Monday, August 25, 2008

Reality Check: Dude, Where's My 2008 Recession?

Monthly US data on payroll employment, civilian employment, industrial production and the unemployment rate are used to define a recession-dating algorithm that nearly perfectly reproduces the NBER official peak and trough dates. The only substantial point of disagreement is with respect to the NBER November 1973 peak. The algorithm prefers September 1974. In addition, this algorithm indicates that the data through June 2008 do not yet exceed the recession threshold, and will do so only if things get much worse.

Abstract from "What's a Recession, Anyway?" by UCLA Professor Edward E. Leamer, NBER Working Paper, August 2008


At 8/25/2008 7:21 AM, Anonymous Anonymous said...

Jim Hamilton at EconBrowser disagrees:

The money quote: I do think there's a pretty strong case, based on the employment and unemployment numbers, that we are currently in a recession

At 8/25/2008 7:46 AM, Blogger Ironman said...

Jim Hamilton at EconBrowser continued to say:

The money quote: Nevertheless, we will be making the Official Econbrowser Declaration, for what it's worth, using the GDP-based recession indicator index, which is deliberately very simple and limited, and hopefully therefore the most robust.

And with 1.9% second-quarter growth as currently reported, GDP growth doesn't meet the criteria for a recession so far.

Thank you for playing!...

At 8/25/2008 9:17 AM, Anonymous Anonymous said...

Is new C & I loan data out yet? Anonymous

At 8/25/2008 9:35 AM, Blogger spencer said...

I've also been in the no recession school, but I considered it the bearish scenario.

A recession is a self correcting mechanism that contains the seeds of the next economic expansion.

But not getting the recession may well mean that we are doomed to years of stagnation.

So do not get too excited about not having a recession.

At 8/25/2008 9:37 AM, Blogger the buggy professor said...

Amid the cascading sensationalism in the media about the US economy these days --- all on the pessimistic side: doom! doom! doom! wherever you look --- your skeptical posts about all this gloomy stuff are refreshing and a source of cautious optimism, Mark. Thank you for all those data-driven posts, and not least for today's link to Leamer's very stimulating paper.

One query that maybe you or others here can answer: is there any more information about the possible upward revision by the BEA of its next and semi-official report on GDP growth in the 2nd quarter, thanks to booming US exports that might have been under-estimated?


Michael Gordon, AKA, the buggy professor

At 8/25/2008 10:53 AM, Anonymous Anonymous said...

A perfect example of this "Doom! Doom! Doom!" media and for the most part the blogosphere philosophy is this investment thesis that states:

1. We are doomed and about to go into a long deep recession.

Then they turn around and say

2. The commodity market fundamentals are strong because of high demand from developing markets so expect to see higher prices.

HOW CAN BOTH OF THESE BE TRUE??? You either believe in a big global recession which will destroy demand and prices will crash.


You believe in a quick recovery form this slow down and continued strains on limited commodity supplies.

You can't have both!

So, this makes me believe that they just keep throwing out this BS to scare people

At 8/25/2008 11:12 AM, Anonymous Anonymous said...

Warren Buffett says we are in a recession despite the fudged governent data that still insists it's just a slowdown.

At 8/25/2008 11:17 AM, Anonymous Anonymous said...

warren buffet also has a political agenda this year. Never trust anything anyone says who has politcal motives

At 8/25/2008 11:24 AM, Anonymous Anonymous said...

Reality Check: Dude, Where's your DOW 15,000 frat boy? We have just had the greatest credit bubble in the history of the world pop and you think we aren't going into a recession? Well your right it is going to be depression.

At 8/25/2008 1:04 PM, Anonymous Anonymous said...

Thank you for playing Political Calculations! :-) Or is it the Moneyed Midways?

Hamilton was parsing Leamer's real-time recession algorithm (based on June 2008 data), not his own algorithm.

NBER will declare a recession before Hamilton does. Do ya think NBER is politicized?...shortly after the November election the call will be made. Frankel is partial to the declining hours worked meme. LOL

At 8/25/2008 1:23 PM, Blogger the buggy professor said...

Prefatory apology: I posted this commentary just a few seconds ago in an older carpe-diem thread and regret the mistake. It belongs here.

1) For all the media exaggeration about the economy, we all need to remember a key matter: according to a N.Y. Times opinion survey printed today (August 25, 2008), 80% of Americans believe our economy is either very bad or fairly bad.

Note quickly please. No serious scholar of public opionion surveys believes that the media can remotely influence that many Americans to find our economy is in a bad way --- not by a long shot. For that matter, all the scholarly studies I know of in the field of public opinion doubt the media can cause a major trend one way or another --- rather, only reinforce it in limited ways.

And here’s an unusual correlated survey outcome: The 80% who are worried seriously or fairly so about our economy are matched in other opinion surveys, over a good year now, that show 80% of Americans think that our country has been on the wrong track.


2) What's going on here?

The major shifts in public opinion to an increasingly sour view about our economy and political leadership have been long in the making . . . not just a sudden acrimonious burst into the open of public opinion in the George W Bush era.

