Wednesday, January 16, 2008

2009: The Shallowest, Mildest Recession in History?

"Whether a recession occurs -- a determination made by academic economists, usually after the fact -- probably won't affect most people. Economist Richard Berner of Morgan Stanley expects a "mild and short" recession, with peak unemployment of 5.6% or 5.7% in early 2009. The average unemployment rate of the past 50 years is 5.6%. This would be a setback, but not a disaster."

~From Robert Samuelson's article "Lollipop Economics" in today's Washington Post

Good point, Robert. Even in the worst case scenario of a recession with a peak unemployment rate of 5.6-5.7% in 2009, it will be the first recession since WWII with an unemployment rate during a recession with a peak rate equal to only the historical average unemployment rate of 5.6% (since WWII). That is, in all of the ten past recessions since WWII (listed below), the peak unemployment rate was always above the average rate of 5.6% (see graph above, click to enlarge, recessions are shaded):

1948-1949: 7.9%
1953-1954: 6.0%
1957-1958: 7.5%
1960-1961: 7.1%
1969-1970: 6.1%
1973-1975: 9.0%
1980-1981: 7.8%
1981-1982: 10.8%
1990-1991: 7.8%
2001: 6.3%
2009?: ONLY 5.6-5.7%?

Bottom Line: A 2009 recession, as predicted by Morgan Stanley, with a peak unemployment rate of only 5.6-5.7% would be the mildest, shallowest recession since WWII, and maybe in U.S. history?

18 Comments:

At 1/17/2008 7:50 AM, Blogger Ironman said...

I can't speak for the unemployment rate, increases in which often lag recessions and in recent decades, by years, but if we're looking at something the NBER will call a recession, the futures data at this time suggests that it will be over by the end of 2008.

 
At 1/17/2008 9:20 AM, Anonymous Anonymous said...

Why do we need fudgy government numbers to prove a poor economy? Stop looking at graphs and walk mainstreet and talk to the average American consumer.

You can backstratch Kudlow and deny reality another time.

 
At 1/17/2008 10:13 AM, Anonymous Anonymous said...

In previous years recessions were the result of normal economic conditions.

This time it is different.

We are only now beginning to experience the less buffered effects of the Tech Bubble bursting, the housing boom collapsing and we have yet to even realize or understand what the effects of the greatest securities fraud in history will be.

Records are being set everywhere.

Citigroup posted the biggest loss in the bank's 196-year history.

Merrill Lynch & Co. reported a record loss after writing down at least $15 billion of failed investments and resulted in the first full-year decline since 1989.

If the subprime mess was concentrated in New England then EVERY home owner in Maine, New Hampshire, Vermont and Rhode Island would be in danger of losing their homes.

And on and on and on.

 
At 1/17/2008 11:02 AM, Blogger Rick Ballard said...

"And on and on and on."

You forgot ad nauseum infinitum.

Meanwhile, "In other economic news, the Labor Department said the number of newly laid off workers filing applications for unemployment benefits dropped by 21,000 last week to 301,000. That marked the third consecutive weekly decline and occurred even though the government reported that the unemployment rate increased sharply in December."

Hurry, find another cloud to sit under.

 
At 1/17/2008 12:38 PM, Anonymous Anonymous said...

wait, a recession might occur? that's quite a change of tune for you. now it might, but it will be mild.

this *mild* downturn is being called by the same bright bulbs at morgan stanley that just wrote off $9,300,000,000 in bad investments this quarter. then, they had to go begging to china for $5,000,000,000 in additional capital to keep their company afloat. i suppose they call that a *mild" earnings dip. LOL

 
At 1/17/2008 2:12 PM, Blogger Caveat B said...

Hasn't the employment rate calculation morphed in several successive White House administrations, such that the "labor force" has shrunk so that government can compare apples to oranges and take credit for fictional employment increases?

 
At 1/17/2008 2:25 PM, Anonymous Anonymous said...

Or maybe there won't even be a recession at all!

 
At 1/17/2008 3:01 PM, Anonymous Anonymous said...

"Stop looking at graphs and walk mainstreet and talk to the average American consumer."

Various polls over the past several years have shown as many as 45% of Americans thought we were in a recession at any given time, even years when economic growth was robust. The average American doesn't know jack shit.

Many of the poster/trolls here seem to be actively cheering for a recession. What is in it for you people?

 
At 1/17/2008 4:17 PM, Anonymous Anonymous said...

The health of the economy is more complex than using unemployment statistics as the barometer. Average unemployment rate during 1976 was 7.8% and peaked at 7.9% and I recall "stagflation" often discussed.

