Daniel Gross: The Recession Is Over

Daniel Gross says the recession is over.

[T]wo of the best and most objective forecasters, who are not connected to investment banks or to the CNBC noise machine, have recently called the upturn. Macroeconomic Advisers, the St. Louis-based consulting firm that compiles a monthly GDP index, reported to its clients Monday that while second-quarter GDP was tracking at negative 0.1 percent (recession), the third quarter was tracking at 2.4 percent growth.

The folks at the Economic Cycles Research Institute agree enthusiastically. . . .

The economic data that get the most play in the news— unemployment, retail sales—are coincident or lagging indicators and historically have not revealed much about directional changes in the economy. ECRI's proprietary methodology breaks down indicators into a long-leading index, a weekly leading index, and a short-leading index. . . .

All three are now flashing green. [T]he long-leading index growth rate has been recovering since November 2008, the weekly leading index has been recovering since last December, and the short-leading index growth rate bottomed in February 2009. . . . "From our vantage point, every week and every month our call is getting stronger, not weaker, including over the last few weeks," says [ECRI MD Lakshman Achuthan.] "The recession is ending somewhere this summer." In fact, it may already be over. [Emph. added]

GDP growth this quarter would be consistent with the consensus view of economists, so I’m at a bit of a loss to see why all this is news. Then again, there’s still no shortage of apocalyptics among equity investors. . . .

Gross notes, correctly, that the economic metrics investors tend to follow most closely (employment, for instance) tend to be coincident indicators, and so don’t say much about what will happen in the future.

But even ECRI’s short-term leading indicators, such as new unemployment claims, appear to have turned decisively:

No wonder stock prices are going up. . . .

Comments

[Dave Wrixon:]

The man's an idiot!

2009 Jul 15 03:07 AM

[ciel:]

1. We are two weeks into the third quarter. Tell me again what the third quarter GDP is probably going to print after we've gone through about ten more weeks of it.

2. One quarter's, or even two back-to-back quarters' of positive GDP, does not an end to a recession-make. We had two consecutive quarterly up prints in the first half of 2008, only for the economy to swoon again. In the big picture, this economy is still susceptible, and there are several things that can still go drastically awry these next several years, as the unwinding of this massive, global bubble is still underway.

3. As for initial unemployment claims - show me a few more weeks ... in a row... below 600,000 *outside of a shortened holiday week* before crowing about it. Several prior months worth of claims have certainly been heading in the right direction, but at a painfully slow, and rather inconclusive, rate of improvement.

4. Employment is a good metric to follow. It gives us some insight into the potential prospects for consumer spending, and thus, company earnings - good, bad, or indifferent - And this is perhaps particularly true in and/or coming out of this recession.

5. Even if we print a 2.4% annualized rate of GDP growth in the third quarter (possible) *and* the recession did truly end in the second (lots of doubt exists about that one, there) - a +2.4% quarter coming out of a downturn as sharp as this would be anomalously shallow. We had better see a plus 5, 6, 7, 8, 9, or 10 quarter by the first quarter of 2010, or start to come to grips with the fact that the economic "recovery" could be more accurately described as a growth recession - and a growth recession following such a deep downturn is also nothing to get too exited about.

2009 Jul 15 03:17 AM

[Up Yours SP500:]

"[T]wo of the best and most objective forecasters, who are not connected to investment banks or to the CNBC noise machine, have recently called the upturn..." ......this is your opinion.

BTW, you have 28 followers too many.

In this recession, unemployment should be seen as a leading indicator? Why? Foreclosures and lack of consumer spending occurs AFTER one loses his or her job, not before it. Let's be honest, the jobs of early 2000 are not coming back, and if unemployment continues to rise, everyone will go overseas to make money, not stay in the U.S.....hence the latest trend....emerging markets. Smart money has already said bye bye to retail, banks, auto, airlines, etc etc.

2009 Jul 15 03:53 AM

[jeandit75:]

Matt Stichnoth frankly, stop watching CNBC and start looking at better leading indicators. ECRI indicators are meaningless given the magnitude of this recession. To be able to compare, you have to look back at the 30s depression and even a lot further. You just can't call this recession over as a second leg down risk has never been so high.

