Is the Recession Really Over? 22 comments
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Fed Chair Bernanke tells us that the recession is probably over. Business Week reports:
From a technical perspective, the recession is very likely over at this point," Bernanke said in responding to questions at the Brookings Institution. "It's still going to feel like a very weak economy for some time because many people will still find that their job security and their employment status is not what they wish it was."
The announcement marks the start of a new "silly season" where people argue about recession dating, and misconstrue statements, taking them out of context.
Here is the issue.
The public goes by the "feel" method, using plenty of anecdotal evidence. If there are many people feeling the pain from an economy growing below trend, it feels like a recession. We really sympathize with this practical approach. It is important to achieve potential. The economy has been below the potential growth path for years, and will probably not get back there, achieving full employment, for years to come.
This is the cost of the credit collapse.
The media combines anecdotes with the "two quarters" rule. Two quarters of negative GDP signal a recession. It is not clear what constitutes a recovery.
The economists take a very different and more complex approach. Read carefully. If and only if there is a big decline on various indicators, the recession has been established. At that point, and only at that point, the NBER committee looks back and finds a peak. That peak is then designated as the start of the recession.
There is a good reason for this approach. Economists want to link the actual recession timing to other economic data. They are not trying to give a real-time signal. It is all about timing for economic research.
Interpretation
The media and the big-time blogs have a field day with the economists' definition. They play upon the popular conception, portraying economists as clueless bozos, who cannot see a recession when it is obvious to all. This is great fun and gets many boo-yahs from the readership.
We did a careful description of this process in April, 2008, How to Win a Recession-Predicting Contest.
In that article we successfully guessed the actual start of the recession. We urge readers to take a look at that article. More importantly, we wrote as follows:
It Really Does not Matter
There is no light switch that makes things terrible if the economy is in a recession and acceptable if it is not. Economic data show that we are experiencing a period of economic weakness. This means lost jobs and lost profits. It is a permanent loss and painful to many. This is true whether or not the economic weakness attains status as an "official" recession. It is a range of results, not a black or white question.
Now for the Flip Side
We are now entering the "flip side" of this story. If the economic rebound continues, the dating committee will go back to determine the trough. It will probably be some time in the last few months. We will not know the official answer for many more months.
Investment Conclusion
There are some who are very negative on the economy right now. If it turns out that the recession actually ended last spring, it does not mean that these analysts were foolish. Similarly, going back to 2008, those who did not predict the recession might have been right.
The key point? The Lehman failure and the instant freeze of credit markets created the downturn that verified the recession, moving the date back to the prior peak.
It is a cheap shot to take issue with those who did not foresee Lehman and the consequences, just as it will be a cheap shot to criticize those who are not currently predicting the recession end.
Big economic events provide the trigger for a post-dated result. For investors, it matters little. It is wise to ignore the "silly season" and focus on the fundamentals of interest rates and expected earnings for stocks, both of which are now becoming much more positive.
A Final Thought
We have frequently cited the ECRI as a source for economic cycles in real time. Many predicted a recession for years before it occurred. Since there is a recession every five years or so, this is a broken clock method. The ECRI made the call in real time.
What about now? The ECRI leading indicators have been very strong since July. Most pundits are skeptical, thinking that they have deeper insights. We shall see.
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This article has 22 comments:
And yet even though he technically says nothing economically about a recovery, his interviews always sound like he is talking about a recovery. He can not eat his cake and have it too. Either he is a good economist who is talking in real economic terminology or he is not and is talking about the general belief that their is a turnaround. So far he has yet to clarify his point.
It smacks of more Greenspanism, talking like a shaman high on drugs while they destroy the foundations of capitalism and economic stability in exchange for brief political stardom and a few million dollars to publish a book about it. If this is their goal, I find the Miss America Pagent more meritous and productive than their ambition.
These terms are used to emotionally and statistically bludgeon, bewilder, and manipulate. Their definitions are designed to convince ordinary Americans that they should not trust their own eyes and ears but outsource thinking, analysis, decision making and, soon enough, even experiencing truth to the overlords. It is the culmination of the Orwellian nightmare and Kafkaesque suspension of reason and goodness.
