Wednesday, December 03, 2008

A Different Kind of Recession

The official arbiter of US business cycles, the National Bureau of Economic Research, has made it official: the US economy is in recession. However, contrary to our belief that the US avoided recession until the third quarter of 2008 (MP: a belief I share), the business cycle dating committee of the NBER (a group of academic economists) decided the expansion that began in November 2001 came to an end in December 2007.

Even with rising inflation, and falling home construction, real GDP contracted at only a tiny 0.2% annual rate in the fourth quarter of 2007, and grew in the first two quarters of 2008, including a quite healthy 2.8% growth rate in Q2. Not since 1970 has the NBER called a recession for a period including such a strong quarter of real GDP growth (and remember that the 1970 data has been revised substantially in the intervening years).

In our view, despite the dating of the start of the recession to December 2007, the current recession would not have been a recession at all without the “risk aversion hysteria” that struck the financial system and broader economy in September 2008.

As a result of this being a different kind of recession, we believe that rather than being a lagging signal of economic growth, consumers will lead the way out of recession, ramping up buying well before businesses – made skittish by recent events – reassert a normal level of risk-taking.

The rebound in consumer spending so evident in this holiday shopping season, an apparent stabilization in initial unemployment claims, a huge drop in gasoline prices, a strong rebound in mortgage applications, and the placement of new corporate bond issues, suggest that risk aversion is abating.

~Brian Wesbury and Robert Stein, First Trust Portfolios

MP: The announcement of the recession that started in March 2001 came in November 2001 (the month the recession ended), and the announcement for the recession that started in July 1990 came in April 1991, a month after the recession ended. Given the NBER's announcement track record, the December 2007 recession might actually be close to ending.


At 12/03/2008 2:12 PM, Anonymous Anonymous said...

Brian Wesbury is one of the worst economists out there.

At 12/03/2008 2:31 PM, Anonymous Anonymous said...

David Rosenberg, North American Economist,
Merrill Lynch in a recent piece:

1) Expect the worst recession in the post-WWII era
First, this is going to be the worst recession in the post-World War II era, in our view. The ECRI leading indicator hit a record low for the fifth week in a row – down to - 29.2 as of the November 21st week versus -28.2 the week before. This index, which leads real GDP by two quarters with a 70% historical correlation, is getting further and further away from the prior all-time low of -19.8 that defined the worst recession of the post-WWII era and saw a six-quarter consumer recession coincide with a 45% peak-to-trough decline in the stock market. Perhaps the fact that this bear market is proving to be even more severe is symptomatic of an economic downturn that will also prove to be deeper and more prolonged. After the flurry of data released just before Thanksgiving, we are now tracking close to a 4.5% QoQ annualized fall in real GDP in 4Q. This would be the largest pullback since the 1982 recession, and we see a similar contraction in the first quarter of 2009.

At 12/03/2008 2:39 PM, Anonymous Anonymous said...

Mark is living in fantasy land.

This quarter will probably be -5% annualized fall in GDP.

As private sector spending retreats, strong and constant fiscal stimulus is needed to keep the economy from falling off a cliff. $500 billion in 2009 and $250 billion in 2010 are the stimulus packages that are needed. Actually, we need a stimulus package RIGHT NOW, but sadly politically its not a reality. I just hope that these 2 months don't send us into a deflationary spiral.

At 12/03/2008 2:43 PM, Anonymous Anonymous said...

It's Bushitler's fault:

At 12/03/2008 2:46 PM, Anonymous Anonymous said...

Wesbury and Perry are living in a fantasy world, must be nice there.

At 12/03/2008 3:06 PM, Anonymous Anonymous said...

Given the NBER's announcement track record, the December 2007 recession might actually be close to ending.

Talking your libertarian book again, are we Carpe Diem.

Wesbury is an absolute clueless clunk. The 2001 recession was arbitered by NBER without a single negative quarter of GDP. You see, the annual revisions to GDP made the call look prescient in hindsight.

You and Wesbury should look it up.

At 12/03/2008 3:34 PM, Blogger juandos said...

Again, long on whine, short on substance: "The 2001 recession was arbitered by NBER without a single negative quarter of GDP"...

So where is this credible source regarding this alledgedly 'arbitered' NBER?

At 12/03/2008 4:24 PM, Anonymous Anonymous said...

the 2001 recession had 2 negative quarters and a third one occured in 2000 before the recession. There just wasnt two consecutive quarters that is the rough guideline of recession.

At 12/03/2008 4:59 PM, Blogger MikeJ said...