2009 Jul 15 07:13 AM

[Ferdinand E...:]

Better save an article with this title for another site, since a majority of the SA contributors and commentors are hoping and praying that the US economy goes into the tank.

But that doesn't need to happen. President Obama has access to the best economics talent in the history of the United States, and it is absurd to believe that they cannot figure out what needs to be done. As I told some people this morning, in the three years after Pearl Harbor the United States constructed a navy that had more ships than all the navies in the world. If American workers and managers could do that, in the conditions prevailing at that time, then they can do anything.

2009 Jul 15 08:39 AM

[a. palmer jr.:]

Even if we agree that the recession is over, which doesn't appear to be the case, this recession has left behind many victims who won't recover their losses for twenty years, some never. Some retired people depended on interest to pay their bills have had to dip into principal to do this and now have no principal to receive interest on.
Many of us who cashed in mutual funds before they hit bottom still have fairly good sized losses and the climate of investing right now doesn't look like we'll be able to make them up and don't forget we are still going to be left with that huge federal deficit that we'll probably be asked (ordered) to pay back in the form of higher taxes. Some states are already raising property taxes.

2009 Jul 15 09:21 AM

[Jimbo:]

Ferdinand E.: Alas, the United States of 1943 is profoundly different from the the U.S. of 2009. Since I have most of my life savings in the market and can't get out without about 70% losses, I very much want this economy to recover, irrespective of who is in the White House.

2009 Jul 15 11:01 AM

[kebu77:]

Ferdinand: In 1943, the US was the Saudi Arabia of oil and the world's leading manufacturing economy, rich in mineral resources, with a rail network almost twice the size of today's. Our biggest asset today is education and a legal system that promotes enterprise, but the natural wealth has been greatly depleted and we don't seem to be able to leverage our remaining natural assets like natural gas. . .

2009 Jul 15 12:57 PM

[Dave Wrixon:]

Well it seems to me if you are reliant on your education system to get you out, then you are in more trouble than even I thought!


On Jul 15 12:57 PM kebu77 wrote:

> Ferdinand: In 1943, the US was the Saudi Arabia of oil and the world's
> leading manufacturing economy, rich in mineral resources, with a
> rail network almost twice the size of today's. Our biggest asset
> today is education and a legal system that promotes enterprise, but
> the natural wealth has been greatly depleted and we don't seem to
> be able to leverage our remaining natural assets like natural gas.
> . .

2009 Jul 15 02:49 PM

[kebu77:]

Dave, Dave, please read what Ferdinand said - - "Better save an article with this title for another site, since a majority of the SA contributors and commentors are hoping and praying that the US economy goes into the tank."

2009 Jul 15 03:52 PM

[LilBob:]

Honestly as bad as things have become with this economy, and with so many Americans out of work, technical arguments about when the Recession ended or will be over are of little value outside of an economics classroom. We still have the same underlying problems in this economy:

1. A cash-cycle that's been depleted by out-sourcing of jobs and a transition to the service industry that's resulted in many people who used to have jobs that provided them with a good living ending up stocking shelves for 9 bucks an hour at Wal-Mart and Target. Those "more productive and higher paying jobs," that some economists promised displaced workers would find in "the new economy," largely failed to materialize.

2. An out of control health-care system that will never get fixed because AMA member contributions support the election machines of both parties at the local level all across the country.

3. An economy that is still largely populated by companies whose products are aimed at a more affluent population that no longer feels confident enough to consume those more costly goods and services.

4. A higher education system that claims as birthright the privilege of raising tuition costs annually and without shame, which leads to graduates not being able to purchase new homes, vehicles or retirement plans because many graduates now have student loan payments ranging anywhere from $700 to $2200 per month; many will still be paying off student loans into their forties and some even into their fifties.

2009 Jul 15 07:16 PM

[Old Trader:]

Actually, the 2 sources cited in the article MAY be correct...but what they're seeing/reporting might very well be the first upward leg of a "W", so don't break out the noise-makers and party hats just yet...

2009 Jul 15 10:00 PM