So far, France and Germany have had a single quarter of positive GDP.

This leads some ignorant pundits — those who never bother looking at the actual data — to declare the recession is over.

Sorry to be the bearer of bad news but that may not be true. The reality is that recessions can have positive GDP within them.

Indeed, just the most recent “normal” recession — *2001 — looked like this:

2000q4 +2.4
2001q1 -1.3
2001q2 +2.6
2001q3 -1.1
2001q4 +1.4

GDP percent change based on chained 2005 dollars (BEA)

Hence, the informed observer must acknowledge that we will not know if the recession in the US is over merely when we get the first quarter of positive GDP data.

Anyone know how France or Germany date their recessions . . . ?

>

*Note that the NBER dating committee describes the 2001 recession as running from March to November.

Previously:
Recessions Often Begin With Positive GDP Data (May 2008)

http://www.ritholtz.com/blog/2008/05/recessions-often-begin-with-positive-gdp-data/

A Positive GDP Recession? (July 28th, 2008)

http://www.ritholtz.com/blog/2008/07/a-positive-gdp-recession/

Sources::
Recession 2001: Business Cycle Dating Committee
National Bureau of Economic Research
NBER, November 26, 2001

http://www.nber.org/cycles/november2001/

Bureau of Economic Analysis
GDP

http://www.bea.gov/national/index.htm#gdp

Category: Data Analysis, Economy

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

55 Responses to “Positive GDP Can Occur Mid-Recession”

  1. call me ahab says:

    BR-

    I always thought a recession was by definition- negative GDP- so once GDP is positive does that not mean no recession?

  2. dead hobo says:

    I just realized something.

    The Fed is proud of it’s program to inject $300b into the markets to provide financial stability. The program will run a total of about a year and will conclude late this year.

    The stock market is up significantly due substantially to that injection. GS is making gigantic trading profits and gigantic bonus payments as a result of the injection.. By the end of the program, GS might earn $30b or more in trading profits as a result of the injection.

    Thus, it is reasonable to assume at least 10% of the Fed injection went directly to GS, with 5% of the TOTAL injection being paid out directly to GS employees as compensation.

  3. handelsblatt says:

    Well, I think in germany, the recession might really be over because recently, the industrial incoming orders have also been a very positive surprise, exports (especially into the euro zone) bounce back.
    But you have to remember that germanies export-oriented economy (e.g. CEE is (or was) an import trading partner) fell off a cliff during the first quarter. The 3,5% drop in the first quarter isn’t an annualised number, the 2,4% drop in the last quarter of 2008 neither. That are absolutely disastrous numbers for a country that usually only grew 1-2,5% per year.

  4. ben22 says:

    ahab,

    that’s not correct, see the bottom of the page for explanation, table is also good for review:

    http://www.nber.org/cycles.html

  5. ben22 says:

    handelsblatt,

    if i’m not mistaken I believe Germany does a lot of business with China, it is possible that the massive expansion of credit recently in China may have something to do with the positive GDP print coming out for Germany.

  6. call me ahab says:

    b22-

    thanks for the tip-

    “a recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. ”

    broader definition- makes sense

  7. johnjdc says:

    To the best of my knowledge most European countries, in so far as they technically define a recession at all, follow the United Kingdom definition – two consecutive quarters of falling GDP. Therefore a single quarter of growth does end the technical recession.

  8. PrahaPartizan says:

    Bloomberg radio is just reporting the most recent month’s retail sales numbers and they stink. Even with the “cash for clunkers” numbers included, the retail sales slumped 0.1%. Taking out the special sales fizz, the retail sales numbers appear to be down over 3 percent. I guess the stock market numbers will need to be up sharply to compensate for Main Street’s collapse if the 3Q2009 GDP numbers are supposed to go positive.

  9. handelsblatt says:

    I don’t think that the GDP-growth of germany has anything to do with chinas stimulus. 65% of germanies exports go into the euro zone, and those exports come back because they have fallen to an unsustainable level. Maybe it also has something to do with our 5 billion € “cash for clunkers”-program.
    But I think it’s also the diminishing Lehman-aftershock. During the first quarter, export business froze because you could hardly get any export insurances (that’s essential for SMEs who export). Now, the freefall has stopped, Austria isn’t bankrupt, neither is Italy, Greece or Ireland and we slowly move on.

  10. manhattanguy says:

    Retail numbers bad despite cash for clunkers program
    First time claims continue to raise
    Foreclosures rise 7% in July from June

    Yet Futures are way up. Love to watch the circus called Stock Market every day.

  11. jc says:

    We were 13 months into the recession before the Fed admitted it was a recession (16 mos is the post war record length) and now they say they can see the end in sight??? Their predictions seem skewed!

