We're Out of Recession, But a Long Way from Recovery

The numbers for the third quarter look nice, or what passes for nice these days. GDP rose smartly, pretty much confirming the general view that the recession is over (more on that below).

The details surprised me a bit, even though the total growth was in the ballpark of my forecast (4.2 percent, compared to 3.5 percent growth actual). Consumer spending was stronger than I had expected, even with Cash for Clunkers. That may not be sustained. However, inventories contracted much more than I had expected. We are definitely going to get an inventory turnaround soon, and that will add quite a bit of strength to the economy.

I'll update my forecast and share it with you.

Now about the end of the recession. We economists define the recession as the period when the economy is going downhill. That period is over. However, we have not recovered all the ground that we lost. Think of it this way: we fell down a 10-foot hole, we hit bottom and took one step upward. We are out of recession, but we're still nine feet down a ten-foot hole.

Comments

[ljsquid:]

I thought the GDP was gross domestic PRODUCT. How can we be producing so much more more with fewer workers? I could see a modest rise as workers put in more hours, but 3% more? Come on. What is the REAL GDP number after the double digit devaluation of the dollar is counted in? Could it be that we are rejoicing over the devaluation of the dollar and reduction of inventory?

Oct 30 04:28 AM

[ljsquid:]

In fact, David Resler, economist, Nomura Global Economics writes: The most important "surprise" was the larger-than expected drop in inventories [down at a $131 billion rate in the quarter]. That implies that businesses are further along in their drive to realign stocks with current demand and suggests they must soon rely more heavily on current period production to satisfy on-going growth in demand. Score that as a positive for the outlook. But other details look less promising. ... State and local governments [where spending fell at a 1.1% pace] seem likely to face tougher cutbacks with no further boost from the fiscal stimulus while defense spending is likely to cool. latimesblogs.latimes.c...

Oct 30 05:01 AM

[Moon Kil Woong:]

Inventory also falls because there is simply less demand and production drops to reflect that. Consumer spending rose but wages droped as well as savings. This is clearly not sustainable. For every positive there is a conterveiling negative.

The title of the article is more accurate than the article. We appear to be a long way from recovery. All else is speculation and wishful thinking. Listen to the economists not the bobbleheads on TV.

Oct 30 06:27 AM

[mrdirt:]

GDP is Gross Domestic Product, upon further analysis it should
stand for GOVERNMENT DEPENDENT PROSPERITY.

Oct 30 08:18 AM

[MikeD71:]

I think we, including/especially the media, should just accept that we are in one hell of a mess. The rapid descent into the abyss appears to have subsided. (for now) But in preventing a full collapse, we have created new and equally dangerous positions. From diluting the dollar to a point where it's future is in question, to banks that are now even bigger than they were before, inflated markets, new bubbles, etc., etc. (subprime mortgages are estimated to be nearly back at pre-collapse levels)
I read a comment yesterday that made a lot of sense. (can't remember name, or I'd mention) IF these GDP numbers are solid, what is the FED waiting for? There is a TON of excess liquidity out there that had better be reeled in asap. (though I appreciate the difficulty in timing such a move. I don't know how Bernanke sleeps) Bottom line, I think we all need to slow down a bit. It's given me chills over the last few months to hear a constant V recovery drumbeat. That, IMO, wouldn't even be healthy. Not after all this damage. We'll be back, but I'd question any TRUE recovery before '11 or '12.

Oct 30 08:53 AM

[bottoms-up:]

"We're Out of Recession, But a Long Way from Recovery"

Dr. Conerly, With all due respect, don't you think that you are putting too much faith in statistics that have been manipulated by the U.S. Government?

There's an old saying that goes, "The first casualty of war is the truth.."

I think that this saying holds true with out current economic situation and the garbage statistics that are being produced by everyone, everywhere -- all with agendas for the upside. The government told us long ago that we would be out of the recession around this time, and the Obama administration said, "Make it so." And so it was.

Yes... And like everything else the government (may) come clean in a few months with their "restatements," or "restatement of restatements," after the hype falls from the radar screens.

Ask the people on the ground about the end of the recession... Maybe it's over for the bankers and the punks at GS, not so for the majority of the world's inhabitants.

Oct 30 10:10 AM

[Mike from NYC:]

Most of the economists have been wrong about so many things it makes my head spin. I don't listen to anyone and just read and make up my own mind about where we are headed. I'm not an economist but I have taken several economic courses in college. I mostly use common sense to guide me. For example, when housing prices were rising far faster than salaries I asked how people could afford them without using chicanery?

I asked during the Dot Com bubble how can the market capitalization of all these new dot com companies be greater than those of companies that actually make a profit and actually own things? The 'eureka moment' hit me in early spring '98 when Amazon was worth more than 2x Barnes & Noble. Sure Amazon did hit pay dirt but how many dot com companies did?

Using common sense, rather than all those fancy graphs and charts made my predictions more accurate. I think economists depend on charts and historicals too much and ignore 'common sense'.

But hey, what the *ell do I know?


On Oct 30 06:27 AM Moon Kil Woong wrote:

> Inventory also falls because there is simply less demand and production
> drops to reflect that. Consumer spending rose but wages droped as
> well as savings. This is clearly not sustainable. For every positive
> there is a conterveiling negative.
>
> The title of the article is more accurate than the article. We appear
> to be a long way from recovery. All else is speculation and wishful
> thinking. Listen to the economists not the bobbleheads on TV.

Oct 30 10:13 AM

[Mike Kane:]

"we fell down a 10-foot hole, we hit bottom and took one step upward. We are out of recession, but we're still nine feet down a ten-foot hole"

good point Dr. Bill, its what we try to tell people all of the time. If your portfolio is down 50%, and then it goes up 50%, you are still down 25%

Oct 30 11:06 AM

[zagrebzagreb:]

Sorry to be an ass, but this interpretation of GDP is absurd without even a cursory glance at the government spending involved:

Cash for Clunkers, first time home buyer credits, etc are attributable to roughly 50% of the increase in GDP... Is this healthy growth? Sustainable?

Savy investors look at ongoing operations, rather than one time events to judge trends... Why is it so difficult for economists to apply the same logic?

Oct 30 02:33 PM