Monday, June 16, 2008

The Phantom Recession is Over

A funny thing happened on the way to the most predicted recession in U.S. history: it didn’t happen.

According to First Trust Advisors.

19 Comments:

At 6/16/2008 12:35 PM, Blogger Brian Dunbar said...

But ... but .. I just stocked my bunker for 'the Great Depression X 3'.

What am I going to do with all these MREs?

 
At 6/16/2008 12:47 PM, Anonymous Anonymous said...

Mr Perry, I read you often, respect your opinion, and would appreciate your comment on the following: From memory, the GDP growth for 2007-Qtr 4 was approximately +0.6% and approximately +0.9% for 2008-Qtr 1. These growth rates are, if I am not mistaken, real growth rates, meaning nominal minus inflation. The current government stated core inflation rate is approximately 4%. On Seeking Alpha and other blogs, the inflation rate as measured by the pre-Clinton era methodology is reported to be approximately 8% and, by the pre-Reagan era methodology, to be approximately 12%. Notionally, the inflation rate that I feel is somewhere between that determined by the pre-Clinton and pre-Reagan era methodologies, maybe 10%; including such things as energy, food, taxes, tuition, and health care. If a 10% inflation correction is applied to the reported 2007-Qtr 4 and 2008-Qtr 1 growth rates, then we are already in a recession. Is my analysis flawed? If yes, please point out the flaw(s), including a defence of the government's official inflation rate. Thank you, JCarr

 
At 6/16/2008 1:40 PM, Anonymous Anonymous said...

Well said jcarr.

Mark? Mark? Anyone?

 
At 6/16/2008 1:59 PM, Anonymous Anonymous said...

brian you can donate your MREs to the foodbank and use your bunker as a rental unit for college students or for local bands to practice in.

You get a tax write off plus another income stream. A win-win situation.

Or because of rising prices you could sell your MREs on ebay for more than you paid for them a few months ago.

 
At 6/16/2008 3:26 PM, Anonymous Machiavelli999 said...

anon,

Back between 2003-early 2007, the critics of CPI were stating that it understated inflation because it understated the high increase in the cost of housing.

Now, I will dare say that the CPI OVERstates inflation because it understates the plunge in housing prices. There is a more deeper analysis on this issue here:

http://econompicdata.blogspot.com/2008/06/why-not-deflation.html

 
At 6/16/2008 3:38 PM, Anonymous Machiavelli999 said...

Also, anon, if you were correct and inflation was being understated by the magnitude of 6% and consequently the actual real GDP growth was around -5% then there would LITERALLY be blood in the streets because that type contraction is VERY visible with massive bankruptcies and massive job losses. We would see the bread lines that we saw in the 30s.

10% annual inflation does not make sense. I read those blogs that state that inflation has been running at these levels for the 10 or so years. But imagine 10% annual inflation for 10 years and what it would mean. It would mean that a $50,000/yr salary in 2008 is equivalent to a $23,000 salary in 1998. So, what you are basically implying is that a $50,000 salary is borderline poverty level in 2008.

Also, it would mean that we have been in a recession for the last 10 years. That would mean that there have been 10 years of contraction in the US economy. This would also mean it has been the 10 worst economic years in American history. Something that is so preposterous that its laughable.

 
At 6/16/2008 4:26 PM, Blogger OBloodyHell said...

> A funny thing happened on the way to the most predicted recession in U.S. history: it didn’t happen.

As a poster noted a couple months ago:

...And All I Got Was This Lousy T-Shirt!!!

:oP

 
At 6/16/2008 4:49 PM, Blogger Brian Dunbar said...

Or because of rising prices you could sell your MREs on ebay for more than you paid for them a few months ago.

Bleh - I'd wager that I can find better food at the local grocery for less than the cost of shipping an MRE.

It's funny - the taste of them has not changed since I was 20, but my sensibilities -have-. MREs are great for iron rations but only that.

 
At 6/16/2008 5:20 PM, Anonymous Fred said...

If you think the CPI is wrong now, why would you think the CPI pre - whoever would be better informed?

I can see why some people want the CPI to be reported higher. I can also see why some people want 9/11 to be an inside job.

 
At 6/16/2008 5:32 PM, Anonymous Anonymous said...

Not the same anon but...

Back between 2003-early 2007, the critics of CPI were stating that it understated inflation because it understated the high increase in the cost of housing.

Now, I will dare say that the CPI OVERstates inflation because it understates the plunge in housing prices.


The cost of housing is not the same as the price of housing. :)

 
At 6/16/2008 8:35 PM, Blogger bobble said...

fred:"If you think the CPI is wrong now, why would you think the CPI pre - whoever would be better informed? "

i think the issue is not which version is better. the issue is that the same CPI version is not being used to obtain real GDP (GDP adjusted by CPI) for all years.

the point is, if you adjusted the current GDP by the original CPI it would show that current GDP has declined for two successive quarters indicating that the united states is now in a recession.

conversely, if you used the current CPI definition to adjust historical GDP you might find that many past recessions disappear.

