Who Thinks This Recession Is Over? 41 comments
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I came across a definition this week from Bank of Tokyo Mitsubishi concerning recovery.
If real GDP grows 3% or more in the first four quarters after the recession, then this is counted as a V-shaped or fast recovery. If it takes two years for real GDP to get up to 3%-plus speed then this slightly slower recovery is called a U-shaped recovery.
This definition and the associated table provoke a series of questions....
Who thinks this recession is over?
I know the economic community believes the recession is over – and based on a mind-numbing set of anal definitions – it is over. Real-world people who may not have taken Econ 101 see the recession still doing damage.
Who says formal education makes you smarter?
I have been giving a set of lectures on the Great Recession to an international group of well-above-middle-class individuals on Princess Cruises (CCL) Tahitian Princess. Not one person thought the Great Recession was over.
All reject the NBER's definition of a recession. It was labeled as stupid. How can you have massive unemployment and think the recession is over?
And because the government and the Fed keep strongly insinuating the recession is over, it is breeding distrust of our leaders.
The reason this recession is over is due to the rise in the G.17 Industrial Production report in mid 2009. This historically is THE signal which says the recession is over when industrial production shows a definite bottom. Of course GDP must also go positive in 3Q 2009, and it is expected to oblige.
The 2001 recession took 4½ years for industrial production to return to its pre-recession level. That really sounds like a depression, but as there is no agreed definition for a depression – it is impossible that a depression occurred.
How many years do you think it will take industrial production to return to its December 2007 levels? 1 year? 4 years? Never?
And if members of the NBER recession dating committee are reading this, after an economic decline the first bounce up in industrial production is due to inventory equilibrium – not economic improvement. Hopefully the NBER has realized this, but I suspect they will be under political pressure to call an end to the Great Recession as soon as possible.
The NBER waited almost a full year to say we were in a recession, and I suspect sometime later this year or in the 1Q 2010 will say the recession ended in June or July 2009 based on their past methodology.
Based on our 2001 recession experience, it will be a mistake for the NBER to end this recession before an indisputable improvement in economic conditions.
Where is the evidence things are getting better?
When it takes a microscope to understand the economy is improving – then it is not improving. The way the stimulus and Fed's liquidity are targeted on GDP – technical improvements may be both temporary and artificial.
Data released this week is not supporting that a real fundamental recovery is underway.
The greatest doubt was created by the Federal Reserve's October 2009 Beige Book – which measures overall economic activity in the12 Federal Reserve districts. A sentence in their summary:
Reports of gains in economic activity generally outnumber declines, but virtually every reference to improvement was qualified as either small or scattered.
As many of the determinations in each district are qualified, it is impossible to create a meaningful tabulation which would allow readers to draw their own conclusions at a glance. However, I believe the Fed's summary statement quoted above is accurate – and that there are pockets of continuing declines as well as pockets of apparent increases.
There are also a few inconsistencies. Most districts report declining transport. For me, this does not square with slightly improving manufacturing and stable retail sales.
Overall, the Beige Book does not paint a picture of an improving economy. And what is interesting to this author is that the areas of improvements seem to play directly to the elements which increase GDP. The economic areas declining or remaining weak are not elements of GDP.
The NBER uses improving GDP as the primary measure to determine that a recession is over. As GDP is a quarterly release, the exact month a recession ends is normally the month industrial production decline bottoms – and for this recession it is June 2009.
New house permits and completions showed a decline in September 2009 according to adjusted data. You have to be careful with seasonally adjusted data in recession troughs as they anticipate fluctuations which normally happen – but may not be happening.
But in this case, with first time buyer credits in play (and expiring next month) – this data does not look positive from an economic expansion point of view. In addition, YoY comparisons show contractions in the 30% range.
Builder confidence reflected in the Clusterstock chart of the day showed a drop. I assume this means that builders were sold that an economic expansion was underway, and are now realizing it was a mirage. Recovery ≠ economic expansion.
The Producer Price Index (PPI) for September 2009 is not a significant piece of data which anticipates economic direction. However, the continuing lack of direction of the PPI – one month up, one month down – gives you pause. Is it pointing to deflation? Is it telling you that production picked up in anticipation of an economic expansion which did not occur (and now requires discounting to move their product)?