The disquietude in majority opinion about the US's political leadership --- Congress and the presidency --- go back to the mid-late 1960s, and though there have been some ups and down (up mainly for a few years in the Reagan era, then down noticeably in the George Sr Bush era, then up but still short of a majority in favorable opinion during the Clinton period).


3) Business leadership --- which means mainly big corporations and financial institutions --- was regarded with more favor until the late 1980s and early 1990s in opinion surveys. Then, as the US economy went through its longest boom in history --- 10 years between 1991 and the end of 2000 --- opinion slightly improved on this score, only to have been repeatedly battered down by real, not media-caused, financial blows . . . one after another, all major and seen as foul:

* The stock-market balloon and crashing puncture of the late 1990s.

* The government bailing out the biggest hedge-company fiasco in history, run by two Nobel prize-winning economists who were in charge of 25 Ph.D. economists.

* The auditing scandals that immediately followed the dot.boom crash . . .symbolized by the Enron fiasco, but hardly limited to it.

* Then the housing market-surge, followed by its financial collapse . . . regarded as a sign of further financial manipulation by fraudulent cheaters.

* Then the subsequent banking and broker-house credit-problems and the credit-crunch that they entailed. Followed by rescues of major brokerage-firms and banks, with undoubtedly more to come.

* And of course the oil-price rise of head-spinning magnitude over the last two years, but especially in the late winter of 2007 and into the mid-summer of this year.Along with surging food prices as well.

--- Note quickly again. The general public, rightly or wrong, regards the oil-price explosion as a sign of speculation. And note please --- an important point for libertarians. And, a big surprise for many of you probably, not all libertarian economists agree that speculators didn't have a big impact on the surging price of oil in late 2007 and into the late spring of this year . . . yes, not even a free-market enthusiast and follower of Ayn Rand like Alan Greenspan, who (let us say)has access to more reliable information about what goes on in oil market forwards and inventories.

--- See Greenspan's recent interview in the Financial Times:

--- And please, please! no rush by others citing this or that dead Austrian economist to prove that Alan Greenspan is really only a free-market Trojan Horse, out to destroy the value of the US$.

--- Weightier analysis would be much more to the point as a way of refuting Greenspan's views --- doubly so, I add, since the major Persian Gulf oil-exporting countries are led by systematically corrupt gangster-regimes whose leaders lie through their teeth when it suits their interests . . . including production output and sales. Whether the big oil companies might or might not connive willingly in any deception (if it occurs) is another matter, about which we can only, ahem, speculate.

* Not to forget, finally, a key trend here: The six-year business cycle upsurge after September 2001 is the first in modern US history where average wages did not rise at all . . . at a time of major shifts in income and wealth to the top 5% of Americans.


4) The outcome of all this?

Here I'm only speculating about these opinion trends, but it appears that there are now afoot three major shifts in public opinion that should be a source of concern for Republicans and especially libertarians:

First, most Americans feel punched-out, worried about economic and political trends that seem out of control, dominated by financial manipulators and globalizing trends, with a political system (Congress and the presidency) entirely unresponsive to their concerns. Among those concerns: this winter, even if oil stays around $110/barrel, the average household in the northern part of our country will be facing about $1500-2000 more in energy costs if it’s a bad winter.

Second, most Americans --- 80% of the total adult population finding us in a bad or very bad economy --- feel that the economic and political systems are dominated by manipulators, cheaters, or callous types, and there is a strongly growing sense that these systems are unfair and run at their expense. You may deplore this view, but it seems solidly grounded in public thought. Whether Obama-Biden can effectively tap it, the way Hillary Clinton was in the latter part of her primary run among the disenchanted blue-collar and lower-middle class Americans is another matter. Many of them have voted, the males at least, for Republicans since Reagan (actually the trend started in the Nixon years, only to reverse in 1976, then to thrust steadily after 1980).

They have done so for socio-cultural reasons mainly, rather than economic ones. It’s not clear yet how these cross-cutting tendencies will play out, but with consumer sentiment now at its lowest point in 40 years --- 1978! --- McCain and his running mate are going to have to deal with this economic souring head-on.

Third As I argued in another thread here at Carpe Diem yesterday, this snow-balling sense that the economy and political system are unfair to average Americans, run by manipulative financial types and callous politicians catering to special interests, is the latest full-dress performance of an old road-show in American life that goes back to the Whiskey Rebellion among small famers in the early 1790s, then more seriously in the Andrew Jackson period (roughly late 1820s to the early 1840s), then more seriously again in the populist rebellion among farmers and small business in the late 19th century (followed by a middle class progressive rebellion against the system, headed eventually by Teddy Roosevelt), and in the 1930s Great Depression. Namely, populist backlashes.

Not socialist, not based on envy --- it doesn’t exist much, such envy, compared to Europe historically and recently; rather, based on a sense of legitimate grievances that the system is rigged . . . run by people who are out to cater to their own well-being, with the cheater and scoundrels and hard-boiled special interests of the rich and powerful in charge.