Ordinary Americans know that when fear and pessimism about the future based on their current objective financial pain and economic distress govern, then there is a recession or a depression: they can see it in homes being foreclosed, shops being shuttered,still rising unemployment and underemployment, in devastated retirement accounts, suspended or onerous credit, and crushed income. Tens of millions of Americans are , continue to be and feel themselves to be worse to much worse off than a year ago and see no near term prospects for improvement.
When tangible evidence that personal, family, community and national life is getting better economically and financially, when there is a near term prospect for the unrelieved economic pain of 2009 to visibly abate then confidence and optimism can return and recovery and boom may again be discussed and anticipated.
Recession and depression; recovery and boom are both materially tangible and psychologically real to ordinary people, not semantic devices and statistical constructs.
For scores of millions of ordinary Americans there is no recovery. They will know it when they see and experience it. Until then, to tell them the universe has been saved by the self proclaimed god-emperors of WashDc and Wall ST and all is getting better every day and every way is more than a hoax: it is willful cruelty.
On Sep 16 05:46 AM Michael Clark wrote:
> The recession is over. But the depression is not over. The depression
> is made up of a series of deep-recessions and intermediate frail
> 'recoveries'. It's like a drowning man coming up for water. He
> comes up 6 times; and goes down 7. Then he dies and is re-born in
> a new world, that expands with light and credit expansion for 18
> years.
> The next great policy mistake looks like being to remove stimulus
> too soon. The current pick up in leading indicators is likely to
> embolden policy makers to tighten particularly on the fiscal front
> where action is so desperately needed.
1. Do you honestly believe that government fiscal stimulus creates real, lasting growth? Government doesn't produce anything, it merely takes from the productive and re-directs that which it took to the politically powerful. Case in point: Cash 4 Clunkers; the feds borrowed money that they didn't have (so they will either tax me more or steal my purchasing power through money printing) and re-directed it toward the auto industry (and the UAW owns a big chunk of the "new" GM).
2. Even if fiscal stimulus was effective, the feds DON'T HAVE THE MONEY to carry out such a program. Indeed, the national debt is nearly $12 TRILLION and our unfunded liabilities (SS, Medicare, Rx Drug) are nearly $60 TRILLION. The feds had to borrow $800 billion for the stimulus plan when Dr. Antal Fekete has demonstrated that the marginal productivity of debt in America is below 1 (less than $1 of GDP growth for every $1 borrowed). I don't agree with the Chinese attempt to stimulate, but at least the PRC had reserves to spend.
Not tightening rates means turning the world over to the gold bugs.
Actually, no matter what they do, the gold bugs own the world for the next 10 years.
On Sep 16 03:26 AM Does nobody understand what long term actually means? wrote:
> The next great policy mistake looks like being to remove stimulus
> too soon. The current pick up in leading indicators is likely to
> embolden policy makers to tighten particularly on the fiscal front
> where action is so desperately needed. There seems no way to sustainable
> growth. Either policy is tightened now and kills the recovery or
> policy is left loose and inflation picks up and we are headed for
> an even worse place.
It is coming, 353732, in a flood of newly washed and dressed paper. Once the floodgates open,contrary to their expectations, they'll not be simple to close. For those suffering today, have a little more patience, and for those who have saved, be sure to convert some to precious metals to weather the disruptions.
Events such as these follow a common thread in economic history and always end the same way; currency debasement while a new order works itself out. With its wealth of resources, infrastructure and social organization America will weather the storm unless, fearfully, the same elites remain at the helm.
There has to be a shift in perception, from conspicuous consumption to creation, from easy money to value added, from energy importation to self-sufficiency and from insularity to recognition there is now a world market, with production designed and manufactured to appeal to such.
On Sep 16 05:46 AM User 353732 wrote:
>For scores of millions of ordinary Americans there is no recovery.
> They will know it when they see and experience it. Until then, to
> tell them the universe has been saved by the self proclaimed god-emperors
> of WashDc and Wall ST and all is getting better every day and every
> way is more than a hoax: it is willful cruelty.
