shut down.

Both real GDP and effective demand are staying on trend. When they meet, theoretically output will reach the natural level and further increases in demand would get translated into inflation. But inflation may not appear this time. Most likely labor and capital utilization will stop increasing and real GDP will try to push upward on the effective demand limit. Then it becomes a game to see if a recession will occur or if the effective demand limit can be pushed higher to avoid a recession.

I will add one more update on the aggregate profit rate. (up to 3Q-13)

The aggregate profit rate may be peaking. Then it starts to slide downward signalling an eventual contraction of the economy. The aggregate profit rate turning downward tends to coincide with real GDP hitting the effective demand limit.

Just keeping an eye on these things.