NOTE (2/10/2009) This post, from last May, is a little embarrassing, because I was obviously wrong. I find it interesting that economists can't tell us precisely when when we have entered or exited a recession till after the fact.
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I am to make a presentation tomorrow (Monday) in my Wall Street Journal class. Here are my notes
Economic Data Add to Recession Worries - WSJ 5/16/08 PA3
This article reminded me of a quote from Paul Samuelson that "Economists have correctly predicted nine of the last five recessions."
According to this article, economic reports released on 5/15 show continued weakness in the labor market and manufacturing sector, fueling fears of recession. Industrial production declined 0.7%, initial claims for jobless benefits rose by 6,000 in the week ended May 10 and continuing claims stayed above 3 million for the third week in a row. The National Association of Home Builders home market index fell to 19, nearing its record low of 18 set in December. The Empire State Manufacturing Survey, which measures manufacturing expectations in New York State, fell to minus 3.23 in May from plus 0.63 in April. The only positive numbers in this article are that output from technology firms increased 1% in April and the Philadelphia Fed's general business conditions index rose from a minus 24.9 to minus 15.6, indicating an improvement in the manufacturing sector in that region.
I hope you don't mind that I have expanded my scope a bit because it touches on two questions that I have been pondering.
1. Are we in a recession?
2. If not, what is going on?
The most common definition of a recession is at least two consecutive quarters of negative GDP. The National Bureau of Economic Research defines a recession as a period of significant decline in economic activity across GDP, income, employment and retail sales that last more than a few months.
That time factor in both of these definitions means that we are at least several months into a recession, or a recovery before it becomes official. Having said that, using either of the above definitions we are not currently in a recession. So the question becomes might we be heading into one? Most economists believe that there is, at best, a 50% chance that we will have a recession in 2008, although they were much more pessimistic just a few months ago.
According to a Reuters/University of Michigan survey, nine out of ten of the American people believe we are in a recession. So why the disconnect?
I tend to be a little skeptical of discussions of the economy during election years. In 1992, when George HW Bush was running for re-election and Bill Clinton's mantra was "it's the economy stupid", it seemed to me that we were being bombarded with terrible news about the state of the economy and that the day after the election the stories changed. While researching this article I came across some information that convinced me I was not delusional. According to Investor's Business Daily, in October of 1992, 90% of the newspaper stories on the economy were negative. The following Month 14% of the stories were negative. Of course we now know the by the time of the election, the economy was well into recovery.
Is that happening now? I'm sure there is some of that. I also suspect that the current bad news, the collapse of the housing market, the fallout from the subprime mortgage mess and the rising gas and food prices have been much move visible and affected more of us than just a "normal" economic slowdown.
The following represents closing prices for a "recession future" from Intrade
http://www.intrade.com/jsp/intrade/contractSearch/index.jsp?query=recession
Sources:
New York Times
5/14/08 - Fearing Red Herring in the Data
MSNBC
5/8/08 - Economic data look mild, but feeling is gloomy
Yahoo News
5/9/08 - Recession, Recession, Where's the Recession
Wall Street Journal
5/3/08 pg A1 - Jobs Data Show Hopeful Sign, Though Economy Still Ails
5/14/08 pg A1 - Recession? Not So Fast, Say Some
5/14/08 pg A16 - Fed Officials Say Economy May Remain Sluggish for Some Time
5/16/08 pg A3 - Economic Data Add to Recession Worries
Government
GPO Access Economic Indicators
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Comments: 20
I read this in an AOL news thing on my computer homepage.
Lalaland
Click on the link above to join. See you in La La Land.
"This article reminded me of a quote from Paul Samuelson that "Economists have correctly predicted nine of the last five recessions." "
Seems backwards.
I guess my question is what is in a name? Why are we so concerned with the name recession. Our economy sucks right now but we also know its a cycle. Now the question is what do you do to keep the economic downturn from becoming too bad? The administration, congress and federal reserve have all taken steps to help.
I guess it seems that people think declaring a recession is like declaring a federal disaster area and all of a sudden someone flips a switch. Well it doesn't work that way. A cycle takes time to go down and it takes time to come up...
Economy is also based on perception. You can actually will a recession from happening by "scaring" people who will then buy less, take money out of economy etc.