Yesterday news
"ABC Consumer Confidence Poll: -49, down from -48 for its second straight weekly decline. This week 43% of Americans feel the economy is getting worse, up 12 points from last month. Only 44% rate their personal finances positively and only 24% think it's a good time to buy things."
So consumers are getting more negative and MSM doesn't post it as BREAKING NEWS, like they recently did when a survey indicated that consumers were more positive about the future, as they do with every little items that looks like a green shoot.
OK I get it " Its all good on Wall Street" but IMO a sustained economic recovery is not possible unless the WH, Wall Street and Main Street are working together to that end, at this juncture I see things becoming more polarized, a disconnect, at odds, all three moving in different directions. Was there any past recession that we recovered from without cooperation form all three.
If you really wanted to work on "Wall Street", become a doctor, a lawyer., etc, you could, but you probably wouldn't have the discipline to either put in really long hours or excel in school for twice as long as the average person goes to school.
At the end of the day, people still need to make back some of their paper losses. While people like myself continued to buy throughout the past year, many did not, and cannot make up for their shortfall by saving cash alone, they pretty much need to invest. Also, the earnings estimates for 2009 have had to be steadily increased as people realized that they were unrealistically low.
The recession has forced companies to really look at how they operate and see what structural improvements can/could be made. How come there aren't more articles about how the unemployment rate for college educated is way better than those who are not, and that when the economy recovers, they have a much higher chance of being hired, of course I’m talking about degrees with real majors, not like a Philosophy major.
I feel like the main objective of SA these days is to try to constantly bash the market. The sooner you idiots realize that the long term trend of the market is up, maybe you will stop the whining. I’m ok with analyzing company/gov’t decisions and how that impacts the market, but it seems like it’s always the negative. If you go back to many of the bearish posters now, they were posting the same bearish stuff when the dow was at 7,000, and have called the entire rally a suckers rally. I also read/hear all these arguments about how the market is rigged and why not to invest for moral reasons. I’m sure some of the same people cheat on their wives, are not good parents, etc. I’m clearly not trying to say that everyone is like that, because they’re not, my point though is that if you truly are a risk averse person and that even paper losses make you feel uneasy, than yes, stay out of the market. But to invest in the market because some people will also make money from stock price appreciation is just dumb. Of course there are always risks to investing, but there is just about every type of investment opportunity available depending on your risk tolerance and what you believe will happen in real estate, equities, corporate bonds, munis, etc, but you either have to do the work yourself and take responsibility for your decision whether you are right or wrong, or pay for a broker and understand that he may end up being right or wrong, but you made the decision to agree to what he suggested. It’s always easier to whine and play the blame game, but rarely will that ever get you paid.
On Sep 16 05:46 AM User 353732 wrote:
> To the politicians, bureaucrats, Wall St executives and media barons
> who have never experienced financial adversity or spent time with
> ordinary Americans living real lives, recession or depression, recovery
> or boom are both statistical abstractions and semantic tools. They
> are mere devices that they use to proclaim their superior authority,
> superhuman insight, and validate their right to rule.
> These terms are used to emotionally and statistically bludgeon, bewilder,
> and manipulate. Their definitions are designed to convince ordinary
> Americans that they should not trust their own eyes and ears but
> outsource thinking, analysis, decision making and, soon enough, even
> experiencing truth to the overlords. It is the culmination of the
> Orwellian nightmare and Kafkaesque suspension of reason and goodness.
>
>
> Ordinary Americans know that when fear and pessimism about the future
> based on their current objective financial pain and economic distress
> govern, then there is a recession or a depression: they can see it
> in homes being foreclosed, shops being shuttered,still rising unemployment
> and underemployment, in devastated retirement accounts, suspended
> or onerous credit, and crushed income. Tens of millions of Americans
> are , continue to be and feel themselves to be worse to much worse
> off than a year ago and see no near term prospects for improvement.
>
> When tangible evidence that personal, family, community and national
> life is getting better economically and financially, when there is
> a near term prospect for the unrelieved economic pain of 2009 to
> visibly abate then confidence and optimism can return and recovery
> and boom may again be discussed and anticipated.
>
> Recession and depression; recovery and boom are both materially tangible
> and psychologically real to ordinary people, not semantic devices
> and statistical constructs.
