The ZIRP Economy Unmasked, Part 1: Zero Growth In Private Labor Hours Since 1998

Tyler Durden's picture

Submitted by David Stockman via Contra Corner blog,

Every now and again the apparatchiks who dutifully tend Washington’s statistical sausage factories accidently let loose a damning picture of what actually goes on inside. In that vein the BLS has just published the equivalent of a smoking gun. Namely,  a study showing that in 2013—the year of 32% stock returns—the business sector of the US economy generated no more labor hours than it did way back in Bill Clinton’s blue dress period (1998) yet purportedly produced 42% more output in real terms:

“…workers in the U.S. business sector worked virtually the same number of hours in 2013 as they had in 1998—approximately 194 billion labor hours.1 What this means is that there was ultimately no growth at all in the number of hours worked over this 15-year period….. it is perhaps even more striking that American businesses still managed to produce 42 percent—or $3.5 trillion—more output in 2013 than they had in 1998, even after adjusting for inflation.

Striking indeed!  The most important thing we know about those 194 billion labor hours is that the mix of labor supplied to the US economy deteriorated drastically during that 15 year period owing to the sharp decline of the goods producing economy in the US and its replacement by the low productivity HES Complex (health, education and social services).

Goods Producing Economy Jobs - Click to enlarge

Goods Producing Economy Jobs – Click to enlarge

Health, Education, and Social Services Jobs - Click to enlarge

Health, Education, and Social Services Jobs – Click to enlarge

Payrolls Excluding Health, Education and Social Services - Click to enlarge

Payrolls Excluding Health, Education and Social Services – Click to enlarge

So the implication of the BLS study is that business sector productivity soared—at about 2.4% annually over the period— even as factory materials handlers were replaced by bedpan handlers in the labor mix. Needless to say, to smell a skunk in that woodpile does not take a lot of sniffing.

Here is the reason. The BLS claim that real business sector output grew by 42% during the period, and therefore that private productivity grew by leaps and bounds, is based on an arithmetical derivative, not a direct measure of output. Stated differently, what the GDP accounts measure directly is spending by households, business and government—a metric which is then “deflated” by patently low-balled guesstimates about the inflation rate. Subtract from that figure for “real GDP” actual government consumption and investment spending (plus a small amount for household sector output) and, presto, you get a fiction called “business sector output”.

According to the BEA’s official publication of the NIPA accounts, that figure was $8.4 trillion in 1998 and just shy of $12 trillion in 2013. Moreover, the BEA is not shy in explaining how it computes business sector output:

Equals gross domestic product excluding gross value added of households and institutions and of general government.

So the government statistical mills are essentially dividing an apple from the BLS (total labor hours) and an artificially modified spending orange from BEA (real GDP) to get a miracle of productivity growth since 1998. Yet common sense and self-evident social and economic trends suggest just the opposite.

In truth, the business sector of an economy which has generated no labor hour growth in a decade and one-half might well still be closer in size to $8 trillion than today’s $12 trillion guesstimate. That’s especially true when it is recalled that what passes for employment gains during the monthly ritual known as “Jobs Friday” is simply the cycling of low-productivity jobs in bars, restaurants, retail emporiums and temp agencies. Even then, the entire part-time economy has generated only 20k jobs per month on average during the last 172 months running.

Part Time Jobs - Click to enlarge

Part Time Jobs – Click to enlarge

To be sure, the above data is enough to excite the boys and girls on bubblevision because despite purportedly being in the financial analysis business they are actually headline readers who bring no more insight to the table than headline sniffing algos—except that they move their lips far more slowly. Still, the vast expanse of the Part-Time Economy contains some embedded math that raises some pretty serious “Where’s Waldo” questions about that purported $3.5 trillion gain in real business output since 1998.

Today the average Part-Time Economy job (hospitality and leisure, retail, personal services and temp employment agencies) generates pay of about $20k annually, and there have been no gains in real hourly pay in this sector during the past 15 years.  So when all is said and done, the Part-Time Economy has generated perhaps a $70 billion gain in the real wage bill since 1998 (3.5 million net jobs added X $20k).

Moreover, it does not take much familiarity with the income statements of bars, restaurants, hotels and mall stores to recall that the wage bill, in turn, amounts to 20-25% of total sales, and in some cases considerably more. Accordingly, the math of the thing doesn’t get you very far.

Multiplying the estimated wage bill gain by 4X you get real business output growth of around $300 billion. That is, the apparent real gain in the Part-Time Economy since 1998 amounts to just 8.5% of the purported $3.5 trillion growth in total business sector output.