I my opinion that is why the president has not called it a recession, first because it isnt one but staying positive but most of all because it won't help and second because he knows its a bad economy and already doing what he can. Its not like calling it a recession will kick off a different policy.
Now I do put more blame on the Federal reserve. I think they were too slow to act given the indicators they had but again they need to act a lot sooner than when the recession happens so calling it a recession now would not do anything.
Recession is a technical economic term and by either the classical definition "at least two consecutive quarters of negative GDP" or the more recent NBER definition "a period of significant decline in economic activity across GDP, income, employment and retail sales that last more than a few months" we are not in a recession. Although GDP growth has been somewhat anemic, it has continued to grow and economists are now becoming more optimistic about our chances of avoiding a recession. They feel that some of the recent Fed and congressional actions my be having a positive effect and some of the economic numbers may be turning around.
Public perception is another matter and I agree with your statement about willing ourselves into a recession, since 70% of the GDP is consumer spending.
http://www.house.gov/jec/fiscal/tx-grwth/reagtxct/reagtxct.htm
A recession is when you lose your job.
2 quarters in a row of mild increases in GDP growth, coupled with a very limited scope on the Sub-Prime fiasco means that it's probably just a blip on the economic radar screen.
Meanwhile here in Chicago, we're booming.
Prices have fallen on just about all real estate, but buying has taken over. Property here was simply overvalued for the past 3-4 years. Corrections happen, and they're fantastic when they do.
A depression is when you lose your job.
A panic is when your wife loses her job.
Hell no, I am in no way an expert on this, but my sister is, and she has no reason to scare me, or lie to me. Thanks to her, I've been able to divert so much of what is going on with the rest of the country. This has been coming on for years -- yes -- the handwriting on the wall has been there for that long as she tried to warn family and friends of the impending doom, and if she is correct, "We ain't seen nothing, yet."
I really feel very, very sorry for Barack Obama. He is going to be President, and people are going to expect him to clean up this mess all by himself (meaning just he and Congress) while some of them sit on their hands, other wring their hands, and still others deny we are even in a recession.
The PEOPLE must get actively involved in this or they'll NEVER be CHANGE.
When I saw Trump in 2006, I never heard such vulgar language or saw a man so angry with Bush for what he, and his posse (knowingly) have done. Trump was truly angry. Since the convention was not telecast I won't repeat some of what was said, but he too, stated the same/similar things my sister was saying. Those who heeded him avoided the current mess, and those who did not probably do not have homes and/or jobs.
People had better wake up. This is not a dream; it is a real nightmare, and if it is the Twilight Zone, I wish Mr. Serling would cut it out! It is not amusing or entertaining.
Thanks, MM.
I never pictured you as such an Alarmist.
An Obama fanatic, yes, but an Alarmist, no.
I see unemployment at near-record lows, interest rates at near-record lows, the poverty line higher than it has ever been in history, new housing starts up 8% this past month, 2 quarters of GDP growth, and exports rising by double digits.
Housing prices are falling.............which should be good news to most folks. I'm not understanding how you're seeing this as the crisis you obviously do. The empirical economic data just doesn't support you.
And Nalita - Trump is always angry. That's just who he is. His huge ego commands him to put in his two cents' worth whenever a camera is shoved in his face.
He was pissed because free and unending cheap credit was no longer available for a lot of his speculative real estate ventures in NYC, Dubai, and Kuwait. He's hardly a bell-weather to tie your hopes and dreams to.
The value of stuff is going down, and the price is going up, which is a common cycle by the way. Happens all the time, I even remember when Japan was where the cheap stuff came from as that's also where the cheap labor was at.
However, as the inflation figures don't include fuel and food, then no we aren't in any recession at all.
This will all be over in three or four years. Until then there will not be a recession at all. And the value of real estate will be on the up tick again after falling in the various markets a considerable amount, say somewhere around 20 to 60 percent in the various markets.
There is no data to support the claim of a "recession".
Plenty of stories, but nothing too much out of the ordinary.
The times have changed, but there are many similarities. The important thing is that the government not do any more harm to the economy, in their attempts to "help." That is the historic pattern, which probably will be repeated.