Be honest, Dr. Perry, unemployment statistics do not fairly report "under-employment" conditions or the state of the economy.

Reducing the prime rate only stimulates the economy by enabling debt to be levered up at a lower borrowing rate. If some statistically significant portion of the population is already levered up and cannot borrow any more into their future, the requisite stimulus is not one that encourages more debt but one that injects more core wealth into the control of consumers so that they may invest and consume. People will not spend what they do not have. A slowness in consumer spending will effect a slow drag to the economy through reduced production.

I read somewhere that it is estimated between $450 billion to $600 billion was liquidated from housing wealth during 2005 through cash-outs and equity loans -- far greater than the gain in after-tax income.

The ride we've been enjoying these last few years have been debt-produced, not through increases in productivity. Manufacturing (PRS3000) is decreasing against last year and last quarter. Manufacturing Durable Goods (PRS3100) is decreasing against last year and last quarter. Manufacturing nondurable goods (PRS3200) has been decreasing against the previous year and previous quarter largely since 1995!

Most consumers purchase manufactured nondurable goods.

Ok, ok, before you argue that consumers have amplifying their purchasing power by purchasing nondurable goods produced overseas, Nonfarm business (PRS8500) is up only 1.1% on average in 2007 over the previous year and 0.8%, on average, over the previous quarter. Nonfinancial corporations (PRS8800) productivity is up 1.2% (on average) over last year and 0.8% (on average) over last quarter. If we have displaced consumer spending from US to foreign nondurable goods, there is less local (let's use our nation as the "local" in this case) respending of the same wealth. Importing exceeds exporting (All imports December 2006-2007 = 10.9 while All Exports = 6.0)

My friend, all indications are that times are tough for Joe Sixpack... and things aren't looking up any time soon.

 
At 1/17/2008 5:14 PM, Blogger Rick Ballard said...

"I read somewhere that it is estimated between $450 billion to $600 billion was liquidated from housing wealth during 2005 through cash-outs and equity loans -- far greater than the gain in after-tax income."

Well, don't trouble yourself to look it up, just blather away. Is it because national personal income and outlay data is so terribly difficult to find?

Or do the numbers not reflect well on the fairy tale you're peddling?

You needn't answer.

 
At 1/17/2008 7:39 PM, Anonymous Anonymous said...

Some of us don't believe in fantasy and prefer reality.

Go ahead and believe if you want to that there will be no recession, that this is the Goldilocks economy, that the subprime mess affects only a small number of people, that we can handle $100.00 oil, etc.

Mortgage companies eased terms on 54000 loans and worked out new repayment plans on another 183000 in the third quarter as they ramped up efforts to stave off foreclosures. When was the last time anyone saw mortgage companies doing this?

Based on the responses from government including the President and Bernanke calling for"substantive" rate cuts and congressional efforts for rapid economic stimulus, I think it is safe to say the economic outlook is bad unless something is done quickly.

 
At 1/18/2008 12:53 AM, Anonymous Anonymous said...

What's the matter, Mark? Did the big bad bear bite Goldilocks?

 
At 1/18/2008 10:49 AM, Anonymous Anonymous said...

Rick Ballard,

I did look up some facts, and it's not a fairy tale that I am peddling. US is importing more, producing less, and exporting less. That's the sound of individual wealth leaving the country.

Let me not be remiss, though, in bitch-slapping you for making incorrect assumptions. I am not "peddling" anything and I am not crying wolf. The economic woes of the last two years have been a boon for me personally. I have been able to purchase 5 multi-unit foreclosure properties at a mere fraction of their value with cash, make some minor repairs, throw on a coat of paint, and rent them out. My personal income has doubled in two years. I try, however, to remain realistic and mindful of how difficult it is out there for the average person. You know, those who fall in the majority of the bell curve. Who was the loser in my transactions? The banks. The local communities when I pursued lower tax assessments. The last owners who lost their homes and/or investments. I paid off ALL of my credit cards in 2005 and now use only cash. Why? People will negotiate price far lower for cash - for nondurable goods AND durable goods.

Am I spending more at this enhanced level of income? No, not really. My personal consumption has declined. I am spending more on fuel and heating while my energy investments are pale at best. My family has taken a stance that it is not a good time to increase personal possessions (nondurable goods) and the durable goods I am acquiring are all "previously enjoyed" (that means they required NO LABOR to build). Increased energy costs, (infrastructure costs, not elective costs) are driving the current inflation. Where my monthly vehicle fuel once cost $250 per month, it now costs $600 per month. That's $4K less disposable income per year being spent on nondurable goods. let me point out again that my energy investments are pale, at best. That means it is unlikely I will invest more cash into the energy sector.

