Tag Archives: recession

It’s Over. Economists are Speechless.

Posted by —

6

I’m a few days late with this, but much of the mainstream media have covered it already.  The recession is over.  Officially.  We are now in recovery officially.  Actually we’ve been in recovery for over a year now, ever since June 2009.  The official pronouncement is here. Of course this has led to much confusion and contention.  Many people, rightly feeling the pain of nearly 10% unemployment, slow sales, foreclosures, weakening incomes, etc. are wondering “In whose universe is the recession over? I’m still hurting!”

What this all points out, though, is confusion over terms.  Or, more precisely, the lack of vocabulary among economists.  First, the whole reason for dating recessions “officially” is so that economic research amongst different economists can go on without endless confusion and arguments about the timing of some historical decline in GDP.  In this case, the practice of “officially dating recessions” might well be a bust.  It’s hard to tell.  But in the larger public discussion, the current confusion of “how can the recession be over if I still don’t have my job back and it still looks grim?” actually reveals two serious flaws in economic theory/terminology.

First is the fact that economists have not defined the term recovery adequately.  Basically, there’s a definition for recession, but not for recovery.  Instead, a recovery is happening anytime a recession isn’t happening.  So, since the period since June 2009 doesn’t really seem to fit the definition of recession (no broad-based decline in aggregate measures of the economy such as output, employment, and production), we are therefore, by default, declared to be recovering.  Except of course that we aren’t really recovering. We’re going nowhere. In aggregate we stopped declining in summer 2009, but we haven’t started really growing in a broad-based way.  We certainly haven’t come anywhere near re-couping what we lost.  And that brings us to the second terminological problem.  Economists and theory are based on the assumption that an economy is either growing significantly or declining significantly.  We have “recovery” for when we’re growing, getting better, and moving upward.  We have “recession” for when things are declining, getting worse, and moving down.  We don’t have a word, indeed we barely have a concept, for an economy that’s parked. Stationary. Going nowhere. That’s why we’re speechless.  The economy has fallen and it can’t get up. But we don’t know how to say that.

BTW:  Want to know the official dates of previous recessions?  Check it out here.

One Quick Thing: GDP Not Good

Posted by —

0

I know I said I’d be on vacation, but thanks to 3G coverage, I can add this item today.  The second revision of 1st qtr GDP 2010 GDP growth rate was announced.  It’s revised down again, and it still looks like it’s mostly all the result of inventory accumulation.  So we have GDP = C + planned Investment + unplanned Inventory accumulation + G + net exports.   And the major reason the overall number is up 2.7% is due to unplanned Inventory accumulation.  We need C and planned Investment to increase — that’s a healthy economy.  But it wasn’t happening in 1st qtr and it looks like things have slipped or slowed since 1st quarter.   So I’m raising my estimate of the chances of a double-dip recession with negative GDP growth in the second half of 2010 to 50% or maybe 60%.

See Calculated Risk:

The Q1 real GDP rate was revised down again (third estimate) to 2.7% from the 2nd estimate of 3.0%.

Consumer spending was weaker in Q1 than originally estimated. PCE growth (personal consumption expenditures) was revised down to 3.0% in Q1 from the previous estimate of 3.5%.

Some more from Reuters: Economy Grew Slower in First Quarter than Expected, Up 2.7%

… business spending, which only rose at a 2.2 percent rate instead of 3.1 percent as reported last month. This was as a spending on structures was revised down to show a slightly bigger decline than reported last month. Growth in software and equipment investment was also lowered to a 11.4 percent rate from 12.7 percent.
…
Another drag on growth came from exports whose growth was eclipsed by a rise in imports, resulting in a trade deficit that subtracted from GDP.

… real final sales to domestic purchasers, considered a better measure of domestic demand, rose at a 1.6 percent rate instead of the 2.0 percent pace reported last month.

The “Change in private inventories” was revised up to a contribution of 1.88% from the previous estimate of 1.65%. So inventory adjustment accounted for over two-thirds of the GDP growth in Q1 – and the inventory adjustment appears over. This is a weak third estimate.

Posted by CalculatedRisk on 6/25/2010 08:32:00 AM

The Great Deprivation: Decapitating Human Capital

Posted by —

0

Good article describing the long-term impacts of our short-term failure to address unemployment and jobs creation:

Everyone keeps calling it the Great Recession, as though they are not too depressed about the prolonged backslide in gross domestic product, which only recently resumed its upward climb.