    Hard to believe the Fed will stop their money pumping machine in Oct with US funding needs for galloping deficits

  12. Bruce in Tn says:

    Germany also passed a balanced budget amendment to their constitution this year…perhaps German businessmen have a little more confidence in the government not to get in the way….

  13. Paul S says:

    To BR: Are you positive about this? (pun intended)

  14. manhattanguy says:

    @jc
    Denial ain’t just a river in Egypt

  15. leftback says:

    @jc: No more pumping until we watch: DELEVERAGING II: THE SEQUEL. Don’t pee your pants in Red October.

  16. leftback says:

    I wonder how many quarters of positive GDP Japan printed during the Lost Decade/s ? Gimme a break.

  17. batmando says:

    @ call me ahab at 7:51 am
    Google on “NBER recession definition”
    first hit > http://www.nber.org/cycles.html
    @ bottom of page
    “The NBER does not define a recession in terms of two consecutive quarters of decline in real GDP. Rather, a recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. For more information, see the latest announcement from the NBER’s Business Cycle Dating Committee, dated 12/01/08.

  18. batmando says:

    soryy ahab, i missed ben22′s post for the same URL

  19. Bruce in Tn says:

    http://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt_histo5.htm

    Here is more my thoughts on why this still won’t end well…I referenced this yesterday but

    09/30/2000 5,674,178,209,886.86 this was the national debt in 2000. Now the debt service on this at, say, 4% (you pick the number) is 220 billion dollars a year…fast forward to 09/30/2010 ten years later…the national debt will be somewhere in the vicinity of 15 trillion dollars…..debt service on this at 4% is 600 billion dollars/year. 275% increase in just the cost of debt service in one decade. Now GDP didn’t go up that fast. Wages, except for Leftback, didn’t go up that fast. 27.5 % a year increase in debt service.

    It won’t end well, and we’ve merely seen the start. The consumer has really not started deleveraging, and the government is releveraging debt as hard as they can.

    ….No, I don’t think the economic malaise is over…

  20. Bruce in Tn says:

    For those of you with tin hats…maybe me too…Greenspan MAY have realized that the US government couldn’t service this kind of massive debt, and maybe that was one of the reasons he kept pushing rates down…to enable the government to service the massively increasing massive debt load…

    …just a thought..

  21. dead hobo says:

    PrahaPartizan Says:
    August 13th, 2009 at 8:37 am

    Bloomberg radio is just reporting the most recent month’s retail sales numbers and they stink.

    reply:
    ——–
    I usually go out on the weekend and informally survey the retail landscape. Analysts quoted in the media are consistently wrong about most things so I like to see for myself when it comes to areas of finance I understand and have easy access to. Retail certainly falls into that category.

    What I see are stores without customers. Parking lots without parked cars. Thin inventory levels with shelves made to look full by clever positioning of merchandise and racks spread far apart to hide the fact that many have been removed.

    I also see far fewer sales and those that arise are not that good. Thus, there is no incentive to buy even if you are shopping.

    This bodes for a continuing retail implosion. Not a fabled or mythological recovery.

    There is little hope of a fast or certain recovery in the economy soon. As many are fond of repeating, the consumer is 70% of the economy and the consumer is not spending on anything other than what is necessary. Recreational purchases have downsized in scope, retailer, and amount spent. Retail inventories are thin and looking thinner each month. There is no restocking cycle obvious at this time .., it is starting to look like current economic mythology.

    As I repeat ad nauseum, with oil prices out of control and rising with regularity, this theft will continue to sop up anything that might look a little like a retail recovery. We have out incompetent regulators to thank for that. You really can’t blame the foxes for eating the chickens if the farmer invites them in.

    Outstanding debt and fear of losing your job will reduce spending significantly. Foreclosures don’t appear to be going away. How do rising foreclosures benefit retail sales?

    Cash for clunkers was apparently a total failure.

  22. emmanuel117 says:

    And we are in the red, down from a potential 100+ gain on the Dow.

  23. call me ahab says:

    batmando-

    all good- thanks for the info anyway- I need all the assistance i can get

  24. call me ahab says:

    emmanuel-

    so much for futures- eh?

  25. dead hobo says:

    Bruce in Tn Says:
    August 13th, 2009 at 9:48 am

    For those of you with tin hats…maybe me too…Greenspan MAY have realized that the US government couldn’t service this kind of massive debt, and maybe that was one of the reasons he kept pushing rates down…to enable the government to service the massively increasing massive debt load…

    reply:
    ———
    Zerohedge noted that Uncle Stupid is thinking about forcing interest only NON MATURING debt (perpetuities) down the bank’s throats, with the possibility of allowing them to consider them as capital. This means we are plannig to go the deadbeat route. The debt will be refinanced with perpetuities and never be repaid. Banks will be robbed by Uncle Stupid to finance the national debt.

  26. manhattanguy says:

    Major reversal folks. Marking coming to reality.

