Yes, We’re Definitely in a Recovery, But…

In the jargon of business cycle analysts, economies are in expansion until they hit a peak (that was December 15, 2007) and then in a recession until they hit the trough. The evidence from the four-week moving average of first-time (initial) claims for unemployment insurance, which still shows a peak for the week ended April 4, 2009, points to May 15 as the trough. Other forecasters prefer June, July or even August 15, but in any case the overwhelming majority of forecasters believe we are now past the trough or bottom of the recession.

Business cycles by definition run from peak to peak with only one trough. That makes a “W,” which would have two troughs, impossible.

Some people refer to the recession that lasted from January to July, 1980 and the one from July 1981 to November 1982 as a single “W” experience, but that is just wrong. There were two separate recessions separated by one year of strong growth.

A “recovery” is the part of an expansion that tracks from the trough until all the ground lost in the recession has been made up. In this case, that could take a very long time.

The new data that revised GDP all the way back to 1929 show that real GDP, which is now measured in 2005 dollars, peaked in the second quarter of 2008 at $13,415.3 billion. After four consecutive quarters of decline, a record for the period since the advent of quarterly data in 1947, real GDP stood at $12,892.4 billion in the second quarter of 2009. That’s a plunge of $522.9 billion or 3.9 percent from the peak. That’s the deepest recession since 1937-1938 and thus the worst in the memory of all but the very oldest people in the US.

The overwhelming consensus is that it will take at least until the end of 2010 to make up that decline. Many forecasters expect it will be 2012 or 2013 before we see new economic records being set. Click here to read the full post and comment (Insights subscribers) »

Don’t Bet On Anyone’s Forecast

If you want to be thoroughly befuddled about where the US economy is going, just ask three or more forecasters. Any experienced professional who tells you that he or she is quite positive about the path of the US or global economy over the next two or three years should be looked at with a very jaundiced eye.

In a recent survey of 43 forecasters, only eight of us did not have negative numbers for real GDP this quarter and two of these people had a highly improbable (it’s only happened once in our 237 quarters of history) 0.0 as their prediction. For the thrid quarter, only 11 people had a negative number and only four people expected a negative number for the fourth quarter of 2009.

Over the year ending in March 2010, the range was from a drop of 1.9 percent to an increase of 3.2 percent. That’s my forecast and I’m sticking to it, but you should be aware it’s one of the most optimistic out there.

A similar split showed up in the survey released by the National Association for Business Economics (NABE). There were 45 of us in this panel. The median forecast was for a drop of 1.8 percent this quarter and increases of 0.7 percent and 1.8 percent for the third and fourth quarters respectively. The five lowest forecasts were for -4.2 percent, -1.8 percent and 0.0 percent for those three quarters. The five highest were 2.8 percent, 3.3 percent and 4.0 percent for the same three quarters. That’s a huge split. Click here to read the full post and comment (Insights subscribers) »

The Recession Could Already Be Over

On May 15, Linda posted the Chicago Tribune article quoting me to the effect that the end of the recession was that day. In my conversation with the reporter, I suggested he contact Professor Robert J. Gordon at Northwestern University to check my contention that an accurate advance indicator of the trough (bottom) of every recession from the 1969-1970 one through the 2001 episode was the peak in the four-week moving average of initial claims for unemployment. Prof. Gordon has been a member of the Business Cycle Dating Committee (BCDC) of the National Bureau of Economic Research since its inception in 1978 and is a keen student of business cycles.

Unbeknownst to me at the time, Dr. Gordon had already published on May 1 a paper proving this point exactly. Feel free to read the paper, “Green Shoot or Dead Twig: Can Unemployment Claims Predict the End of the American Recession?” to get all the technical details. Click here to read the full post and comment (Insights subscribers) »

Jim’s in the Trib!

From Linda: Here’s the link for an article that featured Jim’s recession forecast.

Is recession’s end here? Economist sticks with May 15 as bottom of the bust

James F. Smith chose date months ago, but he has changed his tune on speedy recovery
by Greg Burns
Dateline May 15, 2009

Take it to the bank: As of this day, the economic downturn is officially over.  At least according to James F. Smith. When he confidently predicted several months ago that the recession would end as of May 15, Smith was among the most optimistic economists around.

Click here to read the complete article.

Uh Oh, Retail Sales Were Very Disappointing in April

On May 13 the Census Bureau reported that total retail and food services sales were a seasonally adjusted total of $337.7 billion in April. That was a drop of 0.4 percent from March and 10.1 percent below April 2008.

For the first four months of 2009, total retail and food services sales were 10.0 percent below the same period last year. The plunge was led by “auto and other motor vehicle dealers,” who saw sales off a huge 25.0 percent and “furniture and home furnishings stores,” which plummeted 14.3 percent. Of course, the “gasoline stations” category saw sales collapse by 34.6 percent, but that’s mostly good news because gasoline was much cheaper this year than last. Click here to read the full post and comment (Insights subscribers) »

More Good News from Consumers

On April 17 the Reuters/University of Michigan preliminary April index was reported at 61.9 (March 1966=100), up from 57.3 in March.  This was the highest since 70.3 last September.

This is one of many indicators suggesting that the US economy has stopped the “free fall” that began after the collapse of Lehman Brothers on September 15.  This would be great news if it holds.

Also, we got an upbeat report on unemployment claims on April 16.  Click here to read the full post and comment (Insights subscribers) »

Really Good News on Trade and Possibly Even Better News on Unemployment

On April 9 the BEA told us that the trade deficit for February was only $26.0 billion, down from $36.2 billion in January and the smallest shortfall in trade since November 1999. Exports rose in February for the first time since July. This means that net exports will make a positive contribution to real GDP growth for the first quarter. The BEA will give us the first estimates of that on April 29. Click here to read the full post and comment (Insights subscribers) »

In Defense of Chirpy Forecasts

The March 30 edition of Newsweek had an article by Kenneth Rogoff and Carmen Reinhart entitled, “Don’t Buy the Chirpy Forecasts.” He’s a professor at Harvard and a former, well-regarded chief economist for the IMF. She’s a professor at Maryland. They have a forthcoming book, This Time Is Different: Eight Centuries of Financial Folly, which sounds interesting. Related work can be found on Rogoff’s Harvard faculty contact page.

Here’s their main point: “The recessions that follow in the wake of big financial crises tend to last far longer than normal downturns, and to cause considerably more damage. If the United States follows the norm of recent crises, as it has until now, output may take four years to return to its pre-crisis level. Unemployment will continue to rise for three more years, reaching 11-12 percent in 2011.”

As you know, I put a great deal of emphasis on historical precedents. My favorite book on this subject remains Manias, Panics, and Crashes. Reading it should convince you that we’ll only have such a dire outcome if policymakers make mistakes as bad as those their predecessors made after the Panic of 1907 (the Federal Reserve System
wasn’t created until December 1913) or in 1929-1932 (there was no bank deposit insurance, the Fed allowed the money supply to shrink by 1/3, Congress enacted the catastrophic Smoot-Hawley tariff and kept raising taxes as government revenues declined). Click here to read the full post and comment (Insights subscribers) »