The GDP numbers that came out this week had a surreal feel to them. We earnestly tried to square the report with the monthly numbers we pick up off of the Fed’s database.  One supposes that this is the sensation a forensic accountant gets when his antennae are picking up incongruities, those little hints that a financial statement deserves greater scrutiny.

The Wall Street Journal couldn’t contain itself. There was talk of champagne, popping corks, the old swagger and all that. When we looked at Total Loans and Leases originating from commercial banks, we had to wonder, if the economy was snapping back so vigorously, where, pray tell, was the lending activity? You wouldn’t know it by looking at this chart.

Prying a little deeper, we looked at the Civilian Employment/Total Population ratio. They like to keep this one out of the papers for obvious reasons. It almost looks like we’ve regressed back to the 1970s.

Which ought to be unsettling, because it suggests to us that the bail-out of the financial system has implanted another dysfunction deep within the cogs of the system and this dysfunction will not easily resolve.

As the clever minds at Agora Financial have put into a visual, this time is structurally different. The downturn has aspects that are more suggestive of a true depression than a recession that will gracefully bloom into a recovery.

We thought we’d drill down into some long term employment patterns and see if the numbers might allow us to place a frame of long term understanding around the present malaise.

The first bit of pernicious bunkum we’d like to dispense with is the assertion that the problem is a steadily increasing parasitic body of government employees who are slowly eating the brain of the American free market system. Unfortunately for the flat earthers and moon landing deniers of the economic  sphere, this is absolutely not the case.

We took the entire datastream from 1939 and divided it by total employment, you know, that slick operation of normalizing by a denominator. Sneaky, eh? No. We’re not being devoured by Gummit people. After an initial climb in the 1950s as the modern federal apparatus became standard procedure, we’ve been drifting between about 17% to 19% of the workforce, with the historical peak in about 1977. We’re in the same place we were in 1966 and 1993.

Somebody please call Mythbusters on this overblown crock of hooey. Of course, the Anarcho-Syndicalists among you may prefer no government employees at all.

So who’s been hiring all these industrious people? The construction industry? We can definitely see the long drawn out boom beginning in 1991 and pretty much peaking out in the summer of 2006. Interestingly it seems that the USA has a natural maximum of about 5.75% of the labor force employed in construction and it is currently near the low end of the range, where it may be finding a natural bottom.

So what about the financial sector? Is it true, are we becoming a financial economy, slowly but surely? Not according to this data. We were progressively, perhaps unnoticeably, becoming financialized between 1944 and 1984, a true gradual transformation of the economy, but then the financial sector stabilized and has held steady from 1984 until the present.

An interesting wrinkle, however, is that powerful computers and information technology may have greatly increased the per capita productivity of the financial workforce in ways that couldn’t apply to the construction workforce. So the financial sector could get much hotter while holding employment at 6%. That humble 6% of the population was empowered to take increasing risks with larger pools of capital, which, ummm… didn’t work out quite as planned. Perhaps the problem was that there was too much reliance on computation and not enough human judgment.

The real eye opener comes with the leisure and hospitality sector. We see a remarkably steady increase from about 6% of the workforce in the 1940s to 10% of the workforce today. This clearly tracks two factors; we have become steadily a more mobile nation and we have become steadily a more entertained nation.

Since this incongruously includes both business travel and vacation destinations it is hard to say how much is productive activity and how much is goofing off. Regardless, this clearly shows a nation of an almost fidgety energy. How long will this persist? As we slowly become decrepit and are overtaken b y China, we’d expect this value to begin trending down.

Last, and by far not the least is the strange hybrid category of educational and medical employees. This is probably the most significant trend that shows us the texture of our future.

It has been strongly climbing since 1944 and has been vaulting upwards as of late. From a low of 4%, it has soared to 15% and represents roughly 15% of GDP.  This has been one of the core themes driving this country for a long time and is bound to expand to 20% of the workforce within a decade. Wow. Americans obviously have long demanded the best healthcare. This is no new trend that the population lit on out of the blue. This is a general sense of entitlement that has been expanding steadily since WW II concluded.

What do we conclude from all of this? The real sources of social change will be coming from the aging population. The theme that we are being overwhelmed by a government bureaucracy is a canard, perhaps politically expedient or emotionally satisfying on some level, but fundamentally untrue. One concern is that if we enter a prolonged period of economic quiescence, the hospitality industry with its 10% of the workforce may take a significant hit.

UK still in recession

The UK today confirmed its position as the only G20 country still mired in recession. While revised upward from an earlier estimate of 0.3%, the economy contracted by 0.2% in the third quarter of 2009.

In recent weeks analysts predicted that today’s figure would show the country has already exited the recession. Instead Britain has now seen six successive quarters of contraction – its longest downturn since the 1930s. The loss of output since early 2008 now stands at 6.03%.

In a new blow to Chancellor Darling’s optimistic forecasts, the economy was dragged down by declining services and industrial production output. This was partially offset by a rebound in construction, according to data from the Office for National Statistics.

Darling’s forecasts of 1-1.5% GDP growth in 2010 and 3.5% in 2011 are seen by analysts as overly optimistic. Many suggest the UK may struggle to grow at all next year. The OECD estimates the UK economy will expand by 1.2% in 2010 and 2.2% in 2011.

If the Treasury’s forecasts prove wrong, the government will have to find yet more money to cover its spending. Borrowing has reached a record £20.3 billion in November alone, and the 2009 budget deficit is expected to come to a staggering £178-185 billion.

That represents more than 13% of GDP; the 2010 deficit is also likely to reach 13-14% of GDP. (Which is higher than Greece’s 12.7%. Yet, while Greece is expected to cut its deficit by nearly 4% of GDP next year, the UK government has opted to do nothing to reduce Britain’s deficit in 2010.)

Today’s data also showed the UK household saving ratio to have reached 8.6%, the highest level since 1998. Just before the start of the recession in early 2008 it stood at a record low of -0.7%.

US GDP growth at 2.2% in QIII

In the US third quarter GDP growth has been revised down to 2.2%, from an earlier estimate of 2.8%. It was the first quarter of economic growth after four quarters of contraction.

Analysts are revising upward their forecasts for 2010 GDP growth. The latest predictions expect the US economy to expand by 2 to 5% (depending on forecaster), signaling possibly a stronger snap back from the most severe recession in three decades.

The National Association of Business Economists raised its forecast of 2010 growth to 3.2%, which coincides with the figure the White House used in its latest economic outlook. OECD, on the other hand, expects a 2.5% growth in the US next year. Michael Mussa, a former IMF economist, now with the Peterson Institute for International Studies, expects the economy to grow at a rate of 5% in 2010, predicting a strong recovery in both growth and jobs.

The big question marks that will influence next year’s growth are the consumers and the housing sector. Although analysts expect to see job growth next spring, unemployment will remain high (likely around the 9-10% mark).

With historically high levels of household debt, consumer spending growth may remain weak for much of next year. Households are likely to prioritize paying down debt at the expense of personal spending. While house prices seem to have bottomed out, housing will also unlikely be the engine of growth it has been in recent years.

Eurozone set for weak 2010 growth

After five quarters of falling output the 16-nation eurozone exited the recession in the third quarter, posting a 0.4% GDP growth. (The 27-member EU saw GDP up by 0.3% in QIII.)

According to Eurostat, a jump in inventories and exports were the main drivers of economic growth in QIII, while household consumption remained weak amidst high unemployment (near 10%).

Economic growth is expected to be low at 0.9-1% in 2010, according to OECD and the European Commission.