Backslide may describe what happened to the market economy, but it doesn’t capture what’s happening now in families hit hardest by persistent unemployment.

They are suffering not a temporary setback, but a permanent reduction in their ability to develop their own and their children’s capabilities. Put in terms that economists are fond of, their human capital is being … decapitalized.

…

via The Great Deprivation – Economix Blog – NYTimes.com.

What’s a Recession? (officially)

Posted by —

0

Here’s the definition of recession directly from the referees that make the official call, the National Bureau of Econ Research Bus. Cycle Dating Committee.  Guess what, it’s NOT “2 quarters of declining GDP” as numerous news media types and financial talking heads like to say (it hasn’t been that since 1978, but they never let the facts get in the way of their commentary).

A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators. A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion.

Because a recession is a broad contraction of the economy, not confined to one sector, the committee emphasizes economy-wide measures of economic activity. The committee believes that domestic production and employment are the primary conceptual measures of economic activity.

The committee views the payroll employment measure, which is based on a large survey of employers, as the most reliable comprehensive estimate of employment. This series reached a peak in December 2007 and has declined every month since then.

The committee believes that the two most reliable comprehensive estimates of aggregate domestic production are normally the quarterly estimate of real Gross Domestic Product and the quarterly estimate of real Gross Domestic Income, both produced by the Bureau of Economic Analysis.  In concept, the two should be the same, because sales of products generate income for producers and workers equal to the value of the sales.  However, because the measurement on the product and income sides proceeds somewhat independently, the two actual measures differ by a statistical discrepancy. The product-side estimates fell slightly in 2007Q4, rose slightly in 2008Q1, rose again in 2008Q2, and fell slightly in 2008Q3. The income-side estimates reached their peak in 2007Q3, fell slightly in 2007Q4 and 2008Q1, rose slightly in 2008Q2 to a level below its peak in 2007Q3, and fell again in 2008Q3. Thus, the currently available estimates of quarterly aggregate real domestic production do not speak clearly about the date of a peak in activity.

Other series considered by the committee, including real personal income less transfer payments, real manufacturing and wholesale-retail trade sales, industrial production, and employment estimates based on the household survey all reached peaks between November 2007 and June 2008.

Note that as of now, March 2, 2010, we have conflicting signals about the “end of the recession”.  GDP turned positive in 3Q 2009,  but employment continues to show job losses.  It ain’t over till it’s over, no matter how much Wall St and Washington like to say we’re in recovery.

The Real Unemployment Problem

Posted by —

0

The real reason unemployment is so high is more because new jobs aren’t being created, not that so many are being laid off.  Normally, people are being fired/laid off/quit all the time and new jobs are being filled at the same time.  The ratio of quits (what economists call fired/laid off/ quit) and hires is critical to achieving full employment.  Right now, the problem is too few hires.  John Robertson explains at Macroblog:

At the end of August there were estimated to be fewer than 2.4 million job openings, equal to only 1.8 percent of the total filled and unfilled positions—a new record low. This is an especially significant issue given the large number of people who are looking for work. The ratio of the number of unemployed to the number of job openings was greater than 6 in August. In contrast, that ratio was under 1.5 in 2007 and previously peaked at 2.8 in mid-2003, suggesting that finding a job right now is extremely difficult (see the chart).

Is the Recession Over?

Posted by —

0

Spoke to Jill Reglin’s Writing class about “Is the Recession Over?”.  A copy of the presentation is available at:
Powerpoint File

MP3 audio of the lecture itself

It’s in powerpoint format (ppt).  If you don’t have Microsoft Powerpoint, download OpenOffice from the “Free Software” page link at the top of this page. OpenOffice is free and will open Powerpoint, Word, and Excel documents.

Unemployment and Things that make me go uh-oh.

Posted by —

0

Employment report is out for September 2009. Not good. Granted it’s not the horror show we were seeing early in 2009. The decline of 263,000 in total employment is much better than the 500,000 and 700,000 losses we were seeing earlier this year. But this has been happening a long time now. That’s a lot of accumulated loss. Even if the wound isn’t bleeding profusely, it will still kill you if the bleeding goes on long enough.  Graph below is courtesy of Calculated Risk. It shows how this recession (small depression?) has had the largest % loss of jobs since the Great Depression AND it has the makings of the slowest recovery since then also.