In the next few months, the flow of macroeconomic and earnings news will be much worse than expected. The credit crunch will get worse, with de­leveraging continuing as hedge funds and other leveraged players are forced to sell assets into illiquid and distressed markets, leading to further cascading falls in prices, other insolvent financial institutions going bust and a few emerging market economies entering a full-blown financial crisis.

The worst is not behind us: 2009 will be a painful year of a global recession, deflation and bankruptcies. Only very aggressive and co-ordinated policy actions will ensure the global economy recovers in 2010 rather than facing protracted stagnation and deflation.

By Nouriel Roubini

Published: December 2 2008 19:53

At 12/03/2008 5:46 PM, Blogger wcw said...

Anyone who like MP thinks we avoided recession until 08Q3 is encouraged to peruse the CFNAI, a principal-components agglomeration of 85 existing monthly indicators of economic activity originally designed to measure inflation pressure. It has an average value of zero and a standard deviation of one, so naturally once you're at -0.7 or so, you expect that you are below-trend for growth. It's a noisy series, though, so the Chicago Fed prefers the 3-month moving average.

A quick look at the data series for 2008 shows that by February, we were already at -1 or below, a level in that series that is consonant with being in recession. Right now we're at -2, which doesn't tend to be a level associated with growth finally turning up again.

Here's hoping, though. I'd much prefer to be wrong on this one and have it end sooner, but my call remains for an end in early 2010, assuming good policy responses by the incoming congress and administration next year.

At 12/03/2008 7:27 PM, Anonymous Anonymous said...

So where is this credible source regarding this alledgedly 'arbitered' NBER?

You are unmitigated clueless twit, juandos aka 1. You could read Donnelly or Ritholtz or even better go the source document.

Keep yourself busy, go find a right-wing opinion rag to link. You certainly are incapable of discussing factual matters.

but my call remains for an end in early 2010

At 24 months+ that would make this recession the longest since the 43 month recession ending the Great Depression in March 1933. What is your call on its depth (GDP contraction)?

At 12/03/2008 8:03 PM, Blogger Shawn said...

so, there's people that say this is a dead-serious, hide-in-the-hills recession, huh? wow, that's surprising. good thing you all had to look so hard to find them.

At 12/03/2008 8:40 PM, Blogger Jason said...

Yes this recession is different. First you see people shouting in glee that yes we are in a recession. Then consider the political infighting that we see daily. This infighting causes all parties to give money to whomever in hopes of getting votes during the next election cycle.

Our leaders are not putting our nation’s best interest first. They are selfish imbeciles that need to grow up a play with each other’s toys.

Yes it is true that we see a recession about every three years, and when we do they usually last about 8.5 months. This time politics will bring to the table spending and their denial of the situation won’t get us out of this mess.

At 12/03/2008 9:19 PM, Anonymous Anonymous said...


Instead of spitting out statements that are morally seductive try to reason this thing out. And look at history and economic theory.

There are 3 sources of spending in the economy. The consumer, firms and government. The consumer and firms are in full retreat, so the only thing that can replace them is the government. The demand for treasuries is insatiable right now so insolvency is not a problem for the government. It can raise as much debt as it wants.

Doing nothing will continue indefinitely what is going on today. Firms and consumers are hoarding cash causing the economy to approach closer and closer to a deflationary spiral.

At 12/03/2008 11:33 PM, Blogger Dave Narby said...

"As a result of this being a different kind of recession..."

There we go again with the "It's different this time" BULLSCHEISSE.

"...we believe that rather than being a lagging signal of economic growth, consumers will lead the way out of recession, ramping up buying well before businesses..."


...With what?

The consumer is beyond tapped out, they are deep in debt.

MP, you need to do some reading on Mike Shedlock's blog, Mish's Global Economic Trend Analysis

At 12/04/2008 4:14 AM, Blogger juandos said...

"You are unmitigated clueless twit, juandos aka 1. You could read Donnelly or Ritholtz"...

Read something that the always questionable New York Times and once useful Barrons thinks is worth reading?!?!

Nothing like watching Ritholtz blather on mindlessly on Kudlow & Comapany...

Who's really the 'twit' anon?

BTW I see you aren't any better at reading your source but I'm not suprised...

Stick with Krugman and DeLong, it'll make you a happy boy...

At 12/04/2008 4:35 AM, Blogger juandos said...

Recession: The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country's gross domestic product

From the BEA (RELEASE AT 8:30 A.M. EST, TUESDAY, NOVEMBER 25, 2008): Table 1.--Real Gross Domestic Product and Related Measures: Percent Change From Preceding Period
[Quarters seasonally adjusted at annual rates]

Yes, this must be a differnt kind of recession...


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