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Discussion: (49 comments)

  1. morganovich

    for the most part, using this model to see a recession coming looks like using the airbags in your car to see if you are about to hit somehting.

    his own description of how to read the data:

    “Historically, three consecutive months of smoothed probabilities above 80% has been a reliable signal of the start of a new recession”

    seems ridiculous. this has only happened once since 1992. using this metric, you totally missed the 1992 and 2001 recessions.

    this looks like a coincident (at best) indicator, not a predictive one.

    1. morganovich

      obviously, not many saw the q4 contraction coming. this is likely because it was driven mostly by a drop in government spending. however, that was likely the payback for the spike in government spending in q3 which looks to have pulled spending forward.

      q1 is looking like a real jump ball.

      while personal income was strong at up 2.6% in dec, there were some real tailwind there including a big surge in special dividends from companies and bonuses paid early to beat the tax hike. there may be a give back on this in q1 as it was just an income shift as opposed to a sustainable increase.

      add to that the fica hike and you could see DPI growth all but disappear in q1. paying 2% more when income is up 2.6% is going to sting. piger’s model has no way to take this into account until it has already happened.

      consumer confidence collapsed in january (to 58.6 vs 68.7 in dec). i suspect these taxes had quite a bit to do with that. having the fica cuts expire seems to have caught much of the public by surprise.

      government spending may return to a more normalized level, particularly as the sequester got kicked into q2, but i’m not sure that will be enough especially as private business investment was punk in q4 though this was has an offset from residential investment.

      q4 GDP was also buoyed by gdp-d being significantly lower than CPI again (1.3 vs 1.7) and gdp-d declined from q3 while cpi rose.

      PMI and the regional fed survey remain in worrying territory as well.

      it’s not at all clear to me that counting on q1 to be positive is anyhting like a slam dunk unless we get a big surge in either inventories or government spending.

      it’s not a sure thing we will show contraction either, but if we do, that would be 2 q’s in a row, which would be a pretty strong indicator of recession.

      based on his 0.2% risk of recession, dr piger places the likelihood of recession at 1/500. i would happily take 400:1 odds on a recession bet by mid year. somehow, i doubt he would offer them despite my giving the house favorable odds.

  2. The idea that GDP is an indicator of a recession is a bit outdated. What really counts in our economy is unemployment and the national labor participation rate. Unfortunately unemployment remains high and our NLP rate is dropping. Just yesterday we found out total hours of work dropped. The academic world wants to talk GDP, but what counts for citizens is “what do I bring home each week.” If you are not working or working less the GDP is meaningless.

  3. so…. government spending …HELPs the GDP?

    ;-)

    1. Citizen B.

      “HELPSs the GDP?” If GDP=Grand Distribution Policies Yes.

      1. morganovich

        larry-

        that’s a foolish comment.

        gdp is a defined term.

        government spending is a component.

        but gdp is far from a full exemplar of economic activity. if the government paid you to dig holes and fill them in, that would add to gdp, but would that really be useful economic activity?

        further, the components of gdp are not independent.

        hikes in government spending tend to reduce private investment and by a greater amount than the government spending.

        http://www.people.hbs.edu/cmalloy/pdffiles/envaloy.pdf

        further, government spending can only come from either taxes that take away buying power from private actors or from debt, which does the same but on a delayed basis.

        1. Is the GDP rate from govt spending any different than if the govt did not spend it but the private sector did?

          I “get” the part about what is or is not “productive” but for instance is “porn” any less productive than digging a foxhole?

          1. Yes. Porn provides entertainment, i.e., a service, for which people are willing to pay. If you are digging a foxhole, you are engaged in war, a purely destructive pursuit, i.e., NOT a productive activity.

          2. morganovich

            larry-

            yes, government spending is different.

            1. it rarely takes place with any sort of roi consideration.