Is our economy expanding in 2008? Let's repeat - previous expansion (2007) occurred through debt financing. It was not equity-financed. We borrowed from our FUTURE to pay for the PRESENT.

PS. Flares into Darkness is boring.

Regards,

North

 
At 1/18/2008 11:46 AM, Anonymous Anonymous said...

Hey Rick Ballard, what's this you're saying about peddling fairy tales?


DONALD TRUMP TELLS FOX BUSINESS NETWORK THAT BEN BERNANKE “MISSED A GREAT OPPORTUNITY”

Courtesy Fox Business

In a television interview with FOX Business Network’s Neil Cavuto, Donald Trump talks about the state of the US economy and how Federal Reserve Chairman Ben Bernanke missed a great opportunity to lead America’s economy in a more positive direction by failing to stay ahead of the curve.



On Federal Reserve Chairman Ben Bernanke:

“The problem with Ben Bernanke is that he is way behind the curve when he should be ahead of the curve...The economy is terrible. If you look at the economy, other than oil nothing is going up…We have to worry about a recession and maybe worse.”

“The problem with Ben [Bernanke] is that he should have been ahead of the curve. He should have cut interest rates six months ago…There’s nothing he can do. He missed a great opportunity. He could have been a leader. Instead, he’s a follower. I would cut it 100 basis points in one meeting…In my opinion, he’s going to go down 175 basis points.”

On why he knows we’re in a recession:

“I think the economy is terrible I think we’re absolutely in a recession.”

“I’m in the real estate business and I’m lucky I’m in Manhattan and I’m just wondering when it is going to hit Manhattan…How can it be that Manhattan is stronger than ever and everything else is dead?”…Personally I think it is a matter of time [until the recession takes starts to affect housing prices in Manhattan] when Merrill lynch lays off four million people and when Citibank lays off a trillion people…Outside of Manhattan, it’s a depression in real estate.”

On foreign bailouts:

“Terrorist countries and communist countries are coming in to bailout the United States. Pretty sad isn’t it.”


On fiscal stimulus:

“I think fiscal stimulus is very dangerous. I think certain kinds of tax incentives are great. When I hear of others trying to protect people who made terrible deals on mortgages, I think that’s the banks problems. If the banks made all these terrible deals, I think they have to suffer a little bit.”

 
At 1/18/2008 12:54 PM, Blogger Rick Ballard said...

North,

Let me congratulate you on your hypothetical (if perfectably unbelieveable) success as a vulture. While the fabulous nature of your anecdote is amusing I would note that it's not what is generally considered "data" in support of your spurious previous contention.

Your admiration for Trump is indicative of something but I hesitate to take the time to try and imagine what it might be.

I do take your admonition concerning Flares being boring to heart for you have demonstrated beyond reasonable doubt that you understand how to be boring. Having reflected on it for a moment though, I find that I simply don't care what you pretend to think.

 
At 1/18/2008 6:14 PM, Anonymous Anonymous said...

rick ballard said to iamnorth@gmail.com...

I find that I simply don't care what you pretend to think.

Sure thing rick, that's why you wasted so much time with your response.

rick ballard, you care what iamnorth@gmail.com said or you wouldn't respond like you did.

Now I suppose you won't respond to this to show everyone that you don't care what I say either.

 
At 1/22/2008 11:34 AM, Anonymous Anonymous said...

The simple fact is, today you can't use unemployment as a gauge for recession.

Today's middle age is yesterday's retirement age, and with so many boomers taking on part time jobs to afford their Lipitor, Viagra, Flomax, and whatever else may be popular at the clinic today; this example of what is categorized as "spending" only hurts our budget in the long run with the incredibly wonderful legislation known as the perscription drug bill. (thank you Congress)

Make no mistake, indicators reflect this perpetuation of a senior shell at the expense of your grandkids as "mild"; but time will tell of how this is grossly miscalculated as defecit spending ourselves six feet under.

 
At 1/23/2008 10:08 AM, Anonymous Anonymous said...

I fully expect to see 1/3 of all large building businesses to go under,the jobs out look is dismal at best
we are trading off 1 20 $ an hour job for 3 x 7 $ an hour job
not very indicative of a flourishing job market although job numbers are high it is bunk
The fact is the Back bone industries of a nation are being destroyed in America .
Look for 25% + inflation stagnant salaries and lots of people going mad.Americans have dug themselves a pit .Credit cards full, their houses are being foreclosed and their high wage jobs are going off shore.thats what happens when you
wave the flag and smile when you are being plugged from behind.
bend down and wave the flag now smile, your retirement funds as well as your pensions are going going gone.dumbest beasts of burden on the planet

 

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