> For scores of millions of ordinary Americans there is no recovery.
> They will know it when they see and experience it. Until then, to
> tell them the universe has been saved by the self proclaimed god-emperors
> of WashDc and Wall ST and all is getting better every day and every
> way is more than a hoax: it is willful cruelty.
The wealthy elite have had to cut back somewhat, (unless of course your best friend was Bernie Madoff in which case you really had to cut back) but for the most part, they all still have plenty of investments and their net worths are still worth more than any American will ever have. No real recession in the first place.
The entitlement/ civil servant/ union workforce with their absurd pay, health benefits, guaranteed pensions, all paid for by beaten down taxpayers also are not feeling the real effects of a recession. As with the wealthy, they have had to cut back, but not much. Their health insurance is paid for by others and their retirements are secure. Heck here on Long Island, NY, we had the feature article in our newspaper today about how the majority of our police officers earn between 100K and 200K per year. (A few even as high as $225K)
Overtime or not, you want to talk about stupidity by the taxpayers for letting this happen? Well there you go. Again no real recession in the first place.
For the poor, destitute, and not so fortunate alike, life has gone from bad to even worse. Without the government there would be hundreds of thousands of people (if not millions) living on the street outright. It is bad enough I read in the WSJ last week that there are about a million kids in the US going to school who almost have no home to come home to. But what they heck. We give the rest of the worlds billions in bribes so we can take of their people and be the world's hero while millions in our own country starve. But no one in this country seems to care since no one ever protests that. For the poor, life has always been a recession and about survival.
One group of people I know well are small business owners. They are the real creators of wealth in our country. All great corporations started out as small and became what they are today. From those business owners I speak to from many parts of the US, guess what? It has been, and still is, a full blown recession with no end in sight regardless of the supposed nuggets of good news that the government (Ahem) puts out. Taxes are killing, health care cost are killing, retail is dead, etc etc. Recession is alive and well here.
For everyone else, maybe self employed or employed by others, you just have to wake up each day and be thankful you have a job and hopefully benefits. Enjoy this phony FED/TARP/Liquidity stock market rally for what it is.
If you got into stocks like I did at S & P 700 just keep hanging on. When the time is right, sell to the morons who are willing to buy from you because Cramer, Lasylo Byrini, Jon Markman, or any of those other lying pump monkeys told them to buy before its to late.
Finis.
compdivplan.com
How is it that you have managed to ignore the fundamental rule of life which is that people should try to develop their native talents and make use of their actual, real opportunities in life while recognizing the limitations imposed by their environments and intelligence? That has nothing to do with optimism or pessimism. It isn't a coincidence, for example, that about one quarter of all doctors have fathers or mothers who are doctors.
Wake up, and for starters, take off that NBA uniform and do something that is more appropriate like using the intelligence you were born with.
On Sep 16 10:15 AM DonFurio wrote:
> Wah, wah, wah. The reality is that you can still try do just about
> anything you want in this country, you may not be successfully, but
> you still can try. While it is not true 100% of t time, many people
> in good jobs in this country worked really hard to get there and
> move up. I think unfortunately what happens is that people end up
> just being jealous no matter what, i.e. it doesn't matter that you
> didn't study as hard and went to a just ok college, and just showed
> up to your job, you should be just as successful as the ones who
> worked harder than you and were more successful than you.
>
> If you really wanted to work on "Wall Street", become a doctor, a
> lawyer., etc, you could, but you probably wouldn't have the discipline
> to either put in really long hours or excel in school for twice as
> long as the average person goes to school.
>
> At the end of the day, people still need to make back some of their
> paper losses. While people like myself continued to buy throughout
> the past year, many did not, and cannot make up for their shortfall
> by saving cash alone, they pretty much need to invest. Also, the
> earnings estimates for 2009 have had to be steadily increased as
> people realized that they were unrealistically low.
>
> The recession has forced companies to really look at how they operate
> and see what structural improvements can/could be made. How come
> there aren't more articles about how the unemployment rate for college
> educated is way better than those who are not, and that when the
> economy recovers, they have a much higher chance of being hired,
> of course I’m talking about degrees with real majors, not like a
> Philosophy major.