EmploymentJobLossesRecessions

But the headline numbers, 273,000 jobs lost and 9.8% unemployment don’t tell the full story.

  • Total hours worked continues to decline. (see Angry Bear).
  • The U-6 Unemployment rate, which includes some more discouraged workers not counted in the headline rate and also includes workers “marginally attached to the workforce” is now 17.0%.
  • Long-term unemployed (more than 26 weeks) is now 3.5% of the workforce, 5.4 million workers.
  • the labor force declined 571,000 — the only reason that unemployment didn’t exceed 10.0% [last] month–. This means well over half a million people gave up hope of having a job last month.  Of course that’s  a rational response given that so many workers have been unemployed so long without finding replacement jobs.

Overall, this tells us that the stimulus has not been enough or big enough.  Employment has not stabilized.   What’s worse, is the length of time people are being unemployed.  The economy is simply not creating replacement/new jobs.  Not only does this create a serious economic problem (unemployed people don’t spend much money), but it is of course a tremendous human cost.  People, families, and children suffer.  Eventually, extended long-term unemployment for large numbers poses a huge social cost and social risk.

US income gap widens as poor take hit in recession – Yahoo! News

Posted by —

0

Not much else to say:

The recession has hit middle-income and poor families hardest, widening the economic gap between the richest and poorest Americans as rippling job layoffs ravaged household budgets.The wealthiest 10 percent of Americans — those making more than $138,000 each year — earned 11.4 times the roughly $12,000 made by those living near or below the poverty line in 2008, according to newly released census figures. That ratio was an increase from 11.2 in 2007 and the previous high of 11.22 in 2003.Household income declined across all groups, but at sharper percentage levels for middle-income and poor Americans. Median income fell last year from $52,163 to $50,303, wiping out a decade’s worth of gains to hit the lowest level since 1997.

via Yahoo & AP.

There’s No Crowding Out Here.

Posted by —

0

People who worry the most about the recent increases in US government borrowing are generally worried about one of two things: crowding out or inflation.  They fear that either if The Fed doesn’t “print new money” for the govt to borrow, then the government’s demands for borrowing money will drive up interest rates.  This driving up of interest rates would then, in turn, discourage businesses from borrowing/expanding/growing.  I’ll deal with the inflation fear in a different post.  But right now, it appears there’s little prospect of crowding out.  It’s true businesses (and households) aren’t borrowing, but it’s not because of high interest rates.

In the past, when the government became a heavy borrower, there was talk about crowding out private borrowers. But this time, interest rates have remained low and no one seems to be worried about that.

The reason is simple: Rather than crowding out the private sector, Uncle Sam is now standing in for it. Much of the government borrowing went to investments in financial institutions needed to keep them alive. Other hundreds of billions went to a variety of programs aimed at stimulating the private economy, including programs that effectively had the government pick up part of the cost for some home buyers and some auto buyers.

via Off the Charts – A Rich Uncle Picks Up the Borrowing Slack – NYTimes.com.

The definition of depression and recession

Posted by —

0

A “recession” is actually well-defined.  A recession’s start and end are officially (in the US) declared by the National Bureau of Economic Research.   A “depression”, though is more subjective.  Personally I think we are now in a depression, but not one as big as the Great Depression –maybe we should call it the “little Depression” or “the newer depression”.

What is the difference between a recession and a depression?

THE word “depression” is popping up more often than at any time in the past 60 years, but what exactly does it mean? The popular rule of thumb for a recession is two consecutive quarters of falling GDP. America’s National Bureau of Economic Research has officially declared a recession based on a more rigorous analysis of a range of economic indicators. But there is no widely accepted definition of depression. So how severe does this current slump have to get before it warrants the “D” word?

A search on the internet suggests two principal criteria for distinguishing a depression from a recession: a decline in real GDP that exceeds 10%, or one that lasts more than three years. America’s Great Depression qualifies on both counts, with GDP falling by around 30% between 1929 and 1933. Output also fell by 13% during 1937 and 1938. The Great Depression was America’s deepest economic slump (excluding those related to wars), but at 43 months it was not the longest: that dubious honour goes to the one in 1873-79, which lasted 65 months.

via The definition of depression | Diagnosing depression | The Economist.