  27. batmando says:

    For a more detailed NBER explication that includes that paragraph, see http://www.nber.org/cycles/dec2008.html
    especially the FAQ, e.g.,
    Q: Why doesn’t the committee accept the two-quarter definition?
    A: The committee’s procedure for identifying turning points differs from the two-quarter rule in a number of ways. First, we do not identify economic activity solely with real GDP, but use a range of indicators. Second, we place considerable emphasis on monthly indicators in arriving at a monthly chronology. Third, we consider the depth of the decline in economic activity. Recall that our definition includes the phrase, “a significant decline in activity.” Fourth, in examining the behavior of domestic production, we consider not only the conventional product-side GDP estimates, but also the conceptually equivalent income-side GDI estimates. The differences between these two sets of estimates were particularly evident in 2007 and 2008.

    Q: Isn’t a recession a period of diminished economic activity?
    A: It’s more accurate to say that a recession—the way we use the word—is a period of diminishing activity rather than diminished activity. We identify a month when the economy reached a peak of activity and a later month when the economy reached a trough. The time in between is a recession, a period when economic activity is contracting. The following period is an expansion.

    The nuance is beyond most of the TV a$$hats

  28. emmanuel117 says:

    Who here called the bad retail numbers?

    Mucho props.

  29. leftback says:

    Not sure who called the bad retail numbers, but we did have a debate yesterday on how to play it. :-)
    LB has seen a lot of Zombie Shoppers (in stores with no bags), even on Madison Avenue and in Knightsbridge.

  30. batmando says:

    In re declining retail purchasing power…
    our company’s med ins premium just went up by 38%
    my payroll deduction toward the increase went up by 64%.
    Bottom line, my retail purchasing power just declined by the equivalent of one week’s pay.

  31. leftback says:

    “The nuance is beyond most of the TV a$$hats”

    “We don’t do nuance at CNBC” – Dennis Kneale.

  32. Onlooker from Troy says:

    Bruce

    It is all about the debt. We’ve been denying it for two decades, but it will eat us up, regardless of the cover that politicians get from the faux-Keynesians to spend their brains out with no regard for the future.

    If we wanted the luxury of counter cyclical spending during a downturn, we should have tightened the books during good times and faced the reality of the global economy instead just pulling out the plastic to mask the effects. Even Keynes would have said so, and would be appalled at what we’ve wrought, IMO.

  33. Bruce N Tennessee says:

    Redbook has been calling the bad retail numbers for weeks…comes out every Tuesday…

  34. beaufou says:

    In France
    Recession starts when GDP shows two negative quarters and ends when GDP returns to positive.
    So, I don’t know if you can clearly date anything.
    The positive results are due mostly to the car industry with a cash for clunkers program.
    So recession is over but GDP will probably return in the negatives next quarter.

    Not unlike here, and I’m thinking about onlooker’s comment about CFC, numbers are up, but so is the debt, contradictory policies.

  35. dead hobo says:

    emmanuel117 Says:
    August 13th, 2009 at 10:08 am

    Who here called the bad retail numbers?

    Mucho props.

    reply:
    ———-
    I’ve been describing my retail trips for several months and have consistently described a failing part of the economy. My observations and predictions have been 100% spot on. I think my most current ones have substance. Things are not looking up. The pattern is now consistent enough to project across the entire economy and predict the recovery … ‘L’ shaped after it stops falling.

  36. Bruce N Tennessee says:

    Onlooker:

    I quite agree with that thinking. Grasshopper and ants.

  37. rootless_cosmopolitan says:

    @Barry:

    “Anyone know how France or Germany date their recessions . . . ?”

    I don’t know about France. In Germany, there is a Council of Economic Expert [1] (who didn’t see the global recession coming either). This council defines a recession as existing when the relative output gap declines by at least two-third and the output gap is negative.[2] Thus, just because the GDP increased a little bit in Q2 2009, it doesn’t necessarily means the recession is officially over. In the public discussion and media, same as in US, recession is often simply defined as negative GDP-change for at least two quarters in a row, though. You can see this in today’s comments to the data in German newspapers, in which the recent numbers are generally celebrated.

    @Handelsblatt:

    “exports (especially into the euro zone) bounce back.”

    Actually, according to Statistisches Bundesamt the increase in GDP is partly due to following:

    “As price-adjusted imports declined far more sharply than exports, the balance of exports and imports also had a positive effect on GDP growth.”[3]

    I read here that Germany’s exports have still declined in Q2 2009, only that imports declined sharply more.

    [1] http://www.sachverstaendigenrat-wirtschaft.de/en/index.php
    [2] http://www.sachverstaendigenrat-wirtschaft.de/download/gutachten/ga08_i_en.pdf , pg. 12
    [3] http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/press/pr/2009/08/PE09__298__811,templateId=renderPrint.psml

    rc

  38. ben22 says:

    Re: CFC,

    I heard a car dealer owner today that was freaking out b/c he was selling cars but had yet to recieve any money from the govt. Anyone else hearing this.