Click here for the Carpe Diem thread, started by one of Mark’s unusually stimulating posts:

Those who dislike or fear the Obama-Biden team will have to come to terms with this new and powerful populist thrust in American life. It isn’t a creation of the media, and it won’t soon go away whoever wins the presidency and Congress this year.

Just the contrary.


Michael Gordon, AKA, the buggy professor

At 8/25/2008 2:07 PM, Anonymous Anonymous said...

Depending on whom you ask, we are either in a recession or we are not. So, if it is that arbitrary, other than the purpose of discussion, what difference does it really make?

I know that I will receive a 68-cents-per-hour raise for cost of living for the last quarter in September, and we usually receive less than $2 total per four-year contract, so something is definitely going on. I find it strange that increased inflation is not a factor in determining a recession.

At 8/26/2008 2:59 AM, Blogger juandos said...

"We have just had the greatest credit bubble in the history of the world pop and you think we aren't going into a recession?"...

Hmmm, isn't that actually indicative of far to many stupid people who don't know how to handle money?

At 8/26/2008 10:10 AM, Anonymous Anonymous said...

US yearly growth gauge drop biggest in 28 yrs-ECRI

At 8/26/2008 7:13 PM, Blogger OBloodyHell said...

This comment has been removed by the author.

At 8/26/2008 7:15 PM, Blogger OBloodyHell said...


Ask anyone who lived through the 70s. All it takes are Keynesian economic policies. Obama, anyone?


> Well your right it is going to be depression.

Lurn two spel gud furst, yu mo ron!

It's "you're" dimwit. A simple contraction: "You are". "Your" is the possessive. Is it really, really so hard to get that simple thing right?

You can't even properly construct a simple grammatical sentence, and you think you know enough about economics to insult Dr. Perry like he was as stupid and ignorant as you?


Too Much Tiger Food,
Not Enough Tigers.

At 8/26/2008 7:21 PM, Blogger OBloodyHell said...

> Prefatory apology: I posted this commentary just a few seconds ago in an older carpe-diem thread and regret the mistake.

Prof, you do know you can delete the wrongly located one?

The little trash-can icon at the bottom of the post.

Not all comment engines support the deletion of your own posts, but blogger does, as long as you are logged in.

I just used it to remedy an inclarity of speaker-responded-to in my 7:13-vs-7:15 posts

If you haven't closed the window, you can hit back, get back to your posted text as-is, edit it, repost -- with a resend on the word verificiation field -- and then delete the earlier version (I suggest doing it in that order in case there is a problem, so you at least don't have to re-create the text from scratch)

Better to "preview" but sometimes you do miss something important enough to fix after the fact.

At 8/26/2008 7:31 PM, Blogger OBloodyHell said...

> Note quickly please. No serious scholar of public opionion surveys believes that the media can remotely influence that many Americans to find our economy is in a bad way

Then they need to vastly re-examine their basic presumptions about the effects of long term hammering by the mass media in a negative direction.

If you think that doesn't apply, then how does a bad parent, continually telling their kid he/she is a f***-up, turn them into a real f***-up?

At some point, people start to believe what they are hearing.

And a large percentage of these idiots (about 50% are Dems, after all) are drooling PS gradjits who have limited self-reasoning and rational questioning ability.

So you only have to hammer down 30% of them to get your 80% number. The other 50% will swallow everything the media say without question.

Sorry, Prof, your thesis doesn't hold up.

At 8/26/2008 7:34 PM, Blogger OBloodyHell said...

> Then, as the US economy went through its longest boom in history --- 10 years between 1991 and the end of 2000

Uh, Prof: The longest boom in history is just ending, by the number of consecutive quarters of positive GDP growth. Since the intevening downturn was short and mild, I'd lay odds that the last 10 years have been better than those of the Clinton era alone...

...Which goes to show how thorough the media campaign has been in blinding people to the state of the economy as a whole.

At 8/27/2008 4:21 AM, Blogger OBloodyHell said...

> US yearly growth gauge drop biggest in 28 yrs-ECRI

Uh, Neuro-AZ:

1) Reuters? Not my idea of a reliable source of news. There's a reason they are often called "Al-Reuters" by conservatives. They have a history of promoting outright fabrications, as well as giving open, un-fact-checked mikes to the enemies of the US, both internal (lefties) and external(dictators, hostile europeans, bin laden, the like).

Regardless of 1):

2) This information was already noted in an earlier blog entry. Refuting it in general and technical terms requires more knowledge than I have, but I would question it on two levels:

a) Their own website ("Our Approach") notes:
Economic forecasting deserves its bad reputation in predicting recessions and recoveries. As a 63-country IMF study concluded, "The record of failure to predict recessions is virtually unblemished.".
They claim to be better.
Um... OK.
b) their record here does not appear bad, but, lacking any negative or "non-winning" predictions does not tell me anything about their actual record -- for all I know, that's a Texas Sharpshooter's record. I'm not saying it is, I'm saying you can't tell.

So you're taking their claims straight up, despite the generally dismal record of people doing what they do.

Me? I'm saying I'm "going to take their opinions under advisement".

At 9/20/2008 5:05 PM, Anonymous Anonymous said...

Good Job! :)


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