Recession? Different Method, Same Answer

Ed Leamer of UCLA has a very interesting discussion that relates directly to my recent post asserting that we probably weren't in a recession. Here's the abstract of his paper:

Monthly US data on payroll employment, civilian employment, industrial production and the unemployment rate are used to define a simple recession dating algorithm that nearly perfectly reproduces the NBER official peak and trough dates. The only substantial point of disagreement is with respect to the NBER November 1973 peak. The algorithm prefers September 1974. In addition, this algorithm indicates that the data through June 2008 do not yet exceed the recession thresholds, and will do so only if things get much worse.

Paper available here; hat tip to the Freakonomics blog.  I like Leamer's approach, but he too readily dismisses the data series preferred by NBER.  They are not that hard to track down, if you have a bit of experience working with economic data.

Does this matter?  Not really.  If your business is very sensitive to the business cycle (like durable goods manufacturing), it's feeling like a recession.  If your business is not very sensitive to the cycle (like health services), then it does not feel like a recession. 

Comments

[whidbey:]

What difference does it make? I work with economic data as professor and what I see is this a very complex issue not worthy of an answer. So, what is your point?

2008 Aug 16 02:20 PM

[johnthebear:]

Why does it matter what you call it or when? If you are hurting, you know there is a recession that is affecting your life in a real way.

The entire world is slowing down. Markets all over the world have lost $12 trillion dollars in equity that is not won by a group of winners... only losers... not a zero sum game!

Just how do you suppose the banks around the world will re-capitalize sufficiently to go back to making loans needed for future economic expansion? Governments can print lots of cash, called "inflation fuel" but how does that help in the long run?

Looks like we will have to be very patient for a very long time and think about survival, just as our grandparents did in the 1930's.

I think it time to give "Big Oil" big financial incentives to bring "New Production" on line in 24 months, giving them a big tax break. That means drilling off shore, Alaska and in the West. Make a case by case determination with the benefit of the doubt going to the Oil Companies.

Think about it, almost all high tech companies make a higher return on equity than the Oil Companies, they sell at higher PE ratios and the dividends by the oil companies are modest by anyone's standards.

2008 Aug 16 06:00 PM

[User 244491:]

What meaning recesion have? No meaning.
When investors looks into his account and it is bleeding then it is recession,99% of american investors are made to lose money as they only buy stocks,stocks are run insiders who enrich themselves and funds that own their shares for you,fund managers 1% of population don't have single $ in mutual funds they sell.
When markets crash,you are the one to hold the bag.Rich people never lose,as capitalism is made this way.

2008 Aug 16 06:09 PM

[Boubou:]

Opinions on this, as on everything else with an outcome based on the thoughts and actions of poeple, are equal and opposite and cancel out. Listen to no one. If they new ANYTHING WORTHWHILE , you are the LAST person they would tell

A regular person without influence, inside knowledge or an excess of wealth over his needs, should obviously steer clear of gambling on any securities at all. Without exceptional luck you will lose wealth and the industry will gain it.
LISTEN, If I know ANYTHING useful, I would use it and shut up.
Wouldn't you?

2008 Aug 17 11:39 AM

[ksmithdc:]

Are we in a recession? A recession is defined as when the economy stops growing. Has it stopped growing? No. Therefore, we're not in a recession.

2008 Aug 17 02:35 PM

[investor88:]

Technically not in recession but the majority of people are worse off which is a recession. Outlook is not good with the credit crunch and inflation, so careful observation is appropriate going forward. Return of capital [or capital preservation] is more important than return on capital during periods of economic turmoil like the one now roiling global markets.

2008 Aug 18 12:49 AM