            2. it can only come from taking money from the private sector. when ford uses capital to build a car, something useful comes from it. when the government spends money, it does so by taking away the money you would use to buy or build a car.

            think about it this way: you could have an economy with all private spending and people under such a system could prosper. you cannot have a system with only government spending. where would it get the money?

            your porn example demonstrates a complete lack of economic understanding. people value porn or movies or Broadway plays. they are entertainment. having entertainment improves your quality of life. economists call this “utility”. utility is what people seek to maximize.

            a hole that was dug and filled in provides no utility.

            porn is just another good or service that some people value and are willing to pay for. it’s no different that paying to see a movie or to have the trees in your yard trimmed.

            such services exist precisely BECAUSE people value them. there is no “dig a hole and fill it in” business because no one values it.

    2. Perversely, it does. On the other hand, GDP leaves out all economic activities in the intermediate stages of production – which is why most people are blissfully unaware that the biggest sector of the US economy is actually manufacturing and erroneously believe that ‘the consumer is 70% of economic activity’ when in reality, the share is perhaps 35%.

      1. re: ” GDP leaves out all economic activities in the intermediate stages of production – which is why most people are blissfully unaware that the biggest sector of the US economy is actually manufacturing and erroneously believe that ‘the consumer is 70% of economic activity’ when in reality, the share is perhaps 35%”

        manufacturing = “making stuff”?

        do you county creating software for cell phones, or GPS units as “manufacturing” or something else?

  4. Thomas Sullivan

    Take-home pay has just been hit with a 2% drop (restoration of full social security tax) plus the tax increases on the rich, and some Obamacare taxes. We already have one quarter of slight retraction in the books. We’re pretty sure to get another quarter of zero real wage growth. That’s a recession, IMHO.

  5. Jon Murphy

    There really is not much to think we are in a recession currently:

    Jobs are steadily being added.

    Wages are rising.

    Disposable Personal Income (income after taxes) is rising.

    Retail Sales (adjusted for inflation) are at record highs and rising.

    The PMI is up to 53.1, signalling expansion in the manufacturing sector.

    New Orders are rising.

    All the leading indicators are rising.

    Europe is stabilizing.

    I’m hard-pressed to find an augment for an imminent recession here. Sure, the tax hikes will have an effect, but 2% is not enough to tip us into recession right away. A lot of what I hear is an argument for a recession coming, but not that we are in one right now.

    1. morganovich

      jon-

      i’m less sanguine about personal income.

      ir was up 2.6% in decemeber. it’s going to drop 2% in January just from fica, the one tax that almost everyone pays. add in some other higher taxes and it will drop a bit more. it also had a one time bump up in december from one time dividends and early bonuses paid to beat the tax hike and that will come out of jan and q1.

      given all that, i can see how income could be flat or down in jan and perhaps q1 as well.

      and that’s just federal. numerous states have upped taxes as well, some by quite a lot. California comes to mind.

      private investment was also down in q4.

      i would not go so far as to say i am sure we are in a recession now, but if personal income drops in q1, gdp is really going to struggle in q1.

      i realize that 2 q’s of successive gdp decline can be called a non recession, but i have my doubts and q2 is looking like it could be a real doozy if the sequester hits.

      1. Jon Murphy

        Yes, DPI was usually high in December due to early dividends, bonus checks, and the like, so I am discounting that. But I am not overly worried about it, either. 2% really isn’t that much. For the average American worker, that will be $1,000 (give or take) for the year, or about $20 a week. Will it add up? Sure, but it’s not going to cause a screeching halt to retail sales.

        As for the sequester, keep in mind that the vast majority of those cuts don’t hit until 2014. So nothing affecting 2013.

        1. morganovich

          jon-

          on what are you basing that 2014 for cuts assumption? my understanding is that the current legislation would cut 2013 spending by $109bn which is roughly 0.6% of gdp. i think these cuts are a good thing but given that we will still be deeply deficit spending, they are going to affect near term gdp.

          i’m also not sure how you get to a 2% point tax hike not being a big deal.

          if DPI reverts back to the 0.5% range, how does a 2 point tax hike not drive it into contraction? i’m not saying the world is going to end or anyhting, but this does seem like a pretty nasty headwind.

          the january number in particular seems like it could be at real risk due to the pull forwards.