The new unemployment initial claims remained basically unchanged this week. The number of weeks this recession has exceeded 500,000 people applying for unemployment benefits is unparalleled. I refuse to buy into the argument that this continuing destruction in the jobs can be ignored – and is not a harbinger of a very dismal economic future.
Forget jobless recovery. The coincident data is continuing to point to a non-recovery recovery.
Additional Economic Data This Week
The National Association of Realtors (NAR) released their September 2009 existing home sales data claiming “big rebound in existing home sales” of 9.4% due to first time buyers. Analysis by Barry Ritholtz of The Big Picture says the NAR is distorting the seasonal adjustment factors.
I am honestly unsure of whether the folks at the NAR are dumb as lawn furniture and make these misrepresentations honestly — or whether are just another group of disgusting spin doctors, willfully peddling lies because it helps their own agenda.
What Barry Ritholtz is saying is that the first time home buyers credit, coupled with low interest rates which may rise soon – has extended the buying season one month. This makes the seasonal adjustment factors inoperative. He points to the non-seasonally adjusted data as better indicating the real situation.
The rate of new mortgage applications decreased significantly this week and is now below its range it has been oscillating in since April. The four week moving average of all mortgage loan application volume (which includes refinancing) decreased 1% WoW. The average interest rate for 30-year fixed-rate mortgage increased 5 basis points to 5.07%.
Filing for Bankruptcy: Stallion Oilfield Holdings, NTK Holdings, Nortek
Economic Forecasts Published this Past Week
The Economic Cycle Research Institute (ECRI) released their Weekly Leading Index which dipped slightly from its all-time high. Lakshman Achuthan, Managing Director at ECRI added:
Despite a dip, WLI growth remains close to the previous week's record high, suggesting that the U.S. economic recovery will continue to gain strength through the New Year
This week the Conference Board released their Leading Economic Index (LEI) and Coincident Economic Index (CEI) for September 2009. I am fairly critical of the LEI as it is too heavily influenced by the Federal Reserves' quantitative easing programs. In any event, the LEI continued its skyward journey while the CEI remained flat.
Hat tip to Steve at MEMETICS & MARKETING™ for editing support.
Hat tip to Princess Cruises for providing internet access for publishing this article.
Disclosures: long MMF's, GLD, IOO, EWZ, EWY, EWA, EWC, EWM, EWS, THD, FXI, PIN, UUP, Physical Gold - as well as numerous puts and calls which comprise less than 3% of my portfolio.
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This article has 41 comments:
I wish I had seen your question last night. I spent the evening at some friends' house here in the ski areas of central Vermont. We ate burgers and watched ultimate fighting (reminds me of the final days of the roman empire in more ways than one). It was fun getting together with them before I head south to rent a condo in north FL to keep my uninsured knees warm and relatively comfortable this winter.
There were 4 of us there. Two were employed, two were unemployed. Of the two "employed", one was a low life stinkin day trader (that would be me) who doesn't work for anybody else who would have voted that we are still in the recession. The other is a nurse with a pretty stable job. Knowing her, I would say she would have voted we are still in recession.
Of the two unemployed, one was an electrician who hadn't worked for 3 or 4 months and doesn't see many prospects until the Spring when hopefully some stimulus money shows up... hopefully. The other was a supervisor for a builder - he got let go last week because his boss had a choice of losing one person with a relatively higher salary, or two guys with lower salaries. This 2nd guy's daughter also got let go from HER job in an unrelated field last week. I think they would have voted that we're still in the recession.
Nevertheless, I should have taken the poll last night just to make it official, but damn, those two unemployed guys are bigger than me, and they are mighty freaking pissed off these days.
- Larry Summers
This recession is over.
-Larry Summers
Dim or Dark? (Maybe 50/50?)
Not to worry... I got an email from him recently. It said:
"Hi "ain't no fortunate son," just wanted you to know I got picked up by KB@ (a spin off from a very popular (NOT!) oil services company) and am in Afghanistan. Its a beautiful country, except for having to dodge rocket propelled grenades. If I survive, I should make enough money to pay off my debts. You were right, there are no atheists in a foxhole."