That leaves a pretty enormous growth deficit to fill elsewhere, of course, but there are pretty big remaining swaths of the business economy that are definitely not candidates for the job.

Consider some of the highest productivity sectors of the manufacturing economy. As shown below, domestic auto output in 2013 had recovered from its crisis low, but was virtually flat with its 1998 level, meaning no net gain over the 15 year period. Moreover, the graph below is measured in nominal dollars which were paid at the factory gate for US produced cars and trucks. There’s no way that could contribute to the 42% real (inflation-adjusted) business sector output gain—unless the good folks in the statistical mills are playing with some heavy “hedonic” adjustments which turn a flat trend into a rising one by bureaucratic writ.

The highest productivity industry in American—computers and related products—can’t fill the gap, either. As shown below, nominal shipments have fallen by 75% since 1998. Were the government stat boys measuring business sector output directly, they would undoubtedly apply a whole heap of hedonics on this chart to turm a line which is plunging southward into a curve which is ascending in a firm northerly direction. But that hocus pocus occurs in the spending  accounts, not here. What this graph explains is something far more logical. Aggregate labor hours have not grown since 1998 because in many important sectors of the US industrial economy, employment and shipments have been chronically shrinking.

Likewise, the missing gains cannot possibly be found in many of the other manufacturing industries which have essentially been off-shored since the mid-1990.  Here are three examples where nominal output is essentially flat; where labor hours have been steadily falling; and where it would take more hedonics magic to turn the trend into real gains.


Another non-candidate for the missing $3.5 trillion of business sector output is the construction industry. Yet once again, the tepid recovery we have had to date from the 2009 bottom does not get new housing construction—the largest component of the overall construction industry back close to its 1998 level.  So Waldo is not lurking there, either.

In truth, Waldo is actually to be found in the place where Keynesian economists live—that is, in the spending accounts, and the deflators which are applied to them. As will be shown in Part 2, there is absolutely no reason to believe that the 2.0% GDP deflator for 1998-2013 captures the actual inflation experienced by the American economy during that 15 year period.

Accordingly, there is every reason to believe that real GDP growth has been considerably lower than reported. That is, it has been more consistent with a stagnant economy that generated zero labor hour growth in the business sector; a pick-up in food stamps and disability dependency from 23 million to 60 million over the 15 year period; and which saw real household income fall from $57k to $52K or by 8%.

Stated different, the truth about the Fed’s dangerously misguided ZIRP policy is that it generates a ZIRP economy.

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ParkAveFlasher's picture


Greenskeeper_Carl's picture

In other words, all 'growth' for the past 15 years has been govt spending, fed money printing, and interest rate suppression. Looks like we have reached the point of diminishing returns on those as well. Time to join europe and start counting hookers and blow as part of GDP.

john39's picture

yeah, but on paper it all looks wonderful.  what else matters, right?

LawsofPhysics's picture

Correct.  Right about the time I switched from thinking about the return on my capital investments to the simple return of my capital.  All profits since have been re-invested in employees, equipment, innovation, land and physical assets that I can control.  Some of us will survive well, some will not.

Same as it ever was.


By the way, the legalization of hookers and formally illicit drugs is coming as the state gets desparate for revenue, so that's good I guess.

Four chan's picture

the only thing the fed looks at in terms of inflation is wage inflation, it bases all its decisions on this.

unfortunatly for the fed and we the people, we shipped our wage inflation to the slave nations years ago 

which shows the folly in every "effort" the fed undertakes. 

gas and milk has tripled in the last 6 years, using the rule of 72 tell me what the real inflation rate is.

mkkby's picture

"gas and milk has tripled in the last 6 years"

Are you freaking insane?

Four chan's picture

1.50 to 4.10 on gas

1.25 to 3.75 for milk


no im not insane, you mustn't shop.

JRobby's picture

Well when you add and subtract it all net, net, etc...........................yes.

John Law Lives's picture

That buzzing sound overhead is not an armed drone... is not an armed drone... is not an armed drone...

ebworthen's picture

1998 is about the time my doppleganger switched realities and booted me into bizarro world (here).

Pretty sure it happened when I was in R.E.M. sleep; can't find the method here to get me back to sanity.

SmittyinLA's picture

I thought I was the only one 

Seasmoke's picture

Think it was November 1997 for me. But Took me to 2008 to wake up.