    2. There really is not much to think we are in a recession currently“…

      That depends on who you ask jon

      From Fox Business News: Franchises Squeezed Tightly by Health-Care Law
      By Kate Rogers – Published January 10, 2013 – FOX Business

      The U6 employment rate is still pretty dismal jon and has been for a long time…

      From the BLS: Series title: (seas) Total unemployed, plus all marginally attached workers plus total employed part time for economic reasons, as a percent of all civilian labor force plus all marginally attached workers

  6. morganovich

    also note:

    that 2.6% figure for dec is the annulaiztion of one strong month.

    nov was only 1% and the 3 months before it never topped 0.5%.

    a reversion to that level with a 2% tax hike due to fica withheld is going to drop us well into negative income growth.

  7. A recent jobs report was +80,000, when about 125,000 would be break-even for a growing population. Obama reacted to this by including it in his long line of “positive” jobs reports.

    Politicians have defined “recession” as “two quarters of decreasing national production”. This ignores that a growing US population needs about a 3% increase in yearly production to stay even in prosperity. When production grew recently at a 1.5% annual rate, that fell below break-even, but Obama and our government economists say that is growth, not a recession.

    This definition of a recession is quite lenient on the politicians, who should be blamed for bad policy whenever growth falls below population growth.

    This reminds me of the classic scene in Dumb and Dumber in which Jim Carey evaluates the news about his hopes for a relationship. A quite forgiving defition of disappointment.
    Dumb and Dumber ‘There’s a Chance’

    1. re: ” but Obama and our government economists say that is growth, not a recession.”

      are we changing the way it has been traditionally measured?

      if we went back under Bush would it look better or worse?

      Under Clinton or Reagan?

      I’m not arguing against changing it to something more realistic but to do that and then select out one POTUS record seems not quite fair.

      There are quite a few things about an economy that a POTUS has no control over – such as automation and out-sourcing…. but none-the-less if we want to change the way we measure then it should be independent of POTUS or apply to all.

      1. And of course Larry jumps right up to defend his boyfriend from any possible criticism, without even the slightest effort to construct a meaningful comment, even though the comment he’s responding to is pretty lame.

        Nice work, Larry, you’re really pathetic.

        1. OH STFU Ron. Pathetic? really? I’m not defending him but changing the method for measuring AND at the same time applying it ONLY to one POTUS is simply not a fair approach.

          It’s just more same-old, same-old anti-Obama blather…

          The economy took a huge hit – worse than anything since the depression and it includes things like globalization and automation – none of which ANY POTUS can control.

          1. “Pathetic? really? I’m not defending him but…”

            Yeah, we know your schtick, Larry.

            “The economy took a huge hit – worse than anything since the depression and it includes things like globalization and automation – none of which ANY POTUS can control.”

            Which sure sounds like Larry is defending his hero. Globalization and automation have been going on for decades. Obamanomics poison is only 4 years old.

          2. re: ” Which sure sounds like Larry is defending his hero. Globalization and automation have been going on for decades. Obamanomics poison is only 4 years old.”

            Globalization and automation HAVE been going on but in a recovery – employers have choices now and hiring is a longer term commitment that involves benefits and a robot that costs 100K pays for itself in two years … and does not require health care or pensions.

            One of Obama’s biggest problems is that he does not interact with Congress – as a person, on an individual basis. Both the Dems and the GOP complain about that and I think that hurts him when things need to be negotiated. He hides behind Pelosi and Reid instead of meeting and greeting…

            but remember… Clinton was a real back-slapper and they were more than happy to impeach him also!

        2. To Ron H,

          What do you think is “pretty lame” about my comment?

          1. What do you think is “pretty lame” about my comment?

            The following:

            This definition of a recession is quite lenient on the politicians, who should be blamed for bad policy whenever growth falls below population growth.

            If I read that correctly you are suggesting that politicians can affect economic growth in some positive way. In reality government economic policy can only have a negative effect. The best thing politicians can do is…nothing.