I thought that was wonderful news. I emailed him back to see whether he thought we were still in a recession and he just emailed me back:
"F$%# YOU!!!" was all he said.
Absent any clarifying remarks or seasonal adjustments the ECRI or NAHB wish to apply to his statement, I am interpreting that as a "Yes." That would make my unofficial poll 5 Yes, we're still in a recession, 0 No.
Let's see:
In our small family;
Two recent college grads (Stamford, U of Sam Houston) - can't find a job since May graduations,
My wife was "let go" 18 months ago (Propery Managment District Manager) - still no job, Unemployment out, COBRA ends this month,
One daughter out of work due to layoff this summer, her husband on "short" hours.
Our water bill is going up (just got notice), subscription to newspaper going up 20%, my med insurance and life insurance premiums raised obnoxious amounts this billing........etc.
What recession?? What inflation???
There are three distinct groups.
1) Any ivory tower economists who knows 100 different ways ways to make love, yet doesn't know any women.
2) Any CNBC anchor or contributor who apparently is subconsiously DYING to play a major role in the upcoming "Peter Schiff was right 2" video that should be sweeping across youtube in the coming year.
3) Ben Bernake
help support their parents... Those paying immoral interest rates and fees to "De-regulated" lenders... The 45 million U.S. Citizens without health care... The working seniors with no retirement benefits... The taxpayers who paid outrageous bonuses to the incompetent and unethical
managers of "Bailed-out" corporations... Yes, Recession over... for the Rich and Powerful!
There will be no recovery until until consumers feel confident in their jobs and until significant consumer deleveraging has taken place. This may take as long as 2-4 years to complete the cycle of debt reduction and confidence rebuilding.
Should American corporations continue the vicious cycle of downsizing employees in the name of shareholder interest (fiduciary duty first, the American economy second) we will continue to see a hardening of spending habits and a long term pullback on consumer spending which will exacerbate the downward pressure on the economy.
Cut taxes on the middle class, to stimulate the free flow of capital, wait for consumer deleveraging to complete and quit firing Americans and moving jobs overseas and this economy will get some legs sooner than later.
Hold ground against special interests in the financial sector and bring some smart regulation back to the Wild West that Wall Street became. Unfettered capitalism is as dangerous as Communism or Facism. To assume otherwise means a repeat of the meltdown we're still experiencing.
BTW- No, the recession is not over. Yet.
However, The Imbalance Is Growing For Those Without The Luxury.
The "Leaders" have gone "All In" around the globe and have no choice but to "Protect At ALL COSTS" the systems that support their life style. One Last Hurrah => It Seems To Me. By The Fear Of "Reality" the Statisticians, Politicians, And Money Masters Must Continue The Ruse Or See Devastation.
With The Collusion Of International/Large Corporate Media The True State Is "Made Fuzzy" In The Hope That "Things Will Just Work Out".
Through Mismanagement and Centralization The Wealth Of Future Generations Has Been Squandered while The Roots Of Calamity (Shadow Banking, Off Accounting Book Assets, Mark To Myth, Complexity, Too Big To Fail, and The Purchase Of "Representatives") Has Not Been Addressed Let Alone Discussed In Detail by The "Regulatory/Governmental" Bodies.
No The Recession Is Not Over - Band-Aids To Not Cure Gaping Wounds.
We are going to see a "Do Over" by "Universal Force" or Remedy => which seems more likely with the current "Leadership".
Driving The Ship With Patsies Is Easy In Calm Waters; Does It Feel Like Calm Water To Anyone?
Consider The Constitution A "Beacon" In Dark Times. Anyone Advocating A Return Toward Its Founding Principles Is An Ally.
How Blurry The Picture Has Become.
As good an analysis of recession dating as I have read.
I have done some analysis of the NAR data that shows their data shows sales volumes fro existing homes has turned up, but price change is accelerating to the downside. I have very high R-squared values, so I have some confidence that this is the picture. I will be publishing this in a couple of days with an analysis of the Case-Shiller data coming out Tuesday.
