NABE Forecasts Recession

From the WSJ:

Credit-market deterioration in the second half of September is enough to push the U.S. economy into recession, forecasters for the National Association for Business Economics [NABE] say in their latest survey.

The 48 economists in the NABE panel say gross domestic product will decline 1.1% this quarter and 0.5% in the first quarter of 2009 if credit conditions don’t improve by year end. The survey was taken last Wednesday and Thursday as a follow-up to a NABE poll of its forecasters in mid-September. In the earlier survey, the panel said GDP would increase 0.1% — essentially flat performance — in the current quarter and a 1.3% increase next year according to the median view of forecasts.

The weak credit markets also mean higher unemployment. The jobless rate would hit 7% by mid-2009 under current conditions, compared to the 6.4% estimated in the initial survey, the panelists said.

For 2009, the NABE follow-up survey last week said the government’s $700 billion rescue plan “would blunt much of the economic decline that might otherwise develop.” Real GDP growth in 2009 would be about 0.75 percentage point lower next year without the government’s plan, and the unemployment rate at the end of next year would be half a percentage point higher.

In addition, stock prices — measured by the S&P 500 — would be 10% lower by the end of this year than they’d be if no plan were in place, the panel said.

Following on the above, here is a graphical look at various economic indicators that seem to indicate a high probability of recession:

In other bloody obvious news, scientists predict falling hitting your thumb with a hammer is likely to cause pain; but seriously I don't think it really matters what the official prediction is because to many households it has felt like a recession for months and they've been modifying their financial habits accordingly. Main Street isn't going to suddenly feel more or less confident if the NABE tells them they are or are not in a recession.

The distinction is purely academic at this point.

In my view, businesses and consumers are dealing with significantly tougher economic times than they did in the last recession, so it doesn't make sense to waste much time worrying about whether or not the recession is "official." Especially when the typical citizen would laugh in your face if you told them "we're not actually in a recession right now," people based their perceptions on their own economic struggles, not the pronouncements of the NABE.

The typical household is primarily concerned about the pain being inflicted upon them by the current economic environment and how to mitigate it; politicians, executives, analysts and economists need to get in touch with reality and start thinking about the "boots on the ground view"  as opposed to the one defined by macroeconomic indicators.

Sources:

The WSJ: "NABE Credit Turmoil Tips U.S. Into Recession" -- Sudeep Reddy, October 6, 2008.

Comments

[Smarty_Pants:]

NABE finally admits reality? It's about time.

shadowstats.com has been indicating a recession since 2005.

See the blue line in the following chart of reported vs. real GDP growth

www.shadowstats.com/ch...

2008 Oct 07 03:53 PM

[Jason Rines...:]

"Especially when the typical citizen would laugh in your face if you told them "we're not actually in a recession right now," people based their perceptions on their own economic struggles, not the pronouncements of the NABE."

Try telling that to my wife who watches the mainstream media and demands to know why we are not spending our cash because we are not 'officially in recession' instead of saving it for next year to buy assets for pennies on the dollar.

It matters to a lot of investors and businesses whom did not spend time conducting there own market research and business intelligence and simply 'trusted' the government in it's reporting of the health of the economy, plunked the money down and got burned.

2008 Oct 07 04:20 PM

[whidbey:]

The trouble is, the data lags reality for most reports. The rate at which this decline has started is what is concerning I suspect the economy is ahead of the data by many percentage points, and events not yet converted into statistics. There is no way to make good policy without assumptions, so we must assume the worst is in track and more to intercept that point in the future. Probably some tax and mortgage holidays are coming in an attempt to leave cash in consumers hands.
It might work, if we go to that quickly enough.

2008 Oct 07 07:52 PM

[jack chambers:]

I will go out on limb and predict a depression by this spring.

2008 Oct 07 08:47 PM