ParkAveFlasher's picture

Me too!  Underworld concert at the Hammerstein Ballroom, I don't think I've come back down yet or emerged from the rabbit hole.  Have I died, and am I now a hallucinogenic manifestation of the fantasies of others?  It's tough to know whether or not you are truly a hologram. 

Squid Viscous's picture

TWA 800 was my tipping point...

NotApplicable's picture

You weren't one of those weird people who believed their own eyes rather than official government denials, were you?

Sounds like you need some Obummercare to help fog up your mind.

James_Cole's picture





SmittyinLA's picture

HES Complex, is there where they list the explosion of medical pot shops and "massage" parlors? 

I live in CA in case you wondered or do they have massage parlors and pot shops being the primary drivers of new jobs in your state too?




Wait What's picture

you forgot "Asian" before massage parlors. they are poping up everywhere in SoCal.

cougar_w's picture

"the apparatchiks who dutifully tend Washington’s statistical sausage factories accidently let loose a damning picture of what actually goes on inside."


I'll read the rest when I straighten out.


This seems like the key take-away:

" there is every reason to believe that real GDP growth has been considerably lower than reported. That is, it has been more consistent with a stagnant economy that generated zero labor hour growth in the business sector"

I think we're trapped in a death-spiral already. That QE hasn't resulted in 200% inflation everywhere is a real mystery. I know the money is caught up in bank deposits and treasuries, but $4T should still have fired up serious inflation. It did not. QE is just barely keeping the US GDP from going serious negative, but there is already a huge monetary implosion going on. Businesses are folding up, consumer activity is flat, everything points to negative growth. If they ever take their lead foot of the QE gas pedal this bitch is veering right into a ditch and they know it.

NotApplicable's picture

Mystery? You're just looking in the wrong places.

The Maserati Superbowl commercial laid it all out plainly. The only inflation is in 1%er goods and services. Given how small these markets are, it will take so long for inflation to trickle down the supply chain, that the banksters will have reabsorbed it all in interest payments first.

Feudalism 2.0 is here.

disabledvet's picture

Senator McCain is no longer welcome in New Hampshire.

There is one guy who still is...he lives there and truly has done yeomans work...cutting absolutely massive checks with a "100 percent victory per endorsement" rate.

And of course Pete DuPont....great 'Mercican by God and former Presidential Candidate who paid his own way too...just told the Wall Street Journal to drop dead.

Can't wait to see Mayor Bloomberg throw his hat in the ring. "All doors are wide open up there" fine sir...and disabledvet did indeed have the pleasure of sitting in a diner with a terrific Senator from Connecticut's grandmother.

The speeches were rough..meaning actual fights broke out among his supporters when me and my buddy showed up to do some New Hampshiring.

"Not for the faint of heart" just running to be the big guy...let alone being him. "Loneliest job in the world."

Squid Viscous's picture

It's time for NIRP, Mr. Yellen.. get to work!

Anasteus's picture

Hmm, does it also mean the NIRP policy will generate a NIRP economy?

Itchy and Scratchy's picture

Hmmmm....not sure Monica would swallow all of this????

SmittyinLA's picture

let me get this straight, Obama's statistical sausage is flaccid?

OC Sure's picture



Why use the terms of tyranny? It is way to complex jargon that just gives credence to what they are really doing: Printing currency is not work, it is theft.

Kreditanstalt's picture

Goods production has been replaced with financialization and the "service sector"...and don't forget that this supposed "42% increase" is measured in FIAT DOLLARS, not widgets...

Wait What's picture

it amazes me that it's possible for a 60 something boomer like Stockman and a 20 something millenial like myself to see what is happening, share views on why it's happening, and still have no recourse but to sit back and watch the inevitable outcome careen toward us.

the only question left to answer is this: how are they going to spin the inevitable outcome to deflect attention from the real cause, from those who are obviously to blame?

authorities pass this on to media during every crisis and the next one will be no different. "the game remains the same, only the names change"

then you get crap like this, and you figure you know exactly who to blame:

"the FOMC will only achieve its dual mandate of maximum employment and price stability if its actions are able to keep real interest rates unusually low. I’ve also argued that when real interest rates are low, we are likely to see financial market outcomes that signify instability. It follows that, for a considerable period of time, the FOMC may only be able to achieve its macroeconomic objectives in association with signs of instability in financial markets." N. Kocherlakota June 5, 2014

venturen's picture

Did you Kenyan accounting? 

venturen's picture

instead of about ZERO BANKER BONUSES....ZBB would put and end to the fraudlent milking of federal guarantees to trade us to the stone age!

