Negative Quarters Are Rare, But Minus 3 Is Recession

Jun. 26, 2014 3:10 PM ET23 Comments

By Jeffrey P. Snider

In light of the enlightening of the full-scale of the first quarter's disaster, it seems fitting to calculate the FOMC's growth target with this new information. The current "central tendency" is estimated between 2.1% and 2.3% for calendar year 2014. Given these revised figures, the target for average real GDP of $16.084 trillion, just to get to 2.05%, is inordinately more difficult.

Again, compounding is a huge boost when everything is growing, but the opposite occurred which amounts to an enormous setback beyond simple optics.

Just to reach 2.05% (thus gaining the "benefit" of rounding) means 4.5% growth in every quarter for the remainder of the year. That's a 1983-84 type recovery appearing out of nowhere, with absolutely no sign that is even possible at this moment.

To emphasize that further, to gain the topline of the "central tendency" is to be beyond fantasy.

Let's just say that 5.1% for the remaining nine months is very much out of the question. Given that 2.05% is likely out of the question too, that means more downward revisions to the "central tendency" are coming.

That raises the issue of the idea of "central tendency" in the first place. The FOMC's economists run simulations of various permutations (Bayesian too) of economic factors and come up with a statistical scatter of where the models think the economy will be in the quarters ahead. The greatest cluster of those simulations, or those inside the Bell curve (to oversimplify), are assumed to be the central tendency as the name implies. If your models always assume that monetary policy attains a positive multiplier, then the very incidence of monetary policy stimulus will lead to an upward bias in the central tendency. It really is that simple as to why economists can't seem to get a good grasp on reality (and thus appeal to mother nature to

This article was written by

Alhambra Investments is a Registered Investment Advisory firm based in Miami, FL.

Recommended For You

Comments (23)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.