Despite being about to begin the seventh year of an economic recovery, GDP growth has averaged a lackluster 2.2% the entire time, profoundly lower than in previous recoveries. The reason, a combination of slow labor force growth, primarily due to an aging population, and virtually no labor productivity growth due to firms not investing in plant and equipment. If both these variables remain weak, GDP growth above 3% won’t happen.

In 3/07, the unemployment rate hit a cyclical low of 4.7%. Today it’s 5.4% and a rate of 4.7% will soon be reached. The question is when. Assuming employment growth of 211,000/month, the 3-year average monthly rate, the unemployment rate will hit 4.7% in 10.5 short months. Even with employment growth of 170,000/month, just 70% of the most recent 12-month average rate, 4.7% unemployment happens in 18 months.

The Friday File: The Washington Nationals recently signed hurler Max Sherzer to a mind-blowing seven-year $210 million contract, payable over 14 years. Sherzer will receive $15 million/year. Beyond Sherzer’s performance, this is a bet on expected long-term inflation. If inflation averages 2% over the life of the contract, it’s worth $196.6 million. At 4% it’s $173.4 million. A fortune either way but a staggering difference of $23.2 million!