Lmo Mutton's picture

I will read it later. I have to go feed my cat and watch devo reruns of American Idle or something important.

ptoemmes's picture

That's a lotta lattes.

mastersnark's picture

So, does this mean I have to go back and make up all the hours I didn't work since 1998?

TeethVillage88s's picture

Great Charts & Analaysis. Maybe the best so far this week.

I've been working with FRED Charts, funny thing some of the charts seem out of date, like Pressure was applied to stop up loading Data.

Anyway HERE IS AN AREA Where the Economy was not hurt: Employment Level - Management, Business, and Financial Operations Occupations (nice pop) All Employees: Professional & Business Services (nice pop) All Employees: Professional and Business Services: Management of Companies and Enterprises (nice pop) All Employees: Professional and Business Services: Professional and Technical Services (better than flat, good recovery) All Employees: Professional and Business Services: Administrative and Support Services (good pop) All Employees: Professional and Business Services: Computer Systems Design and Related Services All Employees: Leisure & Hospitality

Some employment areas where hit, but seemed to recover up to previous or near previous levels... but I didn't show them here... But you do see hits to the employment in the charts above as well.

Retail Trade not quite up to the previous level

Financial activity like 400K down

TeethVillage88s's picture

Brainiac Help needed.

Hours worked reflect mostly on wages and US People working as population grows. Productivity is harder to measure in a service economy.


"...the business sector of the US economy generated no more labor hours than it did way back in Bill Clinton’s blue dress period (1998) yet purportedly produced 42% more output in real terms..."

1) This output has become service oriented (and harder to measure)
2) Black-market Labor is always left out of the equation (and is harder to measure, like in Construction, Home Construction, and Yard Care)
3) Automation/Robotics steal labor from US Workers
4) Rent Seeking behavior attempts to take productivity with as little labor as possible

So the Take Away: Hours worked reflects only on US Labor Participation, but also show the fight with alternatives to Labor.

Spungo's picture

As Schiff pointed out about 7 years ago, the real measure of productivity is balance of trade. If we're so productive, we should have either a trade surplus or a very small trade deficit. 

TeethVillage88s's picture

Provocative Point. I will look for more Peter Schiff.

And if FRED Charts show huge increase in Corporate Profits, how come Corporate Tax Revenue are still below pre-2008-2010 levels. If we look at 2006-2007 Corporate Tax Revenues are $370.2 Billion,... and look at the FRED Fed Reserve Chart: (Profits are much higher than 2006-2007, Today $1.88 Trillion as opposed to $1.39 Trillion. Wow. Where did the US Tax Revenues Go!!!????

Corporate Income Taxes Receipts 1998 = $ 188.7 Billion
Corporate Income Taxes Receipts 2002 = $ 148.0 Billion (Recession)
Corporate Income Taxes Receipts 2006 = $ 353.9 Billion
Corporate Income Taxes Receipts 2007 = $ 370.2 Billion
Corporate Income Taxes Receipts 2008 = $ 304.3 Billion
Corporate Income Taxes Receipts 2009 = $ 138.2 Billion (Recession)
Corporate Income Taxes Receipts 2012 = $ 242.3 Billion
Corporate Income Taxes Receipts 2013 = $ 273.5 Billion

Individual Income Taxes Receipts 1998 = $ 828.6 Billion
Individual Income Taxes Receipts 2002 = $ 858.3 Billion (Recession)
Individual Income Taxes Receipts 2006 = $1.044 Trillion
Individual Income Taxes Receipts 2007 = $1.163 Trillion
Individual Income Taxes Receipts 2008 = $1.146 Trillion
Individual Income Taxes Receipts 2009 = $ .915.3 Trillion (Recession)
Individual Income Taxes Receipts 2012 = $1.132 Trillion
Individual Income Taxes Receipts 2013 = $1.316 Trillion

AdvancingTime's picture

The term "the new normal" has not been used much as of late, but going forward it may be about to return. Many investors and the public at large may be about to realize that central banks can only do so much through printing money and lowering interest rates. Both these actions carry with them some very strong and nasty side effects.

Markets have become very distorted as money has flowed into risky assets in search of higher yields. It could be we are about to see the markets morph into a "realizing market", one that grinds slowly downward. Another possibility is that at some point the wisdom of buying every pullback changes and the market simply drops like a stone. More on what the future might hold in the article below.