    Also, did people see this:

    love the BAC purchase, JP has giant balls.

    http://www.gurufocus.com/news.php?id=65588

  39. TraderMark says:

    Much of the benefit in Germany was cash for clunkers on steroids and then a drop of imports

    IN GDP figures your net trade numbers improve when exports fall, but imports fall more. Falling imports = weak consumers. Green shoots.

    Further there is some crazy seasonality in Germany – GDP would be down 6% if not for some adjustment for working days.

    http://www.fundmymutualfund.com/2009/08/germany-and-france-return-to-positive.html

  40. Onlooker from Troy says:

    ben

    Another thing I heard re: CFC (on Bloomberg radio podcast) was something to the effect that the manufacturers were worried about the spike in sales (artificially boosted by CFC) causing them to gin up manufacturing and build inventory again with no follow through on sales increases (partly due to pulling future demand). That would just cause a whiplash effect on the industry and they’d have to pull back again, laying off employees and idling factories to adjust inventory build again. Kind of like what happened in the last decade with zero percent financing and home equity fueled auto sales that drove sales way up and led the industry to overbuild capacity.

    This is what happens when the govt gets involved in business. Their subsidies just cause false signals in the system and the misallocation of capital and capacity. But we can’t just leave things alone. We have to tinker and spend money we don’t have.

  41. Onlooker from Troy says:

    Everybody needs to go over and read Trader Mark’s stuff. Really good as usual.

  42. franklin420d says:

    @LB where can I get tickets for “: DELEVERAGING II: THE SEQUEL.” and is it possible to have a sneak peek at it so I know better how to protect the little I have?

  43. [...] It is not unusual to see a positive quarter of GDP growth in a recession.  (Big Picture) [...]

  44. ben22 says:

    franklin,

    you already bought your ticket when you helped pay for GM/AIG, etc.

  45. franklin420d says:

    Damn price of addmition is too high, I think I will sit out act II.
    I’ll stay home eating popcorn and watching Die Hard III instead.

  46. leftback says:

    @f420d: You already had a sneak peek at it last autumn. An echo of last year’s crash is one of many fall scenarios.

    IF you think we are going to see the sequel, then what worked last year will work again. Treasury bonds gained in value, all the way from the 2-yr to the 10-yr. Cash is fine, and judicious use of one’s favorite shorting vehicles would allow one to employ added risk/reward plays. This time around IG corporate bonds should be OK but not HY.

    But don’t listen to LB. Ask someone who called the Generational Bottom in March, like Doug Kass, for example…

  47. franklin420d says:

    @LB,
    I have learned a lot over the past couple months, but that is a mear spoonful out of the great alphabet soup bowl of information in front of us.

    As I see it the most improtant thing I learned so fa is; All any of us has are the numbers and letters in our bowl of soup, some have more (Most of you guys) some less (me). In the end all anyone can do is pull out their spoon and try and put together as many words as they can. Some are good at in some not so much.

    You have been finding words and meanings in the soap, longer then I have, there for I want to watch and learn, basically I want a bigger bowl of soap.

    I know you don’t know the whole story as that story is still hidding within your bowl, but I sincerly apprciate you letting me know what words you are reading.

    And with my currently limited resource, I hope to add to my bowl of alphabet soap.

    Thank you for sharing.

  48. napster says:

    @Bruce: you did your percentage increase on the debt servicing costs INCORRECTLY.

    If you start with 220 billion in 2000 and go to 600 billion in 2010, the math is 600-220 divided by 220, or 1.72.

    That is an increase of 172% over a decade, or 17.2% per year. Not 27.5%. You incorrectly divided 600 by 220 and got 2.75. This is called a growth factor. If you subtract one from the growth factor you get the percentage increase, which is 175% not 275%.

    If you start with 100 and go to 200, that is an increase of 100 or 100%, but if you divide 200 by 100 you get 2. You see what I mean.

    The correct figure is 17.5% per year increase in debt serviceing if we assume the projection is linear, not exponential. I’ll assume you know what I mean.

  49. Bruce N Tennessee says:

    Uh, Napster….you are correct. The debt service is only increasing about 18% per year…still nothing to worry about…let’s have a beer!

  50. Bruce N Tennessee says:

    Let us hope we are not moving from linear to exponential…

  51. Bruce N Tennessee says:

    But the debt service from 2010 if 4% is anywhere near correct will still be about 600 billion…closing in on the total amount of the bailout congress passed. This is my main point, and should be cause for alarm, since no one in Washington is making any kind of noise about paying any of the generational albatross down…much less social security or medicare.

    Fiscal restraint has left the building…