Of course, trend lines fail at turning points, so we need to stay alert.
Again, great discussion on the recession.
On Oct 25 06:22 AM Dave Wrixon wrote:
> How about when the number of New Banks opening exceeds the number
> of Old Banks closing?
A little dead cat blip up on graphs from a sickening drop with so much damage, is an upturn only seen by economists, politicians, MSM and Wall St. Not Main St.
cash flow to GDP implies we are suffering a severe ( overeaction?)
slowdown.....
First, there is a reason it takes the NBER about a year to declare the end to the recession (it will have long been over before they get around to declaring so, just as we were well into the recession before they declared it had officially started in December of 2007).
Second, when they do declare it over, that decision will be based upon a number of quantifiable economic stats, not on the opinions and stories of those who continue to suffer.
Third, those of us who are suffering in various ways should be hoping the recent string of positive indicators continue and that the recession really ended in July or August. (If you were running a business, you would be/should be reluctant to invest in equipment or adding employees until the economy has turned upward). Instead you are passing around a wet hanky and complaining "woe is me, it's so bad...and it ain't gonna end until my circumstances are at least what they were before the recession".
Fourth: For you whiners who are complaining about corporate decisions made to benefit stockholders (rather than keep surplus employees on the payroll which is than a threat to the jobs of everyone), you should be reminded that you loved it on the upside as you probably had a lifestyle than exceeded your education and skills in a world market. You seem to need to be reminded that a feature of capitalism is 'creative destruction', whereby unnecessary companies and jobs are eliminated and new companies and jobs are created. The sun will soon shine again, and you will probably enjoy it again. It ain't a perfect system, but it is still better than anything else out there.
So be careful of what you wish for...and BTW, employment and home prices are lagging indicators.
p.s. Of course I don't expect any thumbs-up, but nonetheless, someone had to offer a bit of reality to this rediculous pity-party.
On Oct 26 08:25 AM MikeD71 wrote:
> Take out the trillion dollars of Monopoly money in play, what do
> you have? An absolute nightmare. Fundamentals are terrible, and at
> the same time, there are way too many people that will have nothing
> to do with the reality of the situation. Housing will continue decline,
> unemployment will continue to rise, credit will continue to be very
> tight. Even if numbers "look good" for Q3 and Q4...they only LOOK
> that way, and are artificial. As this recession goes, we can not
> judge by past recessions. This is unique, and we are probably only
> in the middle.
On Oct 26 09:08 AM bbro wrote:
> How can unemployment continue to decline if the personal consumption
> are at worst flat????? Do some NIPA homework....
I believe suspicion is in order as unprecedented steps have been taken in bailouts and "stimulus" that appears all about political clout regardless of the cost to the rest of us. MSM seems an arm of Washington which seems an arm of Wall St. if one follows the money. Hence, I don't want them feeling any more comfortable.
The steps to get small business (real job growth and innovation) restarted would be helped by clarity and market signals rather than the politicized crony decisionmaking that runs rampant. Loans by the banks who have received taxpayer $trillions would be a plus.
Some of us believe we have been on the wrong track, and building up government and a consumer indebtedness economy, then throwing good borrowed money after bad to prop up the failing entities is simply, error. With politicization rampant, one could expect premature reports of green shoots to justify the misplaced largess.
Employees have been laid off, justifiably, you argue. Fine, but there has been a breakdown in the system of wildly excessive management compensation in public corporations that has been rather impervious to market signals. A system that needs improvement.
There is plenty wrong and plenty of reason for suspicion. Better and more open policies would make me a lot more comfortable with the prospects of a real turnaround.
The next Black Monday: November 2, 2009?
GDP is meaningless, because it's 150% government spending, with NOTHING else going on. Demand has been pulled forward about a year's worth on both auto purchases and home sales due to Cash for Clunkers and First time Homebuyers Credit. I wonder if the govt will revise home sales DOWNWARD when they root out the fraudulent home sales attempting to grab the credit.
What's hilarious is to hear them FINALLY report on CNBC that the "side money" AIN'T coming in. FINALLY!!!! Main Street knew this MONTHS ago. My neighbors have been cashing in their investments, even with penalties, to stay in their homes. Net outflow, and a reallocation of what's left AWAY from equities into corporate bonds and money markets!
