The Great Recession is Over! Long Live the Ordinary Recession . . .
There will be some good news and some bad news this morning at 8:30. That’s when GDP will be released.
The Good News will be that we are no longer contracting at the painful rate of 6% annually; Call it the end of the Freefall period we saw from September 2008 to March 2009. The Bad News will be twofold: 1) That the national economy is still contracting; the 2) Why we are contracting — the real world factors — will show the recession marches on.
My best guess — and given the oddities of this data point, we can only accurately call this a guess — is 1.5- 2.0%. If the number comes in negative, it will be the 4th consecutive quarter in a row of contraction.
In an odd twist, with US consumers are weaker than their Asian and European counterparts, it turns out to be a positive for the GDP data. Why? When imports fall faster than exports, it is a net gain for the way GDP is calculated. I know that sounds bizarre, but on a relative basis, less US consumption of imports, is additive to the final GDP number.
What else do we know about economic activity this quarter?
• Unemployment has risen;
• Wages continue to slide;
• Industrial production has fallen every month;
• Deflation continues to stalk many asset classes;
• Credit availability is weak, lending standards are tight;
• Capacity utilization is at a very low rate of 68%;
• Retail sales (other than gasoline price increases) are soft;
What does this mean in terms of the end of the recession? The NBER calls a recession –the way they use the word– as “a period of diminishing activity.” If economic activity is poor, but flat — meaning, a low plateau at the trough — they very well could call the end of the recession.
However, they describe their procedure for identifying ends of recessions by looking at when the contraction ends. That is unlikely to be Q2 of 2009.
As Paul Vigna notes in this morning’s WSJ, “The elements that will drive a recovery — rising wages, consumer demand, production and sales — haven’t appeared.”
Hence, regardless of GDP data, the Recession is likely continuing, albeit in an ordinary, form.
July 31st, 2009 at 8:15 am
What? This down-turn is anything but ordinary! The minipulation that has been going on by both the government and other powers that exist, behind the scenes, totally changed the true course of this depression. NOT FOR THE GOOD OF THE PEOPLE EITHER, BUT FOR THE GOOD OF THE MONIED CLASS!
July 31st, 2009 at 8:34 am
the nomenclature is meaningless to the real economy which continues to see wage pressures, rising taxes/service fees and bleak prospects for gainful employment. employers have been more than happy to fan the flames of phrases like “you’re lucky you have a job”. while wall street is typically ahead of the real economy i strongly feel we’re looking at a head fake sometime in the next 6-12 months. the market is too heady right now and you can only cost cut your way to meeting vastly lower analyst estimates for so long. at some point the worm is going to turn and i foresee it being precipitated not by the usual factors but some exogenous event
July 31st, 2009 at 8:38 am
From Reuters:
“U.S. GDP contracts a less-than-expected 1 percent; stock futures extends gains”
More 2nd derivative good news.
July 31st, 2009 at 8:49 am
“The Great Recession is Over! Long Live the Ordinary Recession ”
Great Recession: our friends the bankers are hurting.
Ordinary Recession: no big deal, it only affects all the rest of us.
July 31st, 2009 at 8:53 am
Bullets one through six apply to the small company for which I work.
1. 2/3 of the staff have been laid off in the last year.
2. I’m working 1/3 less hours for 1/3 less pay.
3. Our sales have fallen dramatically.
4. We lowering prices in attempt to win contracts.
5. Banks won’t lend to us. (We build equipment for the automotive industry.) Either we get progressive upfront payments from our customer or we have to walk away from the order, which we have done.
6. We have lots of empty floorspace and idle equipment.
July 31st, 2009 at 9:27 am
Vigna, WSJ, ““The elements that will drive a recovery — rising wages, consumer demand, production and sales — haven’t appeared.”
This is PRECISELY my problem with the stock market’s current over-the-top enthusiasm. I simply can’t see what economic force–technology, consumer expenditures, capital investment, etc.–is going to lead us out of this economic hole we’ve dug for ourselves. Sure, the banks are better than they were, but (a) they were nearly dead 6-9 months ago, and (b) they do little for the economy unless there is demand for their services (otherwise, they’re just trading on their own account).
Does anyone have a thought on what elements will help us move back toward sustained (even sustainable) growth??
July 31st, 2009 at 9:33 am
I’d seriously like to get behind the GDP numbers. . As an ex-airline pilot, if I look at what you wrote and I look at GDP like instruments on a cockpit I’d have to question the integrity of the GDP gauge.
I blog for Chris Martenson, his Fuzzy Numbers video http://www.chrismartenson.com/crashcourse/chapter-16-fuzzy-numbers demonstrated to me how GDP was off by about 40%.
That is a huge number. Own a home? Yes, then the government adds your rent payment to GDP – even though you don’t pay rent.
I think once the bloggers at large get behind the numbers they used to create GDP we are going to see number more in-line with the 7 other gauges.
Take care!
July 31st, 2009 at 9:38 am
Agree that, given the relativistc aspect of calling an end to a recession (if a level stretch in a trough qualifies) the label is just another layer of obfuscation. Still, recall that a main prong of the Fed’s congressional mandate is to maximize employment. That makes me curious about calling an end to this one. For those who insist that U is a lagging indicator in ALL cases my suggestion is get ready to coin a new term — Recess. Defined as the period between contraction and recovery. So we’ll go into the Great Recess (which has the nice dual meaning of crevice and relaxing break) for a while, during which we can all enjoy our funemployment.
July 31st, 2009 at 9:48 am
FWIW, here’s a primer on the GDP . I’d like to see the actually calculations, though.
davossherman:
I think using some equivalent rent payment is needed if you are using rents at all, since otherwise, you could have the GDP skyrocketing if everyone decides to rent each others’ houses when nothing has actually changed except an exchange of cash. My questions would be with how do they determine the figures to be used, considering that reports are that rents are decreasing, although the decrease is sometimes hidden as “6 months free rent” which I’ve seen on brochures put on windshields at nearby grocery.
Also, it appears that government spending can juice the figures. If the figure is that easily manipulated, does it really mean anything? It would be like changing the temperature reading on a patient’s thermometer w/o the patients temp actually changing and then pronouncing him cured. I know this is an oversimplification and there are probably balancing entries, but what affect does QE have on them?
But, I slept a bit late and haven’t had enough coffee yet to think clearly.
July 31st, 2009 at 10:00 am
@BR: “lending standards are tight”
normal lending standards are now called “tight.” always a good thing to remember
July 31st, 2009 at 10:55 am
News Flash!! 4 consecutive quarters of negative GDP = a depression. BR, be the first to call it what it is.
July 31st, 2009 at 11:33 am
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