            You are correct, though, that Obama claiming 80k jobs as a positive that he can take credit for is pure obfuscation. More of the continual stream of bullshit that streams from his lips, and which Larry sucks up like the purest nectar.

          2. To Ron H,

            I agree with you, that almost all intervention of government reduces economic growth. In that light, politicians should be blamed at least when growth is suppressed below population growth.

            They have to really screw it up to make GDP shrink, considering that they (improperly) add government spending into GDP.

            History says that good govt policy is light regulation and smaller increases in spending. Reducing spending would be even better, but that hasn’t happened since the end of WW2.

          3. Ron,
            “More of the continual stream of bullshit that streams from his lips, and which Larry sucks up like the purest nectar.”

            Thread winner right there.

      2. To Larry G,

        LG: “I’m not arguing against changing it to something more realistic”

        I’m glad you agree that the current definition of recession is unrealistic. Obama is a current example of being judged leniently by the current definition and calling out any amount of growth as success.

        I didn’t exclude other politicians. Past examples are also good.

        Bush was criticized for a stagnant economy when the growth rate increased to “only” 2.7%.

        http://newsbusters.org/blogs/brent-baker/2012/10/30/ny-times-called-bush-s-27-gdp-letdown-obama-s-lower-gdp-steady-improvemBush’s GDP Growth a Letdown
        === ===
        •  Headline over Saturday’s editorial on the third quarter GDP creeping up to 2.0 percent under Democrat Barack Obama: “Slow but Steady Improvement.”
        •  Headline twenty years ago (October 29, 1992) when Republican incumbent George H.W. Bush was in the White House and the third quarter GDP nearly doubled to 2.7 percent: “Gross National Letdown.”
        === ===

        1. @Andrew – newsbusters? nope. do you read the rest of what they write? do you consider them to be an objective source of news?

          1. ” do you read the rest of what they write? do you consider them to be an objective source of news?”

            Says the guy who links to Media Matters.

        2. here’s the original article:

          http://www.nytimes.com/1992/10/29/opinion/gross-national-letdown.html

          do you not mind when organizations like Newsmax and Fox do not supply the link to their excerpts? Do you sometimes suspect that there might be more to the article than just what they excerpted?

          did they compare the recession under Bush to the one under Obama?

          Just for the record. I do not consider FOX and Newsmax to be objective sources of news for the most part based on their past behaviors. And if they both are referencing the NYT for their source I guess they MUST think it IS a good source even as they say it is “left”.

          I don’t accept anything from one source or even more than one source if the two are generally aligned in their politics. When I see the same thing agreed to by both sides, then I accept it as probably real.

          Otherwise, it’s a game of cherry-pick “gotcha”.

          providing links to where they got their sound-bite allows folks to judge for themselves if the excerpt is cherry-picked or not… right?

        3. my bad, they DID provide the link.

          What the NYT was alluding to was a DOUBLING of the GDP in one quarter and they doubted it… and that’s a fair criticism just as there was doubt when some of Obama’s numbers got much better in one month…

          but neither one is really about anything the POTUS can really control – as POTUS alone anyhow.

          1. but neither one is really about anything the POTUS can really control – as POTUS alone anyhow.

            Holy sh*t, Larry, do you even remember what your original complaint was about? You see some criticism of your boyfriend Obama, and just go off in any direction whether or not it is relevant. You should seriously try to get a grip.

            Andrew_M_Garland’s original complaint was about your boyfriend claiming 80K jobs was a good thing when in fact it is a step backwards. The spin that man produces is enough to make anyone dizzy.

            There is nothing about other Presidents or criticism of them that has any relevance in this context. It’s all about Obama and his continuous stream of lies.