So who's foolin' the numerous companies who beat TOP LINE estimates and actually grew revenues? All your 'study' does is look at LAGGING indicators.
This recession is deep, aggravated by silly redistributionist policies, and exaggerated by mark-to-market accounting. If a true recovery began in August 2009, you won't see employment figures improve till next spring.
Not here, but in Asia and Mexico. Microsoft imported more new Indian grads, fired thousands of Americans, then hired that number in Asia. Yet somehow you truly believe that this is good for the USA, or long-term for MicroSoft for that matter.
What Utopian crap.
Yep, recession IS over for those still sitting on cash & assets.
We will see how the blue skys look at this time next year
On Oct 26 07:55 AM richjoy403 wrote:
> Clearly the way to get a bunch of 'thumbs up' here is to throw up
> a personal story and complain that the recession is not over. (We
> all get it, it's painful and you would rather that everyone else
> join in your pain than that they are comfortable enough to do the
> things that contribute to the end the recession.)
>
> First, there is a reason it takes the NBER about a year to declare
> the end to the recession (it will have long been over before they
> get around to declaring so, just as we were well into the recession
> before they declared it had officially started in December of 2007).
>
>
> Second, when they do declare it over, that decision will be based
> upon a number of quantifiable economic stats, not on the opinions
> and stories of those who continue to suffer.
>
> Third, those of us who are suffering in various ways should be hoping
> the recent string of positive indicators continue and that the recession
> really ended in July or August. (If you were running a business,
> you would be/should be reluctant to invest in equipment or adding
> employees until the economy has turned upward). Instead you are
> passing around a wet hanky and complaining "woe is me, it's so bad...and
> it ain't gonna end until my circumstances are at least what they
> were before the recession".
>
> Fourth: For you whiners who are complaining about corporate decisions
> made to benefit stockholders (rather than keep surplus employees
> on the payroll which is than a threat to the jobs of everyone), you
> should be reminded that you loved it on the upside as you probably
> had a lifestyle than exceeded your education and skills in a world
> market. You seem to need to be reminded that a feature of capitalism
> is 'creative destruction', whereby unnecessary companies and jobs
> are eliminated and new companies and jobs are created. The sun will
> soon shine again, and you will probably enjoy it again. It ain't
> a perfect system, but it is still better than anything else out there.
>
>
> So be careful of what you wish for...and BTW, employment and home
> prices are lagging indicators.
>
> p.s. Of course I don't expect any thumbs-up, but nonetheless, someone
> had to offer a bit of reality to this rediculous pity-party.
On Oct 25 05:42 PM Jan Baker wrote:
> I was getting a kick out of the comments until I got to Midwest and
> his observation that 'the recession would be over when consumers
> got their confidence back,' and it makes me so goldarn mad I have
> to sputter something. I'm so tired of that line that it's all caused
> by us. We are not spending our money because we DON'T HAVE ANY MONEY.
On Oct 25 06:22 AM Dave Wrixon wrote:
> How about when the number of New Banks opening exceeds the number
> of Old Banks closing?
I see a lot of negative things too. The commercial mortgage market is in deep trouble. This will cause a lot of banks huge problems. The residential mortgage market is still in trouble. It may get much worse in the next year if the government doesn't take action. There are predictions for more than 1000 banks to fail in the next 2 years. There is Meredith Whitney's prediction for a 25% further decline in real estate values. This would be catastrophic to the US economy and the US banking industry.
To counter this, there is talk about extending the first time home buyer tax credit. However, I am not sure that is enough. We need to overestimate the power of the residential mortgage market to damage the economy, not underestimate it as we have for the last two years. One suggestion is to double the home buyer tax credit. Plus it should be opened to anyone. This will do more to help people get out of homes when they need to without huge losses to themselves and the banks. This kind of action has worked wonders for the Australian economy, why not use it in the US. The lost tax revenues will be more than made up for by the increased profits from the banks and other businesses, which do not fail due to a further mortgage crisis. The little guy will be helped. The big guy will be helped. The government will likely come out ahead. Why not do it? The government can always end it when home prices start inflating too much.
