Update to potential GDP and effective demand
The 3rd quarter labor share number came out yesterday. I was expecting 96 to 96.4. The number is 96. Here is the update for effective demand and potential GDP.
Potential GDP (center of the business cycle) is still cruising right on the lower trend line. Stable and consistent. It has actually decreased some. Effective demand is holding steady at around $16 trillion.
These lines of effective demand (blue) and potential real GDP (red) give context for where real GDP (yellow) is. The context says that real GDP will stay on its current path parallel to potential GDP (see dashed green line for long-term exponential trend).
As real GDP gets close to effective demand, utilization of labor and capital will slow down. Unemployment will slow its descent, only unless labor force participation keeps falling.
No surprises, all lines are moving steadily according to the principles of effective demand.