          2. can a POTUS affect the economy? Not by himself but he can agree with Congress on spending – which can spend money when the private sector is not – stimulus.

            aside from whether it is bad policy or not – there is no doubt that if the govt hires 10,000 more DOD employees and pays them – that they will increase aggregate demand.

            but the stimulus was limited and is gone so what would you judge the POTUS on – fairly – in terms of producing jobs or reducing unemployment – whether that POTUS be George Bush or Obama?

            that’s all I said originally – that whatever metrics you choose that you use them the same way with all POTUS and not come up with new ones for the current POTUS in part because you don’t like the current POTUS.

            there is no doubt that the unemployment rate is higher because of people who have stopped looking nor no doubt that the rate itself can and does rise when the economy improves a bit and folks who previously gave up come back and get counted.

            but none of this really matters that much anyhow because there are pretty limited options that the POTUS by himself can do to affect these things so blaming Obama OR blaming Bush makes little sense but again – if you DO want to blame – just use the same standard and not a different one for the guy you don’t like.

          3. “but the stimulus was limited and is gone..”

            No it isn’t. It’s largely been baked into the baseline.

            “so what would you judge the POTUS on – fairly – in terms of producing jobs or reducing unemployment – whether that POTUS be George Bush or Obama?”

            Whether the policies are pro-capitalism or pro-crony socialism. There are certainly exogenous happenings, good and bad, that affect how the economy performs. Bush did some good and bad things in the areas where he had influence. Obama does pretty much all bad.

          4. aside from whether it is bad policy or not – there is no doubt that if the govt hires 10,000 more DOD employees and pays them – that they will increase aggregate demand.

            To support that argument you must be able to answer several vexing questions:

            1. If hiring 10k DOD employees is a good thing wouldn’t hiring 100k or a million be even better for increasing aggregate demand? Why or why not?

            2. Since a job created in the public sector is effectively a job NOT created in the private sector, how is aggregate demand increased?

            3. If the only purpose of hiring additional DOD employees is to provide them with money to spend, why not just hand 10k unemployed people the equivalent salary, and not bother with all that needless hiring nonsense? Wouldn’t the stimulus effect be the same?

            4. If hiring 10k additional DOD employees is good for aggregate spending, you need to explain the value added by digging holes and refilling them.

          5. Adding to Ron H,

            Government Style GDP
            01/31/13 – Econlog.Econlib by Garett Jones  [edited]

            === ===
            When the boss hires his worthless unemployed nephew Bill, does that raise GDP?

            We usually consider GDP as total spending, but GDP is also total income. Every dollar spent goes to somebody either as wages or as business profits.  GDP = Wages + Profits .

            When the boss hires Bill, national wages rise by (say) $30,000, but national profits also fall by that amount. Wages reduce profits. GDP is unchanged by merely paying people, in private sector accounting.

                AMG:  This makes sense. GDP measures production, which
                increases only by the amount that Bill produces. Merely paying
                him does not produce anything, at least in rational, private
                accounting.

            But when the government hires Bill, national wages rise by $30K, and then that’s it!  Government doesn’t report profits, so government doesn’t try to measure what Bill produces.

            Government GDP statistics assume that a government worker is worth what he costs, but a private worker is worth what he produces. Worthless government workers boost GDP by government accounting rules. Worthless private workers don’t change GDP results.
            === ===

          6. re: ” Government GDP statistics assume that a government worker is worth what he costs, but a private worker is worth what he produces. Worthless government workers boost GDP by government accounting rules. Worthless private workers don’t change GDP results.”

            question. A govt worker builds a drone. The following years, the work is contracted out to the private sector.

            everything still the same with regard to productivity ?

          7. question. A govt worker builds a drone. The following years, the work is contracted out to the private sector.

            everything still the same with regard to productivity ?

            There is no government drone factory and there are no government workers building drones.

            GDP measures the value (price) of the drone.

            GDP is easy to look up Wiki Boy.

            You haven’t answered my questions. Are you stuck? Ask someone to explain them to you. A teacher maybe.

          8. just pick something the govt has the option of doing in-house or contracting out and give an answer Ron.

            and what was your question again?

          9. just pick something the govt has the option of doing in-house or contracting out and give an answer Ron.

            That was your question, Larry, If you want answers you will need to ask the questions. I have no reason to ask questions I already know the answers to and then answer them. God, are you dense.

            and what was your question again?