Due to this rot, all eras and countries have their peaks, i.e., Egypt, Greece, Rome, Europe.....first Spain, then France( after 1812) and Britain (after WW1), and now America in 2009. Also, the world art bell-shaped growth curve peaked at the inception of the industrial revolution, with the start of factory production, in the year 1800 and slowly tailed off, and as a result will never again be anywhere near that level. Our progressive modern ways killed it.
It happens in all human life and eras, no use fighting it or denying it. Learn to live with it and within it as best you can. It is here to stay.
Fact is, recessions are regional and relative. A recession can be severe in one place (like Michigan where it's more like a depression) while at the same time very mild in other places. Some cites in the US have seen "campgrounds" of newly homeless spring up (e.g. Sacramento, CA), while other cities seem to be doing quite well in spite of higher unemployment (e.g. Raleigh, NC).
I went the a large regional shopping mall one weekday recently (near Raleigh), and it was hard to find a parking place. I thought "what recession?" Although no one seemed to be buying the high end stuff yet, they were snapping up lots of stuff marked down by 50% to 75%. Truth is prices have gone down (a lot), and I think the stores are still feeling the recession more than some of the consumers. Many stores are just trying to do whatever they can to keep their doors open, and owners would ask: The recession has ended?
Before this "journey" is over I am sure we will experience all the "flations" - probably starting with DE and ending in IN.
Two years ago I lost both my legs. It taught me one incredible lesson. Where you are today is exactly where you are meant to be and the only thing that really matters is how you face today. If you spend energy focused on the past with "what ifs, what could haves, if only I had or had not" you inevitably end up confused and lost. Rather if you accept today's reality and accept where you are is EXACTLY where you should be, you can focus on today and the decisions that will positively impact on tomorrow.
I believe positively in the future and would strongly suggest that today's challenges (DE, IN, HYPER or STAG) will eventually resolve themselves and herald a new beginning for our Global Village and as importantly our Individual lives. Hopefully these "tougher times" will force us to collective step back and re-evaluate what is really important - family unity, personal integrity, proportionate reward for effort etc. I hope that Teachers and Doctors once again become Community role models rather than Derivative Traders and Drug Dealers who add no value to anyone other than their Bank balances.
Please forgive my indulgence in writing this reply but I think all of us need to be grateful for what we have, recognise how fortunate we are, accept the reality of the world today and accept our role in making it a better place to be - today and tomorrow!
The new recession begins.
On Oct 25 10:07 AM The Geoffster wrote:
> This recession will be over when I say it's over.
> - Larry Summers
> This recession is over.
> -Larry Summers
On Oct 26 07:55 AM richjoy403 wrote:
> Clearly the way to get a bunch of 'thumbs up' here is to throw up
> a personal story and complain that the recession is not over. (We
> all get it, it's painful and you would rather that everyone else
> join in your pain than that they are comfortable enough to do the
> things that contribute to the end the recession.)
I share all your suspicions (and would make even stronger comments on exec compensation), but I MUST INVEST IN THE MARKET I HAVE, NOT THE ONE I WANT.
TereaseE: Yes, some companies have moved production to lower-cost countries (just as they once moved to our own southern states). A few years ago, some were moving call centers to India. (You may have noticed that some are moving them back.) Have you noticed how many foreign companies have established manufacturing operations in the USA?..Their employment FAR exceeds the jobs moved out, so why don't you complain of those new jobs?
It's a world economy, either adjust or don't; but if you don't, you are going to be increasingly unhappy, and will be posting similar notes a long, long time.
The point is our economy is cyclical, and has always been so. We periodically have a recession, and have always had 'downturns' about every 4 or 5 years (and we need them, or inflation would be rampant). The difference today is that this recession was not caused by an overheated economy...it was caused by unusual (and complex and preventable) financial stupidity.
It has been tough on a lot of people, but it is passing. We are growing again (GDP will be up in the just concluded 3rd qtr by 3% or more).
It won't (and shouldn't) go straight up. There will be bad housing and employment data for awhile. Data must get less bad before it is good, to suggest otherwise denies reality.