 
At 6/16/2008 8:56 PM, Anonymous Anonymous said...

Bobble, thank you. You hit the nail on the head. Most people no longer believe the government's core inflation number is credible. Even Mr Bernanki is now concerned about the headline inflation number. I think the real inflation number is now between the current core number of 4% and the pre-Reagan number of 12%, but I cannot say where in that range. JCarr

 
At 6/17/2008 2:41 AM, Blogger baris said...

Before attacking Mr Perry (and real GDP numbers), can someone explain me the difference between GDP deflator and CPI inflation please?

 
At 6/17/2008 9:04 AM, Anonymous Anonymous said...

You could look at a chart here.

There does seem to be some confusion on this thread between the GDP implicit price deflator and the CPI.

Eyeballing the chart, it seems that oil price shocks temporarily juice (bias upwards) the CPI more than the GDP deflator.

Bottom line, GDP deflator is less than CPI over time. Makes sense. The overall economy is only ~70% consumer.

 
At 6/17/2008 9:45 AM, Blogger Marko said...

I remember the last few recessions, back to the 70s. During a real recession, you see shuttered business, people all around are getting laid off, and mall parking lots are empty.

I just drove from DC down to Charlottesville and Williamsburg (VA) for a vacation a few weeks ago. Along the way, I kept seeing shopping centers going up all around. Walking around the shops (not just in tourist areas) there are help wanted signs. Went to the mall recently and couldn't find a parking space where I usually go, had to walk pretty far to get in the mall and it was very crowded with shoppers carrying bags. I don't know anyone that has been laid off. If you I didn't pay attention to the news, I would have no idea people claim there is a recession. Yes, my house has gone down to the 2005 level (still much higher than it was worth in 2004), and gas prices are high. Strangly, I am not seeing much affect from this. Don't look like a recession to me at all.

Now, maybe I am living in an affluent area, but I just drove through several more rural areas (took a drive to St. Mary's in southern maryland) and I am just not seeing any recession. Things are plenty different in Detroit but come on, when in our life time was that ever a nice place? (blame the unions).

I just don't see it folks. Be careful what you wish for, you might get it. If you let a tax and spend, freedom reducing liberal run things, I am sure it will get worse (although they will blame the republicans for the problems, just like Castro blames the U.S.).

 
At 6/17/2008 10:28 AM, Anonymous Anonymous said...

If you let a tax and spend, freedom reducing liberal run things, I am sure it will get worse.

Umm...Bush43 is the only POTUS since WW11 who has cut taxes, increased non-military spending, waged war and reduced your constitutional rights via the Patriot Act. The red ink spilled couldn't get worse.

Wake me up when the yellow line crosses the green line.

Yours truly, Rip van Winkle.

 
At 6/17/2008 12:03 PM, Blogger bobble said...

take a look at the third chart on this page. the blue line is an estimate of what reported real GDP would look like if it was adjusted for inflation using the procedure in place in 1981: ALTERNATE GDP

this would explain why consumer sentiment is at record lows when GDP seems to be positive.

 
At 6/17/2008 12:42 PM, Blogger Marko said...

Rip, go back to sleep. If you think things are bad now (about the only problem is high gas prices, and it is hard to hang that on Bush), just wait till they raise taxes and dramatically increase federal spending. The economy has held up remarkably well considering the shocks it has faced, probably because of Bush's tax cuts. If you raise taxes and increase spending and deficiets by the massive amounts Obama wants, you are going to get to see a real resession, and you won't like it.

 
At 6/18/2008 9:25 AM, Anonymous Anonymous said...

marko

(about the only problem is high gas prices, and it is hard to hang that on Bush

Huh, have you checked Iraqi oil production. Billions of barrels of lost production should be hung on Bush43's "weapons of mass destruction" neck. Were you conned by the neocons?

dramatically increase spending

Huh, did you not look at the green line? The federal debt increased by $3.7 trillion since Bush43 ascended to his imperial throne. When the history books are written, Bush43 will go down as the 10 trillion dollar man.

Obama wants

Huh, as far as I understand the tax policies of the presidential candidates to date, the future repuglithug deficits are larger than the democrite deficits. One only need look at historical precedent to verify the veracity of same.

A suggestion: I have no interest in your anecdotal storytelling. You should demand likewise.

bobble

When shadow stats Williams puts his methodology online for review, I would pay attention. Otherwise, it's meaningless. If he is right, i.e. that real GDP has been negative for 7 years, pitchforks on Capitol Hill, at the Whitehouse and here would be evident.

 

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