            More helplessness and confusion from Larry. But you can’t avoid it that easily.

            Here it is:

            Larry: “aside from whether it is bad policy or not – there is no doubt that if the govt hires 10,000 more DOD employees and pays them – that they will increase aggregate demand.

            Me: “To support that argument you must be able to answer several vexing questions:

            1. If hiring 10k DOD employees is a good thing wouldn’t hiring 100k or a million be even better for increasing aggregate demand? Why or why not?

            2. Since a job created in the public sector is effectively a job NOT created in the private sector, how is aggregate demand increased?

            3. If the only purpose of hiring additional DOD employees is to provide them with money to spend, why not just hand 10k unemployed people the equivalent salary, and not bother with all that needless hiring nonsense? Wouldn’t the stimulus effect be the same?

            4. If hiring 10k additional DOD employees is good for aggregate spending, you need to explain the value added by digging holes and refilling them.

            What are your answers Larry? Will you squirm out of answering them?

            It’s OK to admit you don’t know, but if you are going to make statements on the subject of economics like you did above, you should be prepared to support them.

          10. you answer my contracting out question and I’ll answer yours. Otherwise go fish.

          11. 1. If hiring 10k DOD employees is a good thing wouldn’t hiring 100k or a million be even better for increasing aggregate demand? Why or why not?

            as long as your tax revenues held out!

            2. Since a job created in the public sector is effectively a job NOT created in the private sector, how is aggregate demand increased?

            do those folks not buy milk and eggs and TV and autos?

            3. If the only purpose of hiring additional DOD employees is to provide them with money to spend, why not just hand 10k unemployed people the equivalent salary, and not bother with all that needless hiring nonsense? Wouldn’t the stimulus effect be the same?

            yes if you tended to believe that any/all DOD was superfluousness but then one might point out that you need SOME of DOD -and the trick is how much.

            4. If hiring 10k additional DOD employees is good for aggregate spending, you need to explain the value added by digging holes and refilling them.”

            if the filled holes have dead muslims in them then some would say it was well worth it.

            What are your answers Larry? Will you squirm out of answering them?

            only in your own addled brain when you do not get the answer you want… then you revert to 5yr old.

            “It’s OK to admit you don’t know, but if you are going to make statements on the subject of economics like you did above, you should be prepared to support them.”

            It’s not a question of not knowing. With you it’s ideology no matter what the realities are.

            Having someone pay a soldier digging a hole or a guy filling a pothole or snagging a burglar at your door is better/worse than those same folks buying cigarettes/porn/concert tickets instead with their money- how?

          12. jeez. Not an honest answer in the bunch, but what would anybody expect from dishonest Larry?

            It’s not a question of not knowing. With you it’s ideology no matter what the realities are.

            Those are called principles, Larry. I know you have none of your own and depend on others to tell you what to believe and what’s right and wrong, but most of us have principles.

            The questions were all about economics, something else you aren’t familiar with.

            Having someone pay a soldier digging a hole or a guy filling a pothole or snagging a burglar at your door is better/worse than those same folks buying cigarettes/porn/concert tickets instead with their money- how?

            Hmm. You can’t possibly decide for others what’s important to them. All value is subjective. Your collectivist beliefs are showing, Larry.

  8. Rob Jones

    Well according to this chart, the recession probability was near 0% at the start of the 1990 and 2008 recessions. And only 40% at the start of the 2001 recession. It doesn’t seem like much of a leading indicator to me.

    Also, interesting stuff seems to happen in the bottom 1% of the range, which is almost invisible on the chart.

  9. Even if this were a good indicator of recessions, it doesn’t tell you what’s going to happen next month. For example, around September 2007 the indicator was at zero. Then all of a sudden it started to climb rapidly reaching 100% probability within three or so months. So much for the claim the is no recession in sight.

  10. Using GDP and GDI gives a far more accurate reflection of recession risk than GDP alone. That said, the combined GDP/GDI model points to a better than 50% probability of recession : http://recessionalert.com/estimating-recession-probabilities-using-gdp-gdi/

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