>
> I feel like the main objective of SA these days is to try to constantly
> bash the market. The sooner you idiots realize that the long term
> trend of the market is up, maybe you will stop the whining. I’m
> ok with analyzing company/gov’t decisions and how that impacts the
> market, but it seems like it’s always the negative. If you go back
> to many of the bearish posters now, they were posting the same bearish
> stuff when the dow was at 7,000, and have called the entire rally
> a suckers rally. I also read/hear all these arguments about how
> the market is rigged and why not to invest for moral reasons. I’m
> sure some of the same people cheat on their wives, are not good parents,
> etc. I’m clearly not trying to say that everyone is like that, because
> they’re not, my point though is that if you truly are a risk averse
> person and that even paper losses make you feel uneasy, than yes,
> stay out of the market. But to invest in the market because some
> people will also make money from stock price appreciation is just
> dumb. Of course there are always risks to investing, but there is
> just about every type of investment opportunity available depending
> on your risk tolerance and what you believe will happen in real estate,
> equities, corporate bonds, munis, etc, but you either have to do
> the work yourself and take responsibility for your decision whether
> you are right or wrong, or pay for a broker and understand that he
> may end up being right or wrong, but you made the decision to agree
> to what he suggested. It’s always easier to whine and play the blame
> game, but rarely will that ever get you paid.
On Sep 16 08:32 AM Value Added wrote:
> Is the recession really over? The answer is a resounding NO. The
> ECRI leading indicators are not looking at the correct data. Apparently
> foremost among those indicators are firms' earnings "beating expectations".
> Sure. With abysmal expectations, everybody beats expectations, as
> for example, when losses are less than expected losses. More important
> indicators are consumer spending, insider selling, historical earnings
> (not "versus expectations"), and foreclosure trends. By all measures
> I examine, we're still deep in the woods.
While I'm not an economist it *is* hard to "get" what is being said in the meedya. Recent housing related headlines have all been so positive but as you point out foreclosures are rising. If housing sale volumes are increasing due to distressed sellers why is that good news? If un + under employment is 16.8% (according to the BLS) how is that likely to lead to increased consumer spending, e.g. that a large number of people compared to 2008 that have less cash to spend. And so on...
On Sep 16 12:13 PM carey_jim wrote:
> Don, if you're 5 feet 1 inch tall you can't try to be an NBA basketball
> player unless you are also an idiot.
> How is it that you have managed to ignore the fundamental rule of
> life which is that people should try to develop their native talents
> and make use of their actual, real opportunities in life while recognizing
> the limitations imposed by their environments and intelligence? That
> has nothing to do with optimism or pessimism. It isn't a coincidence,
> for example, that about one quarter of all doctors have fathers or
> mothers who are doctors.
> Wake up, and for starters, take off that NBA uniform and do something
> that is more appropriate like using the intelligence you were born
> with.
>
> On Sep 16 10:15 AM DonFurio wrote:
Jeff, normally I agree with your writing. But it isn't a cheap shot to expect highly paid people to do their job. Not only did Paulson, Bernanke, and Geithner fail to see a crash coming, they never even considered the possibility! To give you some prospective on contingency planning, the US army has plans on file for the invasion of England, the need for which is very unlikely. Such need is certainly less likely than the failure of Lehman which occurred about 6 months after the failure of another bank. Through it all, the three blind mice failed to consider the possibility that another bank might fail.
Some experts predict that this recession will last well into the first three months of 2010, after which things will slowly improve. The good news, however, is that since we're officially in a recession, smart companies and individuals can make plans to weather the slowdown and figure out how to make the best of a tough situation.
Economists predict that 2009 will be tough and that the GDP in the United States in 2009 will grow by just 0.8 percent, while the unemployment rate will rise to 5.7 percent. Others paint an even gloomier picture with some predicting that unemployment will go as high as 8 percent, or even 10 percent. But in comparison to the 24 percent unemployment rate during the Great Depression, that's still pretty low.
Hopefully, the housing and banking segments have seen the worst of it and the credit market will recover quickly. Then again, with more people out of jobs, the housing market could find it that much harder to bounce back.
--------------------
Money is